1933 Act Registration No. 33-12911
1940 Act Registration No. 811-5075
As filed with the Securities and Exchange Commission on
June 29, 2000.
--------------------------------------------------------------------------------
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. 42 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 44 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
President
THE AAL MUTUAL FUNDS
222 WEST COLLEGE AVENUE
APPLETON, WISCONSIN 54919-0007
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offerings: Continuous
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b):
X on July 1, 2000 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on July 1, 2000 pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on July 1, 2000 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.
<PAGE>
THE AAL MUTUAL FUNDS
THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUNDS
Series 2001 and Series 2006
222 West College Ave.
Appleton, WI 54919-0007
800-553-6319 or 920-734-7633 TTY 800-684-3416
PROSPECTUS
July 1, 2000
The AAL U.S. Government Zero Coupon Target Funds invest primarily in zero coupon
bonds. The Funds are designed for investors seeking high future returns from
U.S. government securities with a reasonable assurance of receiving a targeted
dollar amount, predictable at the time of investment, on a specific maturity
date. Series 2001 matures on November 15, 2001, and Series 2006 matures on
November 15, 2006.
PLEASE TAKE NOTICE
The Funds closed sales of The AAL U.S. Government Zero Coupon Target Funds,
Series 2001 and 2006 to new shareholders and to existing shareholders for
additional purchases effective May 31, 1993. Existing shareholders may purchases
additional shares by reinvesting dividends and capital gains, if any, received
on their existing accounts at net asset value. Although the Funds do not intend
to do so, they may open sales in the future.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
PAGE
RISK/RETURN SUMMARY 1
Investment Objective/Goals 1
Principal Investment Strategies 1
Principal Risk 1
Risk/Return Bar Chart and Table 1
Fee Table 1
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS 4
Investment Objectives 4
Risks 5
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE 7
Investment Adviser 7
Advisory Fee 7
Portfolio Manager 7
SHAREHOLDER INFORMATION 8
Pricing of Funds' Shares 8
How to Buy Shares 8
How to Redeem (Sell) Shares 11
Dividends, Distributions and Taxes 14
DISTRIBUTION ARRANGEMENTS 16
Sales Charges (Loads) 16
FINANCIAL HIGHLIGHTS 19
Series 2001 19
Series 2006 20
ADDITIONAL INFORMATION 22
<PAGE>
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVE
The Funds seek high, relatively predictable investment returns from U.S.
government securities over selected periods of time from two portfolios maturing
in 2001 and 2006, assuming investors reinvest the dividends and capital gains
distributed by the Funds.
PRINCIPAL INVESTMENT STRATEGY
The Funds invest in a variety of U.S. government securities, primarily (at least
80%) consisting of zero coupon bonds, 50% of which will mature within two years
of the Funds' target dates.
PRINCIPAL RISK
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. During periods of
higher interest rates, the value of the bonds in the portfolios will tend to
fall. Zero coupon bonds tend to fluctuate in value to a greater degree than
bonds with fixed coupons. The Funds cannot assure that you will be able to sell
your shares for more than you paid for them. You could lose money investing in
the Funds.
RISK/PERFORMANCE
The following bar charts and table illustrate the Funds' risks and performances
for Series 2001 and 2006, respectively. The charts show changes in the total
returns from calendar year to calendar year and the table compares the average
annual returns for one, five and nine calendar year periods since inception for
Series 2001 and 2006 to those of a broad market index for the same periods.
Please note that the past performance indicated in the charts and table do not
necessarily indicate future performance for the Funds.
CHARTS
The chart below shows Series 2001's calendar year, total returns for the past
eight calendar years.
THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUND
SERIES 2001
ANNUAL TOTAL RETURNS
[Bar chart with following data:]
12/31/91 19.95%
12/31/92 7.03%
12/31/93 16.99%
12/30/94 (8.62)%
12/29/95 22.82%
12/31/96 0.89%
12/31/97 7.25%
12/31/98 8.07%
12/31/99 0.96%
The bar chart does not reflect the 4.75% maximum sales loads. If the chart
reflected sales loads, returns would be less than those shown. The Fund's
year-to-date return as of March 31, 2000 was 0.98%. During the nine-year period
reflected in the bar chart, the best quarterly return was 9.00% and the worst
quarterly return was (7.47)%.
