1933 Act Registration No. 33-12911
1940 Act Registration No. 811-5075
As filed with the Securities and Exchange Commission on
June 25, 1999.
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 32 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 34 X
THE AAL MUTUAL FUNDS
(Exact name of registrant as specified in charter)
222 WEST COLLEGE AVENUE
APPLETON, WISCONSIN 54919-0007
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, including Area Code: (920) 734-5721
ROBERT G. SAME
Secretary
THE AAL MUTUAL FUNDS
222 WEST COLLEGE AVENUE
APPLETON, WISCONSIN 54919-0007
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offerings: Continuous
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b):
X on July 1, 1999 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on July 1, 1999 pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
THE AAL MUTUAL FUNDS
PROSPECTUS
Class A and B Shares
July 1, 1999
The AAL Small Cap Stock Fund
The AAL Mid Cap Stock Fund
The AAL International Fund
The AAL Capital Growth Fund
The AAL Equity Income Fund
The AAL Balanced Fund
The AAL High Yield Bond Fund
The AAL Municipal Bond Fund
The AAL Bond Fund
The AAL Money Market Fund
As with other mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
RISK/RETURN INFORMATION: INVESTMENT PROGRAMS AND PERFORMANCE
PROSPECTUS SUMMARY
Reading the Prospectus
The Funds
Principal Risks Common to All Funds
Class A Versus Class B Shares
Institutional Shares
THE AAL SMALL CAP STOCK FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL MID CAP STOCK FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL INTERNATIONAL FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL CAPITAL GROWTH FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL EQUITY INCOME FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL BALANCED FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL HIGH YIELD BOND FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL MUNICIPAL BOND FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL BOND FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL MONEY MARKET FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE
Investment Adviser
Adviser Fees per Fund
Portfolio Management
Year 2000
SHAREHOLDER INFORMATION
Pricing Funds' Shares
How to Buy Shares
How to Redeem (Sell) Shares
DIVIDENDS
TAX CONSIDERATIONS
DISTRIBUTION ARRANGEMENTS
12b-1 Fees
Distribution Fees
Service Fees
Shareholder Maintenance Agreement
FINANCIAL HIGHLIGHTS
RISK/RETURN INFORMATION: INVESTMENT PROGRAMS AND PERFORMANCE
PROSPECTUS SUMMARY
Reading the Prospectus
References to "you" and "your" in the prospectus refer to prospective investors
or shareholders. References to "we," "us" or "our" refer to the Trust or the
Funds and Fund management; the adviser, and/or sub-adviser for The AAL
International Fund, distributor, administrator, transfer agent and custodians.
The Funds
In this prospectus, we provide you with information on: the investment
objectives and policies; risks of investing in the Funds; historic performance
information; how to buy and sell Class A and Class B shares; management and
services provided to the Funds; and other information.
This prospectus describes two share classes, Class A shares and Class B shares.
You pay a sales charge immediately when you purchase Class A shares (front-end
sales charge or load). You pay a sales charge when you redeem Class B shares
held for less than five years (contingent deferred sales charge). In addition,
you pay higher "12b-1 fees" for Class B shares than Class A shares. 12b-1 fees
are ongoing asset-based fees that we charge pursuant to a plan to cover the
costs of certain activities related to the distribution and service of the
Funds' shares.
Principal Risks Common to All Funds
You assume certain risks when you invest in any of the Funds. Risks specific to
each Fund are discussed on the following pages. More generally, the investment
style and strategies that we use to select stocks, bonds and other securities
for each Fund depends on our ability to select those that perform well over
time. Our selections may not always achieve our growth and/or income
expectations, and securities we select could decline in value. There can be no
assurance that any of the Funds will achieve its objective and you could lose
money.
Class A Versus Class B Shares
Whether you should purchase Class A or Class B shares depends on how long you
intend to own the shares and the size of your investment. If you intend to own
shares for more than five years and plan to invest less than $100,000, you
should consider Class B shares. If you plan to redeem shares in less than five
years or invest $100,000 or more, you should consider Class A shares. The
following table shows some of the differences between Class A and Class B
shares:
<TABLE>
<CAPTION>
<S> <C>
CLASS A SHARES CLASS B SHARES
- -------------------------------- -----------------------------------
Maximum 4% front-end sales charge No front-end sales charge
No contingent deferred sales charge Maximum 5% contingent deferred sales charge
Lower annual expenses, which include Higher annual expenses, which include
12b-1 fees, than Class B shares 12b-1 fees, than Class A shares
No conversion to Class B shares Automatic conversion to Class A shares after 5 years
</TABLE>
Institutional Shares
We also offer an institutional class of shares ("Institutional shares"). They
are described in a separate prospectus. Institutional shares are for Lutheran
organizations or enterprises with a minimum initial investment in the Funds of
$500,000. We designed Institutional shares to give Lutheran organizations and
enterprises (non-natural persons) or financial institutions acting in a
fiduciary or agency capacity for these organizations a convenient means of
accumulating an interest in The AAL Mutual Funds. Lutheran organizations or
enterprises that invest in Institutional shares purchase shares at net asset
value. They do not pay initial sales charges, redemption fees or 12b-1fees. The
performance of Class A, Class B and Institutional shares will vary based on
differences in sales charges and fees. For more information on the Funds'
Institutional shares and a prospectus, you may call our Mutual Funds Service
Center at (800)-553-6319.
THE AAL SMALL CAP STOCK FUND
Investment Objective
The AAL Small Cap Stock Fund seeks long-term capital growth by investing
primarily in small company common stocks and securities convertible into small
company common stocks.
Principal Investment Strategies
Under normal circumstances, we invest at least 65% of the Fund's total assets in
small company common stocks. We may invest the remaining 35% of the Fund's total
assets in any combination of small-cap, mid-cap, large-cap stocks and securities
convertible into these stocks.
By small companies, we mean those with market capitalizations of less than $1.5
billion. We often refer to small company stocks as small-cap stocks. Small-cap
stocks trade in the over-the-counter market as well as on U.S. securities
exchanges. We focus on companies with market capitalizations ranging from $100
million to $1 billion. Generally, small companies have not yet gained a
reputation for quality. Further, small companies tend to be less recognizable
than companies listed in the S&P 500(R) Index or the S&P MidCap 400(R)
Index. We look for small companies (including companies initially offering stock
to the public) that, in our opinion:
(1) are in the early stages of development or positioned in new and emerging
industries;
(2) have an opportunity for rapid growth;
(3) have capable management; and
(4) are financially sound.
Due to certain market inefficiencies, we believe properly selected small company
stocks offer greater opportunities for long-term capital growth. We tend to sell
the stocks of companies when we think that other investments offer better
opportunities. This investment strategy may result in short-term gains or losses
for the Fund.
Principal Risks
Financial Risk: When compared with large companies, small, less-established
companies may have relatively lower revenues, limited product lines, less
management depth and a lower share of the market for their products or services.
Because of these and other factors, stocks of small companies present a greater
risk of losing value than stocks of larger, more established companies.
Market Risk: Over time, the stock market tends to move in cycles, with periods
when stock prices rise and periods when stock prices decline. Historically,
small-cap stocks have experienced more price volatility than mid-cap and
large-cap stocks.
Small company stocks tend to have greater price volatility than large company
stocks. Generally, the value of the Fund's investments tends to increase more
than the stock market, as measured by the S&P 500(R) Index, in a period of
rising stock prices. Conversely, the value of the Fund's investments tends to
decrease more than the stock market in a period of declining stock prices.
However, these price trends do not always occur. You could lose money investing
in the Fund.
Past Performance
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total returns. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class A shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions, but do not reflect any deduction for sales charges. If the
chart reflected sales loads, returns would be less than those shown.
Annual Return
Class A shares
Year Ended December 31st
[Bar chart with following data:]
12/31/97 16.85%
12/31/98 (2.49)%
The Fund's year-to-date return as of March 31 , 1999 was (11.21)%.
Best and Worst Quarterly Returns
Best Quarter: 2nd Quarter of 1997 20.48%
Worst Quarter: 3rd Quarter of 1998 (21.33)%
Average Annual Total Returns
The tables below compare the Fund's average annual total returns for Class A and
B shares with the S&P SmallCap 600(R) Index.* Performance of the Fund reflects
the maximum sales load you would pay for the stated period. The average annual
return for both the Fund and the S&P SmallCap 600(R) Index is calculated as of
the close of the Fund's fiscal year, which ends April 30, 1999. Returns for
Class A shares are shown for a one-year period and since inception of the Fund.
For Class B shares, returns are shown for a one-year period and since inception
of Class B shares.
Small Cap Stock Fund 1 Year Since Inception
Class A Shares (18.97)% 6.91% (1)
S&P SmallCap 600(R) Index (14.31)% 13.26%
Small Cap Stock Fund 1 Year Since Inception
Class B Shares (19.85)% 1.45% (2)
S&P SmallCap 600(R) Index (14.31)% 7.74%
(1) Inception of the Fund, July 1, 1996
(2) Inception of Class B Shares, January 8, 1997
* The S&P SmallCap 600(R) Index is an unmanaged index comprised of 600 stocks
designed to represent performance of the small-cap segment of the U.S.
equity markets.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
Expenses
Like any investor, you pay certain expenses related to your investments. Annual
Fund operating expenses are paid from portfolio assets, so they directly reduce
your share price. These expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
<TABLE>
<CAPTION>
<S> <C> <C>
Shareholder Fees
(fees paid directly from your investment) Class A Shares Class B Shares
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 4.00% None
Maximum deferred sales charge (load)
(as a percentage of net asset value) None 5.00%
Annual Fund Operating Expenses
(expenses deducted from Fund assets) Class A Shares Class B Shares
Management Fees 0.72% 0.72%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses 0.85% 1.17%
- --------------------------------------------
Total Fund Operating Expenses 1.82% 2.89%
</TABLE>
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated, that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
<TABLE>
<CAPTION>
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $580 $797 $297
3 Year $958 $1,218 $918
5 Year $1,361 $1,575 $1,575
After 10 years $2,484 N/A* N/A*
</TABLE>
* Class B shares convert into Class A shares after five years.
You should use the expense example for comparison purposes only. It does not
represent the Fund's actual expenses and returns, either past or future. Actual
expenses may be greater or less than those shown.
THE AAL MID CAP STOCK FUND
Investment Objective
The AAL Mid Cap Stock Fund seeks long-term capital growth by investing primarily
in common stocks and securities convertible into common stocks, of mid-sized
companies.
Principal Investment Strategies
Under normal circumstances, we invest at least 65% of the Fund's total assets in
mid-sized company stocks. By mid-sized companies, we mean those with market
capitalizations ranging from $100 million to $7.5 billion. Within this category,
we generally focus on companies with market capitalizations ranging from $500
million to $3.5 billion. Mid-cap companies tend to be smaller and less-seasoned
than large-cap companies listed in the S&P 500(R) Index. Mid-cap companies
may trade in the over-the-counter market as well as on national securities
exchanges.
We may invest the remaining 35% of the Fund's total assets in any combination of
additional mid-cap stocks, large-cap stocks and securities convertible into such
stocks. We look for mid-sized companies (including companies initially offering
stock to the public) that, in our opinion:
(1) have prospects for growth in their sales and earnings;
(2) are in an industry with a good economic outlook;
(3) have high-quality management; and
(4) have a strong financial position.
We usually pick companies in the middle stages of their development. These
companies tend to have established a record of profitability and possess a new
technology, unique product or market niche. We tend to sell stocks of companies
when we think other investments offer better opportunities. Due to this policy,
the Fund may from time to time have short-term gains or losses.
Principal Risks
Financial Risk: Stocks of mid-sized companies may present a greater risk of
losing value than stocks of larger, more established companies, but may present
less risk than stocks of smaller companies. Mid-sized companies tend to have
relatively smaller revenues, narrower product lines, less management depth and
smaller shares of the market for their products or services than large
companies.
Market Risk: Over time, the stock market tends to move in cycles, with periods
when stock prices rise generally and periods when stock prices decline
generally. Due to the tendency for mid-cap stocks to have less liquidity in the
market than large company stocks, the value of the Fund's investments might
increase and decrease more than the stock market in general, as measured by the
S&P 500(R). You could lose money investing in the Fund.
Past Performance
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total returns. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class A shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions, but do not reflect any deduction for sales charges. If the
chart reflected sales loads, returns would be less than those shown.
Annual Return
Class A shares
Year Ended December 31st
[Bar chart with following data:]
12/31/94 (4.79)%
12/31/95 44.49%
12/31/96 8.75%
12/31/97 18.03%
12/31/98 2.08%
The Fund's year- to-date return as of March 31, 1999 was (3.44)%.
Best and Worst Quarterly Returns
Best Quarter: 4th Quarter of 1998 22.85%
Worst Quarter: 3rd Quarter of 1998 (21.26)%
Average Annual Total Returns
The tables below compare the Fund's average annual total returns for Class A and
B shares with the S&P MidCap 400(R) Index.* Performance of the Fund reflects
the maximum sales load you would pay for the stated period. The average annual
return for both the Fund and the S&P MidCap 400(R) Index is calculated as of the
close of the Fund's fiscal year, which ends April 30, 1999. For Class A shares,
returns are shown for one and five-year periods, and since inception of the
Fund. For Class B shares, returns are shown for a one-year period and since
inception of Class B shares.
Mid Cap Stock Fund 1 Year 5 Year Since Inception
- --------------------------------------------------------------------------------
Class A Shares (7.62)% 13.41% 12.10% (1)
S&P MidCap 400(R) Index 6.41% 19.70% 17.63%
Mid Cap Stock Fund 1 Year Since Inception
- --------------------------------------------------------------------------------
Class B Shares (8.70)% 6.77% (2)
S&P MidCap 400(R) Index 6.41% 21.73%
(1) Inception of the Fund, June 30, 1993
(2) Inception of Class B Shares, January 8, 1997
* The S&P MidCap 400(R) Index is an unmanaged index that represents the
average performance of a group of 400 medium capitalization stocks.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
Expenses
Like any investor, you pay certain expenses related to your investments. Annual
Fund operating expenses are paid from portfolio assets, so they directly reduce
your share price. These expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
Shareholder Fees
(fees paid directly from your investment) Class A Shares Class B Shares
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 4.00% None
Maximum deferred sales charge (load)
(as a percentage of net asset value) None 5.00%
Annual Fund Operating Expenses
(expenses deducted from Fund assets) Class A Shares Class B Shares
Management Fees 0.67% 0.67%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses 0.45% 0.89%
- --------------------------------------------
Total Fund Operating Expenses 1.37% 2.56%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated, that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
<TABLE>
<CAPTION>
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $536 $763 $263
3 Year $824 $1,108 $808
5 Year $1,133 $1,382 $1,382
After 10 years $2,009 N/A* N/A*
</TABLE>
* Class B shares convert into Class A shares after five years.
You should use the expense example for comparison purposes only. It does not
represent the Fund's actual expenses and returns, either past or future. Actual
expenses may be greater or less than those shown.
THE AAL INTERNATIONAL FUND
Investment Objective
The AAL International Fund seeks long-term capital growth by investing primarily
in a diversified portfolio of foreign stocks.
Principal Investment Strategies
Under normal circumstances, we invest at least 65% of the Fund's total assets in
foreign stocks primarily traded in at least three countries, not including the
United States. We may not invest more than 25% of the Fund's assets in any one
country. We do not have any other limitations on how much of the Fund's assets
we may invest in securities primarily traded in any one country. Typically, we
consider an issuer as domiciled in a particular country if it:
(1) is incorporated under the laws of that country;
(2) has at least 50% of the value of its assets located in that country; or
(3) derives at least 50% of its income from operations or sales in that
country.
We may invest the remaining 35% of the Fund's total assets in a combination of
any of the following: additional foreign stocks; U.S. stocks; structured notes
and/or preferred stocks; and up to 20% of the Fund's total assets in U.S. and
foreign bonds and other debt obligations, including lower-rated debt, commonly
referred to as "junk bonds." We do not place any restrictions on the debt
ratings of securities acquired or the portion of the Fund's assets we may invest
in a particular rating category for the Fund.
[Sidebar: Mature and Emerging Markets]
Mature Markets: A mature market is generally defined as a stable and efficient
country economy with well-developed governmental entities and an advanced
financial infrastructure.
Emerging Markets: An emerging market refers to a lesser-developed country
economy. An emerging market is characterized by relatively weak governmental
entities and a developing financial infrastructure with market inefficiencies.
The following examples help distinguish mature markets and emerging markets.
Mature Markets Emerging Markets
United States Czech Republic
Japan Poland
Canada Taiwan
United Kingdom Brazil
We focus on stocks primarily trading in the United Kingdom, Western Europe,
Australia, Far East, Latin America and Canada. Many of these markets are mature,
while others are emerging. There are no limits on the extent to which we can
invest in either mature or emerging markets. We may invest up to 100% of the
Fund's total assets in emerging markets.
Pending the investment of cash from new sales or to meet ordinary daily cash
needs, we may, subject to the fundamental investment objective, hold cash
temporarily (U.S. dollars, foreign currencies or multinational foreign currency
units) for the Fund. For defensive purposes, we may temporarily invest any
portion of the Fund's total assets in money market instruments.
Principal Risks
Foreign Investment Risks: The Fund faces particular risks associated with
foreign investing. Foreign investment risks include currency, liquidity,
political, economic and market risks, as well as risks associated with
governmental regulation and non-uniform corporate disclosure standards.
Currency Fluctuations: A change in the value of a foreign currency against the
U.S. dollar may affect the value (in terms of U.S. dollars) of the foreign
stocks held by the Fund. The value of the Fund's foreign stocks also may be
affected significantly by currency restrictions and currency exchange control
regulations enacted from time to time by foreign governments.
Market Characteristics and Liquidity: Foreign exchanges and markets may be more
volatile than those in the United States and foreign stocks may be less liquid
than domestic securities. Settlement practices for transactions in foreign stock
markets may differ from those practices in U.S. stock markets and may involve
delays beyond customary periods in the United States.
Political and Economic Factors: The economies of some foreign countries may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross domestic product, rate of inflation, capital reinvestment,
resource self-sufficiency, diversification and balance of payments position.
Also, some foreign governments participate to a significant degree, through
ownership interests or regulation, in their economies. Actions by these
governments could include restrictions on foreign investments, nationalization,
expropriation of goods or imposition of taxes, and could have a significant
effect on the prices of stocks and the payment of interest on bonds. The
economies of many foreign countries are highly dependent on international trade
and therefore, are affected by trade policies and economic conditions of their
trading partners. If those trading partners engage in protectionist trade
legislation, the price of the stocks of the foreign country and the markets in
which they trade could be affected.
Regulation: Some foreign countries have less supervision and regulation of
securities markets, broker/dealers and issuers of securities than is the case in
the United States. Also, many foreign countries do not require publicly traded
companies to disclose information which is as extensive and detailed as that
which public companies in the United States are required to disclose. This lack
of regulation and disclosure makes our assessment of the growth potential of
stocks we select less certain than might be the case for domestic stocks.
These risks tend to be more pronounced in emerging markets than is the case for
mature markets. We may invest up to 100% of the Fund's net assets in emerging
growth countries.
Past Performance
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total returns. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class A shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions, but do not reflect any deduction for sales charges. If the
chart reflected sales loads, returns would be less than those shown.
Annual Return
Class A shares
Year Ended December 31st
[Bar chart with following data:]
12/31/96 12.21%
12/31/97 0.97%
12/31/98 11.06%
The Fund's year-to-date return as of March 31, 1999 was 2.24%.
Best and Worst Quarterly Returns
Best Quarter: 4th Quarter of 1998 15.40%
Worst Quarter: 3rd Quarter of 1998 (12.50)%
Average Annual Total Returns
The tables below compare the Fund's average annual total returns for Class A and
B shares with the EAFE(R) Index.* Performance of the Fund reflects the
maximum sales load you would pay for the stated period. The average annual
return for both the Fund and the EAFE(R) Index is calculated as of the close of
the Fund's fiscal year, which ends April 30, 1999. Returns for Class A shares
are shown for a one-year period and since inception of the Fund. For Class B
shares, returns are shown for a one-year period and since inception of Class B
shares.
International Fund 1 Year Since Inception
Class A Shares 6.82% 8.42% (1)
EAFE(R) Index 9.44% 7.61%
International Fund 1 Year Since Inception
Class B Shares 5.72% 6.67% (2)
EAFE(R) Index 9.44% 10.63%
(1) Inception of the Fund, August 1, 1995
(2) Inception of Class B Shares, January 8, 1997
* The Morgan Stanley Capital International, Europe, Australasia, Far East
Index (EAFE(R) Index) is a stock index designed to measure the investment
returns of the developed countries outside North America. The EAFE(R) Index
currently includes stocks from 21 countries.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid
Expenses
Like any investor, you pay certain expenses related to your investments. Annual
Fund operating expenses are paid from portfolio assets, so they directly reduce
your share price. These expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
Shareholder Fees
(fees paid directly from your investment) Class A Shares Class B Shares
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 4.00% None
Maximum deferred sales charge (load)
(as a percentage of net asset value) None 5.00%
Annual Fund Operating Expenses
(expenses deducted from Fund assets) Class A Shares Class B Shares
Management Fees 0.71% 0.71%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses 0.78% 1.14%
- --------------------------------------------
Total Fund Operating Expenses 1.74% 2.85%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that your investment has a
5% return each year, and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
<TABLE>
<CAPTION>
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $572 $791 $291
3 Year $935 $1,192 $892
5 Year $1,321 $1,520 $1,520
After 10 years $2,401 N/A* N/A*
</TABLE>
* Class B shares convert into Class A shares after five years.
You should use the expense example for comparison purposes only. It does not
represent the Fund's actual expenses and returns, either past or future. Actual
expenses may be greater or less than those shown.
THE AAL CAPITAL GROWTH FUND
Investment Objective
The AAL Capital Growth Fund seeks long-term capital growth by investing
primarily in a diversified portfolio of common stocks and securities convertible
into common stocks.
Principal Investment Strategies
Under normal circumstances, we invest at least 65% of the Fund's total assets in
common stocks, not including convertible securities. Generally, we focus on
dividend-paying stocks issued by companies with earnings growth per share that
is higher than stocks included in the S&P 500(R). In selecting stocks, we
look for quality, operating growth predictability and financial strength.
We may invest the remaining 35% of the Fund's total assets in additional common
stocks, preferred stocks and bonds. The Fund does not invest in bonds for
capital growth or for long time periods. We limit our investments in convertible
securities to no more than 5% of the Fund's net assets.
Principal Risks
Financial Risk: Many factors affect an individual company's performance, such as
management or the demand for a company's products or services and company
performance affects the value of stocks in the Fund's portfolio.
Market Risk: Over time, the stock market tends to move in cycles, with periods
when stock prices rise generally and periods when stock prices decline
generally. The value of the Fund's investments may increase and decrease more
than the stock market in general, as measured by the S&P 500(R).
Past Performance
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total returns. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class A shares for the
past 10 years. Total returns assume reinvestment of all dividends and
distributions, but do not reflect any deduction for sales charges. If the chart
reflected sales loads, returns would be less than those shown.
Annual Return
Class A shares
Year Ended December 31st
[Bar chart with following data:]
12/31/89 29.57%
12/31/90 0.83%
12/31/91 30.19%
12/31/92 5.71%
12/31/93 6.06%
12/31/94 (1.38)%
12/31/95 31.00%
12/31/96 22.05%
12/31/97 33.57%
12/31/98 28.19%
The Fund's year-to-date return as of March 31, 1999 was 6.38%.
Best and Worst Quarterly Returns
Best Quarter: 4th Quarter of 1998 21.92%
Worst Quarter: 4th Quarter of 1987 (19.78)%
Average Annual Total Returns
The tables below compare the Fund's average annual total returns for Class A and
B shares with the S&P 500(R) Index.* Performance of the Fund reflects the
maximum sales load you would pay for the stated period. The average annual
return is calculated as of the close of the Fund's fiscal year, which ends April
30, 1999. Returns for Class A shares are shown for one, five and ten-year
periods. For Class B shares, returns are shown for a one-year period and since
inception of Class B shares.
Capital Growth Fund 1 Year 5 Year 10 Year
- --------------------------------------------------------------------------------
Class A Shares 23.20% 25.30% 17.69%
S&P 500(R) Index 21.83% 26.84% 18.78%
Capital Growth Fund 1 Year Since Inception
Class B Shares 21.94% 29.44% (1)
S&P 500(R) Index 21.83% 28.56%
(1) Inception of Class B Shares, January 8, 1997
* The S&P 500(R) Index is a broad-based composite unmanaged index that
represents the average performance of a group of 500 widely-held,
publicly-traded stocks.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
Expenses
Like any investor, you pay certain expenses related to your investments. Annual
Fund operating expenses are paid from portfolio assets, so they directly reduce
your share price. These expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
Shareholder Fees
(fees paid directly from your investment) Class A Shares Class B Shares
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 4.00% None
Maximum deferred sales charge (load)
(as a percentage of net asset value) None 5.00%
Annual Fund Operating Expenses
(expenses deducted from Fund assets) Class A Shares Class B Shares
Management Fees 0.54% 0.54%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses 0.18% 0.45%
- --------------------------------------------
Total Fund Operating Expenses 0.97% 1.99%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that your investment has a
5% return each year, and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
<TABLE>
<CAPTION>
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $497 $705 $205
3 Year $702 $934 $634
5 Year $925 $1,089 $1,089
After 10 years $1,565 N/A* N/A*
</TABLE>
* Class B shares convert into Class A shares after five years.
You should use the expense example for comparison purposes only. It does not
represent the Fund's actual expenses and returns, either past or future. Actual
expenses may be greater or less than those shown.
The AAL Equity Income Fund
Investment Objective
The AAL Equity Income Fund seeks current income, long-term income growth and
capital growth by investing primarily in a diversified portfolio of
income-producing equity securities.
Principal Investment Strategies
Under normal circumstances, we invest at least 65% of the Fund's total assets in
income-producing equity securities. By "income-producing equity securities," we
mean equity securities, including securities exchangeable or convertible into
equity securities, that offer dividend yields that exceed the average dividend
yields on stocks comprising the S&P 500(R). We may invest the remainder of the
Fund's total assets, in whole or in part, in additional income-producing equity
securities, bonds and commercial paper.
In selecting equity securities for the Fund, we look for companies that:
(1) have a good growth rate and return on capital;
(2) have favorable aspects for future growth and dividends;
(3) are financially sound;
(4) have high-quality management; and
(5) are in a favorable competitive environment.
We buy bonds, including convertible securities, if, at the time of purchase at
least two nationally recognized statistical rating organizations (NRSROs) have
rated them investment grade, or, if unrated, we have determined them to be of a
credit quality comparable to investment grade. We may invest up to 5% of the
Fund's total assets in such securities rated below investment grade. We buy
commercial paper rated in the top two categories by a NRSRO. We may buy unrated
commercial paper if we determine the commercial paper is of a credit quality
comparable to investment grade.
We expect to receive income from dividends paid on equity investments and
interest earned on debt securities. We seek capital appreciation by attempting
to select income-producing equity securities that we believe are under-priced
relative to the securities of companies with comparable fundamentals.
Principal Risks
Industry Concentration: Income-producing equity securities, in which the Fund
invests, tend to be more prevalent in some market sectors than others, for
example;communications, retail, energy, utilities, financial services and
consumer non-cyclical and cyclical market sectors. Prices of stocks of companies
in these industries may not always move in tandem with the market, generally,
causing the Fund's performance to lag or outperform the overall market.
Financial Risk: The market sectors in which companies tend to issue
income-producing equity securities usually have high operating, interest and
other regulatory expenses, such as the public utilities industry. Also, some of
these sectors are maturing, meaning that growth is peaking. Companies in these
market sectors frequently use their profits for paying higher dividends rather
than reinvesting for company growth. As a result, income-producing equity
securities typically have lower capital growth potential than equity securities
in other sectors. Capital growth for many income-producing equity securities
corresponds to the company's competitive position, in particular its capability
to capture market share from its competitors.
Interest Rate Risk: Like bonds, changes in the level of interest rates affect
the value of income-producing equity securities and the value of the Fund as a
whole. Their values tend to move in the opposite direction of interest rates.
Market Risk: Market cycles affect all equity securities over time, with periods
when stock prices rise generally and periods when stock prices decline
generally. However, income-producing equity securities may rise less and fall
less than the market as a whole, because of the higher income component of these
securities.
Past Performance
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total returns. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class A shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions, but do not reflect any deduction for sales charges. If the
chart reflected sales loads, returns would be less than those shown.
Annual Return
Class A shares
Year Ended December 31st
[Bar chart with following data:]
12/31/95 29.17%
12/31/96 4.81%
12/31/97 22.37%
12/31/98 13.29%
The Fund's year-to-date return as of March 31, 1999 was 0.24%.
Best and Worst Quarterly Returns
Best Quarter: 4th Quarter of 1998 15.04%
Worst Quarter: 3rd Quarter of 1998 (10.34)%
Average Annual Total Returns
The tables below compare the Fund's average annual total returns for Class A and
B shares with the S&P 500(R) Index.* Performance of the Fund reflects the
maximum sales load you would pay for the stated period. The average annual
return for both the Fund and the S&P 500(R) Index is calculated as of the close
of the Fund's fiscal year, which ends April 30, 1999. Returns for Class A shares
are shown for one and five-year periods, and since inception of the Fund. For
Class B shares, returns are shown for a one-year period and since inception of
Class B shares.
Equity Income Fund 1 Year 5 Year Since Inception
- --------------------------------------------------------------------------------
Class A Shares 10.08% 13.19% 12.75% (1)
S&P 500(R) Index 21.83% 26.84% 26.68%
Equity Income Fund 1 Year Since Inception
Class B Shares 8.97% 17.21% (2)
S&P 500(R) Index 21.83% 28.56%
(1) Inception of the Fund, March 18, 1994
(2) Inception of Class B Shares, January 8, 1997
* The S&P 500(R) Index is a broad-based composite unmanaged index that
represents the average performance of a group of 500 widely-held,
publicly-traded stocks.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
Expenses
Like any investor, you pay certain expenses related to your investments. Annual
Fund operating expenses are paid from portfolio assets, so they directly reduce
your share price. These expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
Shareholder Fees
(fees paid directly from your investment) Class A Shares Class B Shares
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 4.00% None
Maximum deferred sales charge (load)
(as a percentage of net asset value) None 5.00%
Annual Fund Operating Expenses
(expenses deducted from Fund assets) Class A Shares Class B Shares
Management Fees 0.47% 0.47%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses 0.33% 0.62%
- --------------------------------------------
Total Fund Operating Expenses 1.05% 2.09%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that your investment has a
5% return each year, and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
<TABLE>
<CAPTION>
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $505 $715 $215
3 Year $727 $964 $664
5 Year $967 $1,140 $1,140
After 10 years $1,655 N/A* N/A*
</TABLE>
* Class B shares convert into Class A shares after five years.
You should use the expense example for comparison purposes only. It does not
represent the Fund's actual expenses and returns, either past or future. Actual
expenses may be greater or less than those shown.
The AAL Balanced Fund
Investment Objective
The AAL Balanced Fund seeks long-term total return through a balance between
income and the potential for long-term capital growth by investing primarily in
a diversified portfolio of common stocks, bonds and money market instruments.
Principal Investment Strategies
Under normal circumstances, we invest from 50% to 60% of the Fund's total assets
in common stocks, from 30% to 40% in fixed-income securities (bonds) and up to
20% in money market instruments. However, we will at all times maintain an
investment mix within the following ranges:
(1) 35% to 75% in common stocks;
(2) 25% to 50% in fixed-income securities (bonds); and
(3) 0% to 40% in money market instruments.
We select investments in each category of security by using the following
criteria:
(1) common stocks, including the securities in which The AAL Capital Growth
Fund may invest;
(2) bonds and other debt securities with maturities generally exceeding one
year, including securities in which The AAL Bond Fund may invest; and
(3) money market instruments and other debt securities with maturities
generally not exceeding 397 days, including the securities in which The AAL
Money Market Fund may invest.
We periodically review and adjust the mix of investments among these three
categories to capitalize on potential variations in returns produced by the
interaction of changing financial markets and economic conditions. Changes in
the investment mix may occur several times within a year or over several years,
depending on market and economic conditions.
Principal Risks
Stock Investment Risks
Financial Risk: Many factors affect an individual company's performance, such as
its management or the demand for a company's products or services. Company
performance affects the value of stock and the value of stocks in the Fund's
portfolio.
Market Risk: Over time, the stock market tends to move in cycles, with periods
when stock prices rise generally and periods when stock prices decline
generally. The value of the Fund's investments may increase or decrease more
than the stock market in general, as measured by the S&P 500(R). Because we
invest 35% to 75% of the Fund's assets in stocks, fluctuating stock prices will
have a significant impact on the Fund's value (the price of the Fund's shares).
