As filed with the Securities and Exchange Commission on
April 6, 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. 30 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No 32 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):
on July 1, 1999 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
X 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
This Fund prospectus provides information that you should review before
investing. Please keep the prospectus for future reference. If you have any
questions or want additional material, please call The AAL Mutual Funds at
800-553-6319, or write The AAL Mutual Funds at 222 West College Avenue,
Appleton, Wisconsin 54919-0007. The Telecommunications Device for the Deaf
("TDD") number is 800-684-3416.
As with other mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this prospectus is
complete or accurate. If anyone tells you otherwise, they are committing a
crime.
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
Investment Strategies
Primary Risk
Past Performance
Expenses
THE AAL MID CAP FUND
Investment Objective
Investment Strategies
Primary Risk
Past Performance
Expenses
THE AAL INTERNATIONAL FUND
Investment Objective
Investment Strategies
Primary Risk
Past Performance
Expenses
THE AAL CAPITAL GROWTH FUND
Investment Objective
Investment Strategies
Primary Risk
Past Performance
Expenses
THE AAL EQUITY INCOME FUND
Investment Objective
Investment Strategies
Primary Risk
Past Performance
Expenses
THE AAL BALANCED FUND
Investment Objective
Investment Strategies
Primary Risk
Past Performance
Expenses
THE AAL HIGH YIELD BOND FUND
Investment Objective
Investment Strategies
Primary Risk
Past Performance
Expenses
THE AAL MUNICIPAL BOND FUND
Investment Objective
Investment Strategies
Primary Risk
Past Performance
Expenses
THE AAL BOND FUND
Investment Objective
Investment Strategies
Primary Risk
Past Performance
Expenses
THE AAL MONEY MARKET FUND
Investment Objective
Investment Strategies
Primary Risk
Past Performance
Expenses
MANAGEMENT AND CAPITAL STRUCTURE
Investment Adviser
Portfolio Management
Adviser Fees per Fund
The Aid Association for Lutherans Savings Plan
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:
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 includes Higher annual expenses, which includes 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
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 the 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.
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 a quality. Further, small companies tend to be less recognizable,
than companies listed in the S&P 500(R) Index or the S&P Mid Cap 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.
Primary 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 tend 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 tend to
decrease more than the stock 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 performance from year-to-year. As with all
investments, past performance is not a guarantee of future results.
Year-by-Year Total Return
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.
Class A shares
[Bar chart with following data:]
12/31/97 ____%
12/31/98 ____%
The Fund's year to date return as of March 31st, 1999 was ______%.
Best and Worst Quarterly Returns
Best Quarter: _____ Quarter of 19__ ______%
Worst Quarter: _____ Quarter of 19__ ______%
Average Annual Total Return
The tables below compares the Fund's average annual total return for Class A and
B shares with the S&P Small Cap 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 Small Cap 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 the Fund started
operations. For Class B shares, returns are shown for a one-year period and
since inception of Class B shares.
Small Cap Fund 1 Year Since Inception
Class A Shares ____% ____% (1)
S&P Small Cap 600(R) Index ____% ____%
Small Cap Fund 1 Year Since Inception
Class B Shares ____% ____% (2)
S&P Small Cap 600(R) Index ____% ____%
(1) Inception of the Fund, July 1, 1996
(2) Inception of Class B Shares, January 8, 1997
* The S&P Small Cap 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 and 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 ___% ___%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses ___% ___%
Total Fund Operating Expenses ___% ___%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the cost 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>
<S> <C> <C> <C>
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- ---------------------------------------------------------------------------------------------------------
1 Year $____ $____ $____
3 Year $____ $____ $____
5 Year $____ $____ $____
After 10 years $____ 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.
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 $6 billion. Within this category,
we generally focus on companies with market capitalizations ranging from$400 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
their stocks 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.
Primary 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 performance from year-to-year. As with all
investments, past performance is not a guarantee of future results.
Year-by-Year Total Return
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.
Class A shares
[Bar chart with following data:]
12/31/94 ____%
12/31/95 ____%
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
The Funds year to date return as of March 31st, 1999 was ______%.
Best and Worst Quarterly Returns
Best Quarter: _____ Quarter of 19__ ______%
Worst Quarter: _____ Quarter of 19__ ______%
Average Annual Total Return
The tables below compares the Fund's average annual total return for Class A and
B shares with the S&P Mid Cap 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 Mid Cap 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 the Fund
started operations. 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 ____% ____% ____% (1)
S&P Mid Cap 400(R) Index ____% ____% ____%
Mid Cap Stock Fund 1 Year Since Inception
- -----------------------------------------------------------------------
Class B Shares ____% ____% (2)
S&P Mid Cap 400(R) Index ____% ____%
(1) Inception of the Fund, June 30, 1993
(2) Inception of Class B Shares, January 8, 1997
* The S&P Mid Cap 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 and 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 ___% ___%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses ___% ___%
Total Fund Operating Expenses ___% ___%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the cost 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:
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- --------------------------------------------------------------------------------
1 Year $____ $____ $____
3 Year $____ $____ $____
5 Year $____ $____ $____
After 10 years $____ N/A* N/A*
*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.
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: 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 lesser developed country economy.
An emerging market is characterized by relatively weak governmental entities and
a developing financial infrastruture 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 hold cash temporarily (U.S. dollars, foreign currencies or
multinational foreign currency units) for the Fund. We may invest any portion of
the Fund's total assets in money market instruments.
Primary 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 performance from year-to-year. As with all
investments, past performance is not a guarantee of future results.
Year-by-Year Total Return
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.
Class A shares
[Bar chart with following data:]
12/31/97 ____%
12/31/98 ____%
The Funds year to date return as of March 31st, 1999 was ______%.
Best and Worst Quarterly Returns
Best Quarter: _____ Quarter of 19__ ______%
Worst Quarter: _____ Quarter of 19__ ______%
Average Annual Total Return
The tables below compares the Fund's average annual total return 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 the Fund started operations. 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 ____% ____% (1)
EAFE(R) Index ____% ____%
International Fund 1 Year Since Inception
Class B Shares ____% ____% (2)
EAFE(R) Index ____% ____%
(1) Inception of the Fund, August 1, 1995
(2) Inception of Class B Shares, January 8, 1997
* The Morgan Stanley Capital International, Europe, Australia, 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 and 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 ___% ___%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses ___% ___%
Total Fund Operating Expenses ___% ___%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the cost 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:
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- --------------------------------------------------------------------------------
1 Year $____ $____ $____
3 Year $____ $____ $____
5 Year $____ $____ $____
After 10 years $____ N/A* N/A*
*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.
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.
Primary 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 performance from year-to-year. As with all
investments, past performance is not a guarantee of future results.
Year-by-Year Total Return
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.
Class A shares
[Bar chart with following data:]
12/31/89 ____%
12/31/90 ____%
12/31/91 ____%
12/31/92 ____%
12/31/93 ____%
12/31/94 ____%
12/31/95 ____%
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
The Funds year to date return as of March 31st, 1999 was ______%.
Best and Worst Quarterly Returns
Best Quarter: _____ Quarter of 19__ ______%
Worst Quarter: _____ Quarter of 19__ ______%
Average Annual Total Return
The tables below compares the Fund's average annual total return 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 ____% ____% ____%
S&P 500(R) Index ____% ____% ____%
Capital Growth Fund 1 Year Since Inception
Class B Shares ____% ____% (1)
S&P 500(R) Index ____% ____%
(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 and 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 ___% ___%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses ___% ___%
Total Fund Operating Expenses ___% ___%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the cost 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:
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- --------------------------------------------------------------------------------
1 Year $____ $____ $____
3 Year $____ $____ $____
5 Year $____ $____ $____
After 10 years $____ N/A* N/A*
*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.
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 organization (NRSRO's) 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 an 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.
Primary Risks
Industry Concentration: Although we intend to diversify the Fund's investments
in securities across many different industries, income-producing equity
securities tend to be more prevalent in some market sectors than others. The
higher dividend yielding securities included in the S&P 500(R) are found
primarily in the services (communications and retail), energy, utilities,
financial services and consumer non-cyclical and cyclical market sectors.
Accordingly, our investments for the Fund may tend to emphasize certain market
sectors more than others. 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 performance from year-to-year. As with all
investments, past performance is not a guarantee of future results.
Year-by-Year Total Return
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.
Class A shares
[Bar chart with following data:]
12/31/95 ____%
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
The Funds year to date return as of March 31st, 1999 was ______%.
Best and Worst Quarterly Returns
Best Quarter: _____ Quarter of 19__ ______%
Worst Quarter: _____ Quarter of 19__ ______%
Average Annual Total Return
The tables below compares the Fund's average annual total return 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 the Fund started operations.
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 ____% ____% ____% (1)
S&P 500(R) Index ____% ____% ____%
Equity Income Fund 1 Year Since Inception
Class B Shares ____% ____% (2)
S&P 500(R) Index ____% ____%
(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 and 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 ___% ___%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses ___% ___%
Total Fund Operating Expenses ___% ___%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the cost 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:
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- --------------------------------------------------------------------------------
1 Year $____ $____ $____
3 Year $____ $____ $____
5 Year $____ $____ $____
After 10 years $____ N/A* N/A*
*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.
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 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; 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.
Primary 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 Investments 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 both 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 performance from year-to-year. As with all
investments, past performance is not a guarantee of future results.
Year-by-Year Total Return
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.
Class A shares
[Bar chart with following data:]
12/31/98 ____%
The Funds year to date return as of March 31st, 1999 was ______%.
Best and Worst Quarterly Returns
Best Quarter: _____ Quarter of 19__ ______%
Worst Quarter: _____ Quarter of 19__ ______%
Average Annual Total Return
The tables below compares the Fund's average annual total return 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 shares are shown for a one year period and since the Fund
started operations. For Class B shares, returns are shown for a one-year period
and since inception of Class B shares.
Balanced Fund 1 Year Since Inception
Class A Shares ____% ____% (1)
S&P 500(R) Index ____% ____%
Lehman Brothers Aggregate Bond Index(R) ____% ____%
Balanced Fund 1 Year Since Inception
Class B Shares ____% ____% (2)
S&P 500(R) Index ____% ____%
Lehman Brothers Aggregate Bond Index(R) ____% ____%
(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 and 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 ___% ___%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses ___% ___%
Total Fund Operating Expenses ___% ___%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the cost 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:
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- --------------------------------------------------------------------------------
1 Year $____ $____ $____
3 Year $____ $____ $____
5 Year $____ $____ $____
After 10 years $____ N/A* N/A*
*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.
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 (a) adequate to meet future obligations; and (b) 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.
We expect that portfolio turnover typically not to exceed ____%
[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.
Primary 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, whether or not based on
fundamental analysis, decreasing market values and liquidity, especially on the
lesser traded issues. 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 performance from year-to-year. As with all
investments, past performance is not a guarantee of future results.
Year-by-Year Total Return
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.
Class A shares
[Bar chart with following data:]
12/31/98 ____%
The Funds year to date return as of March 31st, 1999 was ______%.
Best and Worst Quarterly Returns
Best Quarter: _____ Quarter of 19__ ______%
Worst Quarter: _____ Quarter of 19__ ______%
Average Annual Total Return
The tables below compares the Fund's average annual total return 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 shares are shown for a one year
period and since the Fund started operations. For Class B shares, returns are
shown for a one-year period and since inception of Class B shares.
High Yield Bond Fund 1 Year Since Inception
Class A Shares ____% ____% (1)
Merrill Lynch High Yield Master Index(R) ____% ____%
High Yield Bond Fund 1 Year Since Inception
Class B Shares ____% ____% (2)
Merrill Lynch High Yield Master Index(R) ____% ____%
(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 and 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 ___% ___%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses ___% ___%
Total Fund Operating Expenses ___% ___%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the cost 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:
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- --------------------------------------------------------------------------------
1 Year $____ $____ $____
3 Year $____ $____ $____
5 Year $____ $____ $____
After 10 years $____ N/A* N/A*
*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.
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 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:
- - Make additional investments in these instruments when the initial margin
deposits and premiums paid for un-expired options and futures exceeds 5% of
the Fund's total assets;
- - 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.
Primary 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 performance from year-to-year. As with all
investments, past performance is not a guarantee of future results.
Year-by-Year Total Return
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.
Class A shares
[Bar chart with following data:]
12/31/89 ____%
12/31/90 ____%
12/31/91 ____%
12/31/92 ____%
12/31/93 ____%
12/31/94 ____%
12/31/95 ____%
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
The Funds year to date return as of March 31st, 1999 was ______%.
Best and Worst Quarterly Returns
Best Quarter: _____ Quarter of 19__ ______%
Worst Quarter: _____ Quarter of 19__ ______%
Average Annual Total Return
The tables below compares the Fund's average annual total return 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 ____% ____% ____%
Lehman Brothers Municipal Bond Index(R) ____% ____% ____%
Municipal Bond Fund 1 Year Since Inception
Class B Shares ____% ____% (1)
Lehman Brothers Municipal Bond Index(R) ____% ____%
(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 and 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 ___% ___%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses ___% ___%
Total Fund Operating Expenses ___% ___%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the cost 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:
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- --------------------------------------------------------------------------------
1 Year $____ $____ $____
3 Year $____ $____ $____
5 Year $____ $____ $____
After 10 years $____ N/A* N/A*
*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.
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 NRSRO's 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 rated within the
four highest categories by at least two NRSRO's 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;
(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.
Primary 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 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 performance from year-to-year. As with all
investments, past performance is not a guarantee of future results.
Year-by-Year Total Return
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.
Class A shares
[Bar chart with following data:]
12/31/89 ____%
12/31/90 ____%
12/31/91 ____%
12/31/92 ____%
12/31/93 ____%
12/31/94 ____%
12/31/95 ____%
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
The Funds year to date return as of March 31st, 1999 was ______%.
Best and Worst Quarterly Returns
Best Quarter: _____ Quarter of 19__ ______%
Worst Quarter: _____ Quarter of 19__ ______%
Average Annual Total Return
The tables below compares the Fund's average annual total return 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 ____% ____% ____%
Lehman Brothers Aggregate Bond Index(R) ____% ____% ____%
Bond Fund 1 Year Since Inception
Class B Shares ____% ____% (1)
Lehman Brothers Aggregate Bond Index(R) ____% ____%
(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 and 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 ___% ___%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses ___% ___%
Total Fund Operating Expenses ___% ___%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the cost 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:
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- --------------------------------------------------------------------------------
1 Year $____ $____ $____
3 Year $____ $____ $____
5 Year $____ $____ $____
After 10 years $____ N/A* N/A*
*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.
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 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 for the Fund as described above.
Primary 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 performance from year-to-year. As with all
investments, past performance is not a guarantee of future results.
Year-by-Year Total Return
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. There is no front-end sales charge or contingent deferred
sales charge on the Fund's Class A shares.
Class A shares
[Bar chart with following data:]
12/31/89 ____%
12/31/90 ____%
12/31/91 ____%
12/31/92 ____%
12/31/93 ____%
12/31/94 ____%
12/31/95 ____%
12/31/96 ____%
12/31/97 ____%
12/31/98 ____%
The Funds year to date return as of March 31st, 1999 was ______%.
Best and Worst Quarterly Returns
Best Quarter: _____ Quarter of 19__ ______%
Worst Quarter: _____ Quarter of 19__ ______%
Average Annual Total Return
The tables below compares the Fund's average annual total return 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 ____% ____% ____%
Salomon Brothers Short-Term Index(R) ____% ____% ____%
Money Market Fund 1 Year Since Inception
Class B Shares ____% ____% (1)
Salomon Brothers Short-Term Index(R) ____% ____%
(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 value of $1.00.
Expenses
Like any investor you, pay certain expenses related to your investments. Annual
Fund and 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) 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 ___% ___%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses ___% ___%
Total Fund Operating Expenses ___% ___%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the cost 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:
Time Period Class A Shares Class B Shares Class B Shares No Redemptions
- --------------------------------------------------------------------------------
1 Year $____ $____ $____
3 Year $____ $____ $____
5 Year $____ $____ $____
After 10 years $____ N/A* N/A*
*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 society 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 9,500 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 __________,
1999, AAL CMC managed over $____ billion for The AAL Mutual Funds.
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, for the fiscal year ended April 30, 1999.
THE AAL SMALL CAP STOCK FUND ____% on the average daily net assets
THE AAL MID CAP STOCK FUND ____% on the average daily net assets
THE AAL INTERNATIONAL FUND 0.80% on the average daily net assets
Sub-Adviser Fees
Oechsle International Advisers ____% on the average daily net assets
THE AAL CAPITAL GROWTH FUND ____% on the average daily net assets
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 ____% on the average daily net assets
Portfolio Management
THE AAL SMALL CAP STOCK FUND
Kevin 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 LLC makes the day-to-day investment decisions for the International Fund
portfolio under AAL CMC's direction and control. Oechsle LLC 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 Alexander Bohannon, CFA, has managed the day-to-day Fund investments since
November 1, 1995. From 1980 through 1994, Mr. Bohannon was at Cigna Corporation,
serving as managing director and portfolio manager from 1990 to 1994.
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
Dave 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 the 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. Mr. Hilt also manages The AAL Money
Market Fund.
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 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 in the Funds through a licensed 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>
<S> <C> <C> <C> <C>
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*
- --------------------------------------------------------------------------------------------------------
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 Charge
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.