The chart below shows Series 2006's calendar year, total returns for the past
nine calendar years.
THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUND
SERIES 2006
ANNUAL TOTAL RETURNS
[Bar chart with the following data:]
12/31/91 19.32%
12/31/92 8.58%
12/31/93 22.78%
12/30/94 (11.47)%
12/29/95 35.08%
12/31/96 (2.31)%
12/31/97 11.93%
12/31/98 14.51%
12/31/99 (8.19)%
The bar chart does not reflect the 4.75% maximum sales loads. If the chart
reflected sales loads, returns would be less than those shown. The Fund's
year-to-date return as of March 31, 2000 was 3.03%. During the nine-year period
reflected in the bar chart, the best quarterly return was 11.48% and the worst
quarterly return was (11.59)%.
TABLE
The table below compares the Funds' average annual total returns for the one,
five and nine calendar year periods ended December 31, 1999, to those of the
Lehman Brothers Aggregate Bond Index. Performance reflects the payment of the
4.75% maximum sales loads charged by the Funds on the purchase of new shares
(currently, the Funds are closed to new investors).
RISK/RETURN TABLE
Average Annual Returns
for the Periods Ended 12/31/99
One-Year Five-Year Inception
Series 2001 3.85% 6.67% 7.70%
Series 2006 (12.53)% 8.14% 8.97%
Lehman Brothers Aggregate* (0.82)% 7.73% 7.72%
* The index covers four major classes of fixed-income securities in the U.S.:
U.S. Treasury and U.S. government agency securities, corporate debt obligations,
mortgage-backed securities and asset-backed securities.
EXPENSES
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Funds' shares:
<TABLE>
<CAPTION>
<S> <C> <C>
SHAREHOLDER FEES TARGET FUND TARGET FUND
(fees paid directly from your investment) SERIES 2001 SERIES 2006
----------- -----------
Maximum sales charge (load) imposed on purchases (as a 4.75% 4.75%
percentage of offering price)
ANNUAL FUND OPERATING EXPENSES TARGET FUND TARGET FUND
(expenses that are deducted from Fund assets) SERIES 2001 SERIES 2006
----------- -----------
Management fees* 0.50% 0.50%
Distribution (12b_1) fees* 0.10% 0.10%
Other expenses** 0.42% 0.38%
Total Fund operating expenses** 1.02% 0.98%
</TABLE>
* AAL Capital Management Corporation (AAL CMC), the Funds' adviser and
distributor, voluntarily reimburses the Funds for its management and
distribution (12b-1) fees. Although AAL CMC has no intention to do so, these
reimbursements are voluntary and AAL CMC may reinstate these fees in the future.
** AAL CMC will pay all expenses of the Funds in excess of 1.00%. After giving
effect to these voluntary expense reimbursements, the total Fund operating
expenses were 1.00% and 0.98% for Series 2001 and 2006, respectively. AAL CMC
makes monthly expense reimbursements to the Funds based on yearly projections.
Sometime these forecasted monthly expense reimbursements are larger than the
actual expense reimbursements required, resulting in lower total Fund operating
expenses.
EXAMPLE
This Example is intended to help you compare the costs of investing in the Funds
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Funds for the time periods
indicated. The Example also assumes that your investment has a 5% return each
year and that the Funds' operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
Time Period Target Fund Target Fund
Series 2001 Series 2006
1 year $576 $572
3 years $790 $778
5 years $1,022 $1,001
10 years $1,687 $1,642
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.
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
INVESTMENT OBJECTIVE
The Funds have an objective of providing a high investment return over selected
periods of time, consistent with investment in U.S. government securities. The
Funds offer two series, Series 2001 and Series 2006. The series mature on a
specified target date in each of those years. On the target date, a Fund will
convert its assets to cash and distribute the proceeds to shareholders. The
shareholders may chose to reinvest their proceeds, without a sales charge, in
another series of The AAL Mutual Funds, which are described in a separate
prospectus.
The Funds seek to return to investors a reasonably assured targeted dollar
amount, predictable at the time of investment, on the specific target date in
the future. To realize this return, you should plan to hold a Fund's shares
until maturity and reinvest all dividends and distributions. However, the Funds
cannot assure you that they will meet their investment objectives.