Bond and Money Market Instrument Investment Risks
Interest Rate Risk: Changes in interest rate levels affect the value of the
bonds and money market instruments in the portfolio and the value of the Fund as
a whole.
Credit Risk: The creditworthiness of bond issuers will affect the value of their
bonds and money market instruments, which may decline during the Fund's holding
periods and affect the value of the Fund as a whole.
Asset Allocation Risks
We may shift the portfolio's asset mix of stocks, bonds and money market
instruments based on existing or anticipated market conditions. The returns you
receive will depend on how we have allocated the Fund's investments across these
asset categories. As the allocation fluctuates over time, your returns fluctuate
as well. The Fund's performance will depend on our ability to successfully
predict market and economic trends and to achieve optimal allocation.
The Fund seeks total return, consisting of capital appreciation, current income
and long-term income growth, by following an asset allocation strategy. The
Fund, however, may not achieve as high a level of either capital appreciation or
income as a mutual fund that has only one of these as a primary objective.
Past Performance
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total returns. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class A shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions, but do not reflect any deduction for sales charges. If the
chart reflected sales loads, returns would be less than those shown.
Annual Return
Class A shares
Year Ended December 31st
[Bar chart with following data:]
12/31/98 18.04%
The Fund's year-to-date return as of March 31, 1999 was 3.26%.
Best and Worst Quarterly Returns
Best Quarter: 4th Quarter of 1998 11.28%
Worst Quarter: 3rd Quarter of 1998 (4.54)%
Average Annual Total Returns
The tables below compare the Fund's average annual total returns for Class A and
B shares with the S&P 500(R) Index and the Lehman Brothers Aggregate Bond
Index(R).* Performance of the Fund reflects the maximum sales load you would
pay for the stated period. The average annual return for the Fund, the S&P
500(R) Index and the Lehman Brothers Aggregate Bond Index(R), is
calculated as of the close of the Fund's fiscal year, which ends April 30, 1999.
Returns for Class A and B shares are shown for a one-year period and since
inception of the Fund.
Balanced Fund 1 Year Since Inception
Class A Shares 14.45% 17.52% (1)
S&P 500(R) Index 21.83% 30.60%
Lehman Brothers Aggregate Bond Index(R) 6.27% 6.27%
Balanced Fund 1 Year Since Inception
Class B Shares 13.47% 16.54% (2)
S&P 500(R) Index 21.83% 30.60%
Lehman Brothers Aggregate Bond Index(R) 6.27% 6.27%
(1) Inception of the Fund, December 29, 1997
(2) Inception of Class B shares, December 29, 1997
* The S&P 500(R) Index is a broad-based composite unmanaged index that
represents the average performance of a group of 500 widely-held,
publicly-traded stocks. The Lehman Brothers Aggregate Bond Index(R) is an
unmanaged index that encompasses four classes of fixed-income securities in
the United States: U.S. Treasury and U.S. government agency securities,
corporate debt obligations, mortgage-backed securities and asset-backed
securities.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
Expenses
Like any investor, you pay certain expenses related to your investments. Annual
Fund operating expenses are paid from portfolio assets, so they directly reduce
your share price. These expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
Shareholder Fees
(fees paid directly from your investment) Class A Shares Class B Shares
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 4.00% None
Maximum deferred sales charge (load)
(as a percentage of net asset value) None 5.00%
Annual Fund Operating Expenses
(expenses deducted from Fund assets) Class A Shares Class B Shares
Management Fees 0.56% 0.56%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses 0.42% 0.62%
- --------------------------------------------
Total Fund Operating Expenses* 1.23% 2.18%
* Operating expenses are expressed as a percentage of net assets for the
fiscal year ended April 30, 1999, and do not include the Adviser's
voluntary reimbursement of expenses. With reimbursements, "Total Fund
Operating Expenses", were 1.15% for Class A shares and 1.98% for Class B
shares.
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that your investment has a
5% return each year, and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
<TABLE>
<CAPTION>
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $523 $724 $224
3 Year $782 $992 $692
5 Year $1,061 $1,186 $1,186
After 10 years $1,856 N/A* N/A*
</TABLE>
* Class B shares convert into Class A shares after five years.
You should use the expense example for comparison purposes only. It does not
represent the Fund's actual expenses and returns, either past or future. Actual
expenses may be greater or less than those shown.
The AAL High Yield Bond Fund
Investment Objective
The AAL High Yield Bond Fund seeks high current income and secondarily capital
growth by investing primarily in a diversified portfolio of high-risk,
high-yield bonds commonly referred to as "junk bonds." The Fund actively seeks
to achieve the secondary objective of capital growth to the extent it is
consistent with the primary objective of high current income.
Principal Investment Strategies
Under normal circumstances, we invest at least 65% of the Fund's total assets in
high-yield bonds. We may invest the remaining 35% of the Fund's total assets in
any combination of:
(1) additional high-yield bonds;
(2) investment-grade bonds;
(3) common and preferred stocks (including structured preferred stocks); and
(4) securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities ("U.S. government obligations").
We may invest up to 20% of the Fund's net assets in bonds of foreign issuers. In
evaluating the quality of a particular high-yield bond for investment in the
Fund, we do not rely exclusively on ratings assigned by the NRSRO's. In
appropriate circumstances, we perform our own credit analysis. We consider the
issuer's:
(1) financial resources;
(2) operating history;
(3) sensitivity to economic conditions and trends;
(4) management's abilities;
(5) debt maturity schedules;
(6) borrowing requirements; and
(7) relative values based on anticipated cash flow, interest and asset coverage
and earnings prospects.
We attempt to identify those issuers of high-yield bonds whose financial
condition is adequate to meet future obligations and has improved or is expected
to improve in the future. However, there are no restrictions on the rating level
of the securities in the Fund's portfolio, and we may purchase and hold
securities in default.
[Sidebar: Junk Bonds]
High-yield bonds have a higher yield to compensate for greater risk that the
issuer might not make its interest and principal payments. Most bonds are rated
by national rating agencies according to the issuers ability to maintain
interest payments and repay the principal amount at the time the bond comes due.
High-yield bonds are speculative and, therefore, typically considered to be
below investment-grade bonds by national ratings agencies. High-yield bonds
include:
fixed rate bonds;
variable rate bonds;
convertible bonds;
zero coupon bonds;
pay-in-kind bonds;
floating rate interest debt obligations;
deferred interest debt obligations;
structured debt obligations;
asset-backed debt obligations; and
mortgage-backed debt obligations.
Principal Risks
Interest Rate Risk: Changes in interest rate levels affect the value of the
bonds in the portfolio and the value of the Fund as a whole.
Credit Risk: The primary risk of investing in the high-yield sector is the
credit risk. Bonds rated below investment grade have greater risks of default
than investment-grade bonds and, may in fact, be in default. Issuers of
high-yield bonds usually do not have strong historical financial conditions,
requiring them to offer higher yields to compensate for the greater risk of
default on the payment of interest and principal. These bonds have speculative
characteristics or are speculative. As a result, their market values are less
sensitive to interest rate changes on a short-term basis, but more sensitive to
adverse economic developments or individual corporate developments because of
their lower credit quality. During an economic downturn or period of rising
interest rates, issuers of lower rated bonds may have more difficulty meeting
their principal and interest payment obligations or obtaining additional
financing to make the interest payments on their debt. When issuers have
difficulty meeting projected goals or obtaining additional financing, the
default rate on high-yield bonds will likely rise.
Market Risk: Frequently, high-yield bonds have a less liquid resale market than
the market for investment-grade bonds. In some cases, these bonds have no resale
market at all. As a result, we may have difficulty valuing portfolio securities,
choosing the securities to sell to meet redemption requests, and/or selling or
disposing of portfolio securities on favorable terms.
The high-yield market has in the past, and may in the future, experience market
risk due to adverse publicity and investor perceptions. In the past, Congress
has attempted restricting the advantages of high-yield bonds and similar
attempts could occur in the future.
Past Performance
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total returns. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class A shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions, but do not reflect any deduction for sales charges. If the
chart reflected sales loads, returns would be less than those shown.
Annual Return
Class A shares
Year Ended December 31st
[Bar chart with following data:]
12/31/98 (2.25)%
The Fund's year-to-date return as of March 31, 1999 was (0.12)%.
Best and Worst Quarterly Returns
Best Quarter: 2nd Quarter of 1997 6.03%
Worst Quarter: 3rd Quarter of 1998 (7.76)%
Average Annual Total Returns
The tables below compare the Fund's average annual total returns for Class A and
B shares with the Merrill Lynch High Yield Master Index(R).* Performance of the
Fund reflects the maximum sales load you would pay for the stated period. The
average annual return for both the Fund and the Merrill Lynch High Yield Master
Index(R) is calculated as of the close of the Fund's fiscal year, which ends
April 30, 1999. Returns for Class A and Class B shares are shown for a one-year
period and since inception of the Fund.
High Yield Bond Fund 1 Year Since Inception
- --------------------------------------------------------------------------------
Class A Shares (3.96)% 5.13% (1)
Merrill Lynch High Yield Master Index(R) 3.05% 8.40%
High Yield Bond Fund 1 Year Since Inception
- --------------------------------------------------------------------------------
Class B Shares (4.62)% 4.39% (2)
Merrill Lynch High Yield Master Index(R) 3.05% 8.40%
(1) Inception of the Fund, January 8, 1997
(2) Inception of Class B Shares, January 8, 1997
* The Merrill Lynch High Yield Master Index(R) is an unmanaged index
comprised of over 900 "cash-pay" high-yield bonds representative of the
high-yield market as a whole.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
Expenses
Like any investor, you pay certain expenses related to your investments. Annual
Fund operating expenses are paid from portfolio assets, so they directly reduce
your share price. These expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
Shareholder Fees
(fees paid directly from your investment) Class A Shares Class B Shares
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 4.00% None
Maximum deferred sales charge (load)
(as a percentage of net asset value) None 5.00%
Annual Fund Operating Expenses
(expenses deducted from Fund assets) Class A Shares Class B Shares
Management Fees 0.57% 0.57%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses 0.34% 0.41%
- --------------------------------------------
Total Fund Operating Expenses* 1.16% 1.98%
* Operating expenses are expressed as a percentage of net assets for the
fiscal year ended April 30, 1999, and do not include the adviser's
voluntary reimbursement of expenses. Actual expenses with reimbursements,
"Total Fund Operating Expenses", were 1.00% for Class A shares and 1.71%
for Class B shares.
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that your investment has a
5% return each year, and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
<TABLE>
<CAPTION>
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $516 $704 $204
3 Year $760 $931 $631
5 Year $1,024 $1,083 $1,083
After 10 years $1,778 N/A* N/A*
</TABLE>
* Class B shares convert into Class A shares after five years.
You should use the expense example for comparison purposes only. It does not
represent the Fund's actual expenses and returns, either past or future. Actual
expenses may be greater or less than those shown.
The AAL Municipal Bond Fund
Investment Objectives
The AAL Municipal Bond Fund seeks a high level of current income exempt from
federal income taxes, consistent with capital preservation by investing
primarily in a diversified portfolio of municipal bonds.
Principal Investment Strategies
Under normal circumstances, we invest at least 80% of the Fund's net assets in
municipal bonds where the income is exempt from federal income tax. Of the 80%
invested in municipal bonds, we invest at least 75% in bonds rated within the
three highest rating categories assigned by at least one nationally recognized
statistical rating organization (NRSRO) at the time of purchase.
State and local governments and municipalities issue municipal bonds to raise
money for a variety of public purposes, including general financing for state
and local governments or financing for specific projects or public facilities. A
municipality may issue municipal bonds in anticipation of future revenues from a
specific municipal project (revenue bonds), or backed by the full taxing power
of a municipality (general obligation bonds), or from the revenues of a specific
project on the credit of a private organization (industrial development bonds).
Federal law generally exempts the interest paid on municipal bonds from federal
income taxes.
We may invest 25% or more of the Fund's total assets in industrial development
bonds. The Fund tries not to invest more than 25% of its total assets in
municipal bonds that are so closely related that an economic, business or
political development affecting one bond could also affect the others.
We may purchase certain tax-exempt bonds that involve a private purpose. The
interest paid on these private activity bonds is subject to the alternative
minimum tax ("AMT paper"). We limit our purchases of AMT paper to 25% of the
Fund's total assets.
Options and Futures
We may engage in transactions in options, futures contracts and options on
futures contracts to hedge against anticipated declines in the market value of
the Fund's portfolio securities or to manage the Fund's exposure to changes in
interest rates. We will not use these instruments for speculation. Our options
and futures strategies may include selling futures, buying puts and writing
calls, all of which tend to hedge the Fund's investments against price
fluctuations. We may combine options and futures transactions with each other in
order to adjust their risk and return characteristics or the Fund's overall
strategy. Successful hedging strategies depend on our skill in predicting future
movements in securities prices, interest rates and other economic factors. Our
use of these strategies may not be successful, and could reduce the Fund's total
return. In order to limit the Fund's exposure to these risks, we will not:
commit more than 25% of the Fund's net assets to such instruments;
commit more than 25% of the Fund's net assets to covered options; or
commit more than 5% of the Fund's net assets to premiums for put or call
options.
[Sidebar: Tax Implications of Options and Futures on The AAL Municipal Bond
Fund]
The use of options and futures for The AAL Municipal Bond Fund portfolio may
result in taxable income. You should consult your personal tax adviser to
determine the consequences of federal, state and local taxes.
When-Issued and Delayed Delivery Securities
We may purchase securities on a when-issued or delayed delivery basis (i.e.,
obligate the Fund to purchase or sell securities with delivery and payment to
occur at a later date in order to secure what we consider to be an advantageous
price and yield at the time we enter into the transaction). We will make such
commitments on behalf of the Fund only with the intention of actually acquiring
the securities, but we may sell the securities before the settlement date if we
later determine it is advisable to do so for investment reasons.
Principal Risks
Interest Rate Risk: Changes in interest rate levels affect the value of the
bonds in the Fund's portfolio and the value of the Fund as a whole. Generally,
the value of bonds move in the opposite direction of interest rates
Credit Risk: The creditworthiness of bond issuers will affect the value of their
bonds, which may decline during the Fund's holding period and reduce the value
of the Fund as a whole.
Tax Risk: Changes in federal income tax rates may affect both the net asset
value of the Fund and the taxable equivalent interest generated from its
portfolio securities.
Past Performance
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total returns. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class A for the past
ten years. Total returns assume reinvestment of all dividends and distributions,
but do not reflect any deduction for sales charges. If the chart reflected sales
loads, returns would be less than those shown.
Annual Return
Class A shares
Year Ended December 31st
[Bar chart with following data:]
12/31/89 8.52%
12/31/90 6.46%
12/31/91 11.34%
12/31/92 8.33%
12/31/93 11.28%
12/31/94 (5.69)%
12/31/95 18.24%
12/31/96 4.39%
12/31/97 10.34%
12/31/98 5.98%
The Fund's year-to-date return as of March 31, 1999 was 0.67%.
Best and Worst Quarterly Returns
Best Quarter: 1st Quarter of 1995 6.75%
Worst Quarter: 3rd Quarter of 1987 (5.80)%
Average Annual Total Returns
The tables below compare the Fund's average annual total returns for Class A and
B shares with the Lehman Brothers Municipal Bond Index(R).* Performance of
the Fund reflects the maximum sales load you would pay for the stated period.
The average annual return is calculated as of the close of the Fund's fiscal
year, which ends April 30, 1999. Returns for Class A shares are shown for one,
five and ten-year periods. For Class B shares, returns are shown for a one-year
period and since inception of Class B shares.
Municipal Bond Fund 1 Year 5 Year 10 Year
- --------------------------------------------------------------------------------
Class A Shares 6.80% 7.72% 7.65%
Lehman Brothers Municipal Bond Index(R) 6.95% 7.49% 8.01%
Municipal Bond Fund 1 Year Since Inception
Class B Shares 5.93% 6.83% (1)
Lehman Brothers Municipal Bond Index(R) 6.95% 7.27%
(1) Inception of Class B Shares, January 8, 1997
* Lehman Brothers Municipal Bond Index(R) is a market value-weighted index of
investment-grade municipal bonds with maturities of one year or more.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
Expenses
Like any investor, you pay certain expenses related to your investments. Annual
Fund operating expenses are paid from portfolio assets, so they directly reduce
your share price. These expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
Shareholder Fees
(fees paid directly from your investment) Class A Shares Class B Shares
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 4.00% None
Maximum deferred sales charge (load)
(as a percentage of net asset value) None 5.00%
Annual Fund Operating Expenses
(expenses deducted from Fund assets) Class A Shares Class B Shares
Management Fees 0.45% 0.45%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses 0.11% 0.19%
- --------------------------------------------
Total Fund Operating Expenses 0.81% 1.64%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that your investment has a
5% return each year, and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
<TABLE>
<CAPTION>
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $481 $670 $170
3 Year $653 $826 $526
5 Year $840 $906 $906
After 10 years $1,381 N/A* N/A*
</TABLE>
* Class B shares convert into Class A shares after five years.
You should use the expense example for comparison purposes only. It does not
represent the Fund's actual expenses and returns, either past or future. Actual
expenses may be greater or less than those shown.
The AAL Bond Fund
Investment Objective
The AAL Bond Fund seeks a high level of current income, consistent with capital
preservation by investing primarily in a diversified portfolio of
investment-grade bonds.
Principal Investment Strategies
Under normal circumstances, we invest at least 65% of the Fund's total assets
in:
(1) bonds of U.S. and foreign issuers payable in U.S. dollars rated within the
four highest rating categories by at least two nationally recognized
statistical rating organizations (NRSROs) at the time of purchase; and
(2) bonds or other securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, primarily those securities supported by the
full faith and credit of the U.S. Treasury.
We may invest the remaining 35% of the Fund's total assets in:
(1) privately issued or guaranteed mortgage-related securities (such as home
equity asset backed securities) rated within the four highest categories by
at least two NRSROs or unrated mortgage-related securities, if we
determine at the time of purchase that these unrated securities have credit
quality characteristics comparable to these ratings. Securities rated in
the fourth highest category have speculative investment characteristics;
(2) commercial paper rated in the highest rating category by a NRSRO, or
commercial paper issued or guaranteed by a corporation who has outstanding
debt rated in the two highest categories by a NRSRO at the time of
purchase;
(3) bank obligations, including repurchase agreements, of banks having total
assets in excess of $1 billion; and
(4) corporate obligations, including variable rate master notes, rated in the
two highest categories by a NRSRO, or issued by a corporation whose
outstanding debt has an equal or better rating at the time of purchase.
Although there are no restrictions on the maturity of the debt securities we may
purchase for the Fund, generally we maintain a weighted average effective
maturity of between 5 and 10 years. Effective maturity of a debt security takes
into account projected prepayments, call dates, put dates and sinking funds, if
any, that reduce the stated maturity date of the bond.
We anticipate that during normal market conditions the average portfolio
maturity of the Fund will not exceed 20 years. We use the stated final maturity
date (rather than effective maturity) of a security to calculate average
maturity, notwithstanding earlier call dates and possible prepayments.
Principal Risks
Interest Rate Risk: Changes in interest rate levels affect the value of the
bonds in the portfolio and the value of the Fund as a whole. Generally, the
value of a bond moves in the opposite direction of interest rates. Longer-term
bond prices tend to move more in response to interest rate changes than
shorter-term bonds.
Credit Risk: The creditworthiness of bond issuers will affect the value of their
bonds, which may decline during the Fund's holding periods and affect the value
of the Fund as a whole. The risk, generally, is less pronounced for U.S.
government and U.S. agency bonds than is the case for municipal and privately
issued bonds.
Past Performance
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total returns. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class A shares for the
past ten years. Total returns assume reinvestment of all dividends and
distributions, but do not reflect any deduction for sales charges. If the chart
reflected sales loads, returns would be less than those shown.
Annual Return
Class A shares
Year Ended December 31st
[Bar chart with following data:]
12/31/89 12.29%
12/31/90 8.49%
12/31/91 15.73%
12/31/92 6.70%
12/31/93 8.80%
12/31/94 (4.75)%
12/31/95 16.06%
12/31/96 2.26%
12/31/97 8.98%
12/31/98 6.63%
The Fund's year-to-date return as of March 31, 1999 was (0.68)%.
Best and Worst Quarterly Returns
Best Quarter: 2nd Quarter of 1989 6.86%
Worst Quarter: 3rd Quarter of 1987 (5.40)%
Average Annual Total Returns
The tables below compare the Fund's average annual total returns for Class A and
B shares with the Lehman Brothers Aggregate Bond Index(R).* Performance of the
Fund reflects the maximum sales load you would pay for the stated period. The
average annual return is calculated as of the close of the Fund's fiscal year,
which ends April 30, 1999. Returns for Class A shares are shown for one-, five-
and ten-year periods. For Class B shares, returns are shown for a one-year
period and since inception of Class B shares.
Bond Fund 1 Year 5 Year 10 Year
- --------------------------------------------------------------------------------
Class A Shares 4.61% 6.49% 7.65%
Lehman Brothers Aggregate Bond Index(R) 6.27% 8.03% 8.89%
Bond Fund 1 Year Since Inception
Class B Shares 3.60% 5.74% (1)
Lehman Brothers Aggregate Bond Index(R) 6.27% 7.82%
(1) Inception of Class B Shares, January 8, 1997
* The Lehman Brothers Aggregate Bond Index(R) is an unmanaged index that
encompasses four classes of fixed-income securities in the United States:
U.S. Treasury and U.S. government agency securities, corporate debt
obligations, mortgage-backed securities and asset-backed securities.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
Expenses
Like any investor you, pay certain expenses related to your investments. Annual
Fund operating expenses are paid from portfolio assets, so they directly reduce
your share price. These expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
Shareholder Fees
(fees paid directly from your investment) Class A Shares Class B Shares
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 4.00% None
Maximum deferred sales charge (load)
(as a percentage of net asset value) None 5.00%
Annual Fund Operating Expenses
(expenses deducted from Fund assets) Class A Shares Class B Shares
Management Fees 0.46% 0.46%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses 0.22% 0.44%
- --------------------------------------------
Total Fund Operating Expenses 0.93% 1.90%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that your investment has a
5% return each year, and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
<TABLE>
<CAPTION>
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $493 $696 $196
3 Year $690 $906 $606
5 Year $904 $1,042 $1,042
After 10 years $1,519 N/A* N/A*
</TABLE>
* Class B shares convert into Class A shares after five years.
You should use the expense example for comparison purposes only. It does not
represent the Fund's actual expenses and returns, either past or future. Actual
expenses may be greater or less than those shown.
The AAL Money Market Fund
Investment Objective
The AAL Money Market Fund seeks a high level of current income, while
maintaining liquidity and a constant net asset value of $1.00 per share by
investing in a diversified portfolio of high-quality, short-term money market
instruments.
[Sidebar: Important Information Concerning The AAL Money Market Fund]
This portfolio is a mutual fund, not a savings account. It consists of a pool of
investments that are professionally managed. You should not consider an
investment in the Fund a deposit or other obligation of any bank, credit union
or any affiliated entity. Neither the Federal Deposit Insurance Company (FDIC)
nor any other government agency insures or protects your investment. We cannot
guarantee that the Fund will achieve its goal of maintaining a constant net
asset value of $1.00 per share.
Principal Investment Strategies
We invest in short-term money market instruments for the Fund, such as:
(1) obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
(2) certificates of deposit, bankers acceptances and similar obligations of
U.S. banks, savings associations, foreign branches of U.S. banks and
domestic branches of foreign banks, which have total assets of more than $1
billion at the time of purchase, and who are members of the Federal Deposit
Insurance Corporation (FDIC);
(3) commercial paper that at the time of purchase is defined as First Tier or
Second Tier by the Investment Company Act of 1940, as long as we do not
invest more than 5% of the Fund's total assets in Second Tier commercial
paper; and
(4) corporate obligations, including variable rate master notes that at the
time of purchase are in one of the two highest categories of a nationally
recognized statistical rating organization (NRSRO), or, if unrated, issued
by a corporation with outstanding debt that has an equivalent or better
rating at the time of purchase.
We make investments for the Fund consistent with Rule 2a-7 under the Investment
Company Act of 1940. As such, we invest in securities maturing in 397 days or
less and maintain a dollar-weighted average portfolio maturity of not more than
90 days. By limiting the maturity of the Fund's investments, we seek to lessen
the changes in asset values caused by fluctuations in short-term interest rates.
Part of the Fund's objective is to maintain a constant net asset value per share
of $1.00.
We may purchase participation interests (interests in securities held by others)
in securities we are authorized to invest in for the Fund as described above.
Principal Risks
Interest Rate Risk: Changes in interest rate levels affect the yield. Increases
in short-term interest rates generally cause the Fund's assets to decline in
value. The relatively short maturity of the Fund as a whole tends to reduce this
volatility and minimizes the risk that the Fund's per share net asset value will
deviate from $1.00.
Credit Risk: The price of a security that the Fund holds may decline in response
to a deterioration of the creditworthiness of an issuer, or the provider of
credit support or a maturity-shortening structure for that security.
Financial Services Exposure: Changes in government regulations or economic
downturns can have a significant negative effect on issuers of money market
instruments in the financial services sector. The Fund frequently concentrates
its investments in this sector.
Past Performance
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total returns. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class A shares for the
past ten years. Total returns assume reinvestment of all dividends and
distributions. There is no front-end sales charge or contingent deferred sales
charge on the Fund's Class A shares.
Annual Return
Class A shares
Year Ended December 31st
[Bar chart with following data:]
12/31/89 8.61%
12/31/90 7.54%
12/31/91 5.49%
12/31/92 2.90%
12/31/93 2.03%
12/31/94 2.93%
12/31/95 4.90%
12/31/96 5.20%
12/31/97 5.19%
12/31/98 4.88%
The Fund's year-to-date return as of March 31, 1999 was 1.06%.
Best and Worst Quarterly Returns
Best Quarter: 2nd Quarter of 1989 2.23%
Worst Quarter: 4th Quarter of 1993 0.62%
Average Annual Total Returns
The tables below compare the Fund's average annual total returns for Class A and
B shares with the Salomon Brothers Short-Term Index(R).* Performance of the Fund
reflects the maximum sales load you would pay for the stated period. The average
annual return is calculated as of the close of the Fund's fiscal year which ends
April 30, 1999. Returns for Class A shares are shown for one-, five- and
ten-year periods. For Class B shares, returns are shown for a one-year period
and since inception of Class B shares.
Money Market Fund 1 Year 5 Year 10 Year
- -------------------------------------------------------------------------------
Class A Shares 4.68% 4.77% 4.80%
Salomon Brothers Short-Term Index(R) 4.36% 4.80% 4.88%
Money Market Fund 1 Year Since Inception
Class B Shares 3.67% 4.02% (1)
Salomon Brothers Short-Term Index(R) 4.36% 4.67%
(1) Inception of Class B shares, January 8, 1997
* The Salomon Brothers Short-Term Index(R) is an unmanaged index composed of
1-month U.S. Treasury Bills.
The Fund attempts to maintain a stable net asset value per share of $1.00.
Expenses
Like any investor, you pay certain expenses related to your investments. Annual
Fund operating expenses are paid from portfolio assets, so they directly reduce
your yield. These expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
Shareholder Fees
(fees paid directly from your investment) Class A Shares Class B Shares
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) None None
Maximum deferred sales charge (load)
(as a percentage of net asset value) None 5.00%
Annual Fund Operating Expenses
(expenses deducted from Fund assets) Class A Shares Class B Shares
Management Fees (1) 0.50% 0.50%
Distribution and Service (12b-1) Fees (2) 0.125% 0.875%
Other Expenses 0.49% 1.74%
- --------------------------------------------
Total Fund Operating Expenses (3) 1.12% 3.11%
(1) AAL CMC, as the adviser to the Fund, voluntarily waives a portion of the
maximum management fee for Class A and Class B shares. With this waiver,
the actual management fees were 0.275 of 1% for both Class A and Class B
shares.
(2) AAL CMC, as the distributor to the Fund, voluntarily waives a portion of
the maximum 12b-1 service fee for both Class A and Class B shares. With
this waiver, the actual 12b-1 service fees were 0.025 of 1% for Class A
shares and 0.775 of 1% for Class B shares.
(3) Operating expenses are expressed as a percentage of net assets for the
fiscal year ended April 30, 1999, and do not include the adviser's fee
waivers. Actual expenses with fee waivers, "Total Fund Operating Expenses,"
were 0.79% for Class A shares and 2.79% for Class B shares.
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated, that your investment has a
5% return each year, and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
<TABLE>
<CAPTION>
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $116 $817 $317
3 Year $363 $1,269 $969
5 Year $629 $1,645 $1,648
After 10 years $1,389 N/A* N/A*
</TABLE>
* Class B shares convert into Class A shares after five years.
You should use the expense example for comparison purposes only. It does not
represent the Fund's actual expenses and returns, either past or future. Actual
expenses may be greater or less than those shown.
MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE
Investment Adviser
AAL Capital Management Corporation (AAL CMC) serves as investment adviser and
distributor to the Funds. AAL CMC was organized in 1986 as a Delaware
corporation. AAL Holdings Inc., a wholly owned subsidiary of Aid Association for
Lutherans (AAL), a fraternal benefit society, owns all of AAL CMC's shares. AAL
is a non-profit, non-stock, membership organization licensed to do business as a
fraternal benefit society in all states. AAL has approximately 1.7 million
members and is one of the world's largest fraternal benefit societies in terms
of assets and life insurance in force. AAL ranks in the top two percent of all
life insurers in the United States in terms of ordinary life insurance (nearly
$82 billion 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 one of approximately 10,000 local AAL
branches throughout the United States. Through AAL CMC, AAL offers The AAL
Mutual Funds to Lutherans and their families. AAL CMC has served as adviser to
The AAL Mutual Funds since the commencement of operations. As of June 7, 1999,
AAL CMC managed over $6.6 billion for The AAL Mutual Funds.
[Sidebar: The adviser's principal address is:]
AAL Capital Management Corporation
222 West College Avenue
Appleton, WI 54919-0007
AAL's principal address is:
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Pursuant to an investment advisory agreement with the Funds, AAL CMC manages the
investment and reinvestment of the Funds' assets. AAL CMC also provides the
Funds with personnel, facilities, administrative services, and supervises the
Funds' daily business affairs. Services provided by AAL CMC to the Funds are
subject to the supervision of the Funds' Board of Trustees. AAL CMC formulates
and implements a continuous investment program for the Funds consistent with
each Fund's investment objectives, policies and restrictions.
Adviser Fees per Fund
The table below reflects advisory fees paid by each Fund as a percentage of
average daily net assets (effective advisory fees), for the fiscal year ended
April 30, 1999.
THE AAL SMALL CAP STOCK FUND 0.72% on the average daily net assets
THE AAL MID CAP STOCK FUND 0.67% on the average daily net assets
THE AAL INTERNATIONAL FUND 0.71% on the average daily net assets
Sub-Adviser Fees
Oechsle International Advisers, LLC 0.46% on the average daily net assets
THE AAL CAPITAL GROWTH FUND 0.54% on the average daily net assets
THE AAL EQUITY INCOME FUND 0.47% on the average daily net assets
THE AAL BALANCED FUND 0.56% on the average daily net assets
THE AAL HIGH YIELD BOND FUND 0.57% on the average daily net assets
THE AAL MUNICIPAL BOND FUND 0.45% on the average daily net assets
THE AAL BOND FUND 0.46% on the average daily net assets
THE AAL MONEY MARKET FUND 0.275% on the average daily net assets
Portfolio Management
THE AAL SMALL CAP STOCK FUND
Kevin A. Schmitting, CFA, has managed the day-to-day Fund investments since its
inception on July 1, 1996. Mr. Schmitting also managed The AAL Mid Cap Stock
Fund from November 1, 1995, through March 17, 1997. Prior to November 1, 1995,
Mr. Schmitting served as investment director and in other investment capacities
for the State of Wisconsin Investment Board from 1984 through 1995.
THE AAL MID CAP STOCK FUND
Michael R. Hochholzer, CFA, has managed the day-to-day Fund investments since
March 1997. Prior to managing the Fund, Mr. Hochholzer served as a securities
analyst and portfolio manager for Aid Association for Lutherans, the parent
company of AAL Capital Management Corporation, from 1989 through 1997.
THE AAL INTERNATIONAL FUND
Oechsle International Advisers, LLC [Oechsle] makes the day-to-day investment
decisions for the international fund portfolio under AAL CMC's direction and
control. Oechsle determines which securities to purchase and sell, arranges the
purchases and sales and gives other help in formulating and implementing the
investment program for the international fund portfolio.