50% Reduction: Non-profit organizations, charitable trusts, charitable remainder
unitrusts, endowments, AAL branches and congregations pay only 50% of the normal
sales charge so long as there is a meaningful Lutheran affiliation. The
reduction does not apply to 403(b)(7) Retirement Plan Accounts.
Right 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 include 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 right 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 Right
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 a 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 upon the sale 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 Fund Service Center at 800-553-6319. The
Telecommunications Device for the Deaf (TDD) is 800-684-3416. To open your
account, just follow these steps:
(1) after reviewing this prospectus, complete an AAL Mutual Funds Application
and New Account Form, which should be attached to the prospectus, for every
different account registration. For example, you need separate application
for an individual account in The AAL Bond Fund and a separate application
for 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;
(2) Make your check payable to the Fund you are buying, for example, "The AAL
Bond Fund." If you are buying more than one Fund, make your check payable
to "THE AAL MUTUAL FUNDS." DO NOT MAKE YOUR CHECK PAYABLE TO AAL OR AAL
CAPITAL MANAGEMENT CORPORATION; and
(3) Mail your completed application and check to:
THE AAL MUTUAL FUNDS
222 W. COLLEGE AVE.
P. O. BOX 8004
APPLETON, WI 54913-8004.
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 New 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:
(1) 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 the 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.
(2) Instruct your bank to use the following instructions when wiring funds:
WIRE TO: FIRSTAR BANK MILWAUKEE, N. A. ABA #075000022
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.
(3) Complete The AAL Mutual Funds Application and mail it immediately to:
THE AAL MUTUAL FUNDS
222 W. COLLEGE AVE.
P. O. BOX 8004
APPLETON, WI 54913-8004.
Purchasing Shares for the First Time by Mail
You must complete a separate application and new account form for each different
account registration in the Funds. A separate check should accompany each
application. You should make the check payable to the name of the Fund in which
you are investing, or if you are purchasing more than one Fund using a single
application, you may send one check payable to "The AAL Mutual Funds" for the
total amount invested, along with a completed shareholder application and new
account form to:
New Accounts
AAL Capital Management Corporation
222 West College Avenue
Appleton, WI 54919-0007
Additional Purchases in Existing Accounts
After you have opened an account with The AAL Mutual Funds, you may purchase
additional shares in your account by mail or wire.
Additional Purchase by Mail
Payment for additional purchases in existing Fund accounts should be sent
directly to the Funds' transfer agent at the following address:
The AAL Mutual Funds
c/o Firstar Trust Company
615 E. Michigan Street
P. O. Box 2981
Milwaukee, WI 53201-2981
Please indicate your AAL Mutual Fund account number on the face of all
subsequent investment checks and make your check payable to the specific Fund in
which you are investing. If you have more than one account, always verify that
you are investing in the proper account. This will help to ensure the proper
handling of the transaction.
Additional Purchase by Wire
You may make additional wire purchases in an existing Fund account by following
Step (2) of the wire transfer instructions shown for "Initial Purchase by Wire"
above, and in addition, by providing your existing Fund account number.
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.
Other Purchase Information
You will begin earning income on the business day following the date that
payment for the purchase is received by the Funds' transfer agent. All purchases
must be made in U.S. dollars and checks must be drawn on U.S. banks. The Funds
do not accept cash and travelers checks. If your check does not clear, your
purchase will be canceled and you will be liable for any losses or fees
incurred. When you purchase 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. The Funds will mail a written confirmation of purchase to
you, usually within two business days following your purchase date.
The Funds only issue share certificates upon written request and then only for
full, not fractional shares. The Funds require a new written request for a share
certificate for each subsequent purchase. There is no charge for the issuance of
share certificates. If share certificates have been requested or issued,
certificates must be delivered to the transfer agent, Firstar Trust Company, in
negotiable form prior to redemptions, transfers or exchanges.
The deposit in the mail or with a delivery services, or receipt at a Post Office
Box, of purchase applications or redemption requests, do not constitute receipt
by the Funds, the distributor or the transfer agent. The legal effect of posting
for other purposes, such as the April 15th IRA deadline, shall be determined by
the applicable laws then in effect.
The Funds reserve the right to suspend the offering of shares for a period of
time. They also reserve the right to reject any specific purchase of shares.
Automatic Investment Plans
The Funds offer several automatic investment plans available to make periodic
investing more convenient. These plans do not need an initial investment.
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 Fund Service Center -- 800-553-6319) or your Registered
Representative. Instructions for changes, additions or termination of a Bank
Draft Plan must be in writing and signed by all bank account owners.
The Capital Builder Plan
The Capital Builder Plan also allows investors to make regular automatic
investments in an existing account in the AAL Small Cap Stock, Mid Cap Stock,
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 from
their paychecks or commission checks.
Prestige Account
Investors who maintain a significant share balance will be provided with
additional benefits, including personal attention from Prestige Account
Representatives, an exclusive toll-free telephone number, personalized
investment analysis, complimentary financial information, a Prestige Account
organizer and more. Your AAL Capital Management Corporation Registered
Representative can provide more detailed information.
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.
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) -- No new plans may start
after 1996, but existing plans may continue
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) Plans
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. When you buy shares by any type of check, electronic funds
transfer or automatic investment purchase, you may not be able to redeem the
shares you purchased 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.
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 local Registered Representative or the Mutual
Fund Service Center at 800-553-6319. When making these types of changes, please
use The AAL Mutual Funds Account Change Request, which is available from your
local Registered Representative or from the Mutual Fund Service Center.
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 own have held the shares redeemed. If we receive you
request in good order; which means including 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.
Redemption by Mail
Shareholders of any of the Funds may have their shares redeemed at any time at
the net asset value per share next determined after a written request and all
additional documents, if required, are received in proper form by the Funds'
transfer agent.
The Funds base payment for shares presented for redemption at a Fund's net asset
value next computed after a request is received in proper form by the transfer
agent. Shareholders earn income and receive dividends paid on funds through the
date of redemption. 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. 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.
You may redeem shares of any of the Funds by mail, by sending a written request
or redemption to:
The AAL Mutual Funds
c/o Firstar Trust Company
615 East Michigan Street
P. O. Box 2981
Milwaukee, Wisconsin 53201-2981
In your redemption request, you must include your shareholder account number,
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.
Telephone Redemptions
The privilege to redeem shares by telephone is automatically extended to all
accounts, unless the option is specifically declined. If you do not want the
telephone redemption option, please call the Mutual Fund 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 (see Telephone Transactions). AAL Capital Management
Corporation has implemented procedures designed to reasonably ensure that
telephone instructions are genuine. These procedures include recording telephone
conversations, requesting verification of certain personal information,
restricting transmittal of redemption proceeds to pre-authorized designations
and supplying transaction verification information.
Telephone Redemptions and Checks Mailed
The following conditions apply to telephone redemptions described above:
a. telephone redemption checks will be issued to the same payee(s) as the
account registration and sent only to the address of record;
b. there has been no change of address in the preceding 60 days;
c. the request is for $25,000 or less;
d. retirement plan accounts are not eligible;
e. shares to be redeemed cannot be in certificate form; and
f. Only one telephone redemption is permitted within any 30 day period for
each authorized account.
Telephone Redemptions by Bank Wire
a. Existing shareholders must send The AAL Mutual Funds Application or Account
Change Request with the appropriate section completed prior to exercising
the privilege of wire redemption to:
Firstar Trust Company
615 E. Michigan Street
P. O. Box 2981
Milwaukee, WI 53201-2981.
b. Wire redemptions can be made for any amount.
c. A $12.00 fee is assessed for redemptions by wire.
d. Requests received in good order before the close of the NYSE (usually 3:00
p.m. Central time) receive that day's price.
If an account has multiple owners, AAL Capital Management Corporation may rely
on the instructions of any one account owner. This privilege may not be
available on all retirement plan accounts.
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 The 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
A shareholder who redeems shares in a Fund on which a commission has been paid
may, within 60 days after the date of redemption, reinstate any portion or all
of a redemption in shares of a Fund (in the same Fund and with the same
registration) without sales charges at net asset value next determined after
receipt by the transfer agent of a written request for reinstatement together
with a check for the amount to be reinstated. This reinstatement privilege is
available only once with respect to any one shareholder account. Reinvested
funds must be provided by a single check. In order to receive the reinvestment
privilege, shareholders must clearly state in writing at the time of purchase
that they qualify for the privilege.
Any gain recognized on a redemption is taxable despite the reinstatement in a
Fund. Any loss realized as a result of a redemption may not be allowed as a
deduction for federal income tax purposes, but may be applied, depending on the
amount reinstated, to adjust the cost basis of the shares acquired on
reinstatement.
Involuntary Redemption
Because all account owners share the high cost of maintaining accounts with low
balances, the Funds reserve the right to involuntarily redeem a shareholder's
account, other than a retirement plan account, at any time the value of the
account falls below $250 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
Exchanges by Mail
Shares of the Funds held for at least 12 days may be exchanged for shares of any
other AAL Mutual Fund (Class A shares only) with the same registration, without
additional sales charge, at the net asset value per share next computed after
receipt of a written exchange request in proper form by the transfer agent.
An exchange constitutes a redemption of the shares of one mutual fund and the
purchase of shares of another. Because the Funds invest primarily in zero coupon
securities, the net asset value per share may fluctuate substantially prior to
the maturity date. Therefore, a shareholder who exchanges shares of a Fund prior
to maturity may experience a significantly different investment return than was
anticipated at the time of purchase.
Shareholders of a Fund may only exchange into such other Funds as are legally
available for sale in any state. If shares are held in the name of a
corporation, trust, estate, custodianship, guardianship, partnership or pension
and profit sharing plan, or if you have requested and received share
certificates, additional documentation may be necessary.
Exchanges are sales for tax purposes and could result in a gain or loss,
depending on the original cost of shares exchanged.
An excessive number of exchanges may be disadvantageous to the Funds. Therefore,
the Funds reserve the right to terminate the exchange privilege of any
shareholder who makes more than twelve exchanges in a year. Further, the Funds
reserve the right to modify or terminate the exchange privilege at any time with
respect to any Fund, if the Funds' Trustees determine that continuing the
privilege may be detrimental to shareholders.
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 Fund 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 be made at the net asset value per share next
determined that day.
Telephone exchanges will be permitted only if you elect the telephone exchange
option on your initial purchase application, or requests the telephone exchange
privilege in a subsequent written request, signed by all registered owners, with
all signatures guaranteed.
During periods of extreme volume caused by dramatic economic or stock market
changes, shareholders may have difficulty reaching the Mutual Fund Service
Center by phone, and a telephone exchange may be difficult to implement at those
times. The Funds reserve the right to temporarily discontinue the telephone
exchange privilege during such periods of extreme volume.
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 follows:
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 31st 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 servicing fee
to compensate for certain shareholder services. The table below shows the
maximum 12b-1 distribution and servicing 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 currently $____ 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 reinvestments
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
Period Period Period from
Ended Ended 7/1/96 to
4/30/99 4/30/98 4/30/97
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period _____ _____ _____
Income from Investment Operations
Net Investment Income (Loss) _____ _____ _____
Net Realized and Unrealized Gain (Loss) _____ _____ _____
Total From Investment Operations _____ _____ _____
Distributions
Dividends from Investment Income - Net _____ _____ _____
Distributions from Capital Gains _____ _____ _____
Total Dividends and Distributions _____ _____ _____
Net Asset Value - End of Period _____ _____ _____
Total Return (1) _____ _____ _____
Supplemental Data and Ratios
Net Assets at End of Period _____ _____ _____
Ratio of Expenses to Average Net Assets (2)* _____ _____ _____
Ratio of Investment Income (Loss) to
Average Net Assets (2)* _____ _____ _____
Portfolio Turnover Rate _____ _____ _____
Period Period Period from
Ended Ended 1/8/97 to
4/30/99 4/30/98 4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period _____ _____ _____
Income from Investment Operations
Net Investment Income (Loss) _____ _____ _____
Net Realized and Unrealized Gain (Loss) _____ _____ _____
Total From Investment Operations _____ _____ _____
Distributions
Dividends from Investment Income - Net _____ _____ _____
Distributions from Capital Gains _____ _____ _____
Total Dividends and Distributions _____ _____ _____
Net Asset Value - End of Period _____ _____ _____
Supplemental Data and Ratios
Net Assets at End of Period _____ _____ _____
Ratio of Expenses to Average Net Assets (2)* _____ _____ _____
Ratio of Investment Income (Loss) to
Average Net Assets (2)* _____ _____ _____
Portfolio Turnover Rate _____ _____ _____
* 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): ____% , ____%, and
____%
Class B shares - Ratio of Expenses to Average Net Assets(2): ____%, ____%, and
____%
Class A shares - Ratio of Net Investment Income{Loss) Average Net Assets(2):
____%, ____%, and ____%
Class B shares - Ratio of Net Investment Income{Loss) Average Net Assets(2):
____%, ____%, and ____%
(1) Total Return assumes reinvestment of all dividends and distributions but
does not reflect any deduction for sales charge. The aggregates, 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.
THE AAL MID CAP STOCK FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Period Period Period Period Period
Ended Ended Ended Ended Ended
4/30/99 4/30/98 4/30/97 4/30/96 4/30/95
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period _____ _____ _____ _____ _____
Income from Investment Operations
Net Investment Income (Loss) _____ _____ _____ _____ _____
Net Realized and Unrealized Gain (Loss) _____ _____ _____ _____ _____
Total From Investment Operations _____ _____ _____ _____ _____
Distributions
Dividends from Investment Income - Net _____ _____ _____ _____ _____
Distributions from Capital Gains _____ _____ _____ _____ _____
Total Dividends and Distributions _____ _____ _____ _____ _____
Net Asset Value - End of Period _____ _____ _____ _____ _____
Total Return (1) _____ _____ _____ _____ _____
Supplemental Data and Ratios
Net Assets at End of Period _____ ____ _____ _____ _____
Ratio of Expenses to Average Net Assets* _____ ____ _____ _____ _____
Ratio of Investment Income (Loss) to
Average Net Assets* _____ ____ _____ _____ _____
Portfolio Turnover Rate _____ ____ _____ _____ _____
</TABLE>
Period Period Period from
Ended Ended 1/8/97 to
4/30/99 4/30/98 4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period _____ _____ _____
Income from Investment Operations
Net Investment Income (Loss) _____ _____ _____
Net Realized and Unrealized Gain (Loss) _____ _____ _____
Total From Investment Operations _____ _____ _____
Distributions
Dividends from Investment Income - Net _____ _____ _____
Distributions from Capital Gains _____ _____ _____
Total Dividends and Distributions _____ _____ _____
Net Asset Value - End of Period _____ _____ _____
Total Return (1) _____ _____ _____
Supplemental Data and Ratios
Net Assets at End of Period _____ _____ _____
Ratio of Expenses to Average Net Assets (2)* _____ _____ _____
Ratio of Investment Income (Loss) to
Average Net Assets (2)* _____ _____ _____
Portfolio Turnover Rate _____ _____ _____
* 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: ____%, ____%, ____%,
____%, and ____%.
Class B shares - Ratio of Expenses to Average Net Assets: ____%, ____%, and
____%.
Class A shares - Ratio of Net Investment Income{Loss) Average Net Assets: :
____%, ____%, ____%, ____%, and ____%.
Class B shares - Ratio of Net Investment Income{Loss) Average Net Assets: :
____%, ____%, and ____%.
(1) Total Return assumes reinvestment of all dividends and distributions but
does not reflect any deduction for sales charge.
(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.
THE AAL INTERNATIONAL FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Period Period Period Period from
Ended Ended Ended 8/1/95 to
4/30/99 4/30/98 4/30/97 4/30/96
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period ____ ____ ____ ____
Income from Investment Operations
Net Investment Income (Loss) ____ ____ ____ ____
Net Realized and Unrealized Gain (Loss) ____ ____ ____ ____
Total From Investment Operations ____ ____ ____ ____
Distributions
Dividends from Investment Income - Net ____ ____ ____ ____
Distributions from Capital Gains ____ ____ ____ ____
Total Dividends and Distributions ____ ____ ____ ____
Net Asset Value - End of Period ____ ____ ____ ____
Total Return(1) ____ ____ ____ ____
Supplemental Data and Ratios
Net Assets at End of Period ____ ____ ____ ____
Ratio of Expenses to Average Net Assets(2)* ____ ____ ____ ____
Ratio of Investment Income (Loss) to
Average Net Assets(2)* ____ ____ ____ ____
Portfolio Turnover Rate ____ ____ ____ ____
</TABLE>
Period Period Period from
Ended Ended 1/8/97 to
4/30/99 4/30/98 4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period ____ ____ ____
Income from Investment Operations
Net Investment Income (Loss) ____ ____ ____
Net Realized and Unrealized Gain (Loss) ____ ____ ____
Total From Investment Operations ____ ____ ____
Distributions
Dividends from Investment Income - Net ____ ____ ____
Distributions from Capital Gains ____ ____ ____
Total Dividends and Distributions ____ ____ ____
Net Asset Value - End of Period ____ ____ ____
Total Return (1) ____ ____ ____
Supplemental Data and Ratios
Net Assets at End of Period ____ ____ ____
Ratio of Expenses to Average Net Assets(2)* ____ ____ ____
Ratio of Investment Income (Loss) to
Average Net Assets(2)* ____ ____ ____
Portfolio Turnover Rate ____ ____ ____
* 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): ____%, ____%,
____%, and ____%.
Class B shares - Ratio of Expenses to Average Net Assets(2): ____%, ____%, and
____%.
Class A shares - Ratio of Net Investment Income{Loss) Average Net Assets(2):
____%, ____%, ____%, and ____%.
Class B shares - Ratio of Net Investment Income{Loss) Average Net Assets(2):
____%, ____% and ____%
(1) Total Return assumes reinvestment of all dividends and distributions but
does not reflect any deduction for sales charge. The aggregates, 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.