IMPLEMENTATION OF INVESTMENT OBJECTIVES
The Funds invest at least 80% of their assets in U.S. government zero coupon
securities. U.S. Government zero coupon securities include: U.S. Treasury notes
and bonds, and U.S. Treasury Bills that have no coupons and are not entitled to
income.
The Funds invest at least 50% of their assets in zero coupon U.S. government
securities maturing within two years of each Fund's target date. However, the
Funds expect that under normal circumstances they will invest a much greater
amount than 50%. The Funds may invest up to 20% in interest-paying U.S. Treasury
notes and bonds and in repurchase agreements on interest paying U.S. Treasury
notes and bonds. These interest-paying securities provide income for expenses,
redemption payments and cash dividends of each Fund.
WHAT ARE ZERO COUPON SECURITIES?
Zero coupon securities are non-interest (non-cash) paying debt obligations that
are payable in full (principal or par amount) at maturity. These securities
include U.S. Treasury notes and bonds that do not have coupons and do not pay
cash income, U.S. Treasury bills, individual interest coupons that trade
separately and evidences of receipt of such securities. Unlike Treasury
securities with coupons attached that generate periodic interest payments to the
holders, zero coupon securities pay no cash income until their maturity date.
Zero coupon securities are purchased at a substantial discount from their value
at their maturity date. The discount is amortized over the life of the zero.
When a zero is held to maturity, the entire return comes from the difference
between the purchase price and the maturity value. Because this difference is
known at the time of purchase, investors holding zero coupon securities until
maturity know the amount of their investment return at the time of their
investment.
WHY INVEST IN ZERO COUPON SECURITIES?
You invest in zero coupon securities because you can predict the return (dollar
amount) you will receive at maturity. An investment in zeros enables you to plan
to meet future financial goals, such as your retirement, future anticipated
expenses such as college education of children or grandchildren or the purchase
of a home.
Due to the nature of zero coupon securities, the Funds can estimate daily a
targeted dollar amount per share the Funds will receive on the target dates for
each Fund. The difference between the targeted amount and the net asset value
per share at the time of purchase is the projected return and is called
anticipated growth. Anticipated growth will consist primarily of the estimated
accretion (accumulation) of discount on the zero coupon securities in a Fund,
and to a much lesser degree, of projected cash flow in income-producing
securities in excess of estimated expenses.
On each business day, each Fund calculates its anticipated growth rate. This
growth rate is the annualized growth rate investors can expect from the time
they purchase a Fund's share until that Fund's target date. The Funds cannot
guarantee this growth rate because it involves certain assumptions about
variable factors such as reinvestment of dividends and distributions, the
expense ratio and composition of a Fund's portfolio.
QUALITY
The Treasury obligations in which the Funds invest are backed by the full faith
and credit of the U.S. government. The Funds may enter into repurchase
agreements with member banks of the Federal Reserve System with respect to such
securities.
RISKS
Interest Rate Risk
Interest rate risk is the risk that a rise in the level of interest rates will
reduce the market value (price) of securities held, particularly bonds, in a
Fund's portfolio. Typically, a bond pays a fixed rate of interest (called the
"coupon"). When interest rates rise in the economy the value of the coupon (the
amount received on the bond periodically) falls in comparison. As a result, the
price of the bond declines. The price of zero coupon bonds tend to fall even
more dramatically because they do not pay periodic coupons. Zero coupon
securities usually trade at a deep discount from their face or par value and are
subject to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which make current distributions of
interest.
Because the Funds invest primarily in zero coupon securities, the net asset
value per share may fluctuate substantially prior to the maturity date. Although
investors may redeem shares on any business day at net asset value, a
shareholder who redeems prior to maturity may experience a significantly
different investment return than was anticipated at the time of purchase.
Redemptions prior to maturity may result in capital gains or losses which may be
substantial.
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. As the Funds move towards their maturity dates, the variability in the
price of the securities in their portfolios should decline. The main risk is
when you do not hold zero coupons until maturity. Because zero coupon securities
do not make periodic interest payments, their market values decline more
dramatically when interest rates rise than the value of bonds that pays interest
(coupon) on a current basis. The market value of zero coupon bonds also rises
more dramatically than that of other bonds as interest rates fall.