The portfolio managers for The AAL International Fund are Kathleen Harris and
Sean Roche. Ms. Harris has been a portfolio manager at Oechsle since January,
1995. Prior to this, she was portfolio manager and investment director for the
State of Wisconsin Investment Board and a fund manager and equity analyst for
Northern Trust Company. Mr. Roche has been a general partner and portfolio
manager with Oechsle since 1986.
THE AAL CAPITAL GROWTH FUND
Frederick L. Plautz has managed the day-to-day Fund investments since November
1, 1995. Prior to managing the Fund, Mr. Plautz served as vice president and
portfolio manager for Federated Investors from 1990 through October 1995.
THE AAL EQUITY INCOME FUND
Lewis A. Bohannon, CFA, has managed the day-to-day Fund investments since
November 1, 1995. From 1980 through 1994, Mr. Bohannon was at Cigna Corporation,
serving as managing director and portfolio manager from 1990 to 1994.
THE AAL BALANCED FUND
Frederick L. Plautz, manager of The AAL Capital Growth Fund and Michael R. Hilt,
manager of The AAL Bond and Money Market Funds, serve as co-managers of the
Fund.
THE AAL HIGH YIELD BOND FUND
David G. Carroll, CFA, has managed the day-to-day Fund investments since its
inception on January 8, 1997. Prior to managing the Fund, he served as an
analyst and trader for Cargill Financial Services from January through September
1996. From 1986 to August 1995 he was a second vice president and portfolio
manager for Fortis Advisers, Inc.
THE AAL MUNICIPAL BOND FUND
Duane A. McAllister, CFA, has managed the day-to-day Fund investments since
April 1994. Prior to joining AAL Capital Management Corporation on November 1,
1995, he managed the Fund while serving as vice president of Duff & Phelps
Investment Management Co. For the five-year period before managing the Fund, Mr.
McAllister managed portfolios for Northern Trust Company and First National Bank
and Trust in Rockford, Illinois.
THE AAL BOND FUND
Michael R. Hilt, CFA, has managed the day-to-day Fund investments since November
1, 1995. From April 1994 through August 1995, Mr. Hilt served as portfolio
manager and quantitative analyst for Conseco Capital Management, Inc. From
August 1992 through April 1994, he served as a portfolio manager and
quantitative analyst for PPM America, Inc.
THE AAL MONEY MARKET FUND
Michael R. Hilt, CFA, has managed the day-to-day Fund investments since November
1, 1995. From April 1994 through August 1995, Mr. Hilt served as portfolio
manager and quantitative analyst for Conseco Capital Management, Inc. From
August 1992 through April 1994, he served as a portfolio manager and
quantitative analyst for PPM America, Inc.
Year 2000
Year 2000 is approaching and AAL CMC is addressing potential problems that could
affect its systems and those of The AAL Mutual Funds' other service providers,
such as the Funds' transfer agent and dividend distribution agent, Firstar Trust
Company. Many computer software systems in use today cannot distinguish the year
2000 from the year 1900 because of the way the software encodes and calculates
dates. AAL CMC has formed a committee that is reviewing its systems as well as
actively working with The AAL Mutual Funds' other service providers to address
the Year 2000 problem. At this time, however, we cannot assure that these steps
will be sufficient to avoid any adverse impact on the Funds. In addition, there
can be no assurances that Year 2000 issues will not affect the companies in
which the Funds invest, or worldwide markets and economies.
SHAREHOLDER INFORMATION
PRICING FUNDS' SHARES
The price of a Fund's share is based on the Fund's net asset value. The Funds
determine the net asset value (NAV) per share once daily at the close of trading
(normally 3:00 p.m. Central Time) on the New York Stock Exchange (NYSE). The
Funds do not determine NAV on holidays observed by the NYSE. To determine the
NAV, the Funds value their securities at current market value using readily
available market quotations. The Funds value securities that do not have readily
available market quotations at fair value as determined in good faith under
policies and guidelines approved by The AAL Mutual Funds' Board of Trustees. The
Funds may use pricing services as approved by the Board of Trustees to determine
the net asset value of their securities.
The price at which you purchase or redeem shares of the Funds is based on the
NAV next determined after the Funds receive your payment or your redemption
request.
HOW TO BUY SHARES
You can buy Class A and Class B shares in the Funds through a Registered
Representative, by mail or wire transfer. Sales charges and ongoing asset-based
distribution fees mark the primary differences between Class A and Class B
shares. We describe the differences between the types of shares below.
Buying Class A Shares
Class A shares have an up-front sales charge which is commonly referred to as a
front-end load. You buy Class A shares of each Fund at net asset value (NAV)
plus a maximum sales charge (front-end load) of 4.00% of the public offering
price (POP) incurred at the time of purchase. As a result, we do not impose a
sales charge when an investor redeems Class A shares of a Fund. We may reduce or
waive sales charges on certain purchases. The chart below shows the sales charge
percentage for Class A shares imposed at different dollar level purchases.
Breakpoints
<TABLE>
<CAPTION>
Your Sales Charge Sales Charge 50% Sales 50% Sales
Investment as a percent as a percent Charge as a Charge as a percent
Amount of POP* of Net Amount percent of of Net Amount
Invested* POP* Invested*
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $25,000 4.00% 4.17% 2.00% 2.04%
$25,000
but less than $50,000 3.75% 3.90% 1.88% 1.91%
$50,000
but less than $100,000 3.00% 3.09% 1.50% 1.52%
$100,000**
but less than $250,000 2.00% 2.04% 1.00% 1.01%
$250,000
but less than $500,000 1.00% 1.01% 0.50% 0.50%
$500,000 and up* 0.00% 0.00% 0.00% 0.00%
</TABLE>
* Registered Representatives may receive compensation of 55% of the sales
charge on amounts purchased, plus a bonus based on total commissions.
Further, Registered Representatives may receive compensation of .50 of 1%
on amounts invested of $500,000 or more.
** You should purchase Class A shares at this level of investment and above.
Please note, you buy Class A shares of The AAL Money Market Fund at net asset
value without a sales charge and you do not pay a fee upon redemption.
Reducing Your Sales Charges
We may reduce your sales charges on purchases of Class A shares under certain
circumstances, described below. If you are eligible for one of these reductions,
you must tell us or your Registered Representative at the time you purchase
Class A shares or you may or may not receive the reduction. Trustees, directors
and employees of the Funds and the adviser and sub-advisers, as well as persons
licensed to receive commissions for sales of the Funds, may not pay a sales
charge on their purchases or on purchases made by family members living with
them. We reserve the right to stop or change these reductions at any time. Prior
to making any changes, we will notify shareholders with a prospectus supplement.
50% Reduction: Non-profit organizations, charitable trusts, charitable remainder
unitrusts, endowments, AAL branches and congregations pay only 50% of the normal
sales charge so long as there is an affiliation with a Lutheran organization.
The reduction does not apply to 403(b)(7) retirement plan accounts.
Rights of Accumulation: You can combine all your Class A, Class B and
Institutional share purchases, including the purchases of family members who
live with you, when computing your current sales charge for Class A shares.
Eligible shares for combination in computing the sales charge include those
contained in individual, joint tenant, gift/transfer to minor, trust and IRA
accounts. Employer sponsored plans can link the shares in the plan for purposes
of calculating a sales charge reduction. Rights of accumulation includes the
value of all Class A shares at the public offering price, all Class B shares,
all Institutional shares and reinvested dividends and capital gains.
Letter of Intent
To reduce your sales charge on purchases above the breakpoints listed above, you
can sign a letter of intent if you intend to invest more than the dollar amount
at any one breakpoint during the next 13 months. Class A or Class B share
purchases fulfill the letter of intent, but you receive a reduced sales charge
on Class A shares only. You can include purchases in accounts you have linked
for purposes of the rights of accumulation, as well as, purchases made in the
last 90 days. We will not recalculate the sales charge on prior purchases.
You do not have any obligation to buy additional shares. During the letter of
intent period, we will escrow shares totaling 5% of the investment goal. If for
some reason you do not fulfill the letter of intent within the 13-month period,
we will sell escrowed shares to cover any additional sales charges due from you.
You should sign only one letter of intent for all accounts combined under rights
of accumulation.
Share purchases in The AAL Money Market Fund do not apply toward your letter of
intent, unless you originally purchased shares in another Fund and paid a sales
charge, and later exchanged those shares for your shares of The AAL Money Market
Fund.
Buying Class B Shares
Class B shares have a contingent deferred sales charge, which is commonly
referred to as a back-end load. You buy Class B shares of each Fund at net asset
value with no initial sales charge. However, you may pay a contingent deferred
sales charge (expressed as a percentage of the lesser of the current net asset
value or original cost) of up to 5% if you redeem shares within five years after
purchase. We do not impose a contingent deferred sales charge on shares you
acquire through the reinvestment of dividends and capital gains. To reduce your
cost, when you redeem shares in a Fund, you will redeem either shares that are
not subject to a contingent deferred sales charge (i.e., those bought through
reinvestment of dividends and capital gains) or shares with the lowest
contingent deferred sales charge. We waive the contingent deferred sales charge
upon redemption of shares following the death or disability of a shareholder or
for mandatory or hardship distributions from retirement plans, IRAs and 403(b)
plans or to meet certain retirement plan requirements. Also, we reduce the
amount of the contingent deferred sales charge depending on the amount of years
from the purchase of Class B shares until the sale of those shares according to
the following table:
Years After Deferred Sales Charge on
Purchase Shares Sold*
- -----------------------------------------------------------------------------
1st year 5.00%
2nd year 4.00%
3rd year 3.00%
4th year 2.00%
5th year 1.00%
After 5th year 0.00%
*Registered Representatives may receive compensation in connection with your
purchase of Class B shares in the amount of up to 1.25% of the purchase amount,
plus a bonus based on total commissions, even if such shares are not redeemed
within five years of purchase and thus not subject to a back-end load. We base
the sales charge on the lesser of the net asset value of the shares at the time
of the purchase or at the time of the sale.
You should not consider buying Class B shares if you can elect the 50% reduction
for purchases of Class A shares or you are investing $100,000 or more in the
Funds. Also, because of the higher expenses, you should not consider buying
Class B shares of The AAL Money Market Fund unless you intend to exchange them
for other Class B shares or as part of The AAL Mutual Funds' Capital Builder
Plan.
Conversion to Class A shares
Your Class B shares automatically convert to Class A shares after 5 years from
the purchase date, reducing future annual expenses. Class B shares provide the
benefit of putting all of your dollars to work from the time you make your
investment. However, until your Class B shares convert to Class A shares, you
will have a higher expense ratio, receive lower dividends and may have a lower
net asset value than Class A shares due to the higher 12b-1 fees.
You should consider the amount and intended length of time of your investment
when determining which share class would benefit you the most. In general, if
you intend to make a large investment, thus qualifying for a reduced sales
charge, you might consider purchasing Class A shares. If you intend to make a
smaller investment, you might consider Class B shares because 100% of your
purchase is invested immediately.
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 Account $250 $50
Automatic Investment Plan $0 $25
* Minimum amounts may be waived for qualified group retirement plans and
payroll deduction plans with prior approval or when required by law.
Opening a New Account
Your AAL Capital Management Corporation Registered Representative is ready to
help you open a new account. If you do not know the name of your Registered
Representative, please call the Mutual Funds Service Center at (800) 553-6319.
The Telecommunications Device for the Deaf (TDD) is (800) 684-3416.
Purchasing Shares for the First Time by Mail To open your new account, just
follow these steps:
Step One:
After reviewing this prospectus, complete an AAL Mutual Funds application and
new account form, for every different account registration. For example, you
need a separate application for an individual account in The AAL Bond Fund and a
separate application for an IRA account invested in The AAL Bond Fund. Remember
to designate whether you are purchasing Class A shares or Class B shares. If you
do not complete the application properly, your purchase may be delayed or
rejected;
Step Two:
Make your check payable to the Fund you are buying, for example, "The AAL Bond
Fund." If you are buying more than one Fund, make your check payable to "THE AAL
MUTUAL FUNDS." DO NOT MAKE YOUR CHECK PAYABLE TO AAL OR AAL CAPITAL MANAGEMENT
CORPORATION; and
Step Three:
Mail your completed application and check to:
The AAL Mutual Funds
Attn: New Accounts
222 W. College Ave.
P.O. Box 8004
Appleton, WI 54912-8004
Please note, how you register your account with the Funds can affect your legal
interests as well as the rights and interests of your family and beneficiaries.
You should always consult with your legal and/or tax adviser to determine the
account registration that best meets your needs. You must clearly identify the
type of account you want on your AAL Mutual Funds application. Some account
registrations may require additional documents.
Purchasing Shares for the First Time By Wire
If your bank is a member of, or has a corresponding relationship with a member
of the Federal Reserve System, you can buy shares of the Funds by wire transfer
by following these steps:
Step One:
Call AAL Capital Management Corporation at (800)-553-6319 (The AAL Mutual Funds
Service Center (Service Center)) and provide the following information:
your account registration;
the name of the Fund(s) in which you want to invest and whether you wish to
buy Class A or Class B shares;
your address;
your Social Security or tax identification number;
the dollar amount;
the name of the wiring bank; and
the name and telephone number of the person at your bank who the Funds can
contact about your purchase.
We must receive your wire order before the closing of the NYSE (normally
3:00 p.m. Central Time) to receive that day's price.
Step Two:
Instruct your bank to use the following instructions when wiring funds:
Wire To: Firstar Bank
Milwaukee, N.A.
ABA #0705000022
Credit: Firstar Trust Company
Account 112-952-137
Further Credit: Name of Fund
Shareholder Account Number
Shareholder Registration
Please call (800) 553-6319 prior to sending the wire in order to obtain a
confirmation number and to ensure prompt and accurate handling of funds.
The Fund and its transfer agent are not responsible for the consequences of
delays resulting from the banking or Federal Reserve Wire system, or from
incomplete wiring instructions.
Step Three:
Complete The AAL Mutual Funds application and mail it immediately to:
The AAL Mutual Funds
Attn: New Accounts
222 W. College Ave.
P.O. Box 8004
Appleton, WI 54912-8004
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 Purchases by Mail
Payment for additional purchases in existing Fund accounts should be sent
directly to the Funds' transfer agent at the following address:
REGULAR MAIL
The AAL Mutual Funds
c/o Firstar Trust Company
615 E. Michigan St
P. O. Box 2981
Milwaukee, WI 53201-2981
EXPRESS MAIL/PRIVATE DELIVERY
The AAL Mutual Funds
c/o Firstar Trust Company
Mutual Fund Services, Third Floor
615 E. Michigan St
P.O. Box 2981
Milwaukee, WI 53202
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, 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,"
and in addition, by providing your existing Fund account number.
The Funds' transfer agent, Firstar Trust Company, must receive your wire order
funds in its offices prior to the close of the NYSE (normally 3:00 p.m. Central
Time), to purchase shares on that day. Money received after the close of the
NYSE will go toward the purchase of shares the next day at that day's price.
Additional Purchase by Telephone
Before you can buy additional shares by telephone, you must have selected the
Request for Telephone Purchase option on the application. Once you have selected
this option, you can call the Mutual Funds Service Center and we will withdraw
money from your bank checking or savings account to make your investment. You
pay the next price computed after the Funds have received your investment from
your bank, which is usually three business days after you authorize the
transfer. If you need to invest sooner, you should consider making a bank wire
purchase.
Automatic Investment Plans
The Funds offer several automatic investment plans to make periodic investing
more convenient. These plans are not required to meet a minimum initial
investment. Using The AAL Mutual Funds automatic investment plans, you may
implement a strategy called dollar cost averaging. Dollar cost averaging
involves investing a fixed amount of money at regular intervals. When you dollar
cost average, you purchase more shares when the price is low and fewer shares
when the price is high. Dollar cost averaging does not ensure a profit or
protect against a loss during declining markets. Because such a program involves
continuous investment regardless of changing share prices, you should consider
your ability to continue the program through times when the share prices are
low.
Please note, 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 Funds Service Center at (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,
International, Capital Growth, Equity Income, Balanced, High Yield Bond,
Municipal Bond and Bond Funds by redemption of shares from their AAL Money
Market Fund account. The capital builder plan allows investors to select the
transaction date. If you do not select the date, it will automatically be drawn
from your 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.
The Government Allotment Plan
The Government Allotment Plan allows Lutheran Social Security recipients,
federal employees and military personnel to invest in The AAL Mutual Funds
through direct deduction from their paychecks.
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.
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. These accounts may offer you tax advantages. You should consult
with your legal and/or tax adviser before you establish a retirement plan. A
third-party maintenance fee may apply to some retirement accounts. Please review
plan documents for more information.
o IRA (Individual Retirement Account)
o "Rollover" IRA
o Roth IRA -- annual contributions are not tax deductible but distributions
may not be subject to income tax
o Education IRA -- annual contributions are not tax deductible, but
distributions may not be subject to income tax
o SEP-IRA (Simplified Employee Pension Plan)
o SARSEP-IRA (Salary Reduction Simplified Employee Pension Plan) -- No new
plans may start after 1996, but existing plans may continue
o SIMPLE-IRA (Savings Incentive Match Plan for Employees)
o 403(b)(7) Custodial Account -- for employees of public schools and certain
non-profit organizations
o Money Purchase Pension Plan
o Profit Sharing Plan
o 401(k) Plan
Other Purchase Information
Earning Income
You begin earning income, if any, on your shares on the business day following
the day our transfer agent receives your payment.
Purchases
Your purchase must be in U.S. dollars and your check must be drawn on a U.S.
bank. We do not accept cash or traveler's checks. If your check does not clear,
we will cancel your purchase and hold you liable for any losses and any
applicable fees. If you buy shares by any type of check, electronic funds
transfer (other than bank wires) or automatic investment plan, and you elect to
redeem your shares soon thereafter, we may postpone paying the redemption
proceeds for 12 days, or until your check has cleared, whichever is later. This
does not limit your right to redeem shares. Rather, it operates to make sure
that payment for the shares redeemed has been received by the transfer agent.
Confirmation
We generally mail written confirmation of your purchases, except for The AAL
Money Market Fund, within two business days following the date of your purchase.
We mail confirmation of additional purchases in The AAL Money Market Fund
monthly. We mail confirmation of your automatic investment plan purchases at
least quarterly.
Share Certificates
We issue share certificates only upon written request, and then only for full
shares. You must make a new written request for a share certificate each time
you purchase shares. We do not charge a fee to issue share certificates. If you
have asked for or have received share certificates, you cannot use certain
shareholder services, including wire, check and telephone redemption, share
exchange and any systematic withdrawal. Before you can redeem, transfer or
exchange your shares, you must deliver the share certificates to our transfer
agent in negotiable form (with a signature guarantee). We may not have share
certificates available for some retirement accounts. If you lose your share
certificate(s), you will be unable to redeem your shares until you receive a
replacement certificate.
Other Information
The U.S. Postal Service or private delivery services are not agents of the
Funds, the distributor, or the transfer agent. We do not legally receive your
purchase application or your request for redemption when you deposit them in the
mail, send them with a private delivery service or when you deposit them in our
Post Office Box. We must have physical possession of your request to consider
your request received. Current law will determine the legal effect of posting
for deadline purposes.
We reserve the right to suspend the offering of shares for a period of time and
the right to reject any specific purchase of shares.
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 Registered Representative or the Mutual Funds
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
Registered Representative or from the Mutual Funds Service Center.
HOW TO REDEEM (SELL) SHARES
You can sell your shares on any business day. When you sell your shares, you
receive the net asset value per share, except for Class B shares for which you
will receive the net asset value per share minus the back-end load, if any,
depending on how long you have held the shares redeemed. If we receive your
request in good order, which includes all the information listed below, before
the close of the NYSE (normally 3:00 p.m. Central Time) you will receive that
day's price. If we receive your redemption request in good order on a holiday,
weekend or day the NYSE is closed, we will process your transaction request on
the next business day. You can sell shares several ways. Please note that
transfers via Electronic Funds Transfer (EFT) generally take up to three
business days to reach your bank account.
Redemptions 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 good order by the Funds'
transfer agent.
The Funds' base payment for shares presented for redemption at a Fund's net
asset value next computed after a request is received in good order by the
transfer agent. Shareholders earn income and receive dividends paid on Funds
through the date of redemption. The Funds will mail payment proceeds within
seven days following receipt of all required documents. The Funds may postpone
payment or suspend the right of redemption in unusual circumstances, as
permitted by the U.S. Securities and Exchange Commission. When you purchase
shares by check, the Funds may delay payment for redemption requests for the
shares purchased for 12 days or until your check has cleared, if later.
In order for your redemption request to be in good order, you must include the
name(s) of the account owner(s), your account number and specify the dollar or
share amount you wish to redeem. You and any other persons registered as
shareholders on the account must sign your redemption request. You must sign the
request exactly as the account is registered. If you wish to redeem shares with
a value in excess of $25,000, you must have your signature(s) 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 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.
You may redeem shares of any of the Funds by mail, by sending a written request
for redemption to:
REGULAR MAIL
The AAL Mutual Funds
c/o Firstar Trust Company
615 E. Michigan St
P. O. Box 2981
Milwaukee, WI 53201-2981
EXPRESS MAIL/PRIVATE DELIVERY
The AAL Mutual Funds
c/o Firstar Trust Company
Mutual Fund Services, Third Floor
615 E. Michigan St
P.O. Box 2981
Milwaukee, WI 53202
Redemptions by Telephone
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 Mutual Funds Service Center at
(800) 553-6319. By accepting this privilege, you assume some risks for
unauthorized transaction. Once a telephone request has been made, it cannot be
canceled or modified. 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 account owners and adresses and supplying
transaction verification information. AAL Capital Management Corporation will
not be liable for losses from telephone redemptions if they follow these
reasonable procedures.
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.
Redemptions by Bank Wire
a. Existing shareholders must send The AAL Mutual Funds Application or Account
Change Request with the appropriate section completed prior to exercising
the privilege of wire redemption to:
REGULAR MAIL
The AAL Mutual Funds
c/o Firstar Trust Company
615 E. Michigan St
P. O. Box 2981
Milwaukee, WI 53201-2981
EXPRESS MAIL/PRIVATE DELIVERY
The AAL Mutual Funds
c/o Firstar Trust Company
Mutual Fund Services, Third Floor
615 E. Michigan St
P.O. Box 2981
Milwaukee, WI 53202
b. Wire redemptions can be made for any amount;
c. A $12.00 fee is assessed for redemptions by wire; and
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.
Systematic Withdrawal Plan (Usually Only Appropriate for Class A Shares)
You can have money automatically withdrawn from your AAL Mutual Funds account(s)
on a regular basis by using our systematic withdrawal plan. The plan allows you
to receive funds or pay a bill at regular intervals. The following rules and/or
guidelines apply:
You need a minimum of $5,000 in your account to start the plan;
You can select the date(s) on which the money is withdrawn. If you don't
select the date(s), we will withdraw the money automatically from your
account on the 15th of the month;
To start the plan or change the payee(s), you must notify us in writing at
least 13 business days prior to the first withdrawal and you must have all
account owner(s) sign the appropriate form;
To stop or change your plan, you must notify us at least 5 business days
prior to the next withdrawal; and
Because of sales charges, you must consider carefully the costs of frequent
investments in and withdrawals from your account.
The AAL Money Market Fund Checks (Class A Shares Only)
You can write checks on your AAL Money Market Fund account, except for Class B
shares, if you complete a check writing signature card and agreement. You can
request checks on your AAL Mutual Funds application or in writing. We do not
charge a fee for supplying your first set of checks, but charge a fee for each
additional packet of checks. The following rules and/or guidelines apply:
The checks you write on The AAL Money Market Fund must be for $500 or more
(Because the Fund is not a bank, some features, such as stop payment, are
not available);
Our transfer agent may impose reasonable fees for each check that is
returned;
We do not return your canceled checks. For a fee, our transfer agent will
send a copy of your check to you at your request;
Unless you purchased shares by bank wire, you must wait 12 days after you
purchase AAL Money Market Fund shares to write checks against that
purchase; and
You need a written request --NOT A CHECK-- to close an AAL Money Market
Fund account. Your written request will require a signature guarantee to
close accounts over $25,000.
Reinstatement Privilege (Class A Shares Only)
You have 60 days after you sell shares to reinvest the dollar amount you
redeemed without having to pay another sales charge. You will pay the net asset
value per share on the day when you made your reinvestment and not on the day
when you sold your investment.
The following rules and/or guidelines apply:
You may use this privilege only ONCE per account;
You must send a written request and a check for the amount you wish to
reinvest to the Funds' transfer agent:
REGULAR MAIL
The AAL Mutual Funds
C/o Firstar Trust Company
P. O. Box 2981
615 E. Michigan St.
Milwaukee, WI 53201-2981
EXPRESS MAIL/PRIVATE DELIVERY
The AAL Mutual Funds
C/o Firstar Trust Company
Mutual Funds Services, Third Floor
615 E. Michigan St.
Milwaukee, WI 53202;
The dollar amount you reinvest cannot exceed the dollar amount you sold;
The sale of your shares may be a taxable event despite the reinstatement;
and
The reinstatement privilege does not apply to qualified retirement plan
accounts (i.e., 403(b) and 401(k) accounts).
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 as a result of redemption. 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
Shares of the Funds held for at least 12 days may be exchanged for shares of any
other AAL Mutual Fund 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. However, if you
initially purchased Class A shares of The AAL Money Market Fund, and did not pay
an initial sales charge, you would not be able to exchange these shares for
another Fund without paying a sales charge.
Minimum investment rules may apply when you open a new account by exchanging
shares, and you may have to submit a new application (i.e., you must exchange at
least $1,000 worth of shares to another Fund and fill out a new account form, if
you have not invested shares in the other AAL Mutual Fund account before). You
can exchange for the same class of shares only (for example, Class A shares for
Class A shares and Class B shares for Class B shares).
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.
An exchange constitutes a redemption of the shares of one mutual fund and the
purchase of shares of another. 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. The Funds will provide at least 60
days notice prior to modifying or terminating the exchange privilege.
Exchanges by Mail
You can make an exchange by mail by sending your request to the Funds' transfer
agent:
REGULAR MAIL
The AAL Mutual Funds
C/o Firstar Trust Company
P. O. Box 2981
615 E. Michigan St.
Milwaukee, WI 53201-2981
EXPRESS MAIL/PRIVATE DELIVERY
The AAL Mutual Funds
C/o Firstar Trust Company
Mutual Funds Services, Third Floor
615 E. Michigan St.
Milwaukee, WI 53202;
Please include the following information in your exchange request:
1. name(s) of the account owner(s);
2. account number(s);
3. amount of shares (or dollar amount) you want to exchange;
4. the name of the Fund you are exchanging into; and
5. signatures of all account owners.
Exchanges by Telephone
You can sell or exchange shares by phone. By doing so, you assume some risks for
unauthorized transactions. AAL Capital Management Corporation has 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.
Telephone exchanges (transactions in which the registration does not change) are
subject to the requirements described above, and additional requirements as
follows.
You may exchange shares for which certificates have not been issued by
telephoning the Mutual Funds Service Center at (800) 553-6319 or (920) 734-7633.
Telephone exchange requests received prior to the close of the NYSE (usually
3:00 p.m. Central Time) will receive that day's price.
Telephone exchanges will be permitted only if you elect the telephone exchange
option on your initial purchase application, or request 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 Funds 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.
DIVIDENDS
The Funds endeavor to qualify annually for, and elect tax treatment applicable
to, a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986 as amended (Code). Pursuant to the requirements of the Code, we
intend to distribute substantially all of the Funds' net investment income and
net realized capital gains, if any, less any available capital loss carryover,
to shareholders annually. We do this to avoid paying income tax on the Funds'
net investment income and net realized capital gains or being subject to a
federal excise tax on undistributed net investment income and net realized
gains. Annually, we intend to comply with all of the requirements to qualify as
a regulated investment company for each Fund. We provide you with full
information on dividends and capital gains distributions for each Fund on an
annual basis.
Below, we provide you with a general description of the distribution policies
and some of the tax consequences for the Funds' shareholders. You should always
check with your tax adviser to determine whether any dividends and distributions
paid to you by a Fund are subject to any taxes, including state and local taxes.
The AAL Small Cap Stock, Mid Cap Stock, International, Capital Growth, Equity
Income, Balanced, High Yield Bond, Bond and Money Market Funds The dividends
from net investment income of each of these Funds, including net short-term
capital gains, are taxable as ordinary income to shareholders, whether paid in
additional shares or in cash. Any long-term capital gains distributed to
shareholders are taxable as capital gains to shareholders, whether they receive
them in cash or in additional shares, and regardless of the length of time a
shareholder has owned the shares.
We distribute substantially all net investment income and any net realized
capital gains, if any, for the Funds as shown in the table below.
Fund Dividends (if any) Capital Gains (if any)
- ------------------------------------------------------------------------------
The AAL Small Cap Stock Fund annually annually
The AAL Mid Cap Stock Fund annually annually
The AAL International Fund annually annually
The AAL Capital Growth Fund semiannually annually
The AAL Equity Income Fund quarterly annually
The AAL Balanced Fund quarterly annually
The AAL High Yield Bond Fund monthly annually
The AAL Municipal Bond Fund monthly annually
The AAL Bond Fund monthly annually
The AAL Money Market Fund monthly annually
The AAL Bond, Municipal Bond, High Yield Bond and Money Market Funds accrue
income dividends daily.
The AAL Municipal Bond Fund
Dividends derived from the interest earned on municipal securities constitute
"exempt-interest dividends" and are generally not subject to federal income tax.
Realized capital gains on municipal securities are subject to federal income
tax. Thus, shareholders will be subject to taxation at ordinary rates on the
dividends they receive that are derived from net short-term capital gains.
Distributions of net long-term capital gains will be taxable as long-term
capital gains regardless of the length of time a shareholder holds them. We may,
for temporary defensive purposes, invest in short-term taxable securities for
the Fund. Shareholders of this Fund are subject to federal income tax at
ordinary rates on any income dividends they receive that are derived from
interest on taxable securities.
For shareholders who are receiving Social Security benefits, the federal
government requires you to add tax-exempt income, including exempt-interest
dividends from this Fund, to your taxable income in determining whether a
portion of your Social Security benefits will be subject to federal income tax.
The Internal Revenue Code provides that every person required to file a tax
return must report, solely for informational purposes, the amount of
exempt-interest dividends received from the Funds during the taxable year.
Reinvestment of Fund Distributions
You can reinvest all of your income dividends and/or capital gains distributions
into the Funds at net asset value and pay no up-front (Class A shares) or
contingent deferred (Class B shares) sales charges. You also can have your
distributions paid in cash. When you receive a distribution you may have to pay
taxes whether or not you reinvested them or had them paid out to you in cash. If
you have requested cash distributions and we cannot locate you, we will reinvest
your dividends.
TAX CONSIDERATIONS
As with all funds distributing taxable income, you as a tax-paying investor will
be subject to income taxes on all dividends and distributions, regardless of
whether you elect to take them in cash or have them reinvested.
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. The shareholder returns that we
project at maturity assume 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 our projections 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. 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.
This discussion provides no information as to state and local tax consequences
of ownership of shares of the Funds. You should consult your personal tax
adviser to determine the consequences of state and local taxes, and for a more
detailed assessment of federal tax consequences for your particular
circumstances.
DISTRIBUTION ARRANGEMENTS
12b-1 Fees
In addition to the sales charge deducted at the time of purchase, each Fund is
authorized, pursuant to a Rule 12b-1 Distribution Plan it has adopted (12b-1
Distribution Plan or Plan), to use a portion of its assets to cover the costs of
certain activities relating to the distribution of its shares to investors.
The 12b-1 Distribution Plan permits each Fund to reimburse the distributor for
expenses incurred in distributing the Funds' shares to investors, which includes
expenses relating to: sales representative compensation (excluding the initial
sales charge); advertising; preparation and distribution of sales literature and
prospectuses to prospective investors; implementing and operating the Plan; and
performing other promotional or administrative activities on behalf of the
Funds.
Pursuant to the Plan, we may also reimburse the distributor for overhead
expenses incurred in distributing the Funds' shares. We may not reimburse the
distributor for expenses of past fiscal years or in contemplation of expenses
for future fiscal years. We may not use distribution fees we pay for one Fund to
finance the distribution of shares for another Fund.
Except for The AAL Money Market Fund, each Fund pays a service fee of up to 0.25
of 1% of its average daily net assets for Class A and Class B shares. The AAL
Money Market Fund pays a service fee of up to 0.125 of 1% of the average daily
net assets for Class A and Class B shares. We use the shareholder service fee to
compensate for certain shareholder services. The table below shows the maximum
12b-1 distribution and service fee paid by each Fund.