THE AAL CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Period Period Period Period Period
Ended Ended Ended Ended Ended
4/30/99 4/30/98 4/30/97 4/30/96 4/30/95
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period _____ _____ _____ _____ _____
Income from Investment Operations
Net Investment Income (Loss) _____ _____ _____ _____ _____
Net Realized and Unrealized Gain (Loss) _____ _____ _____ _____ _____
Total From Investment Operations _____ _____ _____ _____ _____
Distributions
Dividends from Investment Income - Net _____ _____ _____ _____ _____
Distributions from Capital Gains _____ _____ _____ _____ _____
Total Dividends and Distributions _____ _____ _____ _____ _____
Net Asset Value - End of Period _____ _____ _____ _____ _____
Total Return (1) _____ _____ _____ _____ _____
Supplemental Data and Ratios
Net Assets at End of Period _____ _____ _____ _____ _____
Ratio of Expenses to Average Net Assets* _____ _____ _____ _____ _____
Ratio of Investment Income (Loss) to
Average Net Assets* _____ _____ _____ _____ _____
Portfolio Turnover Rate _____ _____ _____ _____ _____
</TABLE>
Period Period Period from
Ended Ended 1/8/97 to
4/30/99 4/30/98 4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period _____ _____ _____
Income from Investment Operations
Net Investment Income (Loss) _____ _____ _____
Net Realized and Unrealized Gain (Loss) _____ _____ _____
Total From Investment Operations _____ _____ _____
Distributions
Dividends from Investment Income - Net _____ _____ _____
Distributions from Capital Gains _____ _____ _____
Total Dividends and Distributions _____ _____ _____
Net Asset Value - End of Period _____ _____ _____
Total Return (1) _____ _____ _____
Supplemental Data and Ratios
Net Assets at End of Period _____ _____ _____
Ratio of Expenses to Average Net Assets (2)* _____ _____ _____
Ratio of Investment Income (Loss) to _____ _____ _____
Average Net Assets (2)* _____ _____ _____
Portfolio Turnover Rate _____ _____ _____
* 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: _____%, _____%,
_____%, _____%, and _____%.
Class B shares - Ratio of Expenses to Average Net Assets: _____%, _____%, and
_____%
Class A shares - Ratio of Net Investment Income{Loss) Average Net Assets:
_____%, _____%, _____%, _____%, and ____%
Class B shares - Ratio of Net Investment Income{Loss) Average Net Assets:
_____%, _____%, and _____%
(1) Total Return assumes reinvestment of all dividends and distributions but
does not reflect any deduction for sales charge. The aggregates, 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.
THE AAL EQUITY INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Period Period Period Period Period
Ended Ended Ended Ended Ended
4/30/99 4/30/98 4/30/97 4/30/96 4/30/95
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period _____ _____ _____ _____ _____
Income from Investment Operations
Net Investment Income (Loss) _____ _____ _____ _____ _____
Net Realized and Unrealized Gain (Loss) _____ _____ _____ _____ _____
Total From Investment Operations _____ _____ _____ _____ _____
Distributions
Dividends from Investment Income - Net _____ _____ _____ _____ _____
Distributions from Capital Gains _____ _____ _____ _____ _____
Total Dividends and Distributions _____ _____ _____ _____ _____
Net Asset Value - End of Period _____ _____ _____ _____ _____
Total Return (1) _____ _____ _____ _____ _____
Supplemental Data and Ratios
Net Assets at End of Period _____ _____ _____ _____ _____
Ratio of Expenses to Average Net Assets* _____ _____ _____ _____ _____
Ratio of Investment Income (Loss) to
Average Net Assets* _____ _____ _____ _____ _____
Portfolio Turnover Rate _____ _____ _____ _____ _____
</TABLE>
Period Period Period from
Ended Ended 1/8/97 to
4/30/99 4/30/98 4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period _____ _____ _____
Income from Investment Operations
Net Investment Income (Loss) _____ _____ _____
Net Realized and Unrealized Gain (Loss) _____ _____ _____
Total From Investment Operations _____ _____ _____
Distributions
Dividends from Investment Income - Net _____ _____ _____
Distributions from Capital Gains _____ _____ _____
Total Dividends and Distributions _____ _____ _____
Net Asset Value - End of Period _____ _____ _____
Total Return (1) _____ _____ _____
Supplemental Data and Ratios
Net Assets at End of Period _____ _____ _____
Ratio of Expenses to Average Net Assets (2)* _____ _____ _____
Ratio of Investment Income (Loss) to
Average Net Assets (2)* _____ _____ _____
Portfolio Turnover Rate _____ _____ _____
* 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: _____%, _____%,
_____%, _____%, _____%, and _____%
Class B shares - Ratio of Expenses to Average Net Assets: _____%, _____%, and
_____%
Class A shares - Ratio of Net Investment Income{Loss) Average Net Assets:
_____%, _____%, _____%, _____%, and _____%.
Class B shares - Ratio of Net Investment Income{Loss) Average Net Assets:
_____%, _____%, and _____%
(1) Total Return assumes reinvestment of all dividends and distributions but
does not reflect any deduction for sales charge. The aggregates, 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.
THE AAL BALANCED FUND
Period Period from
Ended 12/29/97 to
4/30/99 4/30/98
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period ____ ____
Income from Investment Operations
Net Investment Income (Loss) ____ ____
Net Realized and Unrealized Gain (Loss) ____ ____
Total From Investment Operations ____ ____
Distributions
Dividends from Investment Income - Net ____ ____
Distributions from Capital Gains ____ ____
Total Dividends and Distributions ____ ____
Net Asset Value - End of Period ____ ____
Total Return (1) ____ ____
Supplemental Data and Ratios
Net Assets at End of Period ____ ____
Ratio of Expenses to Average Net Assets (2)* ____ ____
Ratio of Investment Income (Loss) to
Average Net Assets (2)* ____ ____
Portfolio Turnover Rate ____ ____
Period Period from
Ended 12/29/97 to
4/30/99 4/30/98
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period ____ ____
Income from Investment Operations
Net Investment Income (Loss) ____ ____
Net Realized and Unrealized Gain (Loss) ____ ____
Total From Investment Operations ____ ____
Distributions
Dividends from Investment Income - Net ____ ____
Distributions from Capital Gains ____ ____
Total Dividends and Distributions ____ ____
Net Asset Value - End of Period ____ ____
Total Return (1) ____ ____
Supplemental Data and Ratios
Net Assets at End of Period ____ ____
Ratio of Expenses to Average Net Assets (2)* ____ ____
Ratio of Investment Income (Loss) to
Average Net Assets (2)* ____ ____
Portfolio Turnover Rate ____ ____
* 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: ____% and ____%
Class B shares - Ratio of Expenses to Average Net Assets: ____% and ____%
Class A shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%
and ____%
Class B shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%
and ____%
(1) Total Return assumes reinvestment of all dividends and distributions but
does not reflect any deduction for sales charge. The aggregates, 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.
THE AAL HIGH YIELD BOND FUND
Period Period Period from
Ended Ended 1/8/97 to
4/30/99 4/30/98 4/30/97
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period ____ ____ ____
Income from Investment Operations
Net Investment Income (Loss) ____ ____ ____
Net Realized and Unrealized Gain (Loss) ____ ____ ____
Total From Investment Operations ____ ____ ____
Distributions
Dividends from Investment Income - Net ____ ____ ____
Distributions from Capital Gains ____ ____ ____
Total Dividends and Distributions ____ ____ ____
Net Asset Value - End of Period ____ ____ ____
Total Return (1) ____ ____ ____
Supplemental Data and Ratios
Net Assets at End of Period ____ ____ ____
Ratio of Expenses to Average Net Assets (2)* ____ ____ ____
Ratio of Investment Income (Loss) to
Average Net Assets (2)* ____ ____ ____
Portfolio Turnover Rate ____ ____ ____
Period Period Period from
Ended Ended 1/8/97 to
4/30/99 4/30/98 4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period ____ ____ ____
Income from Investment Operations
Net Investment Income (Loss) ____ ____ ____
Net Realized and Unrealized Gain (Loss) ____ ____ ____
Total From Investment Operations ____ ____ ____
Distributions
Dividends from Investment Income - Net ____ ____ ____
Distributions from Capital Gains ____ ____ ____
Total Dividends and Distributions ____ ____ ____
Net Asset Value - End of Period ____ ____ ____
Total Return (1) ____ ____ ____
Supplemental Data and Ratios
Net Assets at End of Period ____ ____ ____
Ratio of Expenses to Average Net Assets (2)* ____ ____ ____
Ratio of Investment Income (Loss) to
Average Net Assets (2)* ____ ____ ____
Portfolio Turnover Rate ____ ____ ____
* 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: ____%, ____%, and
____%
Class B shares - Ratio of Expenses to Average Net Assets: ____%, ____%, and
____%
Class A shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, and ____%
Class B shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, and ____%
(1) Total Return assumes reinvestment of all dividends and distributions but
does not reflect any deduction for sales charge. The aggregates, 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.
THE AAL MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Period Period Period Period Period
Ended Ended Ended Ended Ended
4/30/99 4/30/98 4/30/97 4/30/96 4/30/95
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period ____ ____ ____ ____ ____
Income from Investment Operations
Net Investment Income (Loss) ____ ____ ____ ____ ____
Net Realized and Unrealized Gain (Loss) ____ ____ ____ ____ ____
Total From Investment Operations ____ ____ ____ ____ ____
Distributions
Dividends from Investment Income - Net ____ ____ ____ ____ ____
Distributions from Capital Gains ____ ____ ____ ____ ____
Total Dividends and Distributions ____ ____ ____ ____ ____
Net Asset Value - End of Period ____ ____ ____ ____ ____
Total Return (1) ____ ____ ____ ____ ____
Supplemental Data and Ratios
Net Assets at End of Period ____ ____ ____ ____ ____
Ratio of Expenses to Average Net Assets * ____ ____ ____ ____ ____
Ratio of Investment Income (Loss) to
Average Net Assets * ____ ____ ____ ____ ____
Portfolio Turnover Rate ____ ____ ____ ____ ____
</TABLE>
Period Period Period from
Ended Ended 1/8/97 to
4/30/99 4/30/98 4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period ____ ____ ____
Income from Investment Operations
Net Investment Income (Loss) ____ ____ ____
Net Realized and Unrealized Gain (Loss) ____ ____ ____
Total From Investment Operations ____ ____ ____
Distributions
Dividends from Investment Income - Net ____ ____ ____
Distributions from Capital Gains ____ ____ ____
Total Dividends and Distributions ____ ____ ____
Net Asset Value - End of Period ____ ____ ____
Total Return (1) ____ ____ ____
Supplemental Data and Ratios
Net Assets at End of Period ____ ____ ____
Ratio of Expenses to Average Net Assets (2)* ____ ____ ____
Ratio of Investment Income (Loss) to
Average Net Assets (2)* ____ ____ ____
Portfolio Turnover Rate ____ ____ ____
* 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: ____%, ____%, ____%,
____%, and ____%
Class B shares - Ratio of Expenses to Average Net Assets: ____%, ____%, and
____%
Class A shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, ____%, ____%, and ____%
Class B shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, and ____%
(1) Total Return assumes reinvestment of all dividends and distributions but
does not reflect any deduction for sales charge. The aggregates, 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.
THE AAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Period Period Period Period Period
Ended Ended Ended Ended Ended
4/30/99 4/30/98 4/30/97 4/30/96 4/30/95
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period ____ ____ ____ ____ ____
Income from Investment Operations
Net Investment Income (Loss) ____ ____ ____ ____ ____
Net Realized and Unrealized Gain (Loss) ____ ____ ____ ____ ____
Total From Investment Operations ____ ____ ____ ____ ____
Distributions
Dividends from Investment Income - Net ____ ____ ____ ____ ____
Distributions from Capital Gains ____ ____ ____ ____ ____
Total Dividends and Distributions ____ ____ ____ ____ ____
Net Asset Value - End of Period ____ ____ ____ ____ ____
Total Return (1) ____ ____ ____ ____ ____
Supplemental Data and Ratios
Net Assets at End of Period ____ ____ ____ ____ ____
Ratio of Expenses to Average Net Assets * ____ ____ ____ ____ ____
Ratio of Investment Income (Loss) to
Average Net Assets * ____ ____ ____ ____ ____
Portfolio Turnover Rate ____ ____ ____ ____ ____
</TABLE>
Period Period Period from
Ended Ended 1/8/97 to
4/30/99 4/30/98 4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period ____ ____ ____
Income from Investment Operations
Net Investment Income (Loss) ____ ____ ____
Net Realized and Unrealized Gain (Loss) ____ ____ ____
Total From Investment Operations ____ ____ ____
Distributions
Dividends from Investment Income - Net ____ ____ ____
Distributions from Capital Gains ____ ____ ____
Total Dividends and Distributions ____ ____ ____
Net Asset Value - End of Period ____ ____ ____
Total Return (1) ____ ____ ____
Supplemental Data and Ratios
Net Assets at End of Period ____ ____ ____
Ratio of Expenses to Average Net Assets (2)* ____ ____ ____
Ratio of Investment Income (Loss) to
Average Net Assets (2)* ____ ____ ____
Portfolio Turnover Rate ____ ____ ____
* 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: ____%, ____%, ____%,
____%, and ____%
Class B shares - Ratio of Expenses to Average Net Assets: ____%, ____%, and
____%
Class A shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, ____%, ____%, and ____%
Class B shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, and ____%
(1) Total Return assumes reinvestment of all dividends and distributions but
does not reflect any deduction for sales charge. The aggregates, 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.
THE AAL MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Period Period Period Period Period
Ended Ended Ended Ended Ended
4/30/99 4/30/98 4/30/97 4/30/96 4/30/95
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period ____ ____ ____ ____ ____
Income from Investment Operations
Net Investment Income (Loss) ____ ____ ____ ____ ____
Net Realized and Unrealized Gain (Loss) ____ ____ ____ ____ ____
Total From Investment Operations ____ ____ ____ ____ ____
Distributions
Dividends from Investment Income - Net ____ ____ ____ ____ ____
Distributions from Capital Gains ____ ____ ____ ____ ____
Total Dividends and Distributions ____ ____ ____ ____ ____
Net Asset Value - End of Period ____ ____ ____ ____ ____
Total Return (1) ____ ____ ____ ____ ____
Supplemental Data and Ratios
Net Assets at End of Period ____ ____ ____ ____ ____
Ratio of Expenses to Average Net Assets * ____ ____ ____ ____ ____
Ratio of Investment Income (Loss) to
Average Net Assets * ____ ____ ____ ____ ____
Portfolio Turnover Rate ____ ____ ____ ____ ____
</TABLE>
Period Period Period from
Ended Ended 1/8/97 to
4/30/99 4/30/98 4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period ____ ____ ____
Income from Investment Operations
Net Investment Income (Loss) ____ ____ ____
Net Realized and Unrealized Gain (Loss) ____ ____ ____
Total From Investment Operations ____ ____ ____
Distributions
Dividends from Investment Income - Net ____ ____ ____
Distributions from Capital Gains ____ ____ ____
Total Dividends and Distributions ____ ____ ____
Net Asset Value - End of Period ____ ____ ____
Total Return (1) ____ ____ ____
Supplemental Data and Ratios
Net Assets at End of Period ____ ____ ____
Ratio of Expenses to Average Net Assets (2)* ____ ____ ____
Ratio of Investment Income (Loss) to
Average Net Assets (2)* ____ ____ ____
Portfolio Turnover Rate ____ ____ ____
* 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: ____%, ____%, ____%,
____%, and ____%
Class B shares - Ratio of Expenses to Average Net Assets: ____%, ____%, and
____%
Class A shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, ____%, ____%, and ____%
Class B shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, and ____%
(1) Total Return assumes reinvestment of all dividends and distributions but
does not reflect any deduction for sales charge. The aggregates, 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.
[INSIDE BACK COVER PAGE]
TRANSFER AGENT, CUSTODIAN AND INDEPENDENT ACCOUNTANTS
Transfer Agent
FIRSTAR TRUST COMPANY
P. O. BOX 2981
615 E. MICHIGAN ST.
MILWAUKEE, WI 53201-2981
Custodian
CITIBANK, N.A.
111 WALL STREET
NEW YORK, NY 10043
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
100 E. WISCONSIN AVE. SUITE 1500
MILWAUKEE, WI 53202
You will find additional information in the statement of additional information
and the annual and semi-annual reports to shareholders. 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. 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).
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.
THE AAL MUTUAL FUNDS
222 West College Ave.
Appleton, WI 54919-0007
Telephone: (800) 553-6319
TDD: 800-684-3416
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 began issuing two classes of Fund 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) in 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.
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 a we may
purchase or sell futures and options thereon for hedging purposes for a
Fund as described 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.
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 losses for a 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.