To obtain the predicted return and reduce your exposure to the price volatility
caused by changing interest rates, you should plan to hold the Funds' shares
until maturity. You also should elect automatic reinvestment of dividends and
distributions. If you hold shares to maturity and reinvest dividends and
distributions you should experience a return consisting primarily of the
accretion (or accumulation) of discount on the underlying securities in the
Fund. The Funds, however, may invest up to 20% of its portfolio in interest
paying U.S. government securities. As a result, the Funds cannot guarantee your
total return, even if all shares are held until maturity and you have reinvested
all dividends and distributions.
REINVESTMENT RISK
A portion of the total realized return from traditional interest-paying bonds
comes from the reinvestment of periodic interest. Since the rate to be earned on
these reinvestments may be higher or lower than the rate quoted on the
interest-paying bonds at the time of the original purchase, the investment's
total return is uncertain even for investors holding the security until
maturity. This uncertainty is commonly referred to as reinvestment risk, and can
have a significant impact on total realized investment return. With zero coupon
securities, however, there are no cash distributions to reinvest, so investors
bear no reinvestment risk if they hold the zero coupon security to maturity.
The Funds may invest up to 20% of their assets in interest paying U.S.
government securities and repurchase agreements on such securities. As a result,
the Funds will have some reinvestment risk. To reduce this risk, each Fund must
invest at least half the market value of its net assets in zero coupon
securities maturing within two years of the Fund's target date.
PORTFOLIO TURNOVER
Because the Funds' objective is to return a reasonably predictable return at
maturity by purchasing predominantly zero coupon bonds, they should not have a
high rate of turnover. Therefore, the Funds should not experience the higher
transactional and potential tax consequences of frequent buying and selling of
securities in their portfolios.
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) owns all of AAL CMC's shares. AAL is a non-profit, non-stock,
membership organization licensed to do business as a fraternal benefit society
in all states. AAL has approximately 1.7 million members and is one of the
world's largest fraternal benefit societies in terms of assets and life
insurance in force. AAL ranks in the top two percent of all life insurers in the
United States in terms of ordinary life insurance (nearly $88 billion in force).
Membership is open to Lutherans and their families who serve or are associated
with Lutherans or Lutheran organizations, but who are not Lutheran. AAL offers
life, health, and disability income insurance and fixed annuities to its
members, and all members are part of one of approximately 10,000 local AAL
branches throughout the United States. Through AAL CMC, AAL offers The AAL
Mutual Funds to persons who are eligible for member ship in AAL. AAL CMC has
served as adviser to The AAL Mutual Funds since the commencement of operations.
As of June 1, 2000, AAL CMC managed over $7.7 billion for The AAL Mutual Funds.
The adviser's principal address is:
AAL Capital Management Corporation
222 West College Avenue
Appleton, Wisconsin 54919-0007.
AAL's principal address is:
AAL
4321 North Ballard Road
Appleton, Wisconsin 54919-0001.
Pursuant to an investment advisory agreement with The AAL Mutual Funds, AAL CMC
manages the investment and reinvestment of the Funds' assets, provides the Funds
with personnel, facilities and administrative services, and supervises the
Funds' daily business affairs, all subject to the supervision of The AAL Mutual
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.
ADVISORY FEE
The Adviser receives an investment advisory fee computed separately and paid
monthly for each Fund at the annual rate of 0.50 of 1% of the Fund's average
daily net assets. At this time, the Adviser voluntary reimburses the Funds'
advisory fee.
PORTFOLIO MANAGER
Alan D. Onstad has managed the day-to-day Fund investments since July 1, 2000.
Mr. Onstad currently manages The AAL Bond Fund, the AAL Variable Product Money
Market Portfolio, the money market portfolio of the AAL Savings Plan, and the
utility portfolio of AAL's general account. Mr. Onstad is also co-manager of The
AAL Balanced Fund. Mr. Onstad has been employed by AAL since 1973, most recently
as Assistant Vice-President of Securities.
SHAREHOLDER INFORMATION
PLEASE TAKE NOTICE
Sales of The AAL U.S. Government Zero Coupon Target Funds, Series 2001 and 2006
were closed to new shareholders and to additional purchases of shares by
existing shareholders effective May 31, 1993. Purchases of shares by
reinvestment of dividends and capital gains, if any, in existing shareholder
accounts will continue to be allowed and will be at net asset values. Although
there is no intent to do so, sales of the Funds could be reopened in the future.
The discussion elsewhere herein as to the purchase of shares of the Funds is
qualified by the foregoing limitations.