Distribution Fees
Fund Class A shares Class B shares
The AAL Small Cap Stock Fund None 0.75%
The AAL Mid Cap Stock Fund None 0.75%
The AAL International Fund None 0.75%
The AAL Capital Growth Fund None 0.75%
The AAL Equity Income Fund None 0.75%
The AAL Balanced Fund None 0.75%
The AAL High Yield Bond Fund None 0.75%
The AAL Municipal Bond Fund None 0.75%
The AAL Bond Fund None 0.75%
The AAL Money Market Fund None 0.75%
Service Fees
Fund Class A shares Class B shares
The AAL Small Cap Stock Fund 0.25% 0.25%
The AAL Mid Cap Stock Fund 0.25% 0.25%
The AAL International Fund 0.25% 0.25%
The AAL Capital Growth Fund 0.25% 0.25%
The AAL Equity Income Fund 0.25% 0.25%
The AAL Balanced Fund 0.25% 0.25%
The AAL High Yield Bond Fund 0.25% 0.25%
The AAL Municipal Bond Fund 0.25% 0.25%
The AAL Bond Fund 0.25% 0.25%
The AAL Money Market Fund 0.125% 0.125%
Shareholder Maintenance Agreement
Under contracts approved by the Board of Trustees, AAL Capital Management
Corporation provides certain shareholder maintenance services. AAL Capital
Management Corporation receives an annual fee for providing these services. This
fee is based upon, and limited by, the difference between the current account
fees charged and the normal full-service fee schedule established by our
transfer agent. It also includes reimbursement for out-of-pocket costs including
postage and telephone charges. This account differential, including
reimbursement for expenses, is approximately $4.08 per account per year.
FINANCIAL HIGHLIGHTS INFORMATION
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years or, if shorter, the period of the
Fund's operations. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by the
accounting firm of PricewaterhouseCoopers LLP, whose report, along with each
Fund's financial statements are included in the annual report, which is
available upon request.
THE AAL SMALL CAP STOCK FUND
<TABLE>
<CAPTION>
Year Year Period:
Ended Ended 7/1/96 to
CLASS A SHARES 4/30/99 4/30/98 4/30/97
<S> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $13.84 $ 9.84 $10.00
Income from Investment Operations
Net Investment Income (Loss) (0.12) (0.10) (0.06)
Net Realized and Unrealized Gain (Loss) on Investments (2.51) 4.73 0.16
Total From Investment Operations (2.63) 4.63 0.10
Distributions from
Net Investment Income -- -- --
Net Realized Capital Gains (0.32) (0.63) (0.27)
Total Distributions (0.32) (0.63) (0.27)
Net Asset Value - End of Period $10.89 $13.84 $ 9.84
Total Return (1) (18.79)% 47.97% (0.78)%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $116.0 $120.3 $ 44.5
Ratio of Expenses to Average Net Assets (2)* 1.82% 1.71% 2.06%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* (1.15)% (1.05)% (1.20)%
Portfolio Turnover Rate 112.96% 105.60% 138.50%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets(2): 1.82% 1.71% 2.06%
Class A shares - Ratio of Net Investment Income(Loss) to Average Net (1.15)% (1.05)% (1.20)%
Assets(2):
Year Year Period:
Ended Ended 1/8/97 to
CLASS B SHARES 4/30/99 4/30/98 4/30/97
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $13.73 $ 9.81 $11.17
Income from Investment Operations
Net Investment Income (Loss) (0.22) (0.16) (0.03)
Net Realized and Unrealized Gain (Loss) on Investments (2.50) 4.67 (1.33)
Total From Investment Operations (2.72) 4.51 (1.36)
Distributions from
Net Investment Income -- -- --
Net Realized Capital Gains (0.27) (0.59) --
Total Distributions (0.27) (0.59) --
Net Asset Value - End of Period $10.74 $13.73 $ 9.81
Total Return (1) (19.85)% 46.86% (12.18)%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $ 15.8 $ 14.4 $ 3.4
Ratio of Expenses to Average Net Assets (2)* 2.89% 2.60% 3.20%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* (2.22)% (1.94)% (2.39)%
Portfolio Turnover Rate 112.96% 105.60% 138.50%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class B shares - Ratio of Expenses to Average Net Assets(2): 2.89% 2.60% 3.20%
Class B shares - Ratio of Net Investment Income(Loss) to Average Net (2.22)% (1.94)% (2.39)%
Assets(2):
(1) Total Return assumes reinvestment of all dividends and distributions but does not reflect any deduction
for sales charge. The aggregate, not annualized total return is shown for periods less than one year.
(2) For periods less than one year, both the ratio of net operating expenses to average net assets and the
ratio of net investment income (loss) to average net assets are calculated on an annualized basis.
</TABLE>
THE AAL MID CAP STOCK FUND
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
CLASS A SHARES 4/30/99 4/30/98 4/30/97 4/30/96 4/30/95
<S> <C> <C> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $15.93 $12.71 $17.11 $ 10.92 $10.38
Income from Investment Operations
Net Investment Income (Loss) (0.04) (0.04) (0.12) (0.10) (0.05)
Net Realized and Unrealized Gain (Loss) on Investments (1.25) 4.75 (1.63) 6.29 0.59
Total From Investment Operations (1.29) 4.71 (1.75) 6.19 0.54
Distributions from
Net Investment Income -- -- -- -- --
Net Realized Capital Gains (0.75) (1.49) (2.65) -- --
Total Distributions (0.75) (1.49) (2.65) -- --
Net Asset Value - End of Period $13.89 $15.93 $12.71 $17.11 $10.92
Total Return (1) (7.62)% 38.73% (11.08)% 56.59% 5.20%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $584.9 $671.5 $461.7 $425.0 $220.8
Ratio of Expenses to Average Net Assets (2)* 1.37% 1.30% 1.35% 1.39% 1.54%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* (0.28)% (0.27)% (0.94)% (0.82)% (0.77)%
Portfolio Turnover Rate 125.94% 104.73% 112.60% 90.14% 88.18%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets(2): 1.37% 1.30% 1.35% 1.39% 1.54%
Class A shares - Ratio of Net Investment Income(Loss) to (0.28)% (0.27)% (0.94)% (0.82)% (0.77)%
Average Net Assets(2):
</TABLE>
<TABLE>
<CAPTION>
Year Year Period:
Ended Ended 1/8/97 to
CLASS B SHARES 4/30/99 4/30/98 4/30/97
<S> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $15.78 $12.69 $13.67
Income from Investment Operations
Net Investment Income (Loss) (0.17) (0.12) (0.03)
Net Realized and Unrealized Gain (Loss) on Investments (1.27) 4.65 (0.95)
Total From Investment Operations (1.44) 4.53 (0.98)
Distributions from
Net Investment Income -- -- --
Net Realized Capital Gains (0.70) (1.44) --
Total Distributions (0.70) (1.44) --
Net Asset Value - End of Period $13.64 $15.78 $12.69
Total Return (1) (8.70)% 37.41% (7.17)%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $17.0 $13.6 $ 3.3
Ratio of Expenses to Average Net Assets (2)* 2.56% 2.33% 2.29%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* (1.46)% (1.30)% (1.41)%
Portfolio Turnover Rate 125.94% 104.73% 112.60%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class B shares - Ratio of Expenses to Average Net Assets(2): 2.56% 2.33% 2.29%
Class B shares - Ratio of Net Investment Income(Loss) to Average Net (1.46)% (1.30)% (1.41)%
Assets(2):
(1) Total Return assumes reinvestment of all dividends and distributions but does not reflect any
deduction for sales charge. The aggregate, not annualized total return is shown for periods less
than one year.
(2) For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) to average
net assets are calculated on an annualized basis.
</TABLE>
THE AAL INTERNATIONAL FUND
<TABLE>
Year Year Year Year
Ended Ended Ended Ended
CLASS A SHARES 4/30/99 4/30/98 4/30/97 4/30/96
<S> <C> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $11.15 $11.37 $11.08 $10.00
Income from Investment Operations
Net Investment Income (Loss) 0.08 0.17 0.01 0.05
Net Realized and Unrealized Gain (Loss) on Investments 0.65 0.56 0.68 1.05
Total From Investment Operations 0.73 0.73 0.69 1.10
Distributions from
Net Investment Income (0.44) (0.37) (0.34) (0.02)
Net Realized Capital Gains (0.09) (0.58) (0.06) --
Total Distributions (0.53) (0.95) (0.40) (0.03)
Net Asset Value - End of Period $11.35 $11.15 $11.37 $11.08
Total Return (1) 6.82% 7.34% 6.32% 11.07%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $146.9 $144.2 $116.2 $ 57.1
Ratio of Expenses to Average Net Assets (2)* 1.74% 1.91% 2.10% 2.15%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* 0.64% 1.36% 0.88% 0.94%
Portfolio Turnover Rate 100.90% 19.90% 12.95% 1.30%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets(2): 1.74% 1.91% 2.10% 2.15%
Class A shares - Ratio of Net Investment Income(Loss) to Average Net 0.64% 1.36% 0.88% 0.94%
Assets(2):
</TABLE>
<TABLE>
<CAPTION>
Year Year Period:
Ended Ended 1/8/97 to
CLASS B SHARES 4/30/99 4/30/98 4/30/97
<S> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $11.05 $11.34 $10.98
Income from Investment Operations
Net Investment Income (Loss) (0.03) 0.13 --
Net Realized and Unrealized Gain (Loss) on Investments 0.64 0.49 0.36
Total From Investment Operations 0.61 0.62 0.36
Distributions from
Net Investment Income (0.34) (0.33) --
Net Realized Capital Gains (0.09) (0.58) --
Total Distributions (0.43) (0.91) --
Net Asset Value - End of Period $11.23 $11.05 $11.34
Total Return (1) 5.72% 6.30% 3.28%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $ 9.8 $ 7.9 $ 2.6
Ratio of Expenses to Average Net Assets (2)* 2.85% 2.90% 2.94%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* (0.52)% 0.34% (0.03)%
Portfolio Turnover Rate 100.90% 19.90% 12.95%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class B shares - Ratio of Expenses to Average Net Assets(2): 2.85% 2.90% 2.94%
Class B shares - Ratio of Net Investment Income(Loss) to Average Net (0.52)% 0.34% (0.03)%
Assets(2):
(1) Total Return assumes reinvestment of all dividends and distributions but does not reflect any deduction
for sales charge. The aggregate, not annualized total return is shown for periods less than one year.
(2) For periods less than one year, both the ratio of net operating expenses to average net assets and the
ratio of net investment income (loss) to average net assets are calculated on an annualized basis.
</TABLE>
THE AAL CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
CLASS A SHARES 4/30/99 4/30/98 4/30/97 4/30/96 4/30/95
<S> <C> <C> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $29.64 $21.50 $18.79 $15.56 $14.49
Income from Investment Operations
Net Investment Income (Loss) 0.09 0.10 0.13 0.20 0.27
Net Realized and Unrealized Gain (Loss) on Investments 6.69 9.26 3.68 3.76 1.70
Total From Investment Operations 6.78 9.36 3.81 3.96 1.97
Distributions from
Net Investment Income (0.09) (0.08) (0.15) (0.22) (0.30)
Net Realized Capital Gains (0.46) (1.14) (0.95) (0.51) (0.60)
Total Distributions (0.55) (1.22) (1.10) (0.73) (0.90)
Net Asset Value - End of Period $35.87 $29.64 $21.50 $18.79 $15.56
Total Return (1) 23.20% 44.48% 20.55% 25.85% 14.37%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $3,594.5 $2,766.7 $1,794.4 $1,381.4 $1,032.2
Ratio of Expenses to Average Net Assets (2)* 0.97% 0.98% 1.06% 1.12% 1.17%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* 0.30% 0.39% 0.62% 1.16% 1.89%
Portfolio Turnover Rate 8.74% 17.96% 24.30% 44.26% 33.34%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets(2): 0.97% 0.98% 1.06% 1.12% 1.17%
Class A shares - Ratio of Net Investment Income(Loss) to 0.30% 0.39% 0.62% 1.16% 1.89%
Average Net Assets(2):
</TABLE>
<TABLE>
<CAPTION>
Year Year Period:
Ended Ended 7/1/96 to
CLASS B SHARES 4/30/99 4/30/98 4/30/97
<S> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $29.38 $21.45 $20.66
Income from Investment Operations
Net Investment Income (Loss) (0.19) 0.04 (0.01)
Net Realized and Unrealized Gain (Loss) on Investments 6.56 9.06 0.80
Total From Investment Operations 6.37 9.10 0.79
Distributions from
Net Investment Income -- (0.03) --
Net Realized Capital Gains (0.46) (1.14) --
Total Distributions (0.46) (1.17) --
Net Asset Value - End of Period $35.29 $29.38 $21.45
Total Return (1) 21.94% 43.25% 3.82%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $107.6 $ 54.9 $ 11.0
Ratio of Expenses to Average Net Assets (2)* 1.99% 1.90% 1.89%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* (0.74)% (0.58)% (0.39)%
Portfolio Turnover Rate 8.74% 17.96% 24.30%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class B shares - Ratio of Expenses to Average Net Assets(2): 1.99% 1.90% 1.89%
Class B shares - Ratio of Net Investment Income(Loss) to Average Net (0.74)% (0.58)% (0.39)%
Assets(2):
(1) Total Return assumes reinvestment of all dividends and distributions but does not reflect any
deduction for sales charge. The aggregate, not annualized total return is shown for periods less
than one year.
(2) For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) to average
net assets are calculated on an annualized basis.
</TABLE>
THE AAL EQUITY INCOME FUND
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
CLASS A SHARES 4/30/99 4/30/98 4/30/97 4/30/96 4/30/95
<S> <C> <C> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $14.31 $11.34 $10.90 $ 9.47 $9.95
Income from Investment Operations
Net Investment Income (Loss) 0.16 0.27 0.39 0.36 0.34
Net Realized and Unrealized Gain (Loss) on Investments 1.17 3.44 0.46 1.42 (0.50)
Total From Investment Operations 1.33 3.71 0.85 1.78 (0.16)
Distributions from
Net Investment Income (0.17) (0.20) (0.41) (0.35) (0.32)
Net Realized Capital Gains (0.79) (0.45) -- -- --
Total Distributions (0.96) (0.74) (0.41) (0.35) (0.32)
Net Asset Value - End of Period $14.68 $14.31 $11.34 $10.90 $ 9.47
Total Return (1) 10.08% 33.50% 7.88% 18.90% (1.51)%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $262.2 $197.7 $134.2 $114.5 $70.9
Ratio of Expenses to Average Net Assets (2)* 1.05% 1.11% 1.15% 1.20% 1.19%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* 1.22% 2.17% 3.57% 3.58% 4.08%
Portfolio Turnover Rate 13.35% 64.00% 5.14% 21.79% 24.65%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets(2): 1.05% 1.11% 1.15% 1.20% 1.19%
Class A shares - Ratio of Net Investment Income(Loss) to 1.22% 2.17% 3.57% 3.58% 4.08%
Average Net Assets(2):
</TABLE>
<TABLE>
<CAPTION>
Year Year Period:
Ended Ended 7/1/96 to
CLASS B SHARES 4/30/99 4/30/98 4/30/97
<S> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $14.31 $11.37 $11.40
Income from Investment Operations
Net Investment Income (Loss) 0.02 0.19 0.05
Net Realized and Unrealized Gain (Loss) on Investments 1.17 3.41 (0.06)
Total From Investment Operations 1.19 3.60 (0.01)
Distributions from
Net Investment Income (0.05) (0.21) (0.02)
Net Realized Capital Gains (0.79) (0.45) --
Total Distributions (0.84) (0.66) (0.02)
Net Asset Value - End of Period $14.66 $14.31 $11.37
Total Return (1) 8.97% 32.42% (0.04)%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $ 9.6 $ 3.8 $ 0.5
Ratio of Expenses to Average Net Assets (2)* 2.09% 2.04% 1.99%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* 0.16% 0.96% 2.36%
Portfolio Turnover Rate 13.35% 64.00% 5.14%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class B shares - Ratio of Expenses to Average Net Assets(2): 2.09% 2.04% 1.99%
Class B shares - Ratio of Net Investment Income(Loss) to Average Net 0.16% 0.96% 2.36%
Assets(2):
(1) Total Return assumes reinvestment of all dividends and distributions but does not reflect any
deduction for sales charge. The aggregate, not annualized total return is shown for periods less
than one year.
(2) For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) to average
net assets are calculated on an annualized basis.
</TABLE>
THE AAL BALANCED FUND
<TABLE>
<CAPTION>
Year Period
Ended 12/29/97 to
CLASS A SHARES 4/30/99 4/30/98
<S> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $10.81 $10.00
Income from Investment Operations
Net Investment Income (Loss) 0.21 0.04
Net Realized and Unrealized Gain (Loss) on Investments 1.34 0.80
Total From Investment Operations 1.55 0.84
Distributions from
Net Investment Income (0.20) (0.03)
Net Realized Capital Gains (0.01) --
Total Distributions (0.21) (0.03)
Net Asset Value - End of Period $12.15 $10.81
Total Return (1) 14.45% 8.37%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $158.3 $27.7
Ratio of Expenses to Average Net Assets (2)* 1.15% 1.37%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* 2.26% 2.19%
Portfolio Turnover Rate 213.46% 11.52%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets(2): 1.23% 1.63%
Class A shares - Ratio of Net Investment Income(Loss) to Average Net 2.17% 1.93%
Assets(2):
Year Period
Ended 12/29/97 to
CLASS B SHARES 4/30/99 4/30/98
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $10.79 $10.00
Income from Investment Operations
Net Investment Income (Loss) 0.14 0.03
Net Realized and Unrealized Gain (Loss) on Investments 1.31 0.78
Total From Investment Operations 1.45 0.81
Distributions from
Net Investment Income (0.13) (0.02)
Net Realized Capital Gains (0.01) --
Total Distributions (0.14) (0.02)
Net Asset Value - End of Period $12.10 $10.79
Total Return (1) 13.47% 8.10%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $ 11.9 $ 2.3
Ratio of Expenses to Average Net Assets (2)* 1.98% 2.11%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* 1.42% 1.45%
Portfolio Turnover Rate 213.46% 11.52%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class B shares - Ratio of Expenses to Average Net Assets(2): 2.18% 2.50%
Class B shares - Ratio of Net Investment Income(Loss) to Average Net 1.22% 1.06%
Assets(2):
(1) Total Return assumes reinvestment of all dividends and distributions but does not reflect any
deduction for sales charge. The aggregate, not annualized total return is shown for
periods less than one year.
(2) For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) to average
net assets are calculated on an annualized basis.
</TABLE>
THE AAL HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
Year Year Period:
Ended Ended 1/8/97 to
CLASS A SHARES 4/30/99 4/30/98 4/30/97
<S> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $10.31 $ 9.88 $10.00
Income from Investment Operations
Net Investment Income (Loss) 0.91 0.92 0.27
Net Realized and Unrealized Gain (Loss) on Investments (1.33) 0.53 (0.12)
Total From Investment Operations (0.42) 1.45 0.15
Distributions from
Net Investment Income (0.91) (0.92) (0.27)
Net Realized Capital Gains (0.06) (0.10) --
Total Distributions (0.97) (1.02) (0.27)
Net Asset Value - End of Period $8.92 $10.31 $9.88
Total Return (1) (3.96)% 15.12% 1.51%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $131.9 $100.8 $44.7
Ratio of Expenses to Average Net Assets (2)* 1.00% 0.99% 1.00%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* 9.81% 8.94% 9.11%
Portfolio Turnover Rate 54.67% 112.37% 36.90%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets(2): 1.16% 1.18% 1.28%
Class A shares - Ratio of Net Investment Income(Loss) to Average Net 9.64% 8.75% 8.83%
Assets(2):
Year Year Period:
Ended Ended 1/8/97 to
CLASS B SHARES 4/30/99 4/30/98 4/30/97
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $10.31 $ 9.88 $10.00
Income from Investment Operations
Net Investment Income (Loss) 0.84 0.84 0.25
Net Realized and Unrealized Gain (Loss) on Investments (1.33) 0.53 (0.12)
Total From Investment Operations (0.49) 1.37 (0.13)
Distributions from
Net Investment Income (0.84) (0.84) (0.25)
Net Realized Capital Gains (0.06) (0.10) --
Total Distributions (0.90) (0.94) (0.25)
Net Asset Value - End of Period $8.92 $10.31 $9.88
Total Return (1) (4.62)% 14.27% 1.31%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $12.4 $9.7 $2.7
Ratio of Expenses to Average Net Assets (2)* 1.71% 1.74% 1.75%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* 9.09% 8.22% 8.66%
Portfolio Turnover Rate 54.67% 112.37% 36.90%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class B shares - Ratio of Expenses to Average Net Assets(2): 1.98% 2.05% 2.00%
Class B shares - Ratio of Net Investment Income(Loss) to Average Net 8.82% 7.90% 8.41%
Assets(2):
(1) Total Return assumes reinvestment of all dividends and distributions but does not reflect any deduction
for sales charge. The aggregate, not annualized total return is shown for periods less than one year.
(2) For periods less than one year, both the ratio of net operating expenses to average net assets and the
ratio of net investment income (loss) to average net assets are calculated on an annualized basis.
</TABLE>
THE AAL MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
CLASS A SHARES 4/30/99 4/30/98 4/30/97 4/30/96 4/30/95
<S> <C> <C> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $11.40 $10.92 $10.91 $10.69 $10.56
Income from Investment Operations
Net Investment Income (Loss) 0.52 0.52 0.52 0.52 0.52
Net Realized and Unrealized Gain (Loss) on Investments 0.25 0.61 0.19 0.30 0.19
Total From Investment Operations 0.77 1.13 0.71 0.82 0.71
Distributions from
Net Investment Income (0.52) (0.52) (0.52) (0.52) (0.52)
Net Realized Capital Gains (0.18) (0.13) (0.18) (0.08) (0.06)
Total Distributions (0.70) (0.65) (0.70) (0.60) (0.58)
Net Asset Value - End of Period $11.47 $11.40 $10.92 $10.91 $10.69
Total Return (1) 6.80% 10.50% 6.64% 7.74% 7.01%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $523.1 $467.1 $421.7 $412.8 $377.8
Ratio of Expenses to Average Net Assets (2)* 0.81% 0.85% 0.89% 0.95% 0.98%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* 4.47% 4.55% 4.69% 4.69% 5.01%
Portfolio Turnover Rate 94.56% 139.18% 119.79% 130.52% 172.49%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets(2): 0.81% 0.85% 0.89% 0.95% 0.98%
Class A shares - Ratio of Net Investment Income(Loss) to 4.47% 4.55% 4.69% 4.69% 5.01%
Average Net Assets(2):
</TABLE>
<TABLE>
<CAPTION>
Year Year Period:
Ended Ended 1/8/97 to
CLASS B SHARES 4/30/99 4/30/98 4/30/97
<S> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $11.40 $10.92 $11.02
Income from Investment Operations
Net Investment Income (Loss) 0.42 0.42 0.14
Net Realized and Unrealized Gain (Loss) on Investments 0.25 0.61 (0.10)
Total From Investment Operations 0.67 1.03 0.04
Distributions from
Net Investment Income (0.42) (0.42) (0.14)
Net Realized Capital Gains (0.18 (0.13) --
Total Distributions (0.60) (0.55) (0.14)
Net Asset Value - End of Period $11.47 $11.40 10.92
Total Return (1) 5.93% 9.58% 0.34%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $7.5 $3.6 $0.8
Ratio of Expenses to Average Net Assets (2)* 1.64% 1.74% 1.69%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* 3.65% 3.67% 4.09%
Portfolio Turnover Rate 94.56% 139.18% 119.79%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class B shares - Ratio of Expenses to Average Net Assets(2): 1.64% 1.74% 1.69%
Class B shares - Ratio of Net Investment Income(Loss) to Average Net 3.65% 3.67% 4.09%
Assets(2):
(1) Total Return assumes reinvestment of all dividends and distributions but does not reflect any
deduction for sales charge. The aggregate, not annualized total return is shown for periods less
than one year.
(2) For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) to average
net assets are calculated on an annualized basis.
</TABLE>
THE AAL BOND FUND
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
CLASS A SHARES 4/30/99 4/30/98 4/30/97 4/30/96 4/30/95
<S> <C> <C> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $9.99 $9.63 $9.62 $9.61 $9.69
Income from Investment Operations
Net Investment Income (Loss) 0.53 0.57 0.60 0.58 0.58
Net Realized and Unrealized Gain (Loss) on Investments (0.07) 0.36 0.01 0.01 (0.08)
Total From Investment Operations 0.46 0.93 0.61 0.59 0.50
Distributions from
Net Investment Income (0.53) (0.57) (0.60) (0.58) (0.58)
Net Realized Capital Gains -- -- -- -- --
Total Distributions (0.53) (0.57) (0.60) (0.58) (0.58)
Net Asset Value - End of Period $9.92 $9.99 $9.63 $9.62 $9.61
Total Return (1) 4.61% 9.86% 6.43% 6.18% 5.47%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $367.2 $353.4 $389.3 $430.8 $429.4
Ratio of Expenses to Average Net Assets (2)* 0.93% 0.95% 0.98% 1.01% 1.03%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* 5.23% 5.77% 6.10% 5.89% 6.12%
Portfolio Turnover Rate 572.56% 483.76% 212.49% 125.77% 44.57%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets(2): 0.93% 0.95% 0.98% 1.01% 1.03%
Class A shares - Ratio of Net Investment Income(Loss) to 5.23% 5.77% 6.10% 5.89% 6.12%
Average Net Assets(2):
</TABLE>
<TABLE>
<CAPTION>
Year Year Period:
Ended Ended 1/8/97 to
CLASS B SHARES 4/30/99 4/30/98 4/30/97
<S> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $9.99 $9.64 $9.71
Income from Investment Operations
Net Investment Income (Loss) 0.43 0.48 0.18
Net Realized and Unrealized Gain (Loss) on Investments (0.07) 0.35 (0.07)
Total From Investment Operations 0.36 0.83 (0.11)
Distributions from
Net Investment Income (0.43) (0.48) (0.18)
Net Realized Capital Gains -- -- --
Total Distributions (0.43) (0.48) (0.18)
Net Asset Value - End of Period $9.92 $9.99 $9.64
Total Return (1) 3.60% 8.75% 0.96%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $ 3.1 $ 1.4 $ 0.4
Ratio of Expenses to Average Net Assets (2)* 1.90% 1.92% 1.86%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* 4.28% 4.74% 5.51%
Portfolio Turnover Rate 572.56% 483.76% 212.49%
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class B shares - Ratio of Expenses to Average Net Assets2: 1.90% 1.92% 1.86%
Class B shares - Ratio of Net Investment Income(Loss) to Average Net 4.28% 4.74% 5.51%
Assets2:
(1) Total Return assumes reinvestment of all dividends and distributions but does not reflect any
deduction for sales charge. The aggregate, not annualized total return is shown for periods less
than one year.
(2) For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) to average
net assets are calculated on an annualized basis.
</TABLE>
THE AAL MONEY MARKET FUND
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
CLASS A SHARES 4/30/99 4/30/98 4/30/97 4/30/96 4/30/95
<S> <C> <C> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00
Income from Investment Operations
Net Investment Income (Loss) 0.05 0.05 0.05 0.05 0.04
Net Realized and Unrealized Gain (Loss) on Investments -- -- -- -- --
Total From Investment Operations 0.05 0.05 0.05 0.05 0.04
Distributions from
Net Investment Income (0.05) (0.05) (0.05) (0.05) (0.04)
Net Realized Capital Gains -- -- -- -- --
Total Distributions (0.05) (0.05) (0.05) (0.05) (0.04)
Net Asset Value - End of Period $1.00 $1.00 $1.00 $1.00 $1.00
Total Return (1) 4.68% 5.12% 5.21% 4.94% 3.92%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $288.1 $240.7 $189.6 $116.0 $70.2
Ratio of Expenses to Average Net Assets (2)* 0.79% 0.68% 0.55% 0.83% 1.17%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* 4.54% 4.98% 4.91% 4.89% 3.95%
Portfolio Turnover Rate N/A N/A N/A N/A N/A
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets(2): 1.12% 1.04% 1.10% 1.28% 1.42%
Class A shares - Ratio of Net Investment Income(Loss) to 4.22% 4.62% 4.36% 4.46% 3.70%
Average Net Assets(2):
</TABLE>
<TABLE>
<CAPTION>
Year Year Period:
Ended Ended 7/1/96 to
CLASS B SHARES 4/30/99 4/30/98 4/30/97
<S> <C> <C> <C>
Per-Share Data [in $ dollars]
Net Asset Value - Beginning of Period $1.00 $1.00 $1.00
Income from Investment Operations
Net Investment Income (Loss) 0.04 0.04 0.01
Net Realized and Unrealized Gain (Loss) on Investments -- -- --
Total From Investment Operations 0.04 0.04 0.01
Distributions from
Net Investment Income (0.04) (0.04) (0.01)
Net Realized Capital Gains -- -- --
Total Distributions (0.04) (0.04) (0.01)
Net Asset Value - End of Period $1.00 $1.00 $1.00
Total Return (1) 3.67% 4.26% 1.32%
Supplemental Data and Ratios
Net Assets at End of Period (in millions) $1.6 $1.2 $0.6
Ratio of Expenses to Average Net Assets (2)* 2.79% 1.65% 1.78%
Ratio of Investment Income (Loss) to
Average Net Assets (2)* 2.54% 4.02% 3.81%
Portfolio Turnover Rate N/A N/A N/A
* If the Fund had paid all of its expenses for Class A and Class B shares, the
ratios would be as follows:
Class B shares - Ratio of Expenses to Average Net Assets(2): 3.11% 2.01% 3.54%
Class B shares - Ratio of Net Investment Income(Loss) to Average Net 2.22% 3.67% 2.05%
Assets(2):
(1) Total Return assumes reinvestment of all dividends and distributions but does not reflect any
deduction for sales charge. The aggregate, not annualized total return is shown for periods less than
one year.
(2) For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) to average
net assets are calculated on an annualized basis.
</TABLE>
Additional Information
You will find additional information in the statement of additional information
and the annual and semi-annual reports to shareholders. The Funds' statement of
additional information and annual and semi-annual reports are available, without
charge, upon request. To request this or other information about the Funds,
please call 800-553-6319 (TDD-800-684-3416).
Annual and Semi-Annual Reports
In the Funds' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Funds' performances
during their last fiscal year.
Statement of Additional Information
The Funds' statement of additional information provides more detailed
information about the Funds.
You also may review and copy information about the Funds (including the
statement of additional information) at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. For information on the operation of
the Public Reference Room call 1-800-SEC-0330. You also may obtain reports and
other information about the Funds on the Securities and Exchange Commission's
Internet site at http://www.sec.gov. You may obtain copies of this information
upon payment of a duplication fee by writing the Public Reference Section of the
Securities and Exchange Commission at 405 5th Street, N. W., Washington, D. C.
20549-6009.
Investment Company Act File No. 811-5075
[Logo]
THE AAL MUTUAL FUNDS
222 West College Ave.
Appleton, WI 54919-0007
Telephone: (800) 553-6319
TDD: 800-684-3416
www.aal.org e-mail: [email protected]
<PAGE>
The AAL Mutual Funds
222 West College Avenue
Appleton, WI 54919-0007
Telephone (920) 734-7633, 800-553-6319
TDD 800-684-3416
STATEMENT OF ADDITIONAL INFORMATION
Class A and B Shares
Dated July 1, 1999
Equity-Oriented Funds
The AAL Small Cap Stock Fund:
The AAL Mid Cap Stock Fund:
The AAL International Fund:
The AAL Capital Growth Fund:
The AAL Equity Income Fund:
The AAL Balanced Fund:
Income-Oriented Funds
The AAL High Yield Bond Fund:
The AAL Municipal Bond Fund:
The AAL Bond Fund:
The AAL Money Market Fund:
This Statement of Additional Information is not a prospectus. It provides
additional information on the securities offered in the prospectus. You should
read this statement of additional information in conjunction with The AAL Mutual
Funds' prospectus, Class A and B shares, dated July 1, 1999, and any supplements
thereto. You may obtain a prospectus at no charge by writing or telephoning your
AAL Capital Management Corporation ("AAL CMC") Registered Representative or the
AAL Mutual Funds ("Funds" or "Trust") at the above address and telephone number.