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,
and, like other mortgage-backed securities, the value would decrease as interest
rates increase.
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
We may purchase variable rate, master demand notes for the Funds. The notes are
unsecured instruments that permit the amount of the debt to vary and provide for
periodic adjustments in the interest rate. Variable rate, master demand notes
normally do not trade and do not have a secondary market. However, the note
holder may demand principal payment at any time. Except for The AAL High Yield
Bond Fund, we purchase notes rated only in one of the two highest rating
categories by a NRSRO. We also may purchase notes for a Fund where the issuer
has a received a rating in the top two categories for a class of short term debt
obligations comparable in priority and security with the notes. If an issuer of
a variable rate, master demand note defaults on its payment obligation, we may
not be able to dispose of the note due to the absence of a secondary market. As
a result, we might suffer a loss for a Fund to the extent of the default. We
invest in variable rate master demand notes for a Fund only when we believe it
involves minimal credit risk.
In some instances, we may purchase variable rate securities for The AAL Money
Market Fund with actual maturities greater than or equal to 397 days. Generally,
a money market fund is limited to investments with maturities less than 397
days. Variable rate, money market securities have yields that vary in relation
to changes in specific money market rates, such as the prime rate. To purchase
variable rate money market instruments with maturities greater than 397 days, we
must be able to consider these securities as having maturities of less than 397
days pursuant to Securities and Exchange Commission ("SEC") rules. We only
invest in these longer-term, variable rate securities for the Fund when we can
take advantage of the higher yield paid on them as compared to short-term
securities. We only invest when it appears to us that the variable rates on
these securities may reduce the fluctuations in market value typical of
longer-term securities. We may purchase variable rate securities with a put
option for a Fund. The put option may reduce the risk of fluctuations in market
value, because the put option allows us to sell the security back to the issuer
at a set price.
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.
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., 400% or more for The AAL Bond
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 _____% and _____%, 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
_____% and _____%, 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 ____%. 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 or other permissible risk management reasons (including
enhancing returns for a Fund). 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 may invest 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.
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. 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
Ronald G. Anderson President and Trustee* President and Chief Executive
d/o/b 10/2/48 Officer, AAL Capital Management
Corporation
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
D.W. Russler** Trustee Retired; formerly Senior
d/o/b 10/28/28 Vice-President Finance and
24 Turnbridge Drive Administration NCR Corporation
Hilton Head, SC 29928 (computers and related equipment);
Member, Advisory Board -
Saratoga Partners II (corporate -
buyout Limited Partnership)
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 7/25/45 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 2/15/56 Fund Accounting, Aid Association
for Lutherans
Joseph F. Wreschnig** Assistant Secretary Assistant Vice-President, Fund and
d/o/b 6/30/50 Adviser Administration, AAL
Capital Management Corporation
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 II, 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.
** As of December 31, 1998, Mr. Russler retired from the Board of Trustees and
Mr. Smeds joined the Board of Trustees. Also, as of December 31, 1998, Mr.
Wreschnig resigned as Assistant Secretary of The AAL Mutual Funds and was
replaced by Mr. Eno and Mr. Fredricks.
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 $__________________ in Trustees' fees and expenses.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated Annual From Funds and
Compensation As Part of Funds Benefits Upon Fund Complex*
Name, Position from Funds Expenses Retirement Paid to Trustees
Ronald G. Anderson - 0 - - 0 - - 0 - - 0 -
F. Gregory Campbell $25,000 - 0 - - 0 - $30,000
Richard L. Gady $25,000 - 0 - - 0 - $30,000
John O Gilbert - 0 - - 0 - - 0 - - 0 -
John H. Pender $25,000 - 0 - - 0 - $25,000
D.W. Russler** $18,750 - 0 - - 0 - $22,500
Edward W. Smeds** $6,250 - 0 - - 0 - $7,500
Lawrence M. Woods $25,000 - 0 - - 0 - $30,000
</TABLE>
* The Fund Complex includes the AAL Variable Product Series Fund, Inc..
** 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
The following executive officer of the Trust also serves as an officer or
director of the adviser, AAL CMC, as shown:
Ronald G. Anderson
222 West College Avenue
Appleton, WI 54919-0007
dob 10/2/48
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 0.80% on the average daily net assets
Sub-Adviser Fees
Oechsle International Advisers 0.40% on the first $50 million
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:
Funds April 30, 1999 April 30, 1998 April 30, 1997
- ----- -------------- -------------- --------------
Small Cap Stock Fund $___________ $690,590 $159,016
Mid Cap Stock Fund $___________ $4,070,582 $3,188,294
International Fund $___________ $1,280,101 $873,585
Capital Growth Fund $___________ $12,742,588 $9,121,422
Equity Income Fund $___________ $809,233 $643,683
Balanced Fund $___________ $27,618 N/A
High Yield Bond Fund $___________ $522,217 $60,205
Municipal Bond Fund $___________ $2,163,729 $2,153,751
Bond Fund $___________ $1,921,733 $2,214,486
Money Market Fund $___________ $1,088,957 $780,148
The sub-advisory fee for The AAL International Fund is payable from the 0.80%
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 us (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 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 $________
Expenditures
Compensation to Registered Representatives $________
Other $________
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 $________
Expenditures
Compensation to Registered Representatives $________
Other $________
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
AAL CMC provides certain administrative, accounting and pricing services to the
Funds. 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 CMC 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
$___ per account, effective ______________, 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 $___________ $3,143,251 $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 $_________ $________
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 $______ $______
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.
Compensation
The amount of underwriting commissions received and retained by the distributor
for the period through the fiscal year ended April 30, 1999 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net Underwriting Compensation on Class B Shares
Name of Discounts and Class B Redemptions Brokerage
Principal Underwriter Commissions and Repurchases Commissions
AAL CMC _____________ ______________ ____________
</TABLE>
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>
<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 ____% N/A N/A ____%
7/1/96
Mid Cap Stock ____% N/A N/A ____%
6/30/96
International ____% N/A N/A ____%
8/1/95
Capital Growth ____% ____% ____% ____%
7/16/87
Equity Income ____% N/A N/A ____%
3/18/94
Balanced ____% N/A N/A ____%
12/29/97
High Yield Bond ____% N/A N/A ____%
1/8/97
Municipal Bond ____% ____% ____% ____%
7/16/87
Bond ____% ____% ____% ____%
</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 ____% ____%
1/8/97
Mid Cap Stock ____% ____%
1/8/97
International ____% ____%
1/8/97
Capital Growth ____% ____%
1/8/97
Equity Income ____% ____%
1/8/97
Balanced ____% ____%
12/29/97
High Yield Bond ____% ____%
1/8/97
Municipal Bond ____% ____%
1/8/97
Bond ____% ____%
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 ____% Balanced ____%
Mid Cap Stock ____% High Yield Bond ____%
International ____% Municipal Bond ____%
Capital Growth ____% Bond ____%
Equity Income ____%
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 ____% Balanced ____%
Mid Cap Stock ____% High Yield Bond ____%
International ____% Municipal Bond ____%
Capital Growth ____% Bond ____%
Equity Income ____%
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 ____% and ____%, 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 ____% and ____%,
respectively, and for Class B shares ____% and ____%, 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 ____% N/A N/A ____%
7/1/96
Mid Cap Stock ____% N/A N/A ____%
6/30/96
International ____% N/A N/A ____%
8/1/95
Capital Growth ____% ____% ____% ____%
7/16/87
Equity Income ____% N/A N/A ____%
3/18/94
Balanced ____% N/A N/A ____%
12/29/97
High Yield Bond ____% N/A N/A ____%
1/8/97
Municipal Bond ____% ____% ____% ____%
7/16/87
Bond ____% ____% ____% ____%
</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 ____% ____%
1/8/97
Mid Cap Stock ____% ____%
1/8/97
International ____% ____%
1/8/97
Capital Growth ____% ____%
1/8/97
Equity Income ____% ____%
1/8/97
Balanced ____% ____%
12/29/97
High Yield Bond ____% ____%
1/8/97
Municipal Bond ____% ____%
1/8/97
Bond ____% ____%
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 following audited financial statements and footnotes thereto for each of the
Funds are not yet available. The following financial statements will be filed as
an Annual Report as required under rule 30d-1 intended to be made in
June, 1999.
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
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
(d)(ii) Sub-Advisory Agreement between AAL Capital Management
Corporation and Oechsle International Advisers LLC
(g)(i) Global Custodial Services Agreement between the Funds and Citibank
(h)(i) Administrative Services Agreement with AAL
(h)(ii) Shareholder Maintenance Agreement, as amended
(n) Financial Data Schedule, to be filed by later Amendment
(p) Power of Attorney for Ed Smeds
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 Fund
- ---------------------------------------- -------------------------------------- -----------------------------
Ronald G. Anderson Chairman of the Board of Directors Trustee and President
222 W. College Ave. and President
Appleton, WI 54919
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
Not Applicable
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/ Ronald G. Anderson
----------------------------------
Ronald G. Anderson
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/ Ronald G. Anderson President April 6, 1999
- ------------------------------- (Principal Executive Officer)
Ronald G. Anderson
/s/ Charles D. Gariboldi Treasurer April, 1999
- ------------------------------- (Principal Accounting
Charles D. Gariboldi Financial Officer)
All of the Board of Trustees:
Gregory F. Campbell Ronald G. Anderson
Richard L. Gady John Pender
Edward W. Smeds Lawrence M. Woods
John O. Gilbert
Ronald G. Anderson, 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/ Ronald G. Anderson April 6, 1999
- -------------------------------
Ronald G. Anderson
Attorney-in-Fact
AMENDMENT NO. 10
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 September 1, 1998, as follows:
1. Schedule A attached to the Investment Advisory Agreement is amended
effective September 1, 1998. An amended Schedule A, September 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 September 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, 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 average daily net assets on the next $500 million of average daily net
assets, 0.50 of 1% on 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% on 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% on average daily net assets.
4. The AAL Money Market Fund (effective December 21, 1990)
The management fee for this Fund, calculated in accordance with paragraph 5 of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.50 of 1% on the first $500 million of average daily net assets and 0.45 of
1% on average daily net 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 t of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.50 of 1% on 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 t of
The AAL Mutual Funds Investment Advisory Agreement, shall be at the annual rate
of 0.50 of 1% on 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% on average daily net assets over $200 million.
8. The AAL Equity Income 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% on average daily net assets.
9. The AAL International Fund (effective December 1, 1997)
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 0.80 of 1% of average daily net assets.
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% on 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% on 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% on average daily net assets.
THE AAL MUTUAL FUNDS
SUB-ADVISORY AGREEMENT FOR
THE AAL INTERNATIONAL FUND
WITH
OECHSLE INTERNATIONAL ADVISORS, LLC
AGREEMENT made this 30th day of October, 1998, by and among THE AAL MUTUAL FUNDS
(the "Fund"), a Massachusetts Business Trust, AAL Capital Management Corporation
(the "Adviser"), a Delaware Corporation and OECHSLE INTERNATIONAL ADVISORS, LLC
(the "Sub-Adviser"), a Delaware Limited Liability Corporation.
WITNESSETH:
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and among the parties hereto as follows:
1. In General
The Sub-Adviser agrees, as more fully set forth herein, to act as Sub-Adviser to
the Fund with respect to the investment and reinvestment of the assets of the
Fund's series of shares described as The AAL International Fund. It is
understood that the Fund may create one or more additional Fund series from time
to time and that this Agreement may be amended by the mutual written agreement
of the parties to include such additional funds under the terms to this
Agreement.
2. Duties and Obligations of the Sub-Adviser with Respect to Investment of
Assets of The AAL International Fund
(a) Subject to the succeeding provisions of this section and subject to
the oversight and review of the Adviser and the direction and control
of the Board of Trustees ("Trustees") of the Fund, the Sub-Adviser, as
agent and attorney-in-fact with respect to the Fund, is authorized, in
its discretion and with prior consultation with the Fund to:
(i) Buy, sell, exchange, convert, lend and otherwise trade in any
stocks, bonds, currencies, and any other securities or assets;
(ii) Place orders and negotiate the commissions (if any) for the
execution of transactions in securities or other assets with or
through such brokers, dealers, underwriters or issuers as the
Sub-Adviser may select; including brokers and dealers that may be
affiliates of the Sub-Adviser, and
(iii)Enter into and execute agreements on behalf of the Fund,
relating to the acquisition or disposition of investment assets
and the execution of portfolio transactions, including foreign
exchange contracts and other transactional agreements. Nothing
contained herein, however, shall be deemed to authorize the
Sub-Adviser to take or receive physical possession of any cash or
securities held for the Fund, it being intended that sole
responsibility for safekeeping thereof and the consummation of
all such purchases, sales, deliveries, and investments made
pursuant to the Sub-Adviser's direction shall rest upon the
Fund's Custodian.
(iv) Provide the Adviser and the Trustees with such reports as may
reasonably be requested in connection with the discharge of the
foregoing responsibilities and the discharge of the Adviser's
responsibilities under the Investment Advisory Agreement with the
Fund and those of AAL Capital Management Corporation under the
Primary Underwriting Agreement with the Fund.
Written procedures with respect to (i), (ii) and (iii) above may be set forth as
agreed to among the Fund, the Adviser and Sub-Adviser.
(b) Any investment purchases or sales made by the Sub-Adviser under this
section shall at all times conform to, and be in accordance with, any
requirements imposed by: (1) the provisions of the Investment Company
Act of 1940 (the "Act") and of any rules or regulations in force
thereunder; (2) any other applicable provisions of law; (3) the
provisions of the Articles of Incorporation and By-Laws of the Fund as
amended from time to time; (4) any policies and determinations of the
Board of Trustees of the Fund; and (5) the fundamental policies of the
Fund, as reflected in its Registration Statement under the Act, or as
amended by the shareholders of the Fund; provided that copies of the
items referred to in clauses (3), (4) and (5) shall have been
furnished to the Sub-Adviser.
(c) The Sub-Adviser shall give the Fund the benefit of its best judgment
and effort in rendering services hereunder. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties ("disabling conduct") hereunder on the part of
the Sub-Adviser (and its officers, directors, agents, employees,
controlling persons, shareholders and any other person or entity
affiliated with the Sub-Adviser) the Sub-Adviser shall not be subject
to liability to the Fund or to any shareholder of the Fund for any act
or omission in the course of, or connected with rendering services
hereunder, including without limitation, any error of judgment or
mistake of law or for any loss suffered by any of them in connection
with the matters to which this Agreement relates, except to the extent
specified in Section 36 (b) of the Act concerning loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation
for services. Except for such disabling conduct, the Fund shall
indemnify the Sub-Adviser (and its officers, directors, agents,
employees, controlling persons, shareholders and any other person or
entity affiliated with the Sub-Adviser) against any liability arising
from the Sub-Adviser's conduct under this Agreement to the extent
permitted by the Articles of Incorporation and applicable law.
(d) Nothing in this Agreement shall prevent the Sub-Adviser or any
"affiliated person" (as defined in the Act) of the Sub-Adviser from
acting as investment adviser or manager for any other person, firm or
corporation and shall not in any way limit or restrict the Sub-Adviser
or any such affiliated person from buying, selling or trading any
securities for its or their own accounts or for the accounts of others
for whom it or they may be acting, provided, however, that the
Sub-Adviser expressly represents that it will undertake no activities
which, in its judgment, will adversely affect the performance of its
obligations to the Fund under this Agreement. It is agreed that the
Sub-Adviser shall have no responsibility or liability for the accuracy
or completeness of the Fund's Registration Statement under the Act and
the Securities Act of 1933 except for information supplied by the
Sub-Adviser for inclusion therein. The Sub-Adviser shall be deemed to
be an independent contractor and, unless otherwise expressly provided
or authorized, have no authority to act or represent the Fund in any
way or otherwise be deemed an agent of the Fund.
(e) In connection with its duties to arrange for the purchase and sale of
The AAL International Fund's securities and other assets, the
Sub-Adviser shall follow the principles set forth in any investment
advisory agreement in effect from time to time between the Fund and
the Adviser, provided that a copy of any such agreement shall have
been provided to the Sub-Adviser. The Sub-Adviser will promptly
communicate to the Adviser and to the officers and the Trustees of the
Fund such information relating to portfolio transactions as they may
reasonably request.
(f) The Sub-Adviser may place orders both as to sales and purchases of
assets directly through any broker or dealer it chooses. Brokers or
dealers may be selected who provide brokerage and/or research services
to the Fund and/or other accounts over which the Sub-Adviser or its
affiliates exercise investment discretion. Brokers or dealers who
execute portfolio transactions on behalf of the Fund may receive
commissions which are in excess of the amount of commissions which
other brokers or dealers would have charged for effecting such
transactions. In order to cause the Fund to pay such higher
commissions, the Sub-Adviser must determine in good faith that such
commissions are reasonable in relation to the value of the brokerage
and/or research services provided by such executing brokers or dealers
viewed in terms of a particular transaction or the Sub-Adviser's
overall responsibilities to the Fund or its other discretionary client
accounts.
(g) On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other
clients, the Sub-Adviser, to the extent permitted by applicable laws
and regulations, may aggregate the securities to be sold or purchased
in order to obtain the best execution and lower brokerage commissions,
if any. In such event, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be
made by the Sub-Adviser in the manner it considers to be most
equitable and consistent with its fiduciary obligations to the Fund
and to such clients.