TABLE OF CONTENTS
FUNDS HISTORY
INVESTMENT STRATEGIES AND RISKS
MANAGEMENT OF THE FUNDS
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
INVESTMENT ADVISORY AND OTHER SERVICES
BROKERAGE ALLOCATION AND OTHER PRACTICES
CAPITAL STOCK AND OTHER SECURITIES
PURCHASE, REDEMPTION, AND PRICING OF SHARES
TAXATION OF THE FUNDS
UNDERWRITERS
CALCULATION OF PERFORMANCE DATA
FINANCIAL STATEMENTS
FUNDS HISTORY
The AAL Mutual Funds (the "Trust" or "Funds") was organized as a Massachusetts
Business Trust on March 31, 1987, and is registered as an open-end diversified
management company under the Investment Company Act of 1940. The Trust commenced
operations on July 16, 1987, and currently consists of twelve series (each a
"Fund" and collectively, the "Funds"): The AAL Small Cap, Mid Cap,
International, Capital Growth, Equity Income, Balanced, High Yield Bond,
Municipal Bond, Bond, Money Market, and U.S. Government Zero Coupon Target Funds
2001 and 2006 Funds.
On January 8, 1997, the Trust redesignated its existing shares as Class A shares
and began offering Class B shares of The AAL Small Cap, Mid Cap, International,
Capital Growth, Equity Income, Balanced, High Yield Bond, Municipal Bond, Bond,
and Money Market Funds. The Class A shares are subject to maximum 4.00% sales
charge of the offering price and a 0.25% annual service fee. Class B shares are
offered at net assets value and a 1.00% annual 12b-1and service fee. In
addition, Class B shares have a contingent deferred sales charge of 5% declining
1% each year upon redemption during the first five years. The AAL Balanced Fund
added Class B shares on its inception date of December 29,1997.
On December 29, 1997, the Trust began issuing a third class of Fund shares
(institutional) of The AAL Small Cap, Mid Cap, International, Capital Growth,
Equity Income, Balanced, High Yield Bond, Municipal Bond, Bond, and Money Market
Funds. The Institutional shares are offered at net asset value and have no
annual 12b-1 fees or charges. Each class of shares has identical rights and
privileges except with respect to voting matters affecting a single class of
shares and the exchange privilege of each class of shares.
Organization and Description of Shares
The AAL Mutual Funds or "Trust" is a diversified open-end management investment
company registered under the Investment Company Act of 1940. Each of the Funds
is a separate series of a Massachusetts Business Trust organized under a
Declaration of Trust dated March 13, 1987. The Declaration of Trust provides
that each shareholder shall be deemed to have agreed to be bound by its terms.
The Declaration of Trust may be amended by a vote of shareholders or the Board
of Trustees. The Trust may issue an unlimited number of shares in one or more
series as the Board of Trustees may authorize. Currently, the Board has
authorized twelve series. This prospectus describes Class A and Class B shares
for ten series of the Trust. Institutional shares for these same series are
described in a separate prospectus.
Each Fund's classes of shares represent interests in the assets of the Fund and
have identical dividend, liquidation and other rights. The separate share
classes have the same terms and conditions, except each Class A and Class B
share bears its separate distribution and shareholder servicing expenses. At the
Trustees' discretion, each class may pay a different share of other expenses,
not including advisory or custodial fees or other expenses related to the
management of the Trust's assets, if each class incurs the expenses in different
amounts, or if a class receives services of a different kind or to a different
degree than the other class. The Funds allocate all other expenses to each class
on the basis of the net asset value of that class in relation to the net asset
value of the particular Fund. Class A and B shares (and Institutional shares)
have identical voting rights except that each class has exclusive voting rights
on any matter submitted to shareholders relating solely to the class. In
addition, Class A and Class B shares (and Institutional shares) have separate
voting rights on any matter submitted to shareholders where the interests of one
class differ from the interests of the other class. Class A and Class B shares
have exclusive voting rights on matters involving the 12b-1 Distribution Plan as
applied to that class. Matters submitted to shareholder vote must be approved by
each Fund separately except:
1) when required otherwise by the 1940 Act; or
2) when the Trustees determine that the matter does not affect all Funds: then,
only the shareholders of the affected Funds may vote.
Shares are freely transferable, entitled to dividends declared by the Trustees,
and receive the assets of their respective Fund in the event of liquidation. The
Trust generally holds annual shareholder meetings only when required by law or
at the written request of shareholders owning at least 10% of the Trust's
outstanding shares. Shareholders may remove Trustees from office by votes cast
in person or by proxy at a shareholders meeting.
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 shareholder, Trustee and/or officer
liability for acts on behalf of the Trust or for Trust obligations that are
binding only on the assets and property of the Trust. The Funds include this
disclaimer in each agreement, obligation, or contract entered into or executed
by the Trust or the Board. The Declaration of Trust provides for indemnification
out of the Trust's assets for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. 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 meets its
obligations.
INVESTMENT STRATEGIES AND RISKS
Each of the Funds is an open-end management investment company. The following
information supplements our discussion of the Funds' investment objectives,
policies and strategies described in the prospectus. In pursuing the Funds'
objectives, we invest as described below and employ the investment techniques
described in the prospectus and elsewhere in this statement of additional
information.
Investment Objectives
The following information supplements our discussion of the Funds' investment
objectives and policies described in the prospectus. In pursuing the Funds'
objectives, we invest as described below and employ the investment techniques
described in the prospectus and elsewhere in this Statement of Additional
Information. Except for The AAL Balanced and High Yield Bond Funds, each Fund's
investment objective is a fundamental policy. As such, only a vote of a
"majority of outstanding voting securities" can change a Fund's investment
objective. A majority means the approval of the lesser of: (1) 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
(2) more than 50% of the outstanding voting securities of a Fund.
Investment Restrictions
In addition to those policies noted in the Prospectus, each Fund must follow
certain investment restrictions. We operate under the following investment
restrictions. For any Fund, we may not:
(1) invest more than 5% of its net assets (or 5% of The AAL Small Cap Stock,
International, Balanced or High Yield Bond Funds' 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 Fund's net assets (or 25% of The
AAL Small Cap Stock, International, Balanced or High Yield Bond Funds'
total 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 any agency or instrumentality thereof;
(2) purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities, but
we may make margin deposits in connection with transactions in options,
futures and options on futures for a Fund;
(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, options on
futures and short sales against the box;
(4) make loans to other persons, except that we reserve freedom of action,
consistent with a Fund's other investment policies and restrictions and as
described in the prospectus and this statement of additional information,
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 we may not loan securities for a Fund 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 we may borrow for a Fund in
amounts not in excess of 10% of its net assets, taken at current value, and
then only from banks as a temporary measure for extraordinary or emergency
purposes (we will not borrow money for the Funds to increase income, but
only to meet redemption requests that otherwise might require untimely
dispositions of portfolio securities; interest paid on any such borrowing
will reduce a Fund's 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 we purchase
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
we may be deemed an underwriter for the Fund under federal securities laws;
(8) purchase or sell real estate, or real estate limited partnership interests
provided that we may invest in securities for a Fund 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 we may
purchase or sell futures and options thereon for hedging purposes for a
Fund as described in this statement of additional information;
(10) invest more than 25% of a Fund's net assets (or 25% or more of The AAL
Small Cap Stock, International, Balanced or High Yield Bond Funds' 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 (or 25% or more of The AAL Small Cap Stock,
International, Balanced or High Yield Bond Funds' total assets in any
single industry or issuer except the U.S. government or any agency or
instrumentality thereof);
(11) invest in oil, gas or mineral related programs or leases except as may be
included in the definition of public utilities, although we may invest in
securities of enterprises engaged in oil, gas or mineral exploration for a
Fund;
(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 net assets (taken at current
value at the time of such investment) would be invested in such securities;
(13) except for The AAL High Yield Bond Fund, invest in any security if as a
result a Fund would have more than 5% of its net assets invested in
securities of companies which, together with any predecessors, have been in
continuous operation for less than three years;
(14) purchase securities of other investment companies, if the purchase would
cause more than 10% of the value of a Fund's net assets (or 10% of the
value of The AAL Small Cap Stock, International, Balanced or High Yield
Bond Funds' 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 net assets (or 5% of the value of The
AAL Small Cap Stock, International, Balanced or High Yield Bond Funds'
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; or
(15) purchase more than 10% of the outstanding voting securities of an issuer or
invest for the purpose of exercising control or management.
Each of the above restrictions (1) through (15), as well as each Fund's
investment objective, except for The AAL Balanced and High Yield Bond Funds, is
a fundamental policy.
Investment Techniques
We may use the following techniques described in the prospectus and statement of
additional Information in pursuing the Funds' investment objectives.
Temporary Defensive Positions
We have a temporary defensive position policy that allows us to invest up to
100% of a Fund's total assets in cash and short-term money market obligations,
including tax-exempt money market funds and investment grade fixed-income
securities when significant adverse market, economic, political or other
circumstances require immediate action to avoid losses. Primarily, we may
purchase the following types of securities for temporary defensive purposes:
- - securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities;
- - commercial paper rated at the time of purchase in the highest rating
category by NRSRO's; and
- - bank obligations, including repurchase agreements, of banks having total
assets in excess of $1 billion.
For temporary defensive purposes we may invest up to 100% of The AAL
International Fund's total assets in U.S. securities or in securities primarily
traded in one or more foreign countries, or in debt securities to a greater
extent than 20%.
Lending Portfolio Securities
Subject to the fundamental investment restriction (4) listed under "Investment
Restrictions," we may lend a Fund's portfolio securities to broker-dealers and
financial institutions, such as banks and trust companies. As the adviser, we
will monitor the creditworthiness of any firm with which a Fund engages in
securities lending transactions. We would continuously secure the loan by
collateral in cash or cash equivalents maintained (on a current basis) in an
amount equal to or greater than the market value of the securities loaned. We
would continue to receive the equivalent of the interest or dividends paid by
the issuer to the Fund on the securities loaned. We would also receive any
additional returns, such as a fixed fee or a percentage of the collateral. We
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. Generally, we would not have
the right to vote the Fund's loaned securities during the existence of the loan.
However, we would call the loan to permit voting if, in our judgment, a material
event requiring a shareholder vote would otherwise occur before the repayment
date.
In the event of the borrower's default or bankruptcy, we could experience both
delays in liquidating the loan collateral or recovering the loaned securities
and any losses sustained by the Fund. For example, during the period when we
would seek to enforce the Fund's rights to the loaned securities, the
collateral's value could decline. We might receive subnormal levels of income or
no income from the loaned securities. We also would incur the expense of
enforcing the Fund's rights to the loaned securities.
Repurchase Agreements and Borrowing
To earn income on available cash or for temporary defensive purposes, we may
invest in repurchase agreements for the Funds. We must hold an amount of cash or
government securities at least equal to the market value of the securities held
pursuant to the agreement. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, we may experience delays and expenses in
liquidating the securities, declines in the securities' value and loss of
interest for a Fund. We maintain procedures for evaluating and monitoring the
creditworthiness of firms with which we enter into repurchase agreements for the
Funds. We may not invest more than 10% of a Fund's net assets in repurchase
agreements maturing in more than seven days.
We may borrow money, but only from banks and only for temporary or emergency
purposes. We may not borrow more than 10% of a Fund's net assets and we must
repay any amount we borrow for a Fund before we can buy additional securities.
When-Issued and Delayed Delivery Securities
We may purchase securities on a when-issued or delayed-delivery basis for a
Fund, as described in the prospectus. We only purchase on a when-issued or
delayed delivery basis with the intention of actually acquiring the securities,
including when-issued securities with long-term issue dates of a year or more.
However, we may sell such securities before settlement date if we deem it
advisable for investment reasons.
At the time of purchase we identify liquid assets having a value at least as
great as the purchase price. We have the custodian hold these securities
identified throughout the period of the obligation. Purchasing on a when-issued
or delayed basis as we have described may increase the Fund's net asset value
fluctuation or volatility.
Illiquid and Restricted Securities
Except for The AAL Money Market Fund, we may hold up to 15% of a Fund's net
assets in illiquid securities. We may hold up to 10% of The AAL Money Market
Fund's net assets in restricted and other illiquid securities. Illiquid
securities are securities we believe cannot be sold within seven days in the
normal course of business at approximately the amount at which we have valued or
priced the securities for a Fund, including securities we acquired in private
placements that have restrictions on their resale ("restricted securities"). We
deem time deposits and repurchase agreements maturing in more than seven days
illiquid. Because an active market may not exist for illiquid securities, we may
experience delays and additional cost when trying to sell illiquid securities.
For more information on restricted and other illiquid securities regarding The
AAL Money Market Fund, please refer to the Statement of Additional Information,
"Privately Issued Securities: The AAL Money Market Fund." The Board of Trustees
has established procedures for determining the liquidity of Fund securities and
has delegated the day-to-day liquidity determinations to the Adviser.
Subject to the limitations for illiquid investments stated above, we may
purchase liquid restricted securities eligible for resale under Rule 144A under
the Securities Act of 1933 (the "Act"), without regard to the 15% or 10%
limitation. Rule 144A permits certain qualified institutional buyers, such as
the Funds, to trade in privately placed securities not registered under the Act.
Institutional markets for restricted securities have developed as a result of
Rule 144A, providing both readily ascertainable market values for 144A
securities and the ability to liquidate these investments to satisfy redemption
orders. However, an insufficient number of qualified institutional buyers
interested in purchasing certain Rule 144A securities held by a Fund could
adversely affect their marketability, causing us to sell the securities at
unfavorable prices.
Investment Grade and Medium Grade Bond Investments
We may purchase investment grade bonds for The AAL International, Equity Income,
Balanced, High Yield Bond, Municipal Bond and Bond Funds. A debt or other
fixed-income security is considered investment grade if it is rated investment
grade by a NRSRO, such as BBB or better by Duff and Phelps Credit Rating Co.
("D&P") and S&P or Baa or better by Moody's. Securities rated in the fourth
highest category, such as BBB by D&P or S&P or Baa by Moody's, are considered
medium grade bonds and have more sensitivity to economic changes and speculative
characteristics. If a bond in a Fund has lost its rating or has its rating
reduced, the Fund does not have to sell the security, but the Adviser will
consider the lost or reduced rating in determining whether that Fund should
continue to hold the bond.
Rated Securities
If a NRSRO reduces or eliminates its rating of a Fund security, we do not have
to sell the security. However, we consider such fact in determining whether we
should continue to hold the security for the Fund. For The AAL Money Market
Fund, we sell downgraded commercial paper to the extent required to comply with
Rule 2a-7 under the Investment Company Act of 1940 (the "Act").
At times a NRSRO changes its ratings for debt securities as a result of changes
at the organization or in its rating system. When this happens, we attempt to
use comparable NRSRO ratings in reassessing investments for a Fund in accord
with its investment policies.
Bond Ratings
Moody's Rating Scale Definitions
Aaa: Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA: Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as Aaa securities or fluctuations of protective elements may
be of greater amplitude or there may be other elements present that make
long-term risk appear somewhat larger than the Aaa securities.
A: Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
Principal and interest are considered adequate but elements may be present that
suggest susceptibility to impairment some time in the future.
Baa: Bonds that are rated Baa are considered medium-grade obligations (i.e. they
are neither highly protected nor poorly Secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over a long period of time may be small.
Caa: Bonds that are rated Caa have poor standing. Such issues may be in default
or present elements of danger with respect to principal or interest.
Ca: Bonds that are rated Ca represent obligations that are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C: Bonds that are rate C are the lowest-rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Rating Scale Definitions
AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has very strong capacity to pay interest and repay principal
and differs from the higher-rated issues only in small degrees.
A: Debt rated "A" has strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated "BBB" has an adequate capacity to pay interest and repay
principal. Whereas, it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher-rated categories.
BB, B, CC, C , C: Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The "BBB" rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied "BBB-" rating.
B: Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions likely will impair capacity or willingness to
pay interest and repay principal. The "B" rating is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC: Debt rated "CCC" has a currently identifiable vulnerability to default and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC: The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C: The rating "C" is typically applied to debt subordinated to senior debt that
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation in which a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating "CI" is reserved for income bonds on which no interest is paid.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate
the particular type of obligation as a matter of policy.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
category.
Commercial Paper Ratings
Moody's Commercial Paper Ratings
Moody's commercial paper ratings are opinions of the ability to repay punctually
promissory obligations. Moody's employs the following three category
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
PRIME 1: Highest quality;
PRIME 2: Higher quality; and
PRIME 3: High quality.
S&P Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment. Ratings are graded into four categories, ranging from "A" for
the highest quality obligations to "D" for the lowest.
A: Issues assigned the highest rating category, A, are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers "1", "2" and "3" to indicate the relative degree of safety.
A-1: The designation A-1 indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. A "+" designation is applied to
those issues rated "A-1" that possess extremely strong safety characteristics.
A-2: Capacity for timely payment on issues with the designation "A-2" is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3: Issues carrying the designation A-3 have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effect of
changes in circumstances than obligations carrying the higher designations.
Other Ratings
Moody's Municipal Note Ratings
MIG 1: This designation category denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2: This designation category denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3: This designation category denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
Moody's Ratings of the Demand Features On Variable Rate Demand Securities
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1: This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2: This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3: This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
S&P Note Ratings
SP-1: Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2: Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment: (1) the amortization schedule (the
larger the final maturity relative to other maturities, the more likely the
issue will be rated as a note); (2) and the source of payment (the more
dependent the issue is on the market for its refinancing, the more likely it
will be rated as a note).
S&P Ratings of the Demand Features on Variable Rate Demand Securities
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity and the commercial paper rating symbols are
usually used to denote the put (demand) options (i.e., AAA/A-1+). Normally
demand notes receive note rating symbols combined with commercial paper symbols
(i.e., SP-1+/A-1+).
Convertible Bonds
Except for The AAL Money Market Funds, we may invest in convertible bonds,
subject to any restrictions on the quality of bonds in which a Fund may invest.
We also may retain any stocks received upon conversion that do not fall within
the Fund's investment parameters to: (1) permit orderly disposition; (2)
establish a long-term holding basis for Federal income tax purposes; or (3) seek
capital growth.
Convertible bonds are often rated below investment grade or not rated because
they fall below debt obligations and just above equities in order of preference
or priority on the issuer's balance sheet. Hence, any issuer with investment
grade senior debt may issue convertible securities with ratings less than
investment grade debt.
Mortgage-Backed Securities
For The AAL Balanced, High Yield Bond and Bond Funds, we may invest in
mortgage-backed securities with amortizing payments consisting of both interest
and principal and prepayment privileges (the ability to prepay the principal or
a portion thereof without penalty). Mortgaged-backed securities represent
interest in pools of mortgage loans made by lenders such as savings and loan
institutions, mortgage bankers, commercial banks and others. Various government,
government-related and private organizations combine these mortgages for sale to
investors (i.e., the Government National Mortgage Association ("GNMA")
guarantees and issues mortgage-backed securities). Mortgage-backed securities
generally provide for a "pass through" of monthly payments made by individual
borrowers on their residential mortgage loans, net of any fees paid to the
issuer or guarantor of the securities. The yield on these securities applies
only to the unpaid principal balance. We reinvest the periodic payments of
principal and interest and prepayments, if any, in securities at the prevailing
market interest rates. The prevailing rates may be higher or lower than the rate
on the original investment. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities tend to
accelerate. Accordingly, any prepayments on mortgage-backed securities that we
hold for a Fund reduce our ability to maintain positions in high-yielding,
mortgage-backed securities and reinvest the principal at comparable yields for
the Fund. If we buy any mortgage-backed securities for a Fund at a premium, the
Fund receives prepayments, if any, at par or stated value, which lowers the
return on the Fund.
High Yield Bond Market -- The AAL International, Equity Income and High Yield
Bond Funds
We may invest in high risk, high yield bonds for The AAL International, Equity
Income and High Yield Bond Funds. We normally invest at least 65% of The AAL
High Yield Bond Fund's total assets in such securities. As stated in the
prospectus, investing in high yield bonds involves market risk. The market for
high yield bonds has existed for many years and has weathered downturns. In
particular during the late 1980s and early 1990s, the high yield market
experienced a significant downturn. Many corporations had dramatically increased
their use of high yield bonds to fund highly leveraged acquisitions and
restructuring. As a result, from 1989 to 1991, the percentage of lower-quality
securities that defaulted rose significantly above previous default levels.
After this period, default rates decreased.
We may invest in lower-rated asset and mortgage-backed securities for The AAL
High Yield Bond Fund. These securities include interests in pools of lower-rated
bonds, consumer loans or mortgages, or complex instruments such as
collateralized mortgage obligations ("CMOs") and stripped mortgage-backed
securities (the separate income or principal components). Changes in interest
rates, the market's perception of the issuers and the creditworthiness of the
parties involved may significantly affect the value of these bonds. Some of
these securities may have structures that makes their reaction to interest rates
and other factors difficult to predict, causing high volatility in their market
value. These bonds also carry prepayment risk. During periods of declining
interest rates, prepayment of the loans and mortgages underlying these
securities tend to accelerate. Investors tend to refinance their mortgages (pay
the old mortgage off with a new mortgage at a lower rate) to lower payments.
Accordingly, any prepayment on the existing securities we hold for the Fund
reduces our ability to maintain positions in high-yielding, mortgage-backed
securities and reinvest the principal at comparable yields.
Certain high yield bonds carry particular market risks. Zero coupon, deferred
interest and payment-in-kind ("PIK") bonds issued at deep discounts may
experience greater volatility in market value. Asset and mortgage-backed
securities, including CMOs, in addition to greater volatility, may carry
prepayment risks.
Collateralized Mortgage Obligations and Multi-Class Pass-Through Securities --
The AAL Balanced, High Yield Bond and Bond Funds We may invest in
mortgage-backed securities, including CMOs and multi-class pass-through
securities. CMOs and multi-class pass-through securities are debt instruments
issued by special purpose entities secured by pools of mortgage loans or other
mortgage-backed securities. Multi-class pass-through securities are interests in
a trust composed of mortgage loans or other mortgage-backed securities. Payments
of principal and interest on the underlying collateral provide the money to pay
debt service on the CMO or make scheduled distributions on the multi-class
pass-through security. Multi-class pass-through securities, CMOs, and classes
thereof (including those discussed below) are examples of the types of financial
instruments commonly referred to as "derivatives."
A CMO contains a series of bonds or certificates issued in multiple classes.
Each CMO class (referred to as "tranche") has a specified coupon rate and stated
maturity or final distribution date. When people start prepaying the principal
on the collateral underlying a CMO (such as mortgages underlying a CMO), some
classes may retire substantially earlier than the stated maturity or final
distribution dates. The issuer structures a CMO to pay or accrue interest on all
classes on a monthly, quarterly or semi-annual basis. The issuer may allocate
the principal and interest on the underlying mortgages among the classes in many
ways. In a common structure, the issuer applies the principal payments on the
underlying mortgages to the classes according to scheduled cash flow priorities.
There are many classes of CMOs. Interest only classes ("IOs") entitle the class
shareholders to receive distributions consisting solely or primarily of all or a
portion of the interest in an underlying pool of mortgages or mortgage-backed
securities ("mortgage assets"). Principal only classes ("POs") entitle the class
shareholders to receive distributions consisting solely or primarily of all or a
portion of the underlying pool of mortgage assets. In addition, there are
"inverse floaters," which have coupon rates that move in the reverse direction
to an applicable index, and accrual (or "Z") bonds (described below).
At any one time, we may not invest more than 7.5% of a Fund's net assets in IOs,
POs, inverse floaters or accrual bonds individually or more than 15% in all such
obligations combined.
Inverse floating CMO classes are typically more volatile than fixed or
adjustable rate CMO classes. We would only invest in inverse floating CMOs to
protect against a reduction in the income earned on investments due to a
predicted decline in interest rates. In the event interest rates increased, we
would lose money on investments in inverse floating CMO classes. An interest
rate increase would cause the coupon rate on an inverse CMO class to decrease.
Cash flow and yields on IO and PO classes are extremely sensitive to principal
payment rates (including prepayments) on the underlying mortgage loans or
mortgage-backed securities. For example, rapid or slow principal payment rates
may adversely affect the yield to maturity of IO or PO bonds, respectively. If
the underlying mortgage assets experience greater than anticipated prepayments
of principal, the holder of an IO bond may incur substantial losses in value due
to the lost interest stream even if the IO bond has a AAA rating. If the
underlying mortgage assets experience slower than anticipated prepayments of
principal, the PO bond will incur substantial losses in value due to lost
prepayments. Rapid or slow principal payment rates may cause IO and PO bond
holders to incur substantially more losses in market value than if they had
invested in traditional mortgage-backed securities. On the other hand, if
interest rates rise, the value of an IO might increase and partially offset
other bond value declines in a Fund's portfolio. If interest rates fall, the
value of a PO might increase offsetting lower reinvestment rates in a Fund's
portfolio.
An accrual or Z bondholder does not receive cash payments until one or more of
the other classes have received their full payments on the mortgage loans
underlying the CMO. During the period when the Z bondholders do not receive cash
payments, interest accrues on the Z class at a stated rate. The accrued interest
is added to the amount of principal due to the Z class. After the other classes
have received their payments in full, the Z class begins receiving cash payments
until it receives its full amount of principal (including the accrued interest
added to the principal amount) and interest at the stated rate. Generally, the
date when cash payments begin on the Z class depends on the prepayment rate of
the mortgage loans underlying the CMO. A faster prepayment rate results in an
earlier commencement of cash payments on the Z class. Like a zero coupon bond,
during its accrual period the Z class has the advantage of eliminating the risk
of reinvesting interest payments at lower rates during a period of declining
interest rates. Like a zero coupon bond, the market value of a Z class bond
fluctuates more widely with changes in interest rates than would the market
value of bond from a class that pays interest currently. Changing interest rates
influence prepayment rates. As noted above, such changes in prepayment rates
affect the date at which cash payments begin on a Z tranche, which in turn
influences its market value.
Structured Securities -- The AAL International and High Yield Bond Funds
We may invest in structured notes and/or preferred stocks for The AAL
International and High Yield Bond Funds. The issuer of a structured security
links the security's coupon, dividend or redemption amount at maturity to some
sort of financial indicator. Such financial indicators can include currencies,
interest rates, commodities and indices. The coupon, dividend and/or redemption
amount at maturity may increase or decrease depending on the value of the linked
or underlying instrument.
Investments in structured securities involve certain risks. In addition to the
normal credit and interest rate risks inherent with a debt security, the
redemption amount may increase or decrease as a result of price changes in the
underlying instrument. Depending on how the issuer links the coupon and/or
dividend to the underlying instrument, the amount of the dividend may be reduced
to zero. Any further declines in the value of the underlying instrument may then
reduce the redemption amount at maturity. Structured securities may have more
volatility than the price of the underlying instrument.
Variable Rate Demand Notes--The AAL Small Cap Stock, Mid Cap Stock,
International, Capital Growth, Equity Income, Balanced, High Yield Bond, Bond
and Money Market Funds We may purchase variable rate master demand notes for The
AAL Small Cap Stock, Mid Cap Stock, International, Capital Growth, Equity
Income, Balanced, High Yield Bond, Bond and Money Market Funds. Variable rate,
master demand notes are unsecured instruments that permit the indebtedness
thereunder to vary and provide for period adjustments in the interest rate. The
extent to which we can purchase these securities for the Funds listed is subject
to Rule 2a-7 under the Investment Company Act of 1940. These notes normally do
not trade and there is no secondary market for the notes. However, we may demand
payment of the principal for a Fund at any time. We limit our purchases of
variable rate, master demand notes for a Fund to those: (1) rated in one of the
two highest rating categories by a NRSRO; or (2) that have been issued by an
issuer that has received a rating from the requisite NRSRO in the top two
categories with respect to a class of short-term debt obligations that is
comparable in priority and security with the instrument. If an issuer of a
variable rate, master demand note defaulted on its payment obligation, we might
not be able to dispose of the note for a Fund due to the absence of a secondary
market. We might suffer a loss to the extent of the default for the Fund. We
only invest in variable rate master demand notes and only when we deem them to
involve minimal credit risk.
Standard & Poor's Depositary Receipts ("SPDRs")
The Funds may invest in Standard & Poor's Depositary Receipts, commonly referred
to as SPDRs, subject to the investment restrictions concerning the investment in
other mutual funds. A SPDR is a unit investment trust. In accordance with its
Declaration of Trust, a SPDR is a pooled investment designed to closely track
the price and yield performance of a specific index, such as the S&P 500(R)
Index, the S&P MidCap 400(R) Index, or the Lehman Brothers Aggregate Bond
Index(R). Each SPDR trust portfolio holds corresponding shares in all the
securities of a particular index. Each SPDR share represents an undivided
ownership interest in that SPDR's trust portfolio. SPDR shares trade on a
secondary market, the American Stock Exchange (AMEX).
Portfolio Turnover Rates -- The AAL Small Cap Stock, Mid Cap Stock, High Yield
Bond, Municipal Bond and Bond Funds We expect The AAL Small Cap Stock, Mid Cap
Stock, High Yield Bond, Municipal Bond and Bond Funds to have portfolio turnover
greater than 100%, and the other Funds to have a portfolio turnover of less than
100%. We do not calculate a portfolio turnover rate for The AAL Money Market
Fund because of the short maturities of its investments. Due to the high volume
of buying and selling activity in a portfolio with turnover in excess of 100%,
we may pay more commissions for a Fund. We also may realize more taxable gains
than in portfolios with less turnover, which may result in an increase in a
Fund's expenses and lower returns for shareholders. We may trade for a Fund at a
portfolio rate significantly exceeding 100% (i.e., 600% or more for The AAL Bond
Fund and 300% or more for The AAL Balanced Fund), when we believe the benefits
of short-term investments outweigh any increase in transactions costs or capital
gains.
For the fiscal year ended April 30, 1999, The AAL Small Cap Stock and Mid Cap
Stock Funds had portfolio turnover rates of 112.96% and 125.94%, respectively.
The rates reflected our growth investment styles for the Funds. We also
purchased stocks in initial public offerings and sold them shortly thereafter.
Stock prices in initial public offerings tend to appreciate or decline
significantly after the offering and then level off in price. The rates also
reflect the volatility of small and mid cap stock prices.
The portfolio turnover rates for The AAL Municipal Bond and Bond Funds were
94.56% and 572.56%, respectively. The rate for The AAL Bond Fund reflects our
active selection of the individual bonds that we believe provide the best income
within the Fund's investment parameters at any one time for The AAL Bond Fund,
we may have a portfolio turnover rate for the next fiscal year in excess of
300%, and as high as 600% or more. Our turnover rate for The AAL Municipal Bond
Fund also reflects our active selection of the individual bonds that we believe
provide the best income and chance for capital appreciation and, thus,
preservation, at any one time. We try to exploit pricing inefficiencies we
believe exist in the municipal securities market.
The portfolio turnover rate for The AAL High Yield Bond Fund was 54.67%. In
seeking its objectives, we buy or sell portfolio securities whenever the
portfolio manager believes it appropriate. Generally, how long we have owned the
security for the Fund does not influence the portfolio manager's decision on
when we will trade the security. From time to time, we will buy securities
intending to seek short-term trading profits. As a result, The AAL High Yield
Bond Fund's portfolio turnover rate may be higher than that of other mutual
funds in this category. The turnover rate is not a limiting factor when
considering a change in the Fund's portfolio.
Options and Futures
The following sections pertain to options and futures. Except for The AAL Money
Market Fund, we may engage in options, futures and options on futures
transactions for the Funds. We may engage in options and futures transactions
for bona fide hedging. When entering into these transactions, we follow the SEC
and the Commodities Futures Trading Commission requirements and set aside liquid
assets in a separate account to secure a Fund's potential obligations under such
contracts. We cannot sell securities held in a segregated account while the
futures or options strategy is outstanding, unless we replace such assets with
other suitable assets. As a result, there is a possibility that segregation of a
large percentage of a Fund's assets could impede portfolio management or our
ability to meet redemption requests or other obligations for a Fund.
We may try to enhance returns or hedge against a decline in the value of a
Fund's securities by writing (selling) and purchasing options and futures
contracts. For example, during a neutral or declining market, we may gain
additional income by writing options and receiving premiums for a Fund. When we
write (sell) covered call options for a Fund, we forgo the opportunity to profit
from increases in the market value of the underlying securities above the sum of
the options' premium and the exercise price. On the other hand, we reduce the
amount of any decline in the value of the underlying securities to the extent of
the premium we receive from writing the call for a Fund. During a rising market,
we may gain incremental income by purchasing call options and futures contracts
for a Fund.
We also may use options and futures to hedge against an anticipated price
increase in a security we plan to buy for a Fund.
If new types of options and futures contracts become available, we may use them
for the Funds. Prior to their use, however, we must obtain a determination from
the Funds' Board of Trustees that their use would be consistent with the Fund's
investment objectives and policies.
Options on Securities and Indexes
An option contract on a security (or index) gives the holder, in return for a
premium, the right to buy from (call) or sell to (put) the option writer of the
underlying security (or cash value of underlying index) at a specified exercise
price at any time during the option term.
Upon exercise of a call option, the writer (seller) has the obligation to
deliver the underlying security to the holder; provided the holder pays the
exercise price. Upon exercise of a put option, the writer has the obligation to
pay the holder the exercise price upon delivery of the underlying security.
Upon the exercise of an index options, the writer must pay the difference
between the cash value of the index and the exercise price multiplied by the
specified multiplier for the index option. (An index is a statistical composite
that measures changes in the economy or financial market, usually reflecting
specified facets of a particular securities market, a specific group of
financial instruments, securities or economic indicators.).
Options and futures exist on debt, equity, indexes and other securities or
instruments. They may take the form of standardized contracts traded on national
securities exchanges, boards of trade or similar entities. They also may trade
in the over-the-counter market. Some debt instruments, such as bonds, trade with
cash put options, which generally allow the holder to sell the security back to
the issuer at a specified price for a specified amount of time.
When we write options, we may only write "covered" calls or puts for a Fund.
A call option for a Fund is covered if we hold the security underlying the call
for the Fund. Also a call option for a Fund is covered if we have an absolute
and immediate right to acquire the security for the Fund without additional cash
consideration upon conversion or exchange of other securities held in the
portfolio. If additional cash consideration is required, we hold cash or cash
equivalents in such an amount in a segregated account with the Fund's custodian.
An index call option is covered if we hold cash or cash equivalents with the
Fund's custodian equal to the contract value. A written call option is covered
if we hold a call option on the same security or index under two conditions. The
first condition is where the exercise price of the call purchased is equal to or
less than the exercise price of the call written. The second conditions is where
the exercise price of the call purchased is greater than the exercise price of
the call written; provided that we maintain the difference with the Fund's
custodian in cash or cash equivalents in a segregated account.
A put option on a security or an index is covered if we maintain cash or cash
equivalents equal to the exercise price in a segregated account with the Fund's
custodian. A put option is covered if we hold a put on the same security or
index as the put written under two conditions. The first condition is where the
exercise price of the put is equal to or greater than the exercise price of the
put written. The second condition is where the exercise price of the put is less
than the exercise price of the put written; provided we maintain cash or cash
equivalents with the Fund's custodian in a segregated account.
Prior to the expiration or exercise of an option, we may close the option out by
entering into an offsetting transaction. We would affect an offsetting
transaction for a Fund by purchasing or selling an option of the same series
(type, exchange, underlying security or index, exercise price and expiration).
Due to market factors, we may not be able to affect a closing purchase or sale
at the time we would like to for a Fund.
We realize a capital gain from a closing purchase transaction if the premium for
purchasing the closing option is less than the premium received from writing the
option. If the premium for purchasing the closing option is more, we realize a
capital loss for the Fund. If the premium received from a closing sale
transaction is more than the premium paid to purchase the option, we realize a
capital gain for the Fund. If the premium is less, we realize a capital loss for
the Fund.
If an option we write for a Fund expires unexercised, we realize a capital gain
equal to the premium received. If an option we purchased for a Fund expires
unexercised, we realize a capital loss equal to the premium we paid for the
option.
The principal factors affecting the market value of a put or call option include
supply and demand, interest rates, the current market price of the underlying
security or index in relation to the exercise price of the option, the
volatility of the underlying security or index and the time remaining until the
expiration date.
We record a premium paid for an option purchased by us for a Fund as an asset.
We record the premium received for an option written by us for a Fund as a
deferred liability. We mark-to-market the value of an option purchased or
written on a daily basis at the closing price on the exchange on which it
traded. If the option was not traded on an exchange or a closing price was not
available, we would value the option at the mean between the last bid and asked
prices.
Risks Associated with Options on Securities and Indexes
Options transactions have risks. A decision as to whether, when and how we use
options involves the exercise of skill and judgment. For example, significant
differences could exist between the market for the underlying security (or
index) and the market for the overlying options. These differences, such as
differences in the way the underlying securities are trading and the way the
options on the securities are trading, could result in an imperfect correlation
between the markets. As a result, we might not be able to achieve our objectives
in an options transaction for the Fund. Market behavior and unexpected events
may hinder our otherwise well-conceived options transactions we have entered
into for a Fund.
We cannot assure you that a liquid market will exist when we seek to close out
an option position for a Fund. If we could not close out an option we had
purchased for a Fund, we would have to exercise the option to realize any profit
or let the option expire worthless. If we could not close out a covered call
option that we had written for a Fund, we could not sell the underlying security
unless the option had expired not exercised.
When we write a covered call option for a Fund, we forgo the opportunity to
profit from increases in the covering security's market value above the sum of
the premium and the call's exercise price.
If the exchange (or Board of Trade) suspends trading in an option we purchased
for a Fund, we cannot enter into a closing transaction during the suspension. If
the exchange imposes restrictions on the option's exercise, we might not be able
to exercise an option we have purchased for a Fund. Except to the extent that a
call option on an index written by a Fund is covered by an option on the same
index purchased by a Fund, movements in the index may result in a loss to a
Fund. Such losses may be mitigated by changes in the value of a Fund's portfolio
securities during the period the option was outstanding.
Futures Contracts and Options on Futures Contracts
In addition to foreign currency futures contracts, which we discuss below, we
may enter into interest rate and index futures contracts. An interest rate or
index futures contract provides for the future sale by one party and purchase by
another party of a specified quantity of a financial instrument or the cash
value of an index at a specified price and time. A futures contract on an index
is an agreement by which two parties agree to take or make delivery of an amount
of cash equal to the difference between the closing value of the index on the
contract's last trading day and the original price entered into for the
contract. Although the index's value may reflect the value of certain underlying
securities, the party responsible for delivery delivers cash (not the underlying
securities).
A public market exists in futures contracts covering a number of indexes as well
as other financial instruments. Such instruments include: U.S. Treasury bonds;
U.S. Treasury notes; GNMA certificates; three-month U.S. Treasury bills; 90-day
commercial paper; bank certificates of deposit; and Eurodollar certificates of
deposit. Boards of trade and other issuers may develop and trade other futures
contracts. As with options, if new types of futures contracts become available,
we may use them for the Funds. Prior to their use, however, we must obtain a
determination from the Funds' Board of Trustees that their use would be
consistent with the Fund's investment objectives and policies.
We may purchase and write call and put futures options for a Fund. Our ability
to write call and put futures, however, depends on whether the Commodity Futures
Trading Commission grants certain regulatory relief (such as an exemption from
being considered a commodities pool operator).
Options on futures possess many of the same characteristics as options on
securities and indexes. A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or short position (put)
in a futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder acquires a long
position in the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true.
As long as regulatory authorities require, we limit our use of futures and
options on futures to hedging transactions. We might use futures contracts to
hedge against anticipated interest rate changes we believe might adversely
affect either the value of a Fund's securities or the price of securities we
intend to purchase for a Fund. Our hedging strategy may include sales of futures
contracts to offset the effect of expected interest rate increases. It also may
include purchases of futures contracts to offset the effect of expected interest
rate declines. Although we could use other techniques to reduce a Fund's
exposure to interest rate fluctuations, we may be able to hedge a Fund's
exposure more effectively and perhaps at a lower cost by using futures and
options on futures.
The success of any hedging technique depends on our ability to correctly predict
changes in the level and direction of interest rates and other factors. Should
our predictions prove incorrect, the Fund's return might be lower than it would
have been had we not tried the hedging strategy. However, in the absence of the
ability to hedge, we might have to take portfolio actions in anticipation of the
same market movements with similar investment results at potentially greater
transaction costs.
We only enter into standardized futures or options on futures contracts that
trade on U.S. exchanges, boards of trade, or similar entities, or are quoted on
an automated quotation system.
When we purchase or sell a futures contract for a Fund, we deposit with the
custodian (or broker, if legally permitted) a specified amount of cash or U.S.
government securities ("initial margin"). The exchange or board of trade on
which the futures contract trades sets the margin requirement. The exchange may
modify the margin requirement during the term of a futures contract. The initial
margin is in the nature of a performance bond or good faith deposit on the
futures contract. The custodian or broker returns the margin to a Fund upon
termination of the contract, assuming we have fulfilled all contractual
obligations for the Fund. We expect to earn interest income on the initial
margin deposit for a Fund. We value a futures contract held for a Fund on a
daily basis at the official settlement price of the exchange on which it trades.
Each day a we pay or receive cash for the Fund, called "variation margin," equal
to the daily change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or loan by
us for a Fund, but is instead a settlement between a Fund and the broker of the
amount one would owe the other if the futures contract expired. In computing
daily net asset value, we mark-to-market a Fund's open futures positions.
We are required to deposit and maintain margin on any put and call options on
futures contracts that we have written for a Fund. Such margin deposits vary
depending on the nature of the underlying futures contract (and the related
initial margin requirements), the option's current market and other futures
positions we hold for the Fund.
Some futures contracts call for making or taking delivery of the underlying
securities. Generally we would close out these obligations prior to delivery by
making offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, we realize a capital gain
for the Fund. If the offsetting purchase price is more, we realize a capital
loss for the Fund. Conversely, if an offsetting sale price is more than the
original purchase price, we realize a capital gain for a Fund. If the offsetting
sale price is less, we realize a capital loss for a Fund. We must include the
transaction costs in calculating a gain or loss on the offsetting transactions.
Risks Associated with Futures
There are several risks associated with using futures contracts and options on
futures as hedging techniques. Our purchase or sale of a futures contract may
result in losses in excess of the amount we invested in the futures contract for
a Fund. We cannot guarantee how price movements in the market for the hedging
vehicle and market for the underlying portfolio securities being hedged will
correlate. Significant differences exist between the securities and futures
markets that could result in an imperfect correlation. These differences could
cause a given hedging strategy we have entered into for a Fund to not achieve
its objectives. The degree of imperfect correlation depends on circumstances
such as the variations in the speculative market demand for the futures and/or
futures options contracts used to hedge the underlying portfolio securities. A
decision as to whether, when and how we hedge involves the exercise of skill and
judgment. Our hedges may be unsuccessful to some degree because of unexpected
market behavior or interest rate trends.
Futures exchanges may limit the amount of price fluctuation in a contract for
trading in a single day. An exchange establishes a daily limit on the amount a
contract's price may vary either up or down from the previous day's settlement
price. Once the futures contract trades above or below the daily limit, the
exchange stops trading beyond the limit. The daily limit governs price movements
during a particular trading day but does not limit potential losses for the
contract holders. The daily limit may prevent us from being able to liquidate an
unfavorable position for a Fund. For example, futures prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions and subjecting some
holders of futures contracts to substantial losses.
We cannot ensure a liquid market will exist at a time when we seek to close out
a futures or futures options position for a Fund. If a liquid market did not
exist, we would have to continue meeting margin requirements until we could
close the position. We also cannot ensure that an active secondary market will
develop or continue to exist for the futures and futures options discussed
above.
Limitations on Options and Futures
We do not enter into an open futures contract position or purchase an option:
the initial margin deposit plus the premiums paid less the amount by which any
such position is "in the money" exceeds 5% of a Fund's net assets. A call option
is "in the money" if the value of the futures contract that is the subject of
the option exceeds the exercise price. A put option is "in the money" if the
exercise price exceeds the value of the futures contract that is the subject of
the option.
When purchasing a futures contract or writing a put on a futures contract, we
must maintain with the Fund's custodian (or broker, if legally permitted) cash
or cash equivalents (including any margin) equal to the market value of such
contract. When writing a call option on a futures contract, we maintain with the
Fund's custodian cash or cash equivalents (including any margin) equal to the
amount such option is in the money until the option expires or we have entered
into an offsetting transaction closing out the option for the Fund.
We may not maintain open short positions in futures contracts, call options
written on futures contracts or call options written on indexes for a Fund, if,
in the aggregate, the market value of all such open positions exceeds the
current value of the Fund's portfolio. In valuing the portfolio, we have to take
into account unrealized gains and losses on the open positions and adjust for
the historical relative volatility of the relationship between the portfolio and
the positions. To the extent we have written call options on specific securities
in a Fund's portfolio, we deduct the value of those securities from the
portfolio's current market value.
We avoid being deemed a "commodity pool operator" by complying with the
Commodity Futures Trading Commission Rules. As such, we do not invest in a
commodity contract for a Fund where the "underlying commodity value" of each
long position at any time exceeds the sum of:
(1) the value of the Fund's short-term U.S. debt obligations or other U.S.
dollar denominated, high-quality short-term money market instruments and
cash that we have set aside for the Fund in an identifiable manner, plus
any funds deposited as margin on the contract;
(2) unrealized appreciation on the contract held by the broker; and
(3) cash proceeds from existing investments due in not more than 30 days.
"Underlying commodity value" means the size of the contract multiplied by the
daily settlement price of the contract.
Taxation of Options and Futures
If we exercise a call option for a Fund, we add the premium paid for the call
option to the cost of the security purchased. If we exercise a put option, we
deduct the premium paid for the put option from the proceeds of the security
sold. For index options and futures, which are settled in cash, the difference
between the cash received at exercise and the premium paid is a capital gain or
loss.
Our entry into closing purchase transactions for a Fund results in a capital
gain or loss. If an option was "in the money" when we wrote it and we held the
security covering the option for more than one year before writing it for a
Fund, any loss realized in a closing purchase transaction would be long-term for
federal tax purposes. The holding period of the securities covering an "in the
money" option does not include the time period the option was outstanding.
When we hold a futures contract for a Fund until delivery, we will realize a
capital gain or loss on the futures contract. The capital gain or loss is equal
to the difference between the price at the time we entered into the futures
contract for the Fund and the settlement price on the earlier of the delivery
notice date or expiration date. If we deliver securities for a Fund under a
futures contract, we realize a capital gain or loss for the Fund on those
securities.
For Federal income tax purposes, we generally recognize as income a Fund's
yearly net unrealized gains and losses on its options, futures and options on
futures positions ("year-end mark to market"). Generally, any gain or loss
recognized with respect to such positions (either by year-end mark to market or
by actual closing of the positions) is considered to be 60% long term and 40%
short term, without regard to the holding periods of the contracts. However, in
the case of positions classified as part of a "mixed straddle," we may defer the
recognition of losses on certain positions (including options, futures and
options on futures positions, the related securities and certain successor
positions thereto) to a later taxable year for a Fund. Selling futures contracts
or writing call options (or call options on futures) or buying put options (or
put options on futures) for the purposes of hedging against an anticipated
change in the value of a Fund's securities may affect the securities' holding
period.
We distribute any recognized net capital gains for a Fund, including any
recognized net capital gains (including year-end mark-to-market gains) on
options and futures transactions for federal income tax purposes. We combine and
distribute a Fund's capital gains on its options and futures transactions and
its capital gains on other investments. We also advise shareholders on the
nature of these distributions for a Fund.
Federal Tax Treatment of Forward Foreign Exchange Contracts
We may enter into certain forward foreign exchange contracts for a Fund that the
Internal Revenue Service will treat as Section 1256 contracts or straddles under
the Internal Revenue Code.
We must consider these Section 1256 contracts as having been closed at the end
of a Fund's fiscal year and we must recognize any gains or losses on these
contracts for tax purposes at that time. The IRS characterizes such gains or
losses from the normal closing or settlement of such transactions as ordinary
gain or loss. We are required to distribute any net gains on such transactions
to the Fund's shareholders even if we have not actually closed the transaction
and received cash to pay for the distribution.
We may consider forward foreign exchange contracts that offset a foreign dollar
denominated bond or currency position as straddles for tax purposes. Considering
these contracts as straddles allows us to defer a loss on any position in a
straddle to the extent of unrealized gain in an offsetting position.
For a Fund to continue qualifying for federal income tax treatment as a
regulated investment company, it must derive at least 90% of its gross income
from qualifying income (i.e., dividends, interest, income derived from loans of
securities and gains from the sale of securities or currencies). Pending tax
regulations could limit the extent that net gains realized from options, futures
or foreign forward exchange contracts on currencies are qualifying income for
purposes of 90% requirement.
Foreign Securities
The AAL Small Cap Stock, Mid Cap Stock, Capital Growth, Balanced and Bond Funds
We also may invest assets of the Fund in foreign securities trading domestically
through depository receipts or on a U.S. national securities exchange or Nasdaq
National Market for The AAL Small Cap Stock, Mid Cap Stock and Capital Growth
Funds. We do not intend to invest more than 10% of their net assets in such
foreign securities. We may invest up to 20% of The AAL Bond Fund's net assets in
debt securities of foreign issuers payable in U.S. dollars. We may invest in
foreign securities for The AAL Balanced Fund to the extent The AAL Capital
Growth and Bond Funds allow investments in foreign securities for the common
stock and fixed-income sectors of the Fund, respectively. Foreign securities may
present a greater degree of risk (including risks relating to tax provisions or
expropriation of assets) than do securities of domestic issuers.
Foreign Securities - The AAL International, Equity Income and High Yield Bond
Funds We normally invest at least 65% of The AAL International Fund's total
assets in foreign securities primarily trading in at least 3 different
countries, not including the U.S.
We may invest up to 15% of The AAL Equity Income Fund's net assets in foreign
securities. We also may invest in foreign securities trading domestically
through depository receipts and securities of foreign issuers traded on a U.S.
national securities exchange or Nasdaq National Market without regard to the 15%
limitation. For purposes of diversification for a Fund, we consider depository
receipts as investments in the underlying stocks.
We may invest up to 15% of The AAL High Yield Bond Fund's net assets in foreign
bonds. At this time, we intend to limit our foreign bond purchases for the Fund
to those trading in the U.S.
Foreign investing involves risks in addition to the risks inherent in U.S.
investing. Foreign countries tend to disseminate less public information about
their issuers. Many foreign countries do not subject their companies to uniform
accounting, auditing and financial reporting standards. The value of foreign
investments may rise or fall because of changes in currency exchange rates. As a
result, we may incur costs in converting securities denominated in foreign
currencies into U.S. dollars for a Fund. Dividends and interest on foreign
securities may be subject to foreign withholding taxes, which would reduce a
Fund's income without providing a tax credit to shareholders. When necessary, we
may have more difficulty obtaining and enforcing judgments in foreign countries.
We also would incur more expense. Even though we mainly intend to invest in
securities trading in stable and developed countries, we still face the
possibility of expropriation, confiscatory taxation, nationalization, currency
blockage or political or social instability that could affect investments in
such countries.
We may invest in American Depository Receipts ("ADRs") for The AAL International
and Equity Income Funds without limit. ADR facilities may be either "sponsored"
or "un-sponsored." While sponsored and un-sponsored ADR facilities are similar,
distinctions exist between the rights and duties of ADR holders and market
practices. Sponsored facilities have the backing or participation of the
underlying foreign issuers. Un-sponsored facilities do not have the
participation by or consent of the issuer of the deposited shares. Un-sponsored
facilities usually request a letter of non-objection from the issuer.
Holders of un-sponsored ADRs generally bear all the costs of such facility. The
costs of the facility can include deposit and withdrawal fees, currency
conversion and other service fees. The depository of an un-sponsored facility
may not have a duty to distribute shareholder communications from the issuer or
to pass through voting rights. Issuers of un-sponsored ADRs do not have an
obligation to disclose material information about the foreign issuers in the
U.S. As a result, the value of the un-sponsored ADR may not correlate with the
value of the underlying security trading abroad or any material information
about the security or the issuer disseminated abroad.
Sponsored facilities enter into an agreement with the issuer that sets out
rights and duties of the issuer, the depository and the ADR holder. The
sponsored agreement also allocates fees among the parties. Most sponsored
agreements provide that the depository will distribute shareholder notices,
voting instructions and other communications. The AAL International and Equity
Income Funds may invest in sponsored and un-sponsored ADRs.
For The AAL International Fund, we also may hold foreign securities in the form
of American Depository Shares ("ADSs"), Global Depository Receipts ("GDRs") and
European Depository Receipts ("EDRs"), or other securities convertible into
foreign securities. These receipts may not be denominated in the same currency
as the underlying securities. Generally, American banks or trust companies issue
ADRs and ADSs, which evidence ownership of underlying foreign securities. GDRs
represent global offerings where an issuer issues two securities simultaneously
in two markets, usually publicly in a non-U.S. market and privately in the U.S.
market. EDRs (sometimes called Continental Depository Receipts ("CDRs")) are
similar to ADRs, but usually issued in Europe. Typically issued by foreign banks
or trust companies, EDRs and CDRs evidence ownership of foreign securities.
Generally, ADRs and ADSs in registered form trade in the U.S. securities
markets, GDRs in the U.S. and European markets, and EDRs and CDRs (in bearer
form) in European markets. For diversification purposes, we consider investments
in ADRs, ADSs, GDRs, EDRs and CDRs as investments in the underlying stocks for
the Fund.
Foreign Currency Transactions
Foreign Currency Spot Transactions and Forward Contracts
To manage the currency risk accompanying investments in foreign securities and
to facilitate the purchase and sale of foreign securities, we may engage in
foreign currency transactions on a spot (cash) basis for all Funds, unless there
are investment restrictions to the contrary. We invest at the spot rate
prevailing in the foreign currency exchange market. We also may enter into
contracts to purchase or sell foreign currencies at a future date ("forward
foreign currency" contracts or "forward" contracts).
A forward contract involves an obligation to purchase or sell a specific foreign
currency at a future date at a set price. Forward contracts principally trade in
the inter-bank market and are conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement and no commissions are charged at any stage
for trades.
Whenever we intend to purchase or sell a security denominated in a foreign
currency for a Fund, we may want to "lock in" the U.S. dollar price of the
security. We can protect a Fund by entering into a forward contract for the
purchase or sale of a fixed amount of U.S. dollars equal to the amount of
foreign currency involved in the underlying security transaction. With a forward
contract, we can protect the Fund against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency between the date the security is purchased or sold and the date
on which the payment is made or received.
We may use forward contracts for a Fund when we believe that a particular
foreign currency may suffer a substantial decline against the U.S. dollar. In
this situation, we would enter into a forward contract to sell a fixed amount of
the foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. We, however, cannot
precisely match the forward contract amounts and the value of the securities
involved. The securities' values change as a consequence of market movements
between the date we entered into the forward contract for the underlying
currency and the date it matures.
Due to the fact that movement in the short-term currency market is extremely
difficult to predict, successful execution of a short-term hedging strategy is
highly uncertain. Therefore, we do not enter into forward contracts or maintain
a net exposure to such contracts where completion would obligate us to deliver
foreign currency in excess of the value of the Fund's securities or other assets
denominated in that currency. Under normal circumstances, we consider the
long-term prospects for a particular currency. We incorporate the prospects into
our overall long-term diversification strategies. However, we believe that it is
important to have the flexibility to enter into such forward contracts when we
determine that it is in the Fund's best interest.
At the maturity of a forward contract for a Fund, we may either: (1) sell the
portfolio securities and make delivery of the foreign currency; or (2) retain
the securities and terminate our contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating us to purchase, on
the same maturity date, the same amount of foreign currency.
If we retain the portfolio securities and engage in an offsetting transaction
for the Fund, we will incur a gain or a loss to the extent that there has been
movement in forward contract prices. If we enter into an offsetting transaction,
we may subsequently enter into a forward contract to sell the foreign currency.
Should forward prices decline during the period when we entered into a forward
contract to sell a foreign currency and the date we entered into an offsetting
contract to buy a foreign currency, we will realize a gain to the extent the
price of the currency we agreed to sell exceeds the price of the currency we
agreed to buy. Should forward prices increase, we will suffer a loss to the
extent that the price of the currency we agreed to buy exceeds the price of the
currency we agreed to sell for a Fund. We may not be able to hedge against a
currency devaluation at a price above the level where the market itself has
anticipated the currency's devaluation.
A foreign currency hedge transactions does not protect against or eliminate
fluctuations in the prices of particular portfolio securities. For example, a
foreign currency hedge transaction does not prevent a security's price decline
due to an issuer's deteriorating credit situation. We also cannot forecast with
precision the market value of securities at the expiration of a forward
contract. Accordingly, we may have to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if: (1) the market value
of the Fund's securities are less than the amount of the foreign currency we are
obligated to deliver for the Fund; and (2) we made a decision to sell the
foreign securities and make delivery of the foreign currency upon expiration of
the contract for the Fund. Conversely, we may have to sell some of a Fund's
foreign currency received upon the sale of a portfolio security if the market
value of the Fund's securities exceed the amount of foreign currency we are
obligated to deliver for the Fund. We limit our dealings in forward foreign
currency exchange contracts for a Fund to the transactions described above.
Although we value the Funds' assets daily in terms of U.S. dollars, we do not
intend to convert their holdings of foreign currencies into U.S. dollars on a
daily basis. From time to time, however, we will convert a Fund's foreign
currency holdings into U.S. dollars. There are costs associated with converting
foreign currencies into U.S. dollars and you should be award of these costs.
Although foreign exchange dealers do not charge a fee for conversion, they
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to us for a Fund at one rate, while offering a lesser
rate of exchange should we desire to resell that currency to the dealer for the
Fund.
Options and Futures Relating to Foreign Currencies
We may purchase and sell currency futures and purchase and write currency
options to increase or decrease a Fund's exposure to different foreign
currencies. We also may purchase and write currency options in conjunction with
the currency futures or forward contracts of the Fund's other series. The uses
and risks of currency options and futures are similar to options and futures on
securities or indices, as discussed above.
Currency futures contracts are similar to forward foreign currency contracts,
except that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars.
The underlying instrument of a currency option generally is either a foreign
currency or a currency futures contract. The purchaser of a currency call option
obtains the right to purchase the underlying currency. The purchaser of a
currency put option obtains the right to sell the underlying currency.
Currency futures and options values correlate with exchange rates. However, the
futures and options values do not reflect other factors affecting a Fund's
investment value. A currency hedge, for example, should protect a Japanese
Yen-denominated security from a decline in the Yen. The currency hedge, however,
will not protect the particular Fund's Yen denominated investments against a
price decline in the Yen denominated security resulting from deterioration in
the issuers' creditworthiness. Because the value of a Fund's foreign-denominated
investments change in response to many factors other than exchange rates, we
have difficulty matching the exact value of any hedge in currency options and
futures to the value of our foreign investments for a Fund over time.
Foreign Investing Expenses
Investing in foreign securities costs more than investing in U.S. securities due
generally to higher transaction costs, such as the commissions paid per share.
As a result, Funds that invest in foreign securities tend to have higher
expenses, particularly funds that invest primarily in foreign securities (i.e.,
The AAL International Fund). In addition to higher commissions, they generally
have higher advisory and custodial fees. However, you may find investing in a
fund that purchases foreign securities a more efficient way to invest in foreign
securities than investing in individual foreign securities. Higher expenses
attributable to a Fund that invests in foreign securities does not mean that the
Fund has higher expenses than other funds with similar investment policies and
percentages of assets invested in foreign securities.
Privately Issued Securities: The AAL Money Market Fund
We may invest in securities issued by major corporations without registration
under the Securities Act of 1933 for The AAL Money Market Fund in reliance on
certain exemptions, including the "private placement" exemption afforded by
Section 4(2) of that Act. Section 4(2) paper is restricted as to disposition
under the federal securities laws in that any resale must be made in an exempt
transaction. This paper normally is resold to other institutional investors
through or with the assistance of investment dealers who make a market in it,
thus providing liquidity. In our opinion (as the Adviser), Section 4(2) paper is
no less liquid or salable than commercial paper issued without legal
restrictions on disposition. The secondary market for Section 4(2) paper could
become illiquid if institutional participants lost interest in these
investments. However, should we deem that section 4(2) paper issue is illiquid,
we would purchase such security for a Fund only in accordance with our
limitations on illiquid securities.
Investments In Other Investment Companies
Due to the administration and distribution expenses of managing a mutual fund,
our investments in other investment companies (mutual funds, which are limited
by fundamental investment restriction 14 above) may cause us to increase
payments of such expenses for a Fund.
Risks
Each of the previously described investment techniques contains an element of
risk. You should also be aware of the following risks associated with an
investment in the Funds.
Interest Rate Risk
For The AAL Balanced, High Yield Bond, Municipal Bond, Bond and Money Market
Funds and, to some extent, The AAL Equity Income Fund, you can expect that
interest rate changes will significantly impact upon the value of your Fund
investments. Interest rates are influenced by supply and demand as well as
economic monetary policies. In general, a decline in prevailing interest rate
levels generally will increase the value of the securities, particularly the
bonds, held in a Fund's portfolio and vice versa. As a result, interest rate
fluctuations will affect a Fund's net asset values but not the income received
from its existing portfolio. However, changes in the prevailing interest rate
level will affect the yield on subsequently purchased securities. Because yields
on the securities available for purchase by the Funds will vary over time, we
cannot assure a specific yield on a Fund's shares.
Longer-term bonds are more sensitive to interest rate changes than shorter-term
bonds, reflecting the greater risk of holding these bonds for a longer period of
time. Longer-term bond prices increase more dramatically when interest rates
fall and decrease more dramatically when interest rates rise. Prices of
short-term debt, such as money market instruments, are less price sensitive to
interest rate changes because of their short duration. Securities that pay high
dividends, like bonds, are more sensitive to interest rate levels than other
equity securities that pay low dividends.
Investing in a Bond Versus Investing in a Mutual Fund
Investing in a mutual fund that owns bonds is not the same as buying an
individual bond. Both bonds and funds owning bonds offer regular income. While
individual bonds can offer a fixed amount of regular income until maturity, a
mutual fund portfolio may include a constantly changing pool of bonds with
differing interest rates and maturity prices. Both share prices and dividends
may fluctuate in a mutual fund owning bonds.
MANAGEMENT OF THE FUNDS
Board of Trustees and Executive Officers
The Trustees and Executive Officers of the Funds and their principal occupations
during the past five years are described below. Unless otherwise specified, the
business address of all Trustees and Officers is 222 West College Avenue,
Appleton, WI 54919-0007:
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Address and Age Position with the Funds Principal Occupation
F. Gregory Campbell Trustee President, Carthage College
d/o/b 2/16/39
2001 Alford Park Drive
Kenosha, WI 53140
Richard L. Gady Trustee Vice-President of Public Affairs
d/o/b 2/28/43 and Chief Economist, ConAagra,
One ConAgra Drive Inc. (agribusiness)
Omaha, NE 68102-5001
John O. Gilbert Trustee* President and Chief Executive
d/o/b 8/30/42 Officer, Aid Association for
Lutherans
John H. Pender Trustee Retired; formerly Senior Vice-
d/o/b 5/25/30 President and Chief Investment
P.O. Box 250 Officer, Aid Association for
Dunbar, WV 25064-0250 Lutherans
Edward W. Smeds Trustee Retired; President, Customer
d/o/b 2/15/36 Service and Operations, Kraft
10 Regent Wood Road Foods (food and agriculture)
Northfield, IL 60093
Lawrence M. Woods Trustee Retired; formerly Executive Vice-
d/o/b 4/14/32 President and Director Mobil Oil
524 Sunset Drive Corporation (oil producer)
Worland, WY 82401
Robert G. Same Vice-President and Vice-President,
d/o/b 7/28/45 Secretary Chief Compliance Officer,
and Deputy General Counsel,
Aid Association for Lutherans;
Assistant Secretary, AAL Capital
Management Corporation
Charles D. Gariboldi Treasurer Assistant Vice-President,
d/o/b 12/31/59 Fund Accounting, Aid Association
for Lutherans
Woodrow E. Eno Assistant Secretary Senior Vice-President, Secretary
d/o/b 4/5/46 and General Counsel, Aid
Association for Lutherans
Steven J. Fredricks Assistant Secretary Attorney III, Securities and
d/o/b 7/25/70 Investment Law, Aid Association
for Lutherans, Attorney, Azaria
Financial Services, LLP (financial
services)
</TABLE>
* Denotes Directors who are "interested persons" of the Funds, as defined in the
Investment Company Act of 1940.
Compensation Table
The Funds do not make payments to any of the officers for services to the Trust.
The Funds, however, pay the independent Trustees (those who are not officers or
employees of AAL CMC or Aid Association for Lutherans) an annual fee of $25,000.
The Funds assess these fees ratably to each series of the AAL Mutual Funds. The
Funds reimburse the Trustees 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, 1999, the Funds paid an
aggregate of $106,214.33 in Trustees' fees and expenses. Fees paid to the
Trustees for the fiscal year ended April 30, 1999 are set forth below.
Total
Compensation
Aggregate From Funds and
Compensation Fund Complex(1)
Name, Position from Funds Paid to Trustees
Ronald G. Anderson(2) - 0 - - 0 -
F. Gregory Campbell $25,000 $30,000
Richard L. Gady $25,000 $30,000
John O Gilbert - 0 - - 0 -
John H. Pender $25,000 $25,000
D.W. Russler3 $18,750 $22,500
Edward W. Smeds(3) $6,250 $7,500
Lawrence M. Woods $25,000 $30,000
(1) The Fund Complex includes the AAL Variable Product Series Fund, Inc..
(2) Ronald G. Anderson retired from the Board of Trustees effective June 10,
1999.