The Sub-Adviser may purchase or sell for the Fund, pursuant to the Fund's Rule
10f-3 Procedures, any security (including securities of the same class as those
underwritten or other securities of the same or related issuer) for which any
affiliate of the Sub-Adviser acts as (1) an underwriter (either as lead
underwriter or syndicate member), both during the pendency of any underwriting
or selling syndicate and thereafter, or (2) a market maker, provided that such
security is purchased from a non-affiliated party.
(h) The Sub-Adviser shall be responsible for 13F reporting for the
securities held by The AAL International Fund.
3. Allocation of Expenses
During the term of this Agreement, the Sub-Adviser will pay all expenses
incurred by it in connection with its activities under this Agreement other than
the cost of securities, commodities, and other investments (including brokerage
commissions and other transaction charges, if any) purchased for the Fund. The
Sub-Adviser agrees that it will furnish the Fund, at the Sub-Adviser's expense,
with all office space, facilities, equipment, and clerical personnel necessary
for carrying out its duties under this Agreement.
4. Certain Records
Any records required to be maintained and preserved pursuant to the provisions
of Rule 31a-1 and Rule 31a-2 under the Act that are prepared or maintained by
the Sub-Adviser on behalf of the Fund are the property of the Fund and will be
surrendered promptly to the Fund or Adviser on request.
5. Reference to the Sub-Adviser
Neither the Fund, the Adviser or any affiliate or agent thereof shall make
reference to or use the name of the Sub-Adviser or any of its affiliates in any
advertising or promotional materials without the prior approval of the
Sub-Adviser, which approval shall not be unreasonably withheld.
<PAGE>
6. Compensation of the Sub-Adviser
The Adviser agrees to pay the Sub-Adviser and the Sub-Adviser agrees to accept
as full compensation for all services rendered by the Sub-Adviser as such, a
management fee, payable quarterly in arrears and computed on the average daily
net asset value of The AAL International Fund at rates shown on Exhibit A
attached hereto.
7. Duration and Termination
(a) This Agreement shall go into effect for The AAL International Fund on
November 1, 1998 or as soon thereafter as it receives shareholder
approval, and shall, unless terminated as hereinafter provided,
continue in effect thereafter from year to year, but only so long as
such continuance is specifically approved at least annually by a
majority of the Fund's Board of Trustees, or by the vote of the
holders of a "majority" (as defined in the Act) of the outstanding
voting securities of the Fund, with respect to The AAL International
Fund, and, in either case, a majority of the Trustees who are not
parties to this Agreement or "interested persons" (as defined in the
Act) of any such party cast in person at a meeting called for the
purpose of voting on such approval.
(b) This Agreement may be terminated by the Sub-Adviser at any time
without penalty upon giving the Fund and the Adviser sixty (60) days'
written notice (which notice may be waived by the Fund and Adviser)
and may be terminated by the Fund or the Adviser at any time without
penalty upon giving the Sub-Adviser sixty (60) days' written notice
(which notice may be waived by the Sub-Adviser), provided that such
termination by the Fund shall be directed or approved by the vote of a
majority of all of the Trustees in office at the time or by the vote
of the holders of a majority (as defined in the Act) of the voting
securities of the Fund, with respect to The AAL International Fund, or
with respect to any Fund by the vote of a majority of the outstanding
shares of such Fund. This Agreement shall automatically terminate in
the event of its "assignment" (as defined in the Act). This Agreement
will also terminate in the event that the Investment Advisory
Agreement is terminated.
8. Agreement Binding Only On Fund Property
The Sub-Adviser understands that the obligations of this Agreement are not
binding upon any shareholder of the Fund personally, but bind only the Fund's
property; the Sub-Adviser represents that it has notice of the provisions of the
Fund's Articles of Incorporation disclaiming shareholder liability for acts or
obligations of the Fund.
<PAGE>
9. Action By An Individual Fund
The provisions of this Agreement and any amendments hereto with respect to a
Series may be approved by the shareholders of that Series and become effective
with respect to the assets of that Series without the necessity of approval
thereof by shareholders of any other Series. The Adviser represents that the
holders of a majority (as defined in the "Act") of The AAL International Fund,
will vote on approval of the entry into this Agreement on behalf of said fund.
10. Notices
The Sub-Adviser agrees to promptly notify the Adviser of the occurrence of any
of the following events:
(a) any change in any of the Sub-Adviser's members or portfolio managers;
(b) the Sub-Adviser fails to be registered as an investment adviser under
the Advisers Act or under the laws of any jurisdiction in which the
Sub-Adviser is required to be registered as an investment adviser in
order to perform its obligations under this Agreement;
(c) the Sub-Adviser is the subject of any action, suit, proceeding,
inquiry or investigation at law or in equity, before any court, public
board or body, involving the affairs of The AAL International Fund, or
(d) any change in ownership or control, or membership of the Sub-Adviser.
11. Manner of Notice
Any notice given hereunder shall be in writing and may be served by being sent
by telex, facsimile or other electronic transmission, or sent by registered mail
or by courier to the address set forth below for the party for which it is
intended. A notice served by mail shall be deemed served seven days after
mailing and in the case of telex, facsimile or other electronic transmission,
twelve hours after confirmed receipt thereof. Addresses for notice may be
changed by written notice to the other party.
<PAGE>
The Adviser
Ronald G. Anderson, President and Chief Executive Officer
AAL Capital Management Corporation
222 West College Ave.
Appleton, WI 54919-0007
The Sub-Adviser
Stephen Langer
Oechsle International Advisors, LLC
One International Place
Boston, MA 02110
Fax (617) 330-8620
No provisions of this Agreement may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by both parties.
The Adviser acknowledges receipt of the Sub-Adviser's Part II, Form ADV at least
48 hours in advance of signing this Agreement.
The captions in this Agreement are included for convenience of reference only
and in no way define or delimit any of the provisions hereof or otherwise affect
their construction or effect. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule, or otherwise, the remainder
of this Agreement shall not be affected thereby.
This Agreement shall be governed by the laws of the State of Wisconsin.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to
be executed by their duly authorized officers and their seals to be hereunto
affixed, all as of the day and year first above written.
<PAGE>
THE AAL MUTUAL FUNDS
/s/ Ronald. G. Anderson
- --------------------------------------------
Ronald G. Anderson, President
ATTEST:
/s/ Joseph F. Wreschnig
- --------------------------------------------
Joseph F. Wreschnig, Assistant Secretary
AAL Capital Management Corporation
/s/ Ronald G. Anderson
- --------------------------------------------
Ronald G. Anderson, President
ATTEST:
/s/ Joseph F. Wreschnig
- --------------------------------------------
Joseph F. Wreschnig, Secretary
OECHSLE INTERNATIONAL ADVISORS, LLC by its Member Manager,
OECHSLE GROUP, LLC
/s/ L. Sean Roche
- --------------------------------------------
L. Sean Roche, Managing Principal
ATTEST
/s/ Rachel P. Gutierrez
- --------------------------------------------
Rachel P. Gutierrez
<PAGE>
EXHIBIT A
TO
THE AAL Mutual Funds
SUB-ADVISORY AGREEMENT
(Dated October 30, 1998)
1. The AAL International Fund
The management fee for The AAL International Fund, payable to the Sub-Adviser by
the Adviser, calculated in accordance with paragraph 6 of The AAL Mutual Funds
Sub-Advisory Agreement, shall be at the annual rate of:
0.40 of 1% of the average daily net assets of $50 million or less;
0.35 of 1% of the average daily net assets over $50 million.
CITIBANK
GLOBAL CUSTODIAL SERVICES AGREEMENT
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TABLE OF CONTENTS
1. DEFINITIONS 1
2. APPOINTMENT OF CUSTODIAN 3
3. PROPERTY ACCEPTED 3
4. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS 3
5. INSTRUCTIONS 4
6. PERFORMANCE BY THE CUSTODIAN 5
7. POOLING, REGISTRATION AND OTHER ACTION 6
8. CUSTODY CASH ACCOUNT PAYMENTS 7
9. ASSURED INCOME PAYMENT SERVICE 8
10. WITHDRAWAL AND DELIVERY 8
11. ACCESS AND RECORDS 8
12. USE OF AGENTS 9
13. CITICORP ORGANIZATION INVOLVEMENT 9
14. SCOPE OF RESPONSIBILITY 10
15. LITIGATION; INDEMNITY 11
16. LIEN 12
17. FEES AND EXPENSES 13
18. TAX STATUS/WITHHOLDING TAXES 13
19. TERMINATION 13
20. ASSIGNMENT 14
21. JOINT AND SEVERAL LIABILITY 14
22. DISCLOSURE 14
23. NOTICES 15
24. GOVERNING LAW AND JURISDICTION 15
25. MISCELLANEOUS 15
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THIS GLOBAL CUSTODIAL SERVICES AGREEMENT is made on the ______ day
of ________ 1998, by and between THE AAL MUTUAL FUNDS, a mutual fund organized
under the laws of Massachusetts, acting on its own behalf and/or as agent on
behalf of its customers, (the "Client"), having its principal place of business
at 222 West College Avenue, Appleton, Wisconsin 54919-0007 and CITIBANK, N.A.,
acting as a custodian hereunder through its office located at 111 Wall Street,
New York, New York 10005 (the "Custodian").
1. DEFINITIONS
"Agreement" means this Global Custodial Services Agreement, as amended from
time to time, and any other terms and conditions agreed upon by the Client and
the Custodian in writing from time to time in connection with this Agreement.
"Assured Income Payment Service" means the Custodian's services in which
interest, dividends or other such periodic income, to which the Client is
entitled, on Securities specified by the Custodian from time to time at its
absolute discretion, are credited to the Custody Cash Account in respect of such
Securities.
"Assured Income Payment Standards" means the terms and conditions governing
the Assured Income Payment Service, as such terms and conditions are amended
and/or supplemented from time to time by, and at the absolute discretion of, the
Custodian.
"Assured Payment" means, in relation to those Securities specified by the
Custodian under the Assured Income Payment Service, an amount equal to the
interest, dividends or periodic income that is due to the Client in respect of
such Securities less any taxes, duties, levies, charges or any other withholding
payments payable in respect of such interest, dividends or periodic income.
"Assured Payment Date" means, in relation to the payment of any interest,
dividend or periodic income of any particular Securities specified by the
Custodian under the Assured Income Payment Service, the date on which such
interest, dividend or periodic income is normally payable in respect of such
Securities or such other date as may be notified by the Custodian to the Client
from time to time.
"Authorized Person" means (i) any person who has been authorized by the
Client, by notice in writing to the Custodian, to act on its behalf in the
performance of any act, discretion or duty under this Agreement, or (ii) any
other person holding a duly executed power of attorney from the Client which is
in a form acceptable to the Custodian (including, for avoidance of doubt, any
officer or employee of such agent or person).
"Branch" means any branch or office of Citibank, N.A.
"Citicorp Organization" means Citicorp and any company of which Citicorp
is, now or hereafter, directly or indirectly a shareholder or owner. For the
purposes of this Agreement, each Branch shall be deemed to be a separate member
of the Citicorp Organization.
"Clearance System" means The Federal Reserve Bank of New York, The
Depository Trust Company, Participants Trust Company, Cedel Bank, S.A., the
Euroclear System operated by Morgan Guaranty Trust Company of New York, the
CREST system operated by CREST CO. Limited, the Central Money Markets Office,
the Central Gilts Office and such other clearing agency, settlement system or
depository as may from time to time be used in connection with transactions
relating to Securities, and any nominee, clearing agency, or depository for any
of the foregoing.
"Custody Account" means the custody account or accounts in the name of the
Client and/or such other name as the Client may reasonably designate, for the
deposit of any Property (other than cash) from time to time received by the
Custodian for the account of the Client.
"Custody Cash Account" means the cash account or accounts, which, at the
discretion of the Client, may be either a subaccount(s) of the Custody Account
or a demand deposit account(s), in the name of the Client and/or such other name
as the Client may reasonably designate, for the deposit of cash in any currency
received by the Custodian from time to time for the account of the Client,
whether by way of deposit or arising out of or in connection with any Property
in the Custody Account.
"Fee Agreement" means the agreement between the Custodian and the Client
setting forth the fees, costs and expenses to be paid by the Client to the
Custodian in connection with the custodial services provided pursuant to this
Agreement, as such fee agreement may be amended at the Custodian's reasonable
discretion from time to time by prior written notice to the Client.
"Instructions" means any and all instructions received by the Custodian
from, or reasonably believed by the Custodian in good faith to be from, any
Authorized Person, including any instructions communicated through any manual or
electronic medium or system agreed between the Client and the Custodian and on
such terms and conditions as the Custodian may specify from time to time.
"Person" means any person, firm, company, corporation, government, state or
agency of a state, or any association or partnership (whether or not having
separate legal personality) of two or more of the foregoing.
"Property" means, as the context requires, all or any part of any
Securities, cash, or any other property from time to time held for the Client
under the terms of this Agreement.
"Rules" means any rules and regulations (whether of a local regulatory
authority, stock exchange or other entity) in any jurisdiction with which the
Custodian may from time to time be required to comply in the provision of its
services hereunder.
"Securities" means bonds, debentures, notes, stocks, shares, securities or
other financial assets acceptable to the Custodian and all moneys, rights or
property which may at any time accrue or be offered (whether by way of bonus,
redemption, preference, option or otherwise) in respect of any of the foregoing
and any certificates, receipts, warrants or other instruments (whether in
registered or unregistered form) representing rights to receive, purchase or
subscribe for any of the foregoing or evidencing or representing any other
rights or interests therein (including, without limitation, any of the foregoing
not constituted, evidenced or represented by a certificate or other document but
by an entry in the books or other permanent records of the issuer, a trustee or
other fiduciary thereof, a Clearance System or other person).
"Service Standards" means any written service standards governing the day
to day operations of the custodial services which may be provided to the Client
or modified by the Custodian by notice to the Client from time to time.
"Subcustodian" means a subcustodian (other than a Clearance System)
appointed by the Custodian for the safe-keeping, administration, clearance and
settlement of Securities.
"Taxes" means all taxes, levies, imposts, charges, assessments, deductions,
withholdings and related liabilities, including additions to tax, penalties and
interest imposed on or in respect of the Property, the transactions effected
under this Agreement or the Client; PROVIDED THAT Taxes does not include income
or franchise taxes imposed on or measured by the net income of the Custodian or
its agents.
2. APPOINTMENT OF CUSTODIAN
(A) The Client hereby appoints the Custodian to act as its custodian in
accordance with the terms hereof and authorizes the Custodian to establish on
its books, on the terms of this Agreement, the Custody Account, to be designated
to show that the Securities belong to the Client and are segregated from the
Custodian's assets and the Client Cash Account.
(B) Subject to the express terms of this Agreement, the Client understands and
agrees that the obligations and duties hereunder of the Custodian shall be
performed only by the Custodian or its agents, and shall not be deemed
obligations or duties of any other member of the Citicorp Organization. The
Client agrees that the Custodian may register or record legal title to any
Securities in the name of a nominee company or a Subcustodian in the Citicorp
Organization and may appoint a member of the Citicorp Organization to be a
Subcustodian.
(C) The Client agrees to take any such action which may be necessary and to
execute further documents and provide such materials and information as may be
reasonably requested by the Custodian to enable the Custodian to perform the
duties and obligations under this Agreement, including participation in any
relevant Clearance System, and will notify the Custodian as soon as it becomes
aware of any inaccuracy in such materials or information.
(D) All custody services by the Custodian hereunder shall be provided in
accordance with the Service Standards, a copy of which the Custodian may supply
to the Client from time to time. In the event of any conflict between any term
of this Global Custodial Services Agreement and any term of the Service
Standards, the Global Custodial Services Agreement shall prevail with respect to
such term.
(E) The Client agrees to comply with any relevant security procedures relating
to the provision of custody services under this Agreement which may be specified
by the Custodian or imposed on the Client by any relevant Clearance System.
3. PROPERTY ACCEPTED
(A) Subject to Section 3(C) below, the Custodian agrees to accept for custody in
the Custody Account any Securities, which are capable of deposit under the terms
of this Agreement.
(B) Subject to Section 3(C) below, the Custodian agrees to accept for deposit in
the Client Cash Account, cash in any currency (which shall, if necessary, be
credited by the Custodian to different accounts in the currencies concerned),
such cash to be owed to the Client by the Custodian as banker.
(C) The Custodian may in its reasonable discretion refuse to accept (in whole or
in part) any proposed deposit in either the Custody Account or the Custody Cash
Account if the Custodian reasonably believes that the acceptance of such deposit
would violate any law, rule, regulation, practice or policy to which the
Custodian is subject.
4. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS
(A) The Client hereby represents, warrants and undertakes to the Custodian that:
(i) it is duly organized and validly existing under the laws of the
jurisdiction of its organization;
(ii) during the term of this Agreement it (and any person on whose behalf
it may act as agent or otherwise in a representative capacity) has and
will continue to have, or will take all action necessary to obtain,
full capacity and authority to enter into this Agreement and to carry
out the transactions contemplated herein, and has taken and will
continue to take all action (including, without limitation, the
obtaining of all necessary governmental consents in any applicable
jurisdiction) to authorize the execution, delivery and performance of
obligations of the Client, and the validity and enforceability of such
obligations and the rights of the Custodian, under this Agreement;
(iii)it will not assert any interest in Property held by the Custodian in
any Clearance System in any way which could present a transfer of
title to a unit of such Property by the Custodian (or by any other
person) where such transfer is required by the Clearance System;
(iv) this Agreement is legal, valid and binding on the Client;
(v) on or prior to the execution of this Agreement, the Client has
provided to the Custodian certified true copies of evidence of the due
authorization for the execution, delivery and performance of this
Agreement;
(vi) except as provided in Clause 16 of this Agreement, all Property
deposited with the Custodian shall, at all times, be free from all
charges, mortgages, pledges or other such encumbrances; and
(vii)the Client shall, at all times, be entitled or otherwise duly
authorized to deal with, and dispose of, all or any part of the
Property, whether through a relevant Clearance System or otherwise.