(3) As of December 31, 1998, Mr. Russler retired from the Board of Trustees and
Mr. Smeds joined the Board of Trustees
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 30, 1999, the Trust's officers and Trustees owned less than 1% of
the shares of any Funds. As of April 30, 1999, no account holders held in excess
of 5% of any Fund's shares:
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
Please refer to our description of the adviser, advisory agreement and fees
under "Management, Organization, and Capital Structure" in the prospectus. We
have incorporated the prospectus herein by reference.
Affiliated Persons
There are currently no affiliated persons of the Fund or AAL CMC, the Funds'
adviser.
Adviser Fees
The adviser, AAL CMC, furnishes and pays for all office space and facilities,
equipment and clerical personnel necessary for carrying out the adviser's duties
under the advisory agreement. The adviser also pays all compensation of
Trustees, officers and employees of the Trust who are the adviser's affiliated
persons. All costs and expenses not expressly assumed by the adviser under the
advisory agreement are paid by the Funds, including, but not limited to: (a)
interest and taxes; (b) brokerage commissions; (c) insurance premiums; (d)
compensation and expenses of the Funds' Trustees other than those affiliated
with the adviser; (e) legal and audit expenses; (f) fees and expenses of the
Trust's custodian and transfer agent; (g) expenses incident to the issuance of
the Trust's shares, including stock certificates and issuance of shares on the
payment of, or reinvestment of, dividends; (h) fees and expenses incident to the
registration under Federal or state securities laws of the Trust or its shares;
(i) expenses of preparing, printing and mailing reports and notices and proxy
material to the Trust's shareholders; (j) all other expenses incidental to
holding meetings of the Trust's shareholders; (k) dues or assessments of or
contributions to the Investment Company Institute or its successor, or other
industry organizations; (l) such non-recurring expenses as may arise, including
litigation affecting the Trust and the legal obligations that the Trust may have
to indemnify its officers and Trustees with respect thereto; and (m) all
expenses that the Trust agrees to bear in any distribution agreement or in any
plan adopted by the Trust pursuant to Rule 12b-1 under the Act.
Adviser Fees per Fund
<TABLE>
<CAPTION>
<S> <C>
THE AAL SMALL CAP STOCK FUND 0.70% on the first $200 million
0.65% on the average daily net assets over $200 million
THE AAL MID CAP STOCK FUND 0.70% on the first $200 million
0.65% on the average daily net assets over $200 million
THE AAL INTERNATIONAL FUND 0.25% on the average daily net assets above the sub-adviser's fee
Sub-Adviser Fees 0.40% on the first $50 million
Oechsle International Advisers 0.35% on the average daily net assets over $50 million
THE AAL CAPITAL GROWTH FUND 0.65% on the first $500 million
0.575% on the next $500 million
0.50% on the average daily net assets over $1 billion
THE AAL EQUITY INCOME FUND 0.45% on the average daily net assets
THE AAL BALANCED FUND 0.55% on the average daily net assets
THE AAL HIGH YIELD BOND FUND 0.55% on the average daily net assets
THE AAL MUNICIPAL BOND FUND 0.45% on the average daily net assets
THE AAL BOND FUND 0.45% on the average daily net assets
THE AAL MONEY MARKET FUND 0.50% on the first $500 million
0.45% on the average daily net assets over $500 million
</TABLE>
The adviser may waive its advisory fees for, assume or reimburse the expenses
of, any Fund at any time. As of September 1, 1997, the adviser is waiving .225
of 1% of its .50 of 1% maximum advisory fee for The AAL Money Market Fund.
Effectively, the adviser is charging only a 0.275 of 1% advisory fee for the
Fund. The adviser is reimbursing The AAL High Yield Bond Fund expenses in excess
of 1.00% and 1.75% for Class A and Class B shares, respectively. Any fee waivers
or expense assumptions the adviser makes are voluntary. The adviser may
discontinue any fee waivers or expense reimbursements at any time. The Funds
have paid advisory fees net of reimbursements to the adviser, for the past three
fiscal years ended April 30, 1999, as follows:
<TABLE>
<CAPTION>
Funds April 30, 1999 April 30, 1998 April 30, 1997
- ----- -------------- -------------- --------------
<S> <C> <C> <C>
Small Cap Stock Fund $913,406 $690,590 $159,016
Mid Cap Stock Fund $4,027,980 $4,070,582 $3,188,294
International Fund $1,050,033 $1,280,101 $873,585
Capital Growth Fund $16,628,122 $12,742,588 $9,121,422
Equity Income Fund $1,091,335 $809,233 $643,683
Balanced Fund $478,088 $27,618 N/A
High Yield Bond Fund $736,426 $522,217 $60,205
Municipal Bond Fund $2,272,533 $2,163,729 $2,153,751
Bond Fund $1,858,562 $1,921,733 $2,214,486
Money Market Fund $1,360,362 $1,088,957 $780,148
</TABLE>
The sub-advisory fee for The AAL International Fund is payable from the maximum
0.65% annual advisory fee paid to the adviser. The advisory agreement and
sub-advisory agreement for The AAL International Fund provide that subject to
Section 36 of the Act, neither the adviser nor sub-Adviser shall be liable to
the Trust for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the management of the Trust
and the performance of their duties under the advisory 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 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 Funds and the continued use of the
Trust's present name (The AAL Mutual Funds) would create confusion in the
context of the adviser or AAL's business.
The investment advisory agreement was approved by the Board of Trustees,
including a majority of the Trustees who were not interested persons (as defined
in the Act) of any party to the agreement on August 21, 1990, and was approved
by the shareholders of The AAL Municipal Bond Fund on November 27, 1990, and The
AAL Capital Growth, Bond and Money Market Funds on December 20, 1990. After
December 20, 1990, the advisory agreement was approved for:
- - The AAL Mid Cap Stock Fund by the Board of Trustees on May 18, 1993, and
the sole shareholder on June 30, 1993;
- - The AAL Equity Income Fund by the Board of Trustees on February 24, 1994,
and the sole shareholder on March 18, 1994;
- - The AAL International Fund by the Board of Trustees on May 23, 1995, and
the sole shareholder on July 31, 1995;
- - The AAL Small Cap Stock Fund by the Board of Trustees on February 23, 1996,
and the sole shareholder on July 1, 1996;
- - The AAL High Yield Bond Fund by the Board of Trustees on May 29, 1996, and
the sole shareholder on January 8, 1997; and
- - The AAL Balanced Fund by the Board of Trustees on November 19, 1997, and
the sole shareholder on January 2, 1998.
On October 16, 1995, the Board of Trustees terminated the sub-advisory
agreements (effective November 1, 1995) with, and approved the assumption of the
duties by AAL CMC (as the adviser) of, the sub-advisers, Duff & Phelps
Investment Management Co., and Pilgrim Baxter & Associates Ltd., for The AAL Mid
Cap Stock, Capital Growth, Equity Income, Municipal Bond, Bond and Money Market
Funds. The Board of Trustees also approved reductions in the advisory fees for
these Funds.
On May 23, 1995, the Board of Trustees, including a majority of the Trustees who
were not interested persons (as defined in the Act) of any party to the
agreement approved a sub-advisory agreement with Societe Generale Asset
Management Corp. ("SoGen") for The AAL International Fund.
On October 30, 1998, The AAL International Fund's shareholders approved a
sub-advisory agreement with Oechsle International Advisers LLC. On November 1,
1998, Oechsle replaced SoGen as the sub-adviser for The AAL International Fund.
The advisory agreement and sub-advisory agreement will continue in effect from
year to year only so long as such continuances are specifically approved at
least annually by the Board of Trustees. The vote for approval must include the
approval of a majority of the Trustees who are not interested persons (as
defined in the Act). The advisory and sub-advisory agreements are terminable
upon assignment. The advisory agreement is also terminable 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 a particular Fund,
the advisory or sub-advisory agreement, if any, is terminable by the vote of a
majority of the outstanding shares of such Fund. The adviser may terminate the
agreement on 60 days written notice to the Trust.
12b-1 Distribution Plan
The Funds have adopted a distribution plan for Class A and Class B shares (the
"Distribution Plan" or "Plan") pursuant to Rule 12b-1 (the "Rule") under the
Act.
The Distribution Plan authorizes the distributor, AAL CMC, to make certain
payments (either as a "12b-1 distribution fee" or a "service fee") to any
qualified recipient. As defined in the Plan, the qualified recipient must have
rendered assistance in the distribution of the Funds' shares (such as selling or
placing the Funds' shares, or providing administrative assistance, such as
maintaining sub-accounting or other records). The Plan authorizes the
distributor to purchase advertising for the Funds' shares, to pay for sales
literature and other promotional material, and to make payments to the sales
personnel. The Distribution Plan does not cover Institutional shares. As a
result, the Funds may not make any payments pursuant to the Plan in connection
with Institutional shares.
The Funds reimburse any payments made or expenses incurred under the Plan to
qualified recipients for Class A and Class B shares as follows:
Class A Shares - All Funds
In a given fiscal year, the Funds, pursuant to the Plan, pay up to a limit of
0.25 of 1% of the average net assets (0.125 of 1% for The AAL Money Market Fund)
as a service fee for Class A shares. The Funds do not reimburse or pay for
expenses of past fiscal years or in contemplation of expenses for future fiscal
years. Since September 1, 1997, the distributor has waived 0.100 of 1% of the
0.125 of 1% maximum 12b-1 service fee for Class A shares under the Plan for The
AAL Money Market Fund (prior to January 8, 1997, 12b-1 service fees for Class A
shares were described as 12b-1 distribution fees), effectively charging a 0.025
of 1%, 12b-1 service fee. This continuing reimbursement (waiver) is voluntary.
The distributor may modify or discontinue its reimbursements at any time.
Class B Shares - All Funds
In a given fiscal year, the Funds pay up to a limit of 0.75 of 1% of the average
daily net assets as a 12b-1 distribution fee and up to a limit of 0.25 of 1% of
the average daily net assets (0.125 of 1% for The AAL Money Market Fund) as a
service fee for Class B shares. Pursuant to the Plan, the Funds do not reimburse
or pay for expenses of past fiscal years or in contemplation of expenses for
future fiscal years. Since September 1, 1997, the distributor has waived 0.100
of 1% of the 0.125 of 1% maximum 12b-1 service fee for Class B shares under the
Plan for The AAL Money Market Fund, effectively charging a 0.025 of 1%, 12b-1
service fee. This continuing reimbursement (waiver) is voluntary. The
distributor may modify or discontinue its reimbursements at any time.
The Plan authorizes without limit any payments by a Fund for Class A and Class B
shares that are "primarily intended to result in the sale of shares" issued by a
Fund within the meaning of the Rule under the Plan. Such payments shall not be
included in the limitations contained in the Plan, including: (a) the costs of
the preparation, printing and mailing of all required reports and notices to
shareholders, irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares of the Fund or
other funds or other investments; (b) the costs of preparing, printing and
mailing of all prospectuses to shareholders; (c) the costs of preparing,
printing and mailing of any proxy statements and proxies, irrespective of
whether any such proxy statement includes any item relating to, or directed
toward, the sale of the Fund's shares; (d) all legal and accounting fees
relating to the preparation of any such reports, prospectuses, proxies and proxy
statements; (e) all fees and expenses relating to the qualification of the Funds
and or their shares under the securities or "Blue Sky" laws of any jurisdiction;
(f) all fees under the Act and the Securities Act of 1933, including fees in
connection with any application for exemption relating to or directed toward the
sale of the Fund's shares; (g) all fees and assessments of the Investment
Company Institute or any successor organization or industry association
irrespective of whether some of its activities are designed to provide sales
assistance, (h) all costs of preparing and mailing confirmations of shares sold
or redeemed or share certificates and reports of share balances; and (i) all
costs of responding to telephone or mail inquiries of shareholders.
The Plan also states that the distribution costs of the Trust's Class A and
Class B shares are expected to exceed the sum of permitted payments, permitted
expenses, and the portion of the sales charge retained by the distributor. The
adviser's profits, if any, are primarily dependent 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 primarily intended to result in the sale of shares issued by the
Funds, the payment of such fees is authorized under the Plan. The Plan states
that in taking any action contemplated by Section 15 of the Act as to any
investment advisory contract to which the Trust is a party, the Board of
Trustees, including its Trustees who are not "interested persons" as defined in
the Act, and who have no direct or indirect financial interest in the operation
of the Plan or any agreements related to the Plan ("Qualified Trustees"), shall,
in acting on the terms of any such contract, apply the "fiduciary duty" standard
contained in Sections 36(a) and (b) of the Act.
The Plan requires that while it is in effect, the distributor, shall report in
writing at least quarterly to the Trustees, and the Trustees shall review, the
following: (a) the amounts of all 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 payments were made; (b) the amounts of expenses and the
purpose of each such expense; and (c) all costs of the other payments specified
in the Plan (making estimates of such costs where necessary or desirable) in
each case during the preceding calendar or fiscal quarter. The aggregate amount
paid by the Funds to the distributor under the Plan for Class A shares for the
fiscal year ended April 30, 1999, and the manner in which this amount was spent
is as follows:
CLASS A SHARES
Gross 12b-1 Fees Paid by the Funds for Class A Shares $13,099,093
Expenditures
Compensation to Registered Representatives $12,490,016
Other $2,740,356
The aggregate amount paid by the Funds to the distributor under the Plan for
Class B shares for the fiscal year ended April 30, 1999 and the manner in which
this amount was spent is as follows:
CLASS B SHARES
Gross 12b-1 Fees Paid by the Funds for Class B shares $1,458,000
Expenditures
Compensation to Registered Representatives $344,524
Other $314,479
Management and the Board of Trustees believe that the Distribution Plan and the
service and 12b-1 fees have a positive impact on the Funds' sales and the Funds'
retention of assets, both of which are beneficial to the Funds and the Funds'
shareholders.
The Trust's shareholders approved the Plan at the Trust's first meeting of
shareholders held on September 13, 1988. The Plan at that time and up until
January 8, 1997, included only the shares now referred to as Class A shares. As
of January 8, 1997, the Plan includes Class B shares. The Plan as Amended and
Restated was approved by the sole shareholder of the Trust's Class B shares on
January 8, 1997. The Plan will continue in effect from year-to-year only so long
as such continuance is specifically approved at least annually by the Board of
Trustees and the Qualified Trustees (as defined in the Plan) cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
terminated at any time without penalty by a vote of a majority of the Qualified
Trustees . The Plan also may be terminated by the vote of the holders of a
majority of the outstanding voting securities for each class of shares of the
Trust. The Plan may be terminated with respect to any Fund by the vote of a
majority of the outstanding shares for each class of such Fund. The Plan may not
be amended to increase materially the amount of payments to be made for the
separate class shares without shareholder approval of the class. 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.
Additional Information
Custodian
The custodian for the Funds is Citibank, N.A.. The custodian is responsible for
holding the Funds' assets.
Administrative Services Agreement
Pursuant to a new Administrative Services agreement between the Funds and AAL,
effective January 1, 1999, AAL provides certain administrative, accounting and
pricing services to the Funds. Prior to January 1, 1999, these services were
provided by AAL CMC. These administrative services include calculating the daily
net asset value per class share; maintaining original entry documents and books
of record and general ledgers; posting cash receipts and disbursements;
reconciling bank account balances monthly; recording purchases and sales based
on sub-adviser communications (Oechsle's communications regarding The AAL
International Fund); and preparing monthly and annual summaries to assist in the
preparation of financial statements of, and regulatory reports for, the Funds.
Formerly, Firstar, provided these administrative services. However, the Funds'
Trustees and shareholders approved an administrative services agreement with AAL
to provide these administrative services for the Funds. The Administrative
Services 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 and was approved by the shareholders of The AAL Municipal Bond
Fund on November 27, 1990 and of The AAL Capital Growth, Bond and Money Market
Funds on December 20, 1990. The Board of Trustees approved the addition of the
following Funds to this agreement on the following dates:
The AAL Mid Cap Stock Fund on May 18, 1993; The AAL Equity Income Fund on
February 24, 1994; The AAL International Fund on May 23, 1995; The AAL
Small Cap Stock Fund on February 28, 1996; The AAL High Yield Bond Fund on
May 29, 1996; and The AAL Balanced Fund on November 19, 1997.
The principal motivation for having AAL CMC, as the adviser for the Funds,
provide these services was cost. AAL CMC has agreed to provide these services at
rates that would not exceed the rates charged by unaffiliated vendors for
similar services. The annual rates of payment approved by the Trustees presently
are:
The AAL Small Cap Stock Fund - $40,000
The AAL Mid Cap Stock Fund - $40,000
The AAL International Fund - $45,000
The AAL Capital Growth Fund - $40,000
The AAL Equity Income Fund - $40,000
The AAL Balanced Fund - $40,000
The AAL High Yield Bond Fund - $40,000
The AAL Municipal Bond Fund - $40,000
The AAL Bond Fund - $40,000
The AAL Money Market Fund - $40,000
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 continues 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. In either case, the agreement must
also be approved at least annually 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 either party assigns the agreement. The agreement
also terminates without penalty by either party on 60-days' notice. The
agreement provides that neither AAL CMC nor its personnel shall be liable for
any error of judgment or mistake of law or for any loss arising out of any act
or omission in the execution and the discharge of its obligations under the
agreement, except for willful misfeasance, bad faith or gross negligence in the
performance of their duties or by reason of reckless disregard of their
obligations and duties under the agreement.
Shareholder Maintenance Agreement
The Board of Trustees authorized the Funds to contract with AAL CMC for certain
shareholder maintenance services, effective April 1, 1995. These shareholder
services include answering customer inquiries regarding account status,
explaining and assisting customers with the exercise of their account options
and facilitating shareholder telephone transaction requests.
The annual fee payable to AAL CMC for providing such shareholder services is
based upon, and limited by, the difference between the current account fees
actually charged by Firstar Trust Company, as transfer and dividend disbursing
agent, and the normal full-service fee schedule published by Firstar Trust
Company. The annual fee is also based on reimbursement for certain actual
out-of-pocket costs including postage and telephone charges. This account
differential, including reimbursement for expenses, is at an annualized rate of
$4.08 per account, effective April 30, 1999. The shareholder maintenance
agreement continues 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. In either case, the agreement must be approved
annually 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
either party assigns the agreement. The agreement also terminates without
penalty by either party on 60-days notice. The Agreement provides that neither
the Adviser nor its personnel shall be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in the
execution and the discharge of its obligations under the Agreement, except for
willful misfeasance, bad faith or gross negligence in the performance of their
duties or by reason of reckless disregard of their obligations and duties under
the Agreement. These fees are not currently assessed against the Funds but may
be in the future.
Independent Accountants
The Trust's independent accountants, PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"), examine the Funds' annual financial statements.
PricewaterhouseCoopers also assists in the preparation of certain reports to the
SEC and reviews the Trust's state and federal tax returns.
BROKERAGE ALLOCATION AND OTHER PRACTICES
AAL CMC, as the adviser, and Oechsle, as the sub-adviser for The AAL
International Fund, direct the placement of orders for the purchase and sale of
the Funds' portfolio securities.
The securities transaction costs for each Fund consist primarily of brokerage
commissions or dealer or underwriter spreads. Bonds and money market instruments
generally trade on a net basis and do not involve either brokerage commissions
or transfer taxes.
Occasionally, we may purchase securities directly from the issuer for a Fund.
For securities traded primarily in the over-the-counter market, we deal with the
sellers who make a market in the securities directly unless we can find better
prices and execution available elsewhere. Such dealers usually act as principals
for their own account. In placing portfolio transactions, we seek the best
combination of price and execution.
In determining which brokers provide best execution, AAL CMC looks primarily at
the prices quoted by the brokers. Normally, we place orders with the broker who
has the most favorable prices. Ordinarily, we expect to execute securities
transactions in the primary markets. In assessing the best net price, we
consider all relevant factors. The relevant factors include the security
market's breadth, the security's price, the broker or dealer's financial
condition and execution capability and the reasonableness of the commission, if
any (for the specific transaction and on a continuing basis). Although we are
the sole distributors for the Funds' shares, we (as the adviser) may in the
future consider the willingness of particular brokers to sell the Funds' shares
as a factor in the selection of brokers for the Funds' portfolio transactions.
However our selection would still be subject to the overall best price and
execution standard.
Assuming equal execution capabilities, we may take into consideration other
factors in selecting brokers or dealers. We 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 us or the sub-adviser for The AAL International Fund (or their
affiliates). We may also cause a Fund to pay to a broker or dealer who provides
such brokerage and research services a commission for executing a portfolio
transaction which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction. We must determine, in
good faith, however, that such commission was reasonable in relation to the
value of the brokerage and research services provided. The commission must be
reasonable in terms of that particular transaction or in terms of all the
accounts over which we, as an adviser, exercise investment discretion. It is
possible that certain of the services received by us attributable to a
particular transaction benefit one or more other accounts for which we exercise
investment discretion. The Funds paid the following in brokerage commissions in
each of the past three fiscal years ended April 30, 1999:
April 30, 1999 April 30, 1998 April 30, 1997
-------------- -------------- --------------
The AAL Mutual Funds $3,693,873 $3,143,251 $4,205,263
CAPITAL STOCK AND OTHER SECURITIES
The AAL Mutual Funds' Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest. The
Declaration also permits the Trustees to divide or combine the shares into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interest in a Fund. Pursuant to this authority, the Trustees have
issued Class A, Class B and Institutional shares for the Funds, except for The
AAL U.S. Government Zero Coupon Target Funds, Series 2001 and 2006. Each class
share represents an interest in a Fund proportionately equal to the interest of
each other share in its class. If the Trust liquidated the Funds' shares, all
shareholders of a Fund would share pro rata in its net assets for the class
available for distribution to shareholders. If the Board deems it advisable and
in the best interests of shareholders, it may create additional share classes.
These share classes may differ from each other only as to dividends or, as is
the case with the Funds, as to assets and liabilities. Where share classes
differ in regards to assets and liabilities, the different classes are referred
to as the different series of the Funds (e.g., The AAL Bond Fund is a series of
The AAL Mutual Funds). Within each series, the different classes of shares are
referred to as different share classes, such as Class A, Class B and
Institutional shares. 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. The
Trustees allocate income and operating expenses among the different Funds'
series and classes of shares fairly.
Except for the election of Trustees and ratification of the selection of
accountants, any matter that the Funds are required to submit to the
shareholders for a vote is not deemed to be effective unless approved by the
holders of a "majority" (as defined in the Rule) of the voting securities of
each Series affected by the matter.
Except for The AAL Small Cap Stock, Mid Cap Stock, Balanced, and High Yield Bond
Funds, each Fund's investment objective is a fundamental policy. As such, only a
vote of a "majority of outstanding voting securities" can change a Fund's
investment objective. A majority means the approval of the lesser of: (1) 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 (2) more than 50% of the outstanding voting securities of a Fund.
PURCHASE, REDEMPTION, AND PRICING OF SHARES
Purchases and redemptions are discussed in the Prospectus under the headings;
"Purchasing Shares" and "How to Redeem Shares," and that information is
incorporated herein by reference.
We determine the Funds' net asset value only on the days when the New York Stock
Exchange ("NYSE") is open for trading. The NYSE 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 NYSE closes on the
preceding Friday or the following Monday, respectively.
We determine the net asset value for a Fund by adding the value of a Fund's
assets, subtracting the Fund's liabilities, and dividing the balance by the
total number of shares outstanding. In determining the current market value for
securities traded or listed on an exchange, we use the last sale price on the
exchange where the securities primarily trade. For securities that have readily
available market quotations, we use an over-the-counter or exchange bid
quotation. When a Fund holds securities or other assets that either do not have
readily available market quotations or are restricted, we value them at fair
market value, as we determine in good faith under the direction of our Board of
Trustees. We may use pricing services in determining the current or fair market
value of securities held in the Funds' portfolios. We value money market
instruments with a remaining maturity of 60 days or less on an amortized costs
basis. We comply with the SEC's requirements for using an amortized cost
valuation method.
Many long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities and foreign securities do not have reliable market quotations and are
not considered to be readily available for purchase or sale.
To determine the current or fair market value for debt securities, we may, and
generally will, use a pricing service or services approved by the Board of
Trustees. A pricing service generally will determine valuations based upon
normal, institutional-size trading units of such securities using market
transactions for comparable securities and various relationships between
securities generally recognized by institutional traders.
We generally price foreign securities in terms of U.S. dollars at the official
exchange rate. Alternatively, we may price these securities at the average of
the current bid and asked price of such currencies against the dollar last
quoted by a major bank. The bank must be a regular participant in the foreign
exchange market. We also may price foreign securities on the basis of a pricing
service that takes into account the quotes provided by a number of such major
banks. If management does not have any of these alternatives available or the
alternatives do not provide a suitable method for converting a foreign currency
into U.S. dollars, the Board of Trustees in good faith will establish a
conversion rate for such currency.
Foreign securities may not be traded on all days when the NYSE is open. Also,
foreign securities may trade on Saturdays and other days when the NYSE is not
open and when we do not calculate the Funds' net asset values. We value foreign
securities primarily listed and/or traded in foreign markets at the price as of
the close on its primary market. Unless we determine (under the supervision of
the Board of Trustees) that material events have occurred affecting the value of
a Fund's foreign securities between the time the foreign securities' primary
market closed and the close of the NYSE, we will not reflect the change in the
Fund's net asset value. As a result, trading on days when a Fund is not
accepting purchases or redemptions may significantly affect a Fund's net asset
value.
Generally, U.S. government securities and other fixed income securities complete
trading at various times prior to the close of the NYSE. For purposes of
computing net asset value, we use the market value of any such securities as of
the time their trading day ends. Occasionally, events affecting the value of
such securities may occur between the times these markets close and the time the
NYSE closes. We generally will not reflect these events in the computation of a
Fund's net asset value, unless they are material. If there is a material event,
we will value such securities at their fair value as determined in good faith by
the Board of Trustees.
We intend to pay all redemptions in cash. We are obligated to redeem shares
solely in cash up to the lesser of $250,000 or one percent of the net assets of
a Fund during any 90-day period for any one shareholder. However, we may pay
redemptions in excess of such limit in whole or part by a distribution in kind
of securities. If and to the extent we redeem shares in kind, you, as a
redeeming shareholder might incur brokerage fees in selling the securities
received.
We reserve the right for each Fund to suspend or postpone redemptions during any
period when: (a) trading on the NYSE is restricted, as determined by the SEC, or
the NYSE is closed for other than customary weekend and holiday closings; (b)
the SEC has by order permitted such suspension; or (c) an emergency, as
determined by the SEC, exists, making disposal of a Fund's portfolio securities
or valuation of its net assets not reasonably practicable.
The AAL Money Market Fund-Amortized Cost Valuation
We value The AAL Money Market Fund's portfolio securities on the basis of their
amortized cost. Amortized cost is an approximation of market value, whereby the
difference between acquisition cost and value at maturity is amortized on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The amortized cost method of valuation may
result in the value of a security being higher or lower than its actual market
value. In addition, if a large number of redemptions take place at a time when
interest rates have increased, we may have to sell portfolio securities for a
Fund prior to maturity and at a less desirable price.
Although we cannot assure you that we will be able to do so, we will use our
best efforts to maintain a net asset value of $1.00 per share for purchases and
redemptions of The AAL Money Market Fund. The Board of Trustees has established
procedures for this purpose. These procedures require us to review the extent of
any deviation in the Fund's net asset value per share, based on available market
quotations, from the $1.00 amortized cost per share. Should the deviation exceed
1/2 of 1% for the Fund, the Board of Trustees will promptly consider whether we
should initiate efforts to eliminate or reduce material dilution or other unfair
results to shareholders. Such action may include redemption of shares in kind,
selling portfolio securities prior to maturity, reducing or withholding
dividends, and utilizing a net asset value per share as determined by using
available market quotations. We maintain a dollar-weighted average portfolio
maturity of 90 days or less for the Fund. We also do not purchase any instrument
deemed to have a remaining maturity greater than 397 days. We limit portfolio
investments, including repurchase agreements, to those dollar denominated
instruments that the Board of Trustees determines present minimal credit risks
pursuant to our advise as the Adviser. We also comply with the SEC requirements
on the quality of certain portfolio securities for money market funds using the
amortized cost method of valuation. We also comply with the SEC reporting and
record keeping procedures regarding money market funds. We cannot assure you
that we can maintain a constant net asset value at all times. In the event
amortized cost ceases to represent fair value, the Board of Trustees will take
appropriate action.
Letter of Intent
Under a Letter of Intent, as described in the prospectus, shares totaling 5% of
the dollar amount indicated in the letter will be held in escrow by the transfer
agent in the name of the purchaser. A Letter of Intent neither obligates you to
purchase nor requires us to sell the indicated amount. If you do not invest the
amount indicated within the 13-month period, you, as the purchaser, are required
to pay the difference between the sales commission otherwise applicable to the
purchases made during this period and sales charges actually paid. When the
Letter of Intent expires, we liquidate sufficient shares in escrow to obtain the
difference.
Closing Small Accounts
All AAL Mutual Funds account owners share the high cost of maintaining accounts
with low balances. To reduce this cost, we reserve the right, subject to legal
restrictions, if any, to close an account when, due to a redemption, its value
is less than $250. This does not apply to retirement plan accounts. We will
notify you in writing before closing any account, and you will have 30 days to
add money to bring the balance up to $250.
TAXATION OF THE FUNDS
The following is only a summary of certain tax considerations generally
affecting the Funds and shareholders. We urge you to consult your tax advisors
with specific reference to your own tax situations, including state and local
tax liability.
Dividends, Distributions and Taxes
The AAL Small Cap Stock, Mid Cap Stock, International, Capital Growth, Equity
Income, Balanced, High Yield Bond, Bond and Money Market Funds -- Except for
dividends from The AAL Municipal Bond Fund, any dividends from net investment
income and short-term capital gains (collectively "income dividends") that we
distribute to you from the Funds are taxable to you as ordinary income whether
we have paid these distributions in cash or additional shares. Any long-term
capital gains ("capital gains distributions") that we distribute to you from the
Funds are taxable to you as long-term capital gains, whether we have paid these
distributions in cash or additional shares. Long-term capital gains are treated
as long-term capital gains regardless of the length of time you have owned the
shares. We distribute substantially all of the Funds' net investment income and
net realized long-term capital gains to avoid the imposition of federal income
and excise tax liability. We pay any dividends for The AAL Small Cap Stock, Mid
Cap Stock and International Funds annually. We pay any dividends for The AAL
Capital Growth Fund semi-annually and we pay any dividends for the AAL Equity
Income and Balanced Funds quarterly. We accrue income dividends daily and pay
any dividends monthly for The AAL High Yield Bond, Bond and Money Market Funds.
We expect to distribute any capital gains annually for these Funds.
The AAL Municipal Bond Fund -- This Fund expects to accrue any income dividends
daily and distribute any net investment income in monthly dividends. We
distribute any net realized capital gains at least annually. Dividends derived
from the interest earned on municipal securities constitute "exempt-interest
dividends." Generally, exempt-interest dividends are not subject to federal
income tax. Distributions of net realized capital gains (whether from tax-exempt
or taxable securities) are taxable to shareholders. We report the federal income
tax status of all distributions to shareholders annually. In the report, we
allocate income dividends between tax-exempt and taxable income (if any) in
approximately the same proportions as the Fund's total income during the year.
Accordingly, income derived from each of these sources by the Fund may vary
substantially in any particular distribution period from the allocation reported
to shareholders annually.
You may not be able to deduct any interest expense you incur on money borrowed
to purchase or carry shares of the Fund for federal income tax purposes. You
also may be subject to state and local taxes on dividends from this Fund,
including those which are exempt from federal income tax.
If you or your entity are "substantial users" (or persons who are related to
"substantial users") of facilities financed by industrial revenue bonds, you or
your entity should consult your tax advisers before purchasing shares of The AAL
Municipal Bond Fund. The term "substantial user" is defined generally to include
a "nonexempt person" who regularly uses in trade or business a part of a
facility financed from the proceeds of industrial development revenue bonds.
The 1986 Tax Reform Act subjects tax-exempt interest attributable to certain
"private activity bonds" to the individual and corporate alternative minimum
tax. Such tax-exempt interest includes, in the case of a regulated investment
company receiving interest on such bonds, a proportionate part of the
exempt-interest dividends paid by that company. We limit our investment in
private activity bonds to no more than 20% of the Fund's assets. Certain
corporate shareholders may be subject to a federal "environmental" tax with
respect to their receipt of dividends and distributions.
The use of options and futures for The AAL Municipal Bond Fund portfolio may
result in taxable income. You should consult your personal tax adviser to
determine the consequences of federal, state and local taxes.