The Client agrees to inform the Custodian promptly if any statement set forth in
this Section 4(A) ceases to be true and correct as of any date after the date
hereof.
(B) The Custodian hereby represents, warrants and undertakes to the Client that:
(i) it is duly organized and validly existing under the laws of the
jurisdiction of its organization;
(ii) during the term of this Agreement it has and will continue to have, or
will take all action necessary to obtain, full capacity and authority
to enter into this Agreement and to carry out the transactions
contemplated herein, and has taken and will continue to take all
action (including, without limitation, the obtaining of all necessary
governmental consents in any applicable jurisdiction) to authorize the
execution, delivery and performance of this Agreement; and
(iii) this Agreement is legal, valid and binding on the Custodian.
The Custodian agrees to inform the Client promptly if any statement set forth in
this Section 4(B) ceases to be true and correct as of any date after the date
hereof.
5. INSTRUCTIONS
(A) The Custodian may, in its absolute discretion and without liability on its
part, rely and act upon (and the Client shall be bound by) any Instructions.
Instructions shall continue in full force and effect until canceled or
superseded; PROVIDED THAT any Instruction canceling or superseding a prior
Instruction must be received by the Custodian at a time and in a manner that
accords the Custodian a reasonable opportunity to act upon such Instruction. The
Custodian shall be entitled to rely upon the continued authority of any
Authorized Person to give Instructions until the Custodian receives notice from
the Client to the contrary.
(B) Instructions shall be governed by and carried out subject to the prevailing
laws, rules, operating procedures and market practice of any relevant stock
exchange, Clearance System or market where or through which they are to be
executed or carried out, and shall be acted upon only during banking hours
(including applicable cut-off times) and on banking days when the applicable
financial markets are open for business.
(C) Instructions delivered to the Custodian by telephone or facsimile shall be
promptly confirmed in writing, by tested telex, SWIFT, letter, the Custodian's
proprietary electronic banking system or as provided in the Service Standards,
such confirmation shall, where relevant, be made by an Authorized Person.
However, the Custodian may, in its absolute discretion, rely and act upon
telephone or facsimile Instructions before the written confirmation is received.
(D) The Custodian has offered the Client security procedures for the
transmission of Instructions to the Custodian (and the Client acknowledges that
it has received the same and agrees that the security procedures mutually agreed
to by the Client and the Custodian are commercially reasonable). As long as the
Custodian acts in compliance with such security procedures and this Section 5,
it shall have no further duty to verify the identity or authority of the person
giving or confirming, or the genuineness or contents of, any Instruction.
(E) The Custodian is authorized to rely upon any Instructions received by any
means, provided that the Custodian and the Client have agreed upon the means of
transmission and the method of identification for such Instructions.
(F) Instructions are to be given in the English language. The Custodian may in
its reasonable discretion and without any liability on its part, act upon what
it reasonably believes in good faith such Instructions to be; notwithstanding
any other provision hereof, the Custodian shall have the right, in its
reasonable discretion to refuse to execute any such Instruction, in which event
the Custodian shall notify the Client of such refusal without undue delay.
(G) The Client agrees to be bound by any Instructions, whether or not
authorized, given to the Custodian in the Client's name and accepted by the
Custodian in accordance with the provisions of this Section 5.
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6. PERFORMANCE BY THE CUSTODIAN
(A) Custodial duties not requiring further Instructions. In the absence of
contrary Instructions, the Custodian is authorized by the Client to, and where
applicable, the Custodian shall, carry out the following actions in relation to
the Property:
(i) except as otherwise provided in this Agreement, separately identify
the Property on its records as being held for the account of the
Client and segregate all Property held on behalf of the Client by the
Custodian from the assets of the Custodian;
(ii) sign any affidavits, certificates of ownership or other certificates
relating to the Property which may be required by any tax or
regulatory authority or under the laws of any relevant jurisdiction,
whether governmental or otherwise, and whether relating to ownership,
or income, capital gains or other tax, duty or levy (and the Client
further agrees to ratify and to confirm or to do, or to procure the
doing of, such things as may be necessary or appropriate to complete
or evidence the Custodian's actions under this Section 6(A)(ii) or
otherwise under the terms of this Agreement);
(iii)collect and receive, for the account of the Client, all income,
payments and distributions in respect of the Property, and credit the
same to the Custody Cash Account;
(iv) take any action which is necessary and proper in connection with the
receipt of income, payments and distributions as are referred to in
Section 6(A)(iii) above, including, without limitation, the
presentation of coupons and other interest items;
(v) collect, receive and hold for the account of the Client any capital
arising out of or in connection with the Property whether as a result
of it being called or redeemed or otherwise becoming payable and
credit the same to the Custody Cash Account;
(vi) take any action which is necessary and proper in connection with the
receipt of any capital as is referred to in Section 6(A)(v) above,
including, without limitation, the presentation for payment of any
Property which becomes payable as a result of its being called or
redeemed or otherwise becoming payable and the endorsement for
collection of checks, drafts and other negotiable instruments;
(vii)take any action which is necessary and proper to enable the Custodian
to provide services to the Client within, and to observe and perform
its obligations in respect of, any relevant Clearance System;
(viii) receive and hold for the account of the Client all Securities
received by the Custodian as a result of a stock dividend, share
sub-division or reorganization, capitalization of reserves or
otherwise;
(ix) exchange interim or temporary receipts for definitive certificates,
and old or overstamped certificates for new certificates and hold such
definitive and/or new certificates in the Custody Account;
(x) make cash disbursements for any expenses incurred in handling the
Property and for similar items in connection with the Custodian's
duties under this Agreement in accordance with the Fee Agreement, and
debit the same to the Client Cash Account or any other account of the
Client with the Custodian; and
(xi) deliver to the Client transaction advices and/or regular statements of
account showing the Property held at such intervals as may be agreed
between the parties hereto but subject always to applicable Rules.
(B) Custodial duties requiring Instructions. The Custodian is authorized by the
Client to, and where applicable, the Custodian shall, carry out the following
actions in relation to the Property only upon receipt of and in accordance with
specific Instructions:
(i) make payment for and receive Property, or deliver or dispose of
Property;
(ii) (subject to Section 7(D)) deal with subscription, rights, bonus or
scrip issues, conversions, options, warrants and other similar
interests or any other discretionary right in connection with the
Property; and
(iii)subject to the agreement of the Custodian, to carry out any action
other than those mentioned in Section 6(A) above.
7. POOLING, REGISTRATION AND OTHER ACTION
(A) Subject to applicable laws, rules and regulations, any Property may be
pooled with other property of the Custodian's customers, like with like, and the
Client is beneficially entitled to such portion of the property that has been
pooled as shall correspond to the Property deposited with the Custodian by the
Client (as increased or diminished by subsequent sales or purchases from time to
time);
(B) The Client understands and agrees that, except as may be specified in the
Service Standards, Property shall be registered as the Custodian may direct
either in the name of the Custodian, Subcustodian or Clearance System, or
nominee of any of them, in the jurisdiction where the Property is required to be
registered or otherwise held. Where feasible, the Custodian will arrange on
written, request by the Client for the registration of Property with the issuer
or its agent in the name of the Client or its nominee. The Client understands
and agrees, however, that the Custodian shall have discretion to determine
whether such direct registration is feasible.
(C) The Custodian shall, to the extent reasonably possible, notify, make
available or deliver to the Client, in a timely manner, all official notices,
circulars, reports and announcements that are received by the Custodian in such
capacity concerning the Securities held on the Client's behalf that require
discretionary action.
(D) The Custodian shall provide proxy services to the Client only where there is
a separate agreement in relation to proxy services between the Custodian and the
Client.
(E) Upon receipt of each transaction advice and/or statement of account, the
Client shall examine the same and notify the Custodian within thirty (30) days
of the date of any such advice or statement of any discrepancy between
Instructions given and the situation shown in the transaction advice and/or
statement, and/or of any other errors therein. In the event that the Client does
not inform the Custodian in writing of any exceptions or objections within
thirty (30) days after the date of such transaction advice and/or statement, the
Client shall be deemed to have approved such transaction advice and/or
statement.
8. CUSTODY CASH ACCOUNT PAYMENTS
(A) Except as otherwise provided herein, the Custodian shall make, or cause its
agents to make, payments of cash credited to the Custody Cash Account:
(i) in connection with the purchase of Property (other than cash) for the
account of the Client in accordance with Instructions;
(ii) in payment for the account of the Client of (A) all Taxes, claims,
liabilities, fees, costs and expenses incurred by the Custodian or its
agents under or in connection with the terms of this Agreement, and
(B) all amounts owed to the Custodian pursuant to the Fee Agreement;
(iii)for payments to be made in connection with the conversion, exchange
or surrender of Property held in the Custody Account;
(iv) pursuant to assured payment obligations incurred in the capacity of
settlement bank on behalf of the Client within a relevant Clearance
System;
(v) for other purposes as may be specified by the Client in its
Instructions; or
(vi) upon the termination of this Agreement on the terms hereof;
PROVIDED THAT, unless otherwise agreed, the payments referred to above
shall not exceed the funds available in the Custody Cash Account at any time.
The Client shall promptly reimburse the Custodian for any advance of cash or any
such taxes, charges, expenses, assessments, claims or liabilities upon request
for payment. Notwithstanding the foregoing, nothing in this Agreement shall
obligate the Custodian to extend credit, grant financial accommodation or
otherwise advance moneys to the Client or assume financial risk on behalf of the
Client for the purpose of meeting any such payments or otherwise carrying out
any Instructions.
(B) Unless otherwise provided herein, the proceeds from the sale or exchange of
Property will be credited to the Custody Cash Account on the date the proceeds
are actually received by the Custodian.
9. ASSURED INCOME PAYMENT SERVICE
(A) The Custodian may, at its absolute discretion, offer the Client an Assured
Income Payment Service in respect of specific Securities, as may be notified by
the Custodian to the Client from time to time. In relation to any such
Securities, the Custodian may, at its absolute discretion, cause the Custody
Cash Account to be credited with an Assured Payment on the Assured Payment Date
relevant thereto; PROVIDED THAT the Custodian shall be entitled to reverse any
credit (in whole or in part) made in respect of that Assured Payment if the
Custodian fails to receive the full amount corresponding to such Assured Payment
within a reasonable time, as determined by the Custodian in its absolute
discretion, after the relevant Assured Payment Date, for any reason whatsoever
other than as a result of the negligence or willful default of the Custodian.
The Assured Income Payment Service shall be provided by the Custodian in
accordance with the Assured Income Payment Standards.
(B) Where the Custodian acts as a settlement bank in any relevant Clearance
System:
(i) upon the Custodian incurring any assured payment obligation, the
Client shall reimburse the Custodian for such amount, and the
Custodian may debit the Client Cash Account with such amount;
(ii) the Custodian may without notice set, revise or disable debit caps in
respect of the maximum aggregate amount of assured payment obligations
it will incur on behalf of the Client; and
(iii)if another settlement bank in such Clearance System defaults on an
assured payment obligation owed to the Custodian wholly or partially,
the Custodian has no liability to make good the loss and will, where
appropriate, attribute the loss pro rata between all Clients on whose
behalf such payment should have been received by the Custodian.
10. WITHDRAWAL AND DELIVERY
Subject to the terms of this Agreement, the Client may at any time demand
withdrawal of all or any part of the Property in the Custody Account and/or the
Custody Cash Account. Delivery of any Property will be made without undue delay
at the expense of the Client at such location as the parties hereto may agree;
PROVIDED THAT if the Custodian has effected any transaction on behalf of the
Client the settlement of which is likely to occur after a withdrawal pursuant to
this Section 10, then the Custodian shall be entitled in its absolute discretion
to close out or complete such transaction and to retain sufficient funds from
the Property for that purpose.
11. ACCESS AND RECORDS
(A) Access to the Custodian's Records. Except as otherwise provided in this
Agreement, during the Custodian's regular business hours and upon receipt of
reasonable notice from the Client, any officer or employee of the Client, any
independent public accountant(s) selected by the Client and any person
designated by any regulatory authority having jurisdiction over the Client shall
be entitled to examine on the Custodian's premises Property held by the
Custodian and the Custodian's records regarding Property deposited with entities
authorized to hold Property in accordance with Section 12 hereof, but only upon
the Client's furnishing the Custodian with Instructions to that effect; PROVIDED
THAT such examination shall be consistent with the Custodian's obligations of
confidentiality to other parties. The Custodian's reasonable costs and expenses
in facilitating such examinations, including but not limited to the cost to the
Custodian of providing personnel in connection with examinations, shall be borne
by the Client.
(B) Access to Third Party Records. The Custodian shall also, subject to
restrictions under applicable laws and regulations, seek to obtain from any
entity with which the Custodian maintains the physical possession or book-entry
record of any of the Property in the Custody Account or the Custody Cash Account
such records as may be required by the Client or its agents.
12. USE OF AGENTS
(A) The Custodian is authorized subject to any relevant Rules, to appoint agents
(each an "agent", which term includes, without limitation, service providers and
Subcustodians, but not Clearance Systems, and which agents may be a member or
members of the Citicorp Organization) and to participate in Clearance Systems,
whether in its own name or that of the Client, and whether by participation as a
member, sponsor or settlement bank within the Clearance System, to perform any
of the duties of the Custodian under this Agreement. The Custodian may delegate
to any such agent or Clearance System any of its functions under this Agreement,
including, without limitation, the collection of any payment or payments,
whether of an income or a capital nature, due on the Property.
(B) In the selection and use of such agents and participation in such Clearance
Systems, the Custodian shall comply with any relevant Rules, and shall be
responsible only for the negligence in the selection of such agents and
Clearance Systems but shall otherwise have no responsibility for the performance
by such agents or Clearance System of any of the duties delegated to them under
this Agreement; notwithstanding the foregoing, the Custodian shall be
responsible for the negligence, fraud or willful default of any Subcustodian
that is a Branch or subsidiary of Citibank, N.A., and shall have the same level
of responsibility to the Client for any nominee company controlled by the
Custodian or by any of the Custodian's affiliated companies as the Custodian has
for itself.
(C) Subject to any relevant Rules and regulations, the Property may be deposited
with any Subcustodian deemed appropriate by the Custodian or in any Clearance
System deemed appropriate by the Custodian or a Subcustodian, as the case may
be. Property held in any Clearance System shall be subject to the rules or
operating procedures of such Clearance System, including rules regarding
supervision or termination of membership of such Clearance System, and such
further information provided by the Custodian to the Client, or acknowledgments
or agreements which may be required from the Client, for the purposes of this
Section 12(C) in connection with use of a Clearance System from time to time.
The Custodian will direct each Subcustodian and Clearance System to separately
identify on its books Securities held by it pursuant to this Agreement as being
held for the account of the Custodian's customers. The Custodian will direct
each Subcustodian and Clearance System to segregate any such Securities held by
such entity from the assets of the Custodian and such entity.
The Client is hereby advised that, where the Custodian arranges for any
Property to be held overseas, there may be different settlement, legal and
regulatory requirements in overseas jurisdictions from those applying in the
United States, together with different practices for the separate identification
of the Client's Property.
13. CITICORP ORGANIZATION INVOLVEMENT
(A) To the extent permitted by applicable law, the Client hereby authorizes the
Custodian without the need for the Custodian to obtain the Client's prior
consent:
(i) when acting on Instructions to purchase and/or sell Property (other
than cash) from, to or through itself or any other member of the
Citicorp Organization and from and/or to any other customer of the
Custodian or any other member of the Citicorp Organization; and
(ii) to obtain and keep, without being liable to account to the Client, any
commission payable by any third party or any other member of the
Citicorp Organization in connection with dealings arising out of or in
connection with the Custody Account and/or the Custody Cash Account.
(B) The Client agrees and understands that if in accordance with Instructions,
an investment is made in any property, held, issued or managed by any member of
the Citicorp Organization, then such member of the Citicorp Organization may
retain a profit arising therefrom (in addition to the charges, commissions and
fees payable by the Client under this Agreement) without being liable to account
to the Client for such profit.
(C) The Client agrees and understands that (i) the Custodian and other members
of the Citicorp Organization may have banking or other business relationships
with issuers of Securities held in the Custody Account or Securities purchased
and sold for the Custody Account, and (ii) the Custodian shall not have any
obligations to the Client as a result of such relationships.
14. SCOPE OF RESPONSIBILITY
(A) Subject to the terms hereof, the Custodian shall use all reasonable care in
the performance of its duties under this Agreement and will exercise the due
care of a professional custodian for hire with respect to the Property in its
possession or control. The Custodian shall not be responsible for any loss or
damage suffered by the Client as a result of the Custodian performing such
duties unless the same results from an act of fraud, negligence or willful
default on the part of the Custodian and as provided in Section 12(B) hereof; in
which event the liability of the Custodian in connection with any Property shall
not exceed the market value of the Property, to which such loss or damage
relates, at the time of such fraud, negligence or willful default plus interest
at the rate applicable to the base currency of the Custody Cash Account accruing
from the date of such fraud, negligence or willful default until the date of
discharge. Notwithstanding the foregoing, in no event shall the Custodian be
liable to the Client for indirect, special or consequential damages, even if
advised of the possibility of such damages.
(B) The Custodian is not obliged to maintain any insurance on the Property held
under the terms of this Agreement.
(C) In the event that any law, regulation, decree, order, government act,
custom, procedure or practice to which the Custodian, or any Subcustodian or
Clearance System is subject, or to which the Property is subject, prevents or
limits the performance of the duties and obligations of the Custodian, or any
Subcustodian or Clearance System, then until such time as the Custodian,
Subcustodian or Clearance System is again able to perform such duties and
obligations hereunder, such duties and obligations of the Custodian,
Subcustodian or Clearance System shall be suspended.
(D) Neither the Custodian nor any member of the Citicorp Organization shall be
responsible for any loss or damage, or failure to comply or delay in complying
with any duty or obligation, under or pursuant to this Agreement arising as a
direct or indirect result of any reason, cause or contingency beyond its
reasonable control, including (without limitation) natural disasters,
nationalization, currency restrictions, act of war, act of terrorism, act of
God, postal or other strikes or industrial actions, or the failure, suspension
or disruption of any relevant stock exchange, Clearance System or market.
(E) Subject to Section 14(A) above, the Custodian shall not be liable for any
loss resulting from, or caused by, the collection of any Property and/or any
funds or other property paid or distributed in respect of the Property.
(F) The Custodian does not warrant or guarantee the authenticity or validity of
any Security or other Property received by the Custodian, or any other entity
authorized to hold Property under this Agreement. If the Custodian becomes aware
of any defect in title or forgery of any Property, the Custodian shall promptly
notify the Client.
(G) The Client shall be responsible for all filings, tax returns and reports on
any transactions undertaken pursuant to this Agreement, or in respect of the
Property or collections relating to the Property as may be requested by any
relevant authority, whether governmental or otherwise, and for the payment of
all unpaid calls, Taxes (including without limitation any value added tax),
imposts, levies or duties due on or with respect to any principal, interest or
other collections, or any other liability or payment arising out of or in
connection with the Property, and in so far as the Custodian is under any
obligation (whether of a governmental nature or otherwise) to pay the same on
behalf of the Client it may do so out of any Property held by the Custodian
pursuant to the terms of this Agreement.
(H) The Custodian is not acting under this Agreement as an investment manager,
nor as an investment, legal or tax adviser to the Client and the Custodian's
duty is solely to act as a custodian in accordance with the terms of this
Agreement.
(I) Nothing herein shall obligate the Custodian to perform any obligation or to
allow, take or omit taking any action which will breach any relevant Rules, or
any law, rule, regulation or practice of any relevant government, stock
exchange, Clearance System, self-regulatory organization or market.
(J) The Custodian may at any time suspend or terminate its participation and
holding of assets in a Clearance System, and will give reasonable notice to the
Client of any such action. In such case, or in the event of suspension as
contemplated in Section 14(C) above, the Custodian may arrange for the relevant
Securities to be held in certificated form.
(K) The Custodian shall not be responsible for the acts or omissions, default or
insolvency of any broker, counterparty, issuer of Securities or, except as
provided in Section 12(B), Subcustodian, agent or Clearance System.
(L) The Custodian shall not be responsible for the accuracy, content or
translation of any notice, circular, report, announcement or other material
forwarded to the Client.
(M) The Custodian shall only have such duties and responsibilities as are
specifically set forth or referred to in this Agreement, and no covenant or
obligation shall be implied in this Agreement against the Custodian.
15. LITIGATION; INDEMNITY
(A) The Custodian or any of its agents, as the case may be, may (but without
being under any duty or obligation to) institute or defend legal proceedings, or
take any other action arising out of or in connection with the Property and the
Client shall indemnify the Custodian or agent against any costs and expenses,
including without limitation any reasonable attorneys' fees and disbursements,
arising from such proceedings or other action and make available to the
Custodian such security in respect of such costs and expenses as the Custodian
or agent in its absolute discretion deems necessary or appropriate.
(B) In the event the Custodian does not institute or defend legal proceedings,
or take any other action arising out of or in connection with the Property, the
Custodian hereby agrees that the Client shall, to the extent of any loss of the
Client's interest in the Property and to the extent permitted by applicable law
and not prohibited by contract, be subrogated to all of the rights of recovery
of the Custodian therefor against any third party person or entity; PROVIDED
THAT nothing herein shall be interpreted as granting the Client any rights to
bring any direct action under any insurance policy issued in favor of the
Custodian or as limiting the Custodian's right to bring any action against any
such third party for any damages suffered by the Custodian. Notwithstanding any
other provision hereof, in no event shall the Custodian be obliged to bring suit
in its own name or be obliged to allow suit to be brought in its name. Subject
to the terms of this Section 15(B) and to the extent permitted by law, the
Custodian shall execute and deliver any and all such instruments and documents
which the Client may reasonably request and take such other actions as
reasonably necessary or appropriate to assist the Client in the exercise of such
rights of recovery and to enable the Client to recover against any and all such
third party persons or entities. The Client shall reimburse the Custodian for
any reasonable out-of-pocket costs incurred in connection with the actions
contemplated by this Section 15(B).
(C) The Client agrees to indemnify the Custodian and to defend and hold the
Custodian harmless against all losses, liabilities, claims, expenses and Taxes,
including any reasonable legal fees and disbursements, (each referred to as a
"LOSS") arising directly or indirectly:
(i) from the fact that the Property is registered in the name of or held
by the Custodian or any nominee or agent of the Custodian or any
Clearance System;
(ii) without limiting the generality of Section 15(C)(i), from any act
which the Custodian or any nominee or agent performs or permits
(including the provision of any overdraft or other financial
accommodation which arises on the books of the Custodian, whether on
an advised or unadvised basis, in relation to the Property pursuant to
this Agreement or any Instructions;
(iii)from the Custodian or any such nominee, agent or Clearance System
carrying out any Instructions pursuant to the terms of this Agreement,
including, without limitation, Instructions transmitted orally, by
telephone, telex, facsimile transmission or any other means agreed by
the Client and the Custodian from time to time or otherwise;
(iv) from any reclaim or refund of Taxes effected by the Custodian or any
agent for the Client; and
(v) from the Custodian's reliance or action on any information provided by
the Client in connection with this Agreement;
PROVIDED THAT the Custodian shall not be indemnified against or held
harmless from any liability arising out of the Custodian's negligence, fraud or
willful default.
(D) The disclosure by the Client to the Custodian that the Client has entered
into this Agreement as the agent or representative of another person shall not
prevent the Custodian from being entitled to treat the Client as incurring all
obligations as principal under this Agreement.
(E) The Custodian shall give notice of any Loss in respect of which the Client
is obliged to provide indemnification pursuant to this Agreement. Such notice
shall describe the Loss in reasonable detail, and shall indicate the amount
(estimated, if necessary, and to the extent feasible) of the Loss that has been
or may be suffered by Custodian.
16. LIEN AND SET-OFF
(A) In addition to any remedies available to the Custodian under applicable law,
the Custodian shall have, and the Client hereby grants, a continuing general
lien on all Property (other than cash) until the satisfaction of all liabilities
(whether actual or contingent) of the Client to the Custodian, including any
fees and expenses or credit exposures incurred in the performance of services
under this Agreement. Notwithstanding anything to the contrary in this Agreement
and to the extent applicable, no liabilities or obligations the Client has
arising out of or constituting Purpose Credit shall be secured by, and the
Custodian shall have no lien upon, any Margin Stock, and any such lien or
security interest being hereby expressly disclaimed by the Custodian. "Purpose
Credit" and "Margin Stock", shall have the same meaning set forth in Regulation
U and X of the Board of Governors of the Federal Reserve System of the United
States of America.
(B) In addition to any other remedies available to the Custodian under
applicable law, the Custodian may, without prior notice to the Client, set off
any payment obligation owed to it by the Client against any payment obligation
(whether or not matured) owed by it to the Client regardless of the place of
payment or currency of either obligation (and for such purposes may make any
currency conversion necessary). If any obligation is unliquidated or
unascertained the Custodian may set off an amount estimated by it in good faith
to the amount of that obligation.
17. FEES AND EXPENSES
Without prejudice to any of its liabilities and obligations under this
Agreement, the Client agrees to pay to the Custodian from time to time such fees
and commissions for its services pursuant to this Agreement as determined in
accordance with the terms of the Fee Agreement, together with any applicable
taxes or levies, including, without limitation, all those items referred to in
Section 8(ii) hereof. The Custodian is further authorized to debit (as well
after as before the date of any termination pursuant to Section 19 hereof) any
account of the Client with the Custodian, including, without limitation, the
Custody Cash Account, for any amount owing to the Custodian from time to time
under this Agreement.
18. TAX STATUS/WITHHOLDING TAXES
(A) The Client will provide the Custodian with information as to its tax status
as reasonably requested by the Custodian from time to time.
(B) The Client may be required from time to time to file such proof of taxpayer
status or residence, to execute such certificates and to make such
representations and warranties, or to provide any other information or documents
in respect of the Property, as the Custodian or any of its agents may deem
necessary or proper to fulfill the obligations of the Custodian or its agents
under applicable law. The Client shall provide the Custodian or its agents, as
appropriate, in a timely manner, with copies, or originals if necessary and
appropriate, of any such proofs of residence, taxpayer status or identity,
beneficial ownership of Property and any other information or documents which
the Custodian or its agents may reasonably request.
(C) If any Taxes shall become payable with respect to any payment due to the
Client, such Taxes may be withheld from such payment in accordance with
applicable law. The Custodian and any agents may withhold any interest, any
dividends or other distributions or securities receivable in respect of
Securities, proceeds from the sale or distribution of Securities ("Payments"),
or may sell for the account of the Client any part thereof or all of the
Securities, and may apply such Payment and/or cash from the Custody Cash Account
in satisfaction of such Taxes, the Client remaining liable for any deficiency.
If any Taxes shall become payable with respect to any payment made to the Client
by the Custodian or its agents in a prior year, the Custodian or its agents may
withhold Payments in satisfaction of such prior year's Taxes.
(D) In the event the Client requests that the Custodian provide tax relief
services and the Custodian agrees to provide such services, the Custodian or any
of its agents, shall apply for appropriate tax relief (either by way of reduced
tax rates at the time of an income payment or retrospective tax reclaims in
certain markets as agreed from time to time); PROVIDED THAT the Client provides
to the Custodian such documentation and information as is necessary to secure
such tax relief. In no event shall the Custodian or any of its agents be
responsible for the difference between the statutory rate of withholding and the
treaty rate of withholding if the Custodian or any of its agents are unable to
secure tax relief.
19. TERMINATION
(A) Either of the parties hereto may terminate this Agreement by giving not less
than 60 days' prior written notice to the other party; PROVIDED THAT within 60
days of such notice, the Client shall provide the Custodian with Instructions
specifying the person to whom the Custodian shall deliver the Property in the
Custody Account and Custody Cash Accounts; PROVIDED FURTHER THAT if the
Custodian has effected any transaction on behalf of the Client the settlement of
which is likely to extend beyond the expiration of such notice, then the
Custodian shall be entitled in its absolute discretion to close out or complete
such transaction and to retain sufficient funds from the Property for that
purpose. If within 60 days following termination, the Client fails to give the
Custodian Instructions specifying the person to whom the Custodian shall deliver
the Property in the Custody Account and Custody Cash Account, the Custodian
shall deliver the Property to the Client at its address set out above.
(B) The rights and obligations contained in Sections 15, 16, 17 and 18 of this
Agreement shall survive the termination of this Agreement.
20. ASSIGNMENT
This Agreement shall bind and enure for the benefit of the parties hereto
and their respective successors and permitted assigns, and the Client shall not
assign, transfer or charge all or any rights or benefits hereunder without the
written consent of the Custodian. The Custodian may not assign, transfer or
charge all or any of its rights or benefits hereunder without the written
consent of the Client; PROVIDED HOWEVER that this Agreement may be assigned by
the Custodian to another member of the Citicorp Organization with prior written
notice to the Client, and such assignee shall, without the execution or filing
of any consents or other documents, succeed to and be substituted for the
Custodian with like effect as though such assignee had been originally named as
the Custodian hereunder. Any purported assignment, transfer or charge made in
contravention of this Section shall be null and void and of no effect
whatsoever.
21. JOINT AND SEVERAL LIABILITY
Where the Client comprises two or more persons, all obligations and
liabilities under this Agreement shall be deemed to be joint and several, and
any notice served on any one of such persons shall be deemed to have been served
on such other person or persons, as the case may be.
22. DISCLOSURE
(A) The Client agrees and understands that the Custodian or its agents may
disclose information regarding the Custody Account and/or the Custody Cash
Account if required to do so (i) to establish under the laws of any relevant
jurisdiction the nominee (or similar) status of the Custodian or its agents with
respect to Property in the Custody Account and/or Custody Cash Account for the
purpose of performing or discharging its duties and obligations under this
Agreement, (ii) to enable auditors to perform auditing services, (iii) to make
the required tax certifications in the relevant jurisdictions, (iv) by any
applicable law, statute or regulation or court order or similar process in any
relevant jurisdiction, (v) by order of an authority having power over the
Custodian or its agents within the jurisdiction of such authority, whether of a
governmental nature or otherwise, or (vi) where required by the operating rules
of any relevant Clearance System.
(B) The Client hereby authorizes (i) the collection, storage and processing of
any information relating to the Client by the Custodian and the Branches,
subsidiaries, affiliates and agents of; or Clearance Systems used by, Citibank,
N.A.; and (ii) the transfer of any information relating to the Client to and
between the Branches, subsidiaries, affiliates and agents of, or Clearance
Systems used by, Citibank, N.A. and third parties selected by any of them,
wherever situated, for confidential use in connection with the provision of
services to the Client, and further acknowledges that any such Branch,
subsidiary, affiliate, agent, third party or Clearance System shall be entitled
to transfer any such information as required by any law, court, legal process or
as requested by any authority in accordance with which it is required to act, as
it shall reasonably determine.
(C) The Client agrees that the terms of this Agreement shall be kept strictly
confidential and no printed materials or other matter in any language (including
without limitation, prospectuses, statements of additional information, notices
to shareholders, annual reports and promotional materials) which mention
Citicorp, Citibank, N.A. or the Custodian's name, or the rights, powers or
duties of the Custodian, shall be issued by the Client or on the Client's behalf
unless Citibank, N.A. and/or the Custodian (as applicable) shall first have
given its specific written consent thereto; PROVIDED THAT no prior consent shall
be required if the only reference to the Custodian's name is in identifying the
Custodian as one of the Client's custodians.
(D) The Client agrees that the Custodian or its agents may, upon reasonable
request, review the Client's premises, and security controls and procedures,
where necessary for the performance of the Custodian's obligations regarding any
relevant Clearance System.
23. NOTICES
All notices and communications to be given by one party to the other under
this Agreement shall be in writing in the English language and (except for
notices, reports and information from the Custodian, and Instructions given by
electronic means) shall be made either by telex or facsimile, other electronic
means agreed to by the parties or by letter addressed to the party concerned at
the addresses set out above (or at such other addresses as may be notified in
writing by either party to the other from time to time). Any such notice or
communication hereunder shall be effective upon actual receipt.
24. GOVERNING LAW AND JURISDICTION
(A) This Agreement shall be governed by and construed in accordance with the
internal laws (and not the laws of conflict) of the state of New York. The
Client agrees for the benefit of the Custodian and, without prejudice to the
right of the Custodian to take any proceedings in relation hereto before any
other court of competent jurisdiction, that the courts of the State of New York
shall have jurisdiction to hear and determine any suit, action or proceeding,
and to settle any disputes, which may arise out of or in connection with this
Agreement and, for such purposes, irrevocably submits to the non-exclusive
jurisdiction of such courts.
(B) Each party hereto waives any objection it may have at any time to the laying
of venue of any actions or proceedings brought in a court of the State of New
York, waives any claim that such actions or proceedings have been brought in an
inconvenient forum and further waives the right to object that such court does
not have jurisdiction over such party.
(C) The Client irrevocably waives, to the fullest extent permitted to itself and
its revenues and assets (irrespective of their use or intended use), all
immunity on the grounds of sovereignty or similar grounds from (i) suit, (ii)
jurisdiction of any court, (iii) relief by way of injunction, order for specific
performance or for recovery of property, (iv) attachment of its assets (whether
before or after judgment), and (v) execution or enforcement of any judgment to
which it or its revenues or assets might otherwise be entitled in any actions or
proceedings in such courts, and irrevocably agrees, to the fullest extent
permitted by applicable law, that it will not claim such immunity in any such
actions or proceedings.
(D) The Client hereby understands and agrees that the opening of, the holding of
all or any part of the Property in, and the delivery of any Securities and other
Property to or from, the Custody Account and Custody Cash Account and the
performance of any activities contemplated in this Agreement by the Custodian,
including acting on any Instructions, are subject to the relevant local laws,
regulations, decrees, orders, government acts, customs, procedures and practices
(i) to which the Custodian, or any Subcustodian or Clearance System, is subject
and (ii) as exist in the country in which the Property is held.