The AAL International Fund -- Foreign Withholding Tax
We may be subject to income and withholding taxes on income and gains derived
from The AAL International Fund's investments outside the U.S. Our payment of
such foreign taxes reduces the yield on investments for the Fund. Tax treaties
between certain countries and the U.S. may reduce or eliminate these foreign
withholding taxes. If more than 50% of the Fund's total asset value at the close
of any taxable year consists of foreign corporate stocks or other securities, we
may elect (for U.S. federal income tax purposes) to treat any foreign country
income or withholding taxes we have paid on behalf of the Fund as paid by the
Fund's shareholders. The foreign income or withholding taxes must be those that
could be treated as income taxes under U.S. income tax principles. For any year
we make such an election for the Fund, the shareholder must include as income
(in addition to taxable dividends received) his pro rata share of such foreign
income and withholding taxes. The shareholder is entitled, subject to certain
limitations, to credit his portion of these foreign taxes against his U.S.
federal income tax due or deduct it (as an itemized deduction) from his U.S.
taxable income. Generally, this foreign tax credit is subject to the limitation
that it may not exceed the shareholder's U.S. tax attributable to his foreign
source taxable income.
If we make the pass through election described above, the Fund's foreign income
flows through to the shareholders. The Internal Revenue Service will not treat
certain gains from the sale of securities and currency fluctuations as foreign
source taxable income. In addition, this foreign tax credit limitation must be
applied separately to certain categories of foreign source income, one of which
is foreign source "passive income." For this purpose, foreign "passive income"
includes dividends, interest, capital gains and certain foreign currency gains.
As a consequence, certain shareholders may not be able to claim a foreign tax
credit for the full amount of their proportionate share of the foreign tax paid
by the Fund.
Corporations and individuals can use the foreign tax credit to offset only 90%
of any alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed upon them. If we do not make the pass through election, the
foreign taxes we pay for the Fund will reduce the Fund's income. Any
distributions we make for the Fund will be treated as U.S. source income.
We will notify each shareholder within 60 days after the close of the Fund's
taxable year whether, pursuant to the election described above, we will make the
pass through election and treat any foreign taxes paid by the Fund as paid by
its shareholders for that year. If we make the pass through election, we will
designate the shareholder's portion of the foreign taxes paid to such country.
We also will designate the portion of the Fund's dividends and distributions
that represent income derived from sources within such country.
Our investments in certain foreign corporations that generate largely passive
investment type income, or that hold a significant percentage of assets which
generate passive income ("passive foreign investment companies" or "PFICs") are
subject to special tax rules. These special tax rules are designed to prevent
deferral of U.S. taxation on the Fund's share of the PFICs earnings. In the
absence of certain elections to report these earnings on a current basis, we
would have to report certain "excess distributions" and any gain from the
disposition of PFICs stock as ordinary income. We would have to report these
excess distributions and gains as ordinary income regardless of whether we
actually received any distributions from the PFIC. We would have to allocate
this ordinary income ratably throughout the holding period for the stocks. We
would have to pay taxes for the Fund on any amounts allocable to a prior taxable
year at the highest applicable tax rate from that year. We also would have to
increase this rate by an interest charge determined as though the amounts were
an underpayment of the tax for that year. We would have to include the amounts
allocated to the year of the distribution or disposition in the Fund's net
investment income for that year. To the extent the amounts allocated were
distributed as a dividend to shareholders such amounts would not be taxable to
the Fund.
UNDERWRITERS
The distributor, AAL CMC, is the exclusive underwriter for the Funds. The
distributor has a written distribution agreement with the Funds, dated June 15,
1987, as amended. The distributor offers the Funds' shares for sale on a
continuous basis through its field sales force.
Class A Shares
The public offering price of a Fund's Class A share is the net asset value next
computed plus a sales charge that varies based on the quantity purchased. The
public offering price of a Fund's Class A share is calculated by dividing the
net asset value of the Class A share being purchased by the difference
(expressed as a decimal) between 100% and the sales charge percentage of the
offering price applicable to the purchase (see "Purchasing Shares" in the
Prospectus). The sales charge scale set forth in the prospectus applies to
purchases of Class A shares of a particular Fund alone or in combination with
shares of all classes of the other Funds (as noted under "Right of
Accumulation") by any person, including family members who live with the
purchaser (i.e., husband, wife and minor children) and bona fide trustees. The
sales charge scale also applies to purchases made under the right of
accumulation or letter of intent as set forth in the prospectus. The distributor
offers a reduction in the sales charges for a Fund for non-profit organizations,
charitable trusts, charitable remainder unitrusts, endowments, AAL branches and
congregations (See "50% Reduction" in the Prospectus).
The distributor does not receive compensation in connection with redemptions and
repurchases or brokerage commissions for Class A shares. The amount of
underwriting commissions received and retained by the distributor for the past
three years ended April 30, 1999 for Class A Shares were as follows:
Class A Shares
For the Fiscal Year Ended Aggregate Commissions Retained Commissions
April 30, 1999 $20,463,331 $169,047
April 30, 1998 $18,088,340 $7,783,221
April 30, 1997 $18,026,973 $7,289,125
Class B Shares
The public offering price of a Fund's Class B share is the net asset value (see
"Purchasing Shares" in the prospectus). The aggregate redemption fees
(underwriting commissions) received and retained by the distributor were as
follows:
Class B Shares
For the Fiscal Year Ended Aggregate Commissions Retained Commissions
April 30, 1999 $169,047 $169,047
April 30, 1998 $36,668 $36,668
April 30, 1997* $71 $71
*The distributor began offering Class B shares for the Funds on January 8, 1997.
This row reflects the period from January 8, 1997, through April 30, 1997.
Institutional Shares
The public offering price of a Fund's Institutional shares is the net asset
value. The distributor began offering the Institutional shares for the Funds on
December 29, 1997. For information on Institutional shares, please see the
separate prospectus and statement of additional information.
CALCULATION OF PERFORMANCE DATA
From time to time we advertise the yields and total returns for the Funds' Class
A and Class B shares for various investment periods. We always include uniform
performance calculations based on standardized methods established by the SEC.
These calculations reflect the front-end sales charge on a Class A share and the
contingent deferred sales charge ("CDSC") on a Class B share. We also may
include other total return information without giving effect to sales charges.
Yields and total returns are calculated based on historical earnings and
appreciation. We do not intend any yield or total return calculations to
indicate future performance. You should consider performance information in
light of: the particular Fund's investment objectives and policies;
characteristics and quality of the Fund's portfolio securities; and the market
conditions during the applicable period. You should not consider the performance
information as a representation of what may be achieved in the future. When
comparing any such performance information to published performance data for
alternative investments, you should consider the differences in the methods used
in calculating performance information, and the impact of taxes on alternative
investments in addition to the factors listed.
Standardized Performance Information
Average Annual Total Return
For each of the Funds, except The AAL Money Market Fund, we compute the
standardized average annual total return by finding the average annual
compounded rates of return for Class A and Class B shares 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 in each class to the
ending redeemable value according to the following formula:
P(1+T)^n = ERV
Where:
P = A hypothetical $1,000 initial payment;
T = Average annual total return for the class;
n = Number of years;
ERV = Ending redeemable value for the class (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 for the
class (CDSC for Class B shares), assuming redemption at the end of the
period;
^ = raised to the power of.
Annual Returns for the 1 and 5-Year, 10-Year and
Since Inception Periods Ended April 30, 1999, for Class A
Shares Based on Gross Amount Invested
<TABLE>
<CAPTION>
The AAL Total Return Average Annual Average Annual Average Annual
Mutual Fund for the Return for the Return for the Return for the
and Inception 1-Year Period 5-Year Period 10-Year Period Period Since
Date Inception for
Funds in
existence for
less
than 10 years
<S> <C> <C>
Small Cap Stock (22.23)% N/A N/A 5.37%
7/1/96
Mid Cap Stock (11.29)% 12.50% N/A 11.31%
6/30/93
International 2.59% N/A N/A 7.24%
8/1/95
Capital Growth 18.25% 24.29% 17.21% 14.52%
7/16/87
Equity Income 5.66% 12.28 N/A 11.85%
3/18/94
Balanced 9.88% N/A N/A 13.95%
12/29/97
High Yield Bond (7.80)% N/A N/A 3.27%
1/8/97
Municipal Bond 2.48% 6.85% 7.21% 6.76%
7/16/87
Bond 0.39% 5.63% 7.21% 6.85%
</TABLE>
Annual Returns for the 1-Year and Since Inception Periods
Ended April 30, 1999, for Class B Shares Based on Gross
Amount Invested*
The AAL Mutual Fund and Total Return for the Average Annual Return
Inception Date 1-Year Period for the Period Since
Inception
Small Cap Stock (23.06)% 0.16%
1/8/97
Mid Cap Stock (12.34)% 5.57%
1/8/97
International 1.72% 5.47%
1/8/97
Capital Growth 17.94% 28.51%
1/8/97
Equity Income 4.97% 16.15%
1/8/97
Balanced 19.47% 13.68%
12/29/97
High Yield Bond (8.43)% 3.16%
1/8/97
Municipal Bond 1.93% 5.63%
1/8/97
Bond (0.40)% 4.53%
1/8/97
* There is no standardized average annual return information for the
five-year and 10-year periods, which is based on gross amount invested,
available for Class B shares. Class B shares first became available to
investors on January 8, 1997.
Current Yield
We base current yield quotations for the Funds, except The AAL Money Market
Fund, on a 30-day (or one-month) period. We compute the current yield by
dividing the net investment income per share for each class earned during the
period by the maximum offering price per share for each class on the last day of
the period, according to the following formula:
Yield 2[((a - b)/(cd) + 1)^6 - 1]
Where:
a = Dividends and interest earned by the Class during the period;
b = Expenses accrued by the Class for the period (net of reimbursements);
c = The average daily number of shares outstanding for the Class during
the period that were entitled to receive dividends; and
d = the maximum offering price per share for the Class on the last day
of the period.
^ = to the power of.
For purposes of this calculation, we determine the income earned on debt
obligations by applying a calculated yield-to-maturity percentage to the
obligations held during the period. We calculate the Interest earned on
mortgage-backed securities by using the coupon rate and principal amount after
adjustment for a monthly pay down. We determine the income earned on stocks by
using the stated annual dividend rate applied over the performance period. The
current yields for The AAL Small Cap Stock, Mid Cap Stock, International,
Capital Growth, Equity Income, Balanced, High Yield Bond, Municipal Bond and
Bond Funds for the 30-day period ended April 30, 1999, for Class A shares were:
The AAL Mutual Funds
Class A Share Yields
30-day period ended 4/30/99
Small Cap Stock (2.53)% Balanced 2.45%
Mid Cap Stock (0.19)% High Yield Bond 9.56%
International 1.32% Municipal Bond 3.91%
Capital Growth 0.46% Bond 5.17%
Equity Income 1.40%
The current yields for the AAL Small Cap Stock, Mid Cap Stock, International,
Equity Income, Balanced, High Yield Bond, Municipal Bond and Bond Funds for the
30-day period ended April 30, 1999 for Class B shares were:
The AAL Mutual Funds
Class B Share Yields
30-day period ended 4/30/99
Small Cap Stock (3.41)% Balanced 1.68%
Mid Cap Stock (1.32)% High Yield Bond 9.30%
International 1.37% Municipal Bond 3.23%
Capital Growth 0.83% Bond 4.40%
Equity Income 0.49%
When we are advertising yield for a Fund, we will not advertise a one-month or a
30-day period that ends more than 45 days before the date on which the
advertisement is published.
Tax Equivalent Yield
We calculate a tax equivalent yield for The AAL Municipal Bond Fund based on a
30-day (or one-month) period for Class A and Class B shares. We compute the tax
equivalent yield by dividing the portion of the Fund's yield for the share class
(computed as described above) that is tax-exempt by one minus a stated income
tax rate and adding the quotient to the portion of the yield that is not tax
exempt. The formula for computation of the tax equivalent yield is:
X = ( N/1-F) + T
Where:
N = % of yield for the class derived from tax-exempt income;
F = federal income tax rate; and
T = % of yield for the class derived from taxable income.
The tax equivalent yield at 31% tax rate for the 30-day period ended April 30,
1999, for a Class A share and a Class B share for The AAL Municipal Bond Fund
were 5.67% and 4.68%, respectively.
Current and Effective Yield - The AAL Money Market Fund
We may quote a current or effective yield for The AAL Money Market Fund's Class
A and Class B shares from time-to-time. The current yield is an annualized yield
based on the net change in account value for each class for a seven-day period.
The effective yield is an annualized yield based on a daily compounding of the
current yield for each share class. We compute these yields by first determining
the "Net Change in Account Value" for each share class for a hypothetical
account having a share balance of one share at the beginning of a seven-day
period ("Beginning Account Value"), excluding capital changes. The Net Change in
Account Value always equals the total dividends declared with respect to the
account. We compute the yields for each share class as follows:
Current Yield = (Net Change in Account Value per Class/Beginning Account
Value per Class) x (365/7)
Effective Yield = [(Net Change in Account Value per Class/Beginning Account
Value per Class)]^(365/7)] - 1
For the seven-day period ended April 30, 1999, the current and effective yields
of The AAL Money Market Fund for Class A shares were 4.11% and 4.19%,
respectively, and for Class B shares 2.97% and 3.02%, respectively.
Normal changes in the income earned and expenses affect the Fund's yield. Also,
any efforts we undertake to restrict or supplement the Fund's dividends to
maintain its net asset value at $1.00 will affect the Fund's yield. (See "Net
Asset Value" in the prospectus and in this statement of additional information.)
Any portfolio changes we make due to net purchases or redemptions will affect
the Fund's yield. Accordingly, the Fund's yield may vary from day to day. The
yield stated for a particular past period is not a representation as to its
future yield. We do not guarantee the Fund's yield and the Fund's principal is
not insured. Although there is no assurance that we will be able to do so, we
use our best efforts to maintain a net asset value of $1.00 per share for the
Fund.
Other Performance Information
We may from time to time, include in the Funds' sales literature and
advertisements: (1) total return quotations computed for different time periods
or by a method that differs from the computations described in the section above
for Class A and B shares; (2) calculations of the growth of an investment (or
series of investments), at various assumed interest rates and compounding, to
show the effect of the length of time, interest rate and/or tax deferral on an
investment for Class A and B shares; (3) illustrate the concepts of asset
allocation by use of hypothetical case studies using various risk levels and
life cycles, as well as illustrating the effect of various tax brackets and tax
deferrals on hypothetical systematic investing for Class A and Class B shares;
and (4) performance relative to the performance of other investments such as
stocks, bonds, closed end funds, certificates of deposit, as well as various
indices such as the Consumer Price Index and indices generated by lbbotson &
Associates and Chase Global Data and Research Products for Class A and B shares.
Average Annual Total Return on Net Amount Invested
Except for The AAL Money Market Fund, we may advertise an average annual total
return calculation for Class A and Class B shares for any appropriate time
period, based upon the value of a net investment in the Fund for the class. We
deduct the maximum sales charge for Class A shares and deduct the CDSC for Class
B shares. We advertise average annual total return for net amount invested
according to the following formula:
P(1+T)^n = ERV
Where:
P = A hypothetical $1,000 initial payment (the hypothetical initial net
investment after deduction of the sales load);
T = Average annual total return for the class;
n = Number of years;
ERV = Ending redeemable value for the class (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 for the
class (CDSC for Class B shares), assuming redemption at the end of the
period;
^ = raised to the power of.
Annual Returns for the 1-Year, 5-Year, 10-Year and
Since Inception Periods Ended April 30, 1999, for Class A
Shares Based on Net Amount Invested
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
The AAL Total Return Average Annual Average Annual Average Annual
Mutual Fund for the Return for the Return for the Return for the
and Inception 1-Year Period 5-Year Period 10-Year Period Period Since
Date Inception for
Funds in
existence for
less
than 10 years
Small Cap Stock (18.96)% N/A N/A 6.91%
7/1/96
Mid Cap Stock (7.62)% 13.41 N/A 12.10%
6/30/93
International 6.82% N/A N/A 8.42%
8/1/95
Capital Growth 23.20% 25.20% 17.69% 14.92%
7/16/87
Equity Income 10.09% 13.19 N/A 12.75%
3/18/94
Balanced 14.45% N/A N/A 17.52%
12/29/97
High Yield Bond (3.96)% N/A N/A 5.13%
1/8/97
Municipal Bond 6.80% 7.72% 7.65% 7.14%
7/16/87
Bond 4.61% 6.49% 7.65% 7.23%
</TABLE>
Annual Returns for the 1-Year and Since Inception Periods
Ended April 30, 1999, for Class B Shares Based on Net
Amount Invested*
The AAL Mutual Fund and Total Return for the Average Annual Return
Inception Date 1-Year Period for the Period Since
Inception
Small Cap Stock (19.85)% 1.45%
1/8/97
Mid Cap Stock (8.70)% 6.77%
1/8/97
International 5.72% 6.67%
1/8/97
Capital Growth 21.94% 29.45%
1/8/97
Equity Income 8.97% 17.21%
1/8/97
Balanced 13.47% 16.54%
12/29/97
High Yield Bond (4.62)% 4.39%
1/8/97
Municipal Bond 5.93% 6.83%
1/8/97
Bond 3.60% 5.74%
1/8/97
* There is no standardized average annual return information for the
five-year and 10-year periods, which is based on gross amount invested,
available for Class B shares. Class B shares first became available to
investors on January 8, 1997.
Performance information for Class A and B shares for the Funds may be compared
to various unmanaged indexes, such as Morgan Stanley's EAFE and World, Dow Jones
Industrial and Averages, the S&P 500, S&P MidCap 400, S&P Small Cap or Lehman
Brothers High Yield Index, Lehman Brothers Aggregate or other Lehman Bond
Indexes, as well as indices of similar mutual funds, and various foreign country
and currency indices. The Funds may include in their advertising rankings
published by recognized statistical services or publishers such as Morningstar,
Lipper Analytical Services, Inc., Weisenberger Investment Companies Services or
rankings shares published by other comparable national services that rank mutual
funds. They also may use information from publications such as Barron's,
Business Week, The Economist, Financial World, Forbes, Fortune, Kiplinger's
Personal Finance, Money, Smart Money, the Star, The Wall Street Journal or
Worth, and from videotapes of television shows and interviews involving
investment experts, including employees of the adviser and/or sub-adviser for
The AAL International Fund. Advertisements may depict performance graphically.
FINANCIAL STATEMENTS
The AAL Mutual Funds (Trust) has filed audited financial statements, notes to
financial statements and report of independent accountants for the Trust for the
fiscal year ended April 30, 1999, for The AAL Mutual Funds, which are
incorporated by reference into this Post-Effective Amendment to this
Registration Statement. The AAL U.S. Government Zero Coupon Target Funds Series
2001 and 2006 and Institutional shares for The AAL Small Cap Stock, Mid Cap
Stock, International, Capital Growth, Equity Income, Balanced, High Yield Bond,
Municipal Bond, Bond and Money Market Funds are contained in separate
prospectuses.
1. Schedules of Investments as of April 30, 1999.
2. Statement of Assets and Liabilities as of April 30, 1999.
3. Statement of Operations for fiscal year ended April 30, 1999.
4. Statement of Changes in Net Assets for fiscal year ended April 30, 1999.
5. Notes to Financial Statements
<PAGE>
PART C: OTHER INFORMATION
Class A and Class B Shares
Item 23. Exhibits
Except as noted below, all required exhibits have been previously filed and are
incorporated by reference from the Funds' Registration Statement on Form N-1(A)
(File No. 33-12911), as amended:
(d)(i) Investment Advisory Agreement, as amended
(i) Legal Opinion
(j) Consent of Independent Auditors
(n) Financial Data Schedule
(p) Powers of Attorney
Item 24. Persons Controlled By or Under Common Control with the Fund
AAL is a fraternal benefit society organized under the laws of the State of
Wisconsin and is owned by and operated for its members. It has no stockholders
and is not subject to the control of any affiliated persons. AAL controls the
following wholly-owned, direct and indirect subsidiaries: (a) AAL Holdings,
Inc., a Delaware corporation that is a holding company that has no independent
operations; (b) AAL Capital Management Corporation, a Delaware corporation that
is a registered investment adviser and broker-dealer; (c) North Meadows
Investment Ltd., a Wisconsin corporation organized for the purpose of holding
and investing in real estate; and (d) AAL Trust Company, FSB, a federally
chartered thrift institution. Financial statements of AAL are filed on a
consolidated basis with regard to each of the foregoing entities.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
-------------------------------
Parent Company AAL
(Wisconsin corp.)
Holding Company AAL Holdings, Inc.
(Delaware corp.)
-------------------------------
------------------------------ ------------------------------- ----------------------------
Wholly-owned AAL Capital Management Corp. AAL Trust Co., FSB North Meadows Investment
Subsidiaries of (Delaware corp.) (Federal charter) Ltd.
AAL Holdings, Inc. (Wisconsin corp.)
------------------------------ ------------------------------- ----------------------------
</TABLE>
Item 25. Indemnification
Under Section 12 of Article Seven of the Funds' Declaration of Trust, the Funds
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
("disabling conduct").
The Funds shall indemnify their 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, independent trustees; or (b) independent legal counsel in a
written opinion.
Advancement of expenses incurred in defending such actions may be made pursuant
to Release 11330, provided that the person undertakes to repay the advance
unless it is ultimately determined that such person is entitled to
indemnification and one or more of the following conditions is met: (1) the
person provides security for the undertaking; (2) the Funds are insured against
losses arising by reason of any lawful advances; or (3) a majority of
disinterested non-party trustees or independent legal counsel in a written
opinion determines, based on review of readily available facts, that there is
reason to believe the person ultimately will be found entitled to
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of the Funds
pursuant to the foregoing provision, or otherwise, the Funds have 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 the Funds of expenses incurred or
paid by a trustee, officer or controlling person of the Funds 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, the
Funds 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 26. Business and Other Connections of the Investment Adviser
AAL Capital Management Corporation is the investment adviser ("Adviser") of the
Funds. Oechsle International Advisers LLC is the sub-adviser for The AAL
International Fund. For information as to the business, profession, vocation or
employment of a substantial nature of the Adviser, reference is made to Parts A
and B of this Registration Statement and to Form ADV filed under the Investment
Advisers Act of 1940 by the Adviser.
Item 27. Principal Underwriters
(a) Not Applicable
(b) AAL Capital Management Corporation ("AAL CMC") serves as principal
underwriter/distributor shares of each of the Funds.
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Principal Position and Offices Position and Offices
Business Address with AAL CMC with the Funds
- ---------------------------------------- -------------------------------------- --------------------------------------
Robert G. Same Asst. Secretary Secretary
222 W. College Ave.
Appleton, WI 54919
Charles D. Gariboldi, Jr. Asst. Vice President Treasurer
222 W. College Ave.
Appleton, WI 54919
Woodrow E. Eno Vice President, General Assistant Secretary
222 W. College Ave. Counsel, Secretary and Director
Appleton, WI 54919
James H. Abitz Sr. Vice President and Director None
222 W. College Avenue
Appleton, WI 54919
Paul Gocker Regional Vice President None
222 W. College Avenue
Appleton, WI 54919
Michael Woldt Regional Vice President None
222 W. College Avenue
Appleton, WI 54919
Penny Hill Regional Vice President None
222 W. College Avenue
Appleton, WI 54919
Larry Schluesner Regional Vice President None
222 W. College Avenue
Appleton, WI 54919
Walter S. Rugland Director None
4321 N. Ballard Road
Appleton, WI 54919
Steve Weber Director None
4321 N. Ballard Road
Appleton, WI 54919
Paul Stadler Vice President None
222 W. College Avenue
Appleton, WI 54919
Lori Richardson Vice President None
222 W. College Avenue
Appleton, WI 54919
Jeffrey Verhagen Vice President None
222 W. College Avenue
Appleton, WI 54919
Charles Friedman Assistant Vice President None
222 W. College Avenue
Appleton, WI 54919
Wendy Schmidt Assistant Vice President None
4321 N. Ballard Road
Appleton, WI 54919
Carl Rudolph Treasurer, Director None
222 W. College Avenue
Appleton, WI 54919
Krien Ver Berkmoes, III Vice President, Chief Compliance None
222 W. College Avenue Officer
Appleton, WI 54919
Stanley Herman Vice President, Director None
4321 N. Ballard Road
Appleton, WI 54919
Thomas Mischka Vice President, Director None
4321 N. Ballard Road
Appleton, WI 54919
Jon Stellmacher Vice President, Director None
4321 N. Ballard Road
Appleton, WI 54919
Cindy Haas Assistant Vice President None
4321 N. Ballard Road
Appleton, WI 54919
</TABLE>
Item 28. Location of Accounts and Records
The accounts, books and other documents required to be maintained by the Funds
pursuant to Section 31(a) of The Investment Company Act of 1940 and the rules
promulgated thereunder are in the possession of the Funds and the Funds'
Custodian as follows: all documents required to be maintained by Rule 31a-1(b)
will be maintained by the Funds, (222 W. College Avenue, Appleton, WI
54919-0007) except that records required to be maintained by paragraph (2)(iv)
of Rule 31a-1(b) will be maintained by the Custodian (Citibank, N.A., 111 Wall
Street, New York, NY 10043)
Item 29. Management Services
Not Applicable
Item 30. Undertakings
The Registrant has elected to provide the information required under Item 5 from
the N1-A in the Registrant's latest Annual Report to Shareholders under Rule
30d-1 of the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has caused this amended
registration statement to be duly signed on its behalf by the undersigned, duly
authorized, in the City of Appleton and State of Wisconsin on this day of April
6, 1999.
THE AAL MUTUAL FUNDS
By: /s/ Robert G. Same
----------------------------------------
Robert G. Same
Vice-President and Secretary;
Acting President
Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed below by the following persons in the
capacities and on the dates indicated:
/s/ Robert G. Same Vice-President and Secretary; June 24, 1999
- ----------------------------- Acting President
Robert G. Same
/s/ Charles D. Gariboldi Treasurer June 24, 1999
- ----------------------------- (Principal Accounting
Charles D. Gariboldi Financial Officer)
All of the Board of Trustees:
F. Gregory Campbell John O. Gilbert
Richard L. Gady John H. Pender
Edward W. Smeds Lawrence M. Woods
Robert G. Same, by signing his name hereto, does hereby sign this document on
behalf of himself and each of the other above-named Trustees of The AAL Mutual
Funds pursuant to the powers of attorney duly executed by such persons.
/s/ Robert G. Same June 24, 1999
- -----------------------------
Robert G. Same
Attorney-in-Fact
AMENDMENT NO. 11
TO
INVESTMENT ADVISORY AGREEMENT
The Investment Advisory Agreement between The AAL Mutual Funds and AAL Capital
Management Corporation (f/k/a AAL Advisors, Inc.), effective November 28, 1990,
is hereby amended, effective November 1, 1998, as follows:
1. Schedule A attached to the Investment Advisory Agreement is amended effective
November 1, 1998. An amended Schedule A, November 1, 1998, is attached hereto.
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be signed by
the respective Officers effective as of November 1, 1998.
ATTEST: THE AAL MUTUAL FUNDS
By: /s/ Robert G. Same By: /s/ Ronald G. Anderson
------------------------------- ------------------------------
Robert G. Same, Secretary Ronald G. Anderson, President
ATTEST: AAL CAPITAL MANAGEMENT
CORPORATION
By: /s/ Robert G. Same By: /s/ Ronald G. Anderson
------------------------------- ------------------------------
Robert G. Same, Assistant Secretary Ronald G. Anderson, President
<PAGE>
EXHIBIT A
TO
THE AAL MUTUAL FUNDS INVESTMENT ADVISORY AGREEMENT
Dated November 28, 1990
1. The AAL Capital Growth Fund (effective September 1, 1998)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.65 of 1% on the first $500 million of average daily net assets, 0.575 of 1%
on the next $500 million of average daily net assets, and 0.50 of 1% of average
daily net assets over $1 billion.
2. The AAL Bond Fund (effective September 1, 1998)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.45 of 1% of average daily net assets.
3. The AAL Municipal Bond Fund (effective September 1, 1998)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.45 of 1% of average daily assets.
4. The AAL Money Market Fund (effective date December 21, 1990)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.50 of 1% on the first $500 million of average daily net assets and 0.45 of
1% of average daily net assets over $500 million.
5. The AAL U.S. Government Zero Coupon Target Fund, Series 2001 (effective
November 13, 1991)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.50 of 1% of average daily net assets.
6. The AAL U.S. Government Zero Coupon Target Fund, Series 2006 (effective
November 13, 1991)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.50 of 1% of average daily net assets.
7. The AAL Mid Cap Stock Fund (effective September 1, 1998)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.70 of 1% on the first $200 million of average daily net assets and 0.65 of
1% of average daily net assets over $200 million.
8. The AAL Equity Income Fund (f/k/a Utilities Fund) (effective September 1,
1998)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.45 of 1% of average daily net assets.
9. The AAL International Fund (effective November 1, 1998)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.65 of 1% on the first $50 million of average daily net assets and .60 of 1%
of average daily net assets over $50 million.
10. The AAL Small Cap Stock Fund (effective September 1, 1998)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.70 of 1% on the first $200 million of average daily net assets and 0.65 of
1% of average daily net assets over $200 million.
11. The AAL High Yield Bond Fund (effective September 1, 1998)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.55 of 1% of average daily net assets.
12. The AAL Balanced Fund (effective September 1, 1998)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.55 of 1% of average daily net assets.
[QUARLES & BRADY LLP LETTERHEAD]
CONSENT OF LEGAL COUNSEL
We hereby consent to the incorporation by reference into this Post-Effective
Amendment to this Registration Statement on Form N-1A of The AAL Mutual Funds
(the "Registrant") of our opinion as to the legality of the Registrant's shares
of common stock of all series and all classes covered by this Registration
Statement, and we further consent to the identification of our firm in the
Prospectus and Statement of Additional Information included as parts of that
Registration Statement.
/s/ Quarles & Brady LLP
-------------------------
Quarles & Brady LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 32 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated May 22, 1999, relating to the financial
statements and financial highlights appearing in the April 30, 1999 Annual
Report to Shareholders of The AAL Small Cap Stock Fund, The AAL Mid Cap Stock
Fund, The AAL International Fund, The AAL Capital Growth Fund, The AAL Equity
Income Fund, The AAL Balanced Fund, The AAL High Yield Bond Fund, The AAL
Municipal Bond Fund, The AAL Bond Fund, and The AAL Money Market Fund (ten of
the funds comprising The AAL Mutual Funds) which are also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Financial Highlights" in the Prospectus and under the
heading "Independent Accountants" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
June 24, 1999
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000811869
<NAME> THE AAL MUTUAL FUNDS
<SERIES>
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<NAME> THE AAL BOND FUND CLASS A
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<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811869
<NAME> THE AAL MUTUAL FUNDS
<SERIES>
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<NAME> THE AAL BOND FUND CLASS B
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000811869
<NAME> THE AAL MUTUAL FUNDS
<SERIES>
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<NAME> THE AAL MONEY MARKET FUND CLASS A
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000811869
<NAME> THE AAL MUTUAL FUNDS
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</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Robert G. Same, Woodrow E Eno, and Steven
J. Fredricks as true and 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 to the
Registration Statement on Form N1-A for The AAL Mutual Funds, or any other Form
as may be required by the Securities and Exchange Commission, and to file each
and any of them, 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
Trustee
THE AAL MUTUAL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Robert G. Same, Woodrow E Eno, and Steven
J. Fredricks as true and 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 to the
Registration Statement on Form N1-A for The AAL Mutual Funds, or any other Form
as may be required by the Securities and Exchange Commission, and to file each
and any of them, 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
Trustee
THE AAL MUTUAL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Robert G. Same, Woodrow E Eno, and Steven
J. Fredricks as true and 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 to the
Registration Statement on Form N1-A for The AAL Mutual Funds, or any other Form
as may be required by the Securities and Exchange Commission, and to file each
and any of them, 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
Trustee
THE AAL MUTUAL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Robert G. Same, Woodrow E Eno, and Steven
J. Fredricks as true and 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 to the
Registration Statement on Form N1-A for The AAL Mutual Funds, or any other Form
as may be required by the Securities and Exchange Commission, and to file each
and any of them, 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
Trustee
THE AAL MUTUAL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Robert G. Same, Woodrow E Eno, and Steven
J. Fredricks as true and 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 to the
Registration Statement on Form N1-A for The AAL Mutual Funds, or any other Form
as may be required by the Securities and Exchange Commission, and to file each
and any of them, 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/ Edward W. Smeds
- ---------------------------------
Edward W. Smeds
Trustee
THE AAL MUTUAL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Robert G. Same, Woodrow E. Eno, and
Steven J. Fredricks as true and 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
to the Registration Statement on Form N1-A for The AAL Mutual Funds, or any
other Form as may be required by the Securities and Exchange Commission, and to
file each and any of them, 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 O. Gilbert
- ---------------------------------
John O. Gilbert
Trustee
THE AAL MUTUAL FUNDS