25. MISCELLANEOUS
(A) This Agreement shall not be amended except by a written agreement and any
purported amendment made in contravention of this Section shall be null and void
and of no effect whatsoever.
(B) This Agreement shall constitute the entire agreement between the Client and
the Custodian and, unless otherwise expressly agreed in writing, shall supersede
all prior agreements relating to global custodial services, written or oral,
between the parties hereto.
(C) The parties hereto agree that (i) the rights, powers, privileges and
remedies stated in this Agreement are cumulative and not exclusive of any
rights, powers, privileges and remedies provided by law, unless specifically
waived, and (ii) any failure or delay in exercising any right power, privilege
or remedy will not be deemed to constitute a waiver thereof and a single or
partial exercise of any right, power, privilege or remedy will not preclude any
subsequent or further exercise of that or any other right, power, privilege or
remedy.
(D) In the event that any provision of this Agreement, or the application
thereof to any person or circumstances, shall be determined by a court of proper
jurisdiction to be invalid or unenforceable to any extent, the remaining
provisions of this Agreement, and the application of such provisions to persons
or circumstances other than those as to which it is held invalid or
unenforceable, shall be unaffected thereby and such provisions shall be valid
and enforced to the fullest extent permitted by law in such jurisdiction.
(E) Titles to Sections of this Agreement are included for convenience of
reference only and shall be disregarded in construing the language contained in
this Agreement.
(F) This Agreement may be executed in several counterparts, each of which shall
be an original, but all of which together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized.
Citibank, N.A., New York Office
By: /s/ William M. Stanton
--------------------------------
Name: William M. Stanton, VP
WWSS/North American Custody
111 Wall Street/24th Floor/Zone 4
(212) 657-3284
Title: Vice President
THE AAL MUTUAL FUNDS
By: /s/ Ronald G. Anderson
---------------------------------
Name: Ronald G. Anderson
Title: President
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement is made as of this 1st day of
January, 1999 by and between The AAL Mutual Funds, a Massachusetts business
trust (the "Fund") and Aid Association for Lutherans, a Wisconsin Corporation
("AAL" "Administrator").
WHEREAS, AAL has offered to provide fund accounting and pricing
services to the Fund at a fair and reasonable price and the Fund desires to have
AAL provide such services; and
WHEREAS, a majority of the Trustees of the Fund and a majority of the
disinterested Trustees of the Fund have approved this Agreement between AAL and
the Fund, and in so approving the Agreement made the following findings:
a. The Agreement is in the best interest of the Fund and its
Shareholders;
b. The services to be performed pursuant to the Agreement are services
required for the operation of the Fund;
c. AAL can provide services, the nature and quality of which are at least
equal to those provided by others offering the same or similar
services; and
d. The fees for such services are fair and reasonable in light of the
usual and customary charges made by others for services of the same
nature and quality.
WHEREAS, the Fund is authorized to issue shares in separate series with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund desires AAL to render the services to the Fund in the
manner and on the terms and conditions hereinafter set forth with respect to
each of the Fund's series identified on Schedule B attached hereto, as modified
from time to time by the mutual consent of the parties.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Services. The Fund hereby engages AAL, and AAL accepts such engagement, to
perform accounting and pricing services for the Fund as described in more
detail on Schedule A, as the same may be modified from time to time by vote
of a majority of the Fund's Trustees including a majority of those who are
not interested persons of AAL (the "Services"). The Fund agrees that AAL
shall have ready access to the Fund's agents, books, records, financial
information, management and resources at such times and for such periods as
AAL deems necessary to perform the Services.
2. Rate of Payment for the Services.
2.1 Contract Price. The Fund agrees to pay AAL for the Services at such rate,
not to exceed the rate charged by unaffiliated vendors for comparable
Services, as may be approved annually by a majority of the Fund's Trustees,
including a majority of Trustees who are not parties to this Agreement or
interested persons of AAL (the "Contract Price")(Schedule C). The Fund
shall also pay all expenses, as set forth in Section 2.2 below, applicable
taxes, duties and charges (including sales, use and excise taxes) levied or
assessed as a result of this Agreement, except those taxes measured solely
by the net income of AAL. The Contract Price shall be payable monthly
within ten (10) days of the date of invoice. The Contract Price shall be
adjusted annually by mutual agreement.
2.2 Reimbursement for Expenses. Subject to the Fund's prior approvals, AAL
shall be paid by the Fund for actual expenses and costs incurred by AAL in
the performance of the Services, including, but not limited to, long
distance telephone calls, postage, computer time and supplies.
3. Employees. All personnel assigned by AAL to perform the Services will be
employees of AAL or its affiliates. AAL will be considered, for all
purposes an independent contractor, and it will not, directly or
indirectly, act as an agent, servant or employee of the Fund, or make any
commitments or incur any liabilities on behalf of the Fund without its
prior written consent.
4. Administrator Use of the Services of Others. AAL may (at its costs except
as contemplated by Paragraph 2.2 of this Agreement) employ, retain or
otherwise avail itself of the Services or facilities of other persons or
organizations for the purpose of providing the Fund with such information
or Services as it may deem necessary, appropriate or convenient for the
discharge of its obligations hereunder or otherwise helpful to the Fund, or
in the discharge of its overall responsibilities with respect to the
Services to be provided to the Fund.
5. Ownership of Records. All records required to be maintained and preserved
by the Fund pursuant to the provisions of rules or regulations of the
Securities and Exchange Commission under Section 31(a) of the Investment
Company Act of 1940 (the "Act") and maintained and preserved by AAL on
behalf of the Fund are the property of the Fund and will be surrendered by
AAL promptly on request by the Fund.
6. Reports to Fund by AAL. AAL shall provide the Fund, at such times as the
Fund may reasonably require, with reports relating to the Services provided
by AAL under this Agreement. Such reports shall be of sufficient scope and
in sufficient detail, as may reasonably be required by the Fund.
7. Services to Other Clients. Nothing herein contained shall limit the freedom
of AAL or any affiliated person of AAL to render investment advice or
corporate administrative services to other investment companies, to act as
investment advisor or investment counselor to other persons, firms or
corporations, or to engage in other business activities.
8. Limitation of Liability of AAL. Neither AAL, nor any of its officers,
directors, or employees, not any person performing administrative or other
functions for the Fund (at the direction or request of AAL) in connection
with Administrator discharge of its obligations undertaken or reasonably
assumed with respect to this Agreement, shall be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except for
loss resulting from willful misfeasance, bad faith, or negligence in the
performance of its or their duties on behalf of the Fund or from reckless
disregard by AAL or any such person of the duties of AAL under this
Agreement.
9. Term of Agreement. The term of this Agreement shall begin on the date first
above written, and unless sooner terminated as hereinafter provided, this
Agreement shall be submitted for approval to the Board of Trustees and will
continue in effect from year to year as it pertains to each such series,
subject to the termination provisions and all other terms and conditions
hereof, so long as: (a) such continuation shall be specifically approved at
least annually by the Board of Trustees of the Fund including a majority of
the Trustees of the Fund who are not parties to this Agreement or
interested persons of any such party; and (b) AAL shall not have notified
the Fund, in writing, at least 60 days prior to October 31, 1999 or prior
to October 31 of any year thereafter, that it does not desire such
continuation. AAL shall furnish to the Fund, promptly upon its request,
such information as may reasonably be necessary to evaluate the terms of
this Agreement or any extension, renewal or amendment hereof.
10. Amendment and Assignment of Agreement. This Agreement may only be amended
or assigned either as it pertains generally to all of the series or as it
pertains to a particular series by a written agreement by each party.
11. Termination of Agreement. This Agreement may be terminated by any party
hereto either as it pertains generally to all of the series or as it
pertains to a particular series, without the payment of any penalty, upon
60 days' prior notice in writing to the other party; provided, that in the
case of termination by the Fund such action shall have been authorized by
resolution of a majority of the Trustees of the Fund who are not parties to
this Agreement or interested persons of any such party, or by vote of a
majority of the outstanding voting securities of each series affected by
such termination.
12. Miscellaneous.
12.1 Captions. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
12.2 Interpretation. Nothing herein contained shall be deemed to require the
Fund to take any action contrary to its Declaration of Trust or By-Laws, or
any applicable statutory or regulatory requirement to which it is subject
or by which it is bound, or to relieve or deprive the Board of Trustees of
the Fund of its responsibility for and control of the conduct of the
affairs of the Fund.
12.3 Definitions. Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the Act shall be resolved by reference to such term or
provision of the Act and to interpretations thereof if any, by the United
States courts or, in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Securities and Exchange
Commission validly issued pursuant to the Act. Specifically, the terms
"vote of a majority of the outstanding voting securities," "interested
person," "assignment," and "affiliated person," as used in Paragraphs 1,
2.1, 7, 9, 10, and 11 hereof, shall have the meanings assigned to them by
Section 2(a) of the Act. In addition, where the effect of a requirement of
the Act reflected in any provision of this Agreement is relaxed by a rule,
regulation or order of the Securities and Exchange Commission, whether of
special or of general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
12.4 Governing Law. This Agreement shall be construed and governed by the laws
of the state of Wisconsin.
12.5 Amendment. This Agreement, including the Schedules hereto, may be amended
only by an instrument in writing executed by the parties or their permitted
assignees.
12.6 Notices. All communications or notices required permitted by this Agreement
shall be in writing and shall be deemed to have been give at the earlier of
the date when actually delivered to an officer of a party or when deposited
in the United States Mail, certified or registered mail, postage prepaid,
return receipt requested, and addressed to the principal place of business
of such parties notifies the parties in accordance with this section of
change of address.
12.7 Entire Agreement. This Agreement together with the Schedules hereto
constitutes the entire agreement between the Fund and AAL with respect to
the subject matter hereof. There are no restrictions, promises, warranties,
covenants or undertakings other than those expressly set forth herein and
therein. This Agreement supersedes all prior negotiations, agreements and
undertakings between the parties with respect to such subject matter.
12.8 Enforceability. The invalidity or unenforceability of any provision hereof
shall not affect or impair any other provisions.
12.9 Scope of Agreement. If the scope of any of the provisions of the Agreement
is to broaden any respect whatsoever to prevent enforcement to its full
extent, then such provisions shall be enforced to the maximum extent
permitted by law, and the parties hereto consent and agree that such scope
may be judicially modified accordingly and that the whole of such
provisions of this Agreement shall not thereby fail, but that the scope of
such provisions shall be curtailed only to the extent necessary to conform
to the law.
12.10 Agreement Binding Only on Trust Property. AAL understands that the
obligations of this Agreement are not binding upon any shareholder of the
Fund personally, but bind only the Fund's property; AAL represents that it
has notice of the Fund's Declaration of Trust disclaiming shareholder
liability for acts and obligations of the Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate seals to be hereunto affixed, as of the day and year first
above written.
THE AAL MUTUAL FUNDS
By: /s/Ronald G. Anderson
------------------------------
Ronald G. Anderson,
President
AID ASSOCIATION FOR LUTHERANS
By: /s/John O. Gilbert
------------------------------
John O. Gilbert,
President
<PAGE>
SCHEDULE A
Services to be performed by AAL:
1. Portfolio Accounting Services. AAL shall provide the following portfolio
accounting and reporting services for each series of the Fund covered by
this Agreement:
(a) Maintain daily portfolio records for each series on a trade date basis
using security trade information obtained by it as Investment Advisor
to the Fund, or communicated from a Sub-Advisor for the series;
(b) On each business day record the prices of the portfolio positions of
each series as obtained from a source approved by the Board of
Trustees;
(c) Record interest and dividend accrual balances each business day on the
portfolio securities of each series and calculate and record each
series' gross earnings on investments for that day;
(d) Determine gains and losses on portfolio security sales on a daily
basis for each series and identify such gains and loses as
short-short, short or long-term. Account for periodic distributions of
gain to shareholders of each series and maintain undistributed gain or
loss balances as of each business day; and
(e) Provide each series with portfolio-based reports on the foregoing on a
periodic basis as mutually agreed upon between the Board of Trustees
and AAL.
2. Expense Accrual. AAL shall provide accounting and reporting services
relating to the accrual of expenses as described below for each series of
the Fund covered by this agreement:
(a) On each business day, calculate the amounts of expense accrual for
each series according to the methodology, rate or dollar amount
specified by the Board of Trustees;
(b) Account for expenditures and maintain expense accrual balances for
each series at a level of accounting detail specified by the Board of
Trustees;
(c) Conduct periodic expense accrual reviews for each series as requested
by the Board of Trustees comparing actual expenses to accrual amounts;
and
(d) Issue periodic reports for each series detailing expense accruals and
payments at the times requested by the Board of Trustees.
3. Valuation and Financial Reporting Services. AAL shall provide accounting
and reporting services relating to the net asset value of each series of
the Fund's covered by this Agreement as described below:
(a) Account for purchases, sales, exchanges, transfers, dividend
reinvestments and other activity relating to the shares of each series
as reported by the Fund's Transfer Agent on a daily basis;
(b) Provide the Investment Advisor and were applicable, the Sub Advisor a
daily report of cash reserves available for short term investing;
(c) Record daily the net investment income (earnings) for each series.
Account for periodic distributions of earnings to shareholders of each
series and maintain undistributed net investment income balances as of
each business day;
(d) Maintain a general ledger for each series in the form specified by the
Board of Trustees and produce a set of financial statements for each
series as requested from time to time by the Board of Trustees;
(e) On each business day of the Fund determine the net asset value of each
series in accordance with the accounting policies and procedures
described in the current Prospectus of the Fund;
(f) On each business day of the Fund, calculate the per share net asset
value, per share net earnings and other per share amounts reflective
of the operations of each series on the basis of the number of shares
outstanding as reported by the Transfer Agent;
(g) Issue daily reports detailing such per share information of each
series to such persons (including the Transfer Agent and AAL
Distributors, Inc. as Distributor of the Fund's shares) as directed by
the Board of Trustees; and
(h) Issue to the Board of Trustees monthly reports which document the
adequacy of the accounting detail necessary to support month-end
ledger balances for each series.
4. Tax Accounting Services. AAL shall provide the following tax accounting
services for each series of the Fund covered by this Agreement:
(a) Maintain tax accounting records for the investment portfolio of each
series necessary to support IRS tax reporting requirements for
regulated investment companies;
(b) Maintain tax lot detail for the investment portfolio of each series;
(c) Calculate taxable gains and losses on sales of portfolio securities
for each series using the tax cost basis defined for the particular
series;
(d) Issue reports to the Transfer Agent of each series detailing the
taxable components of income and capital gains distributions as
necessary to assist such Transfer Agent in issuing reports to
shareholders; and
(e) Provide any other reports relating to tax matters for each series as
reasonably requested from time to time by the Board of Trustees.
<PAGE>
SCHEDULE B
Effective January 1, 1999
The AAL Capital Growth Fund
The AAL Bond Fund
The AAL Municipal Bond Fund
The AAL Money Market Fund
The AAL Mid Cap Stock Fund
The AAL Small Cap Stock Fund
The AAL International Fund
The AAL Equity Income Fund
The AAL Balanced Fund
The High Yield Bond Fund
The AAL U.S. Government Zero Coupon Target Fund Series 2001
The AAL U.S. Government Zero Coupon Target Fund Series 2006
<PAGE>
SCHEDULE C
Contract Fee Schedule
Effective January 1, 1999
The AAL Capital Growth Fund $40,000
The AAL Bond Fund $40,000
The AAL Municipal Bond Fund $40,000
The AAL Money Market Fund $40,000
The AAL Mid Cap Stock Fund $40,000
The AAL Small Cap Stock Fund $40,000
The AAL International Fund $45,000
The AAL Equity Income Fund $40,000
The AAL Balanced Fund $40,000
The High Yield Bond 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
AMENDMENT NO. 5
TO
SHAREHOLDER MAINTENANCE AGREEMENT
The Shareholder Maintenance Agreement between The AAL Mutual Funds and AAL
Capital Management Corporation, as amended, effective January 8, 1997, is hereby
amended, June 1, 1998, as follows:
The Shareholder Maintenance Agreement, is amended to adjust the payment
the Funds will pay to AAL Capital Management Corporation, which will be
the difference between the Firstar Trust Company published transfer
agency fees and the fees actually charged to the Funds, plus
out-of-pocket costs which would otherwise be charged to the Funds by
Firstar.
IN WITNESS WHEREOF the parties have caused this Amendment to be signed by the
respective officers effective June 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, Secretary Ronald G. Anderson, President
<PAGE>
SHAREHOLDER MAINTENANCE AGREEMENT
SCHEDULE A
(EFFECTIVE June 1, 1998)
The AAL Capital Growth Fund
The AAL Bond Fund
The AAL Municipal Bond Fund
The AAL Money Market Fund
The AAL U.S. Government Zero Coupon Target Fund, Series 2001
The AAL U.S. Government Zero Coupon Target Fund, Series 2006
The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller Company Stock Fund)
The AAL Equity Income Fund (f/k/a The AAL Utilities Fund)
The AAL International Fund
The AAL Small Cap Stock Fund
The AAL High Yield Bond Fund
The AAL Balanced Fund
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the person whose signature appears
below authorizes Ronald G. Anderson to act as lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-1A of The AAL Mutual Funds, and to the file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
/s/ Edward W. Smeds
------------------------------
Edward W. Smeds
as Trustee, but not
individually