PRICING OF 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
on the New York Stock Exchange (NYSE) (normally 3:00 p.m. Central Time). 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 by or under the
direction of 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 as next determined after the Funds have received your payment or your
redemption request.
HOW TO BUY SHARES
Initial Purchases in New Accounts
The Funds offer the sales of their shares through AAL CMC, as the distributor,
and your AAL CMC registered representative. You may make initial purchases of
the Funds' shares by mail (including private mail delivery services) or by wire.
The Funds require a separate account registration for each individual account,
joint account, fiduciary account, custodial accounts for minors and tax-deferred
accounts (for example, IRA, 403(b)(7) custodial accounts, and pension and profit
sharing plans). The Funds may require additional documentation for some of these
accounts. You should consult your legal adviser if you have questions regarding
the type of registration best suited for your needs. All accounts, but
especially fiduciary accounts, custodial accounts for minors, and tax-deferred
accounts, may impose legal requirements, and result in income, gift and estate
tax consequences which are the sole responsibility of shareholders and their
professional advisers. Neither the Funds nor AAL CMC and its registered
representatives provide legal or tax advice to shareholders. You may obtain
further information on the documents required to open your account from your
registered representative or AAL CMC through the Mutual Fund Service Center at
800-553-6319.
Initial Purchases by Mail
Initial purchases by mail may be made by sending a check, made payable to The
AAL Target Fund Series 2001 or The AAL Target Fund Series 2006, along with a
completed shareholder application and new account form to:
The AAL Mutual Funds
Attention: New Accounts
AAL Capital Management Corporation
222 West College
Avenue Appleton, WI 54919-0007
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.
Initial Purchase by Wire
You may make Initial purchases of the Funds' shares by wire transfer by taking
the following three steps:
1. Telephone the AAL CMC through the Mutual Fund Service Center at
800-553-6319 or 414-734-7633 and provide your account registration,
address, social security or tax identification number, the amount being
wired, the name of the wiring bank and the name and telephone number of the
person to be contacted at your bank in connection with the purchase;
2. Instruct your bank (which must be a member of, or have a corresponding
relationship with a member of the Federal Reserve System) to wire federal
funds as follows:
Firstar National Bank
ABA No. 0750-00022
For Credit to Firstar Mutual Fund Services, LLC
Acct. No 112-950-027
For Further Credit to The AAL U.S. Government Zero Coupon
Target Fund (specify target year)
Account Registration (name(s) of shareholder); and
3. Complete the application form and mail it immediately to:
AAL Capital Management Corporation
222 West College Ave.
Appleton, WI 54919-0007
Additional Purchases in Existing Accounts
After you have opened an account with The AAL Mutual Funds, you may purchase
additional shares in your account by mail or wire.
Additional Purchase by Mail
Payment for additional purchases in existing Fund accounts should be sent
directly to the Funds' transfer agent at the following address:
The AAL Mutual Funds
c/o Firstar Mutual Fund Services, LLC
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 Mutual Fund Services, LLC, 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. Funds received after the
close of the NYSE will purchase shares on the following day at the following
day's price.
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.
OTHER PURCHASE INFORMATION
Shareholders begin earning income on the business day following the date that
payment for the purchase is received by the Funds' transfer agent. All purchases
must be made in U.S. dollars and checks must be drawn on U.S. banks. The Funds
do not accept cash or travelers checks. If your check does not clear, your
purchase will be canceled and you will be liable for any losses or 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 Mutual Fund
Service, LLC, 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 AAL Mutual Funds offer several Automatic Investment Plans available to make
periodic investing more convenient. These Plans do not need an initial
investment. It takes 12 days from the time you invest for the transfer agent to
validate any electronic transfer. This will cause some delay in your ability to
write checks on an AAL Money Market Fund Account or to redeem or transfer from
your account.
The Bank Draft Plan
Investors who wish to make regular additional investments in an existing Fund
Account may do so through the Funds' Bank Draft Plan. Under this Plan the Funds
will draft an investor's bank checking or savings account in the amount
specified -- which may not be less than $25 per account -- on specified dates,
up to two transactions per month (at least 10 days apart), and have the proceeds
invested in shares of the specified Fund at the applicable offering price
determined on the date of the draft. To use this Plan you must authorize the
Plan on your application form, or subsequently in writing, and submit additional
documents. Your instructions to establish a Bank Draft Plan or to change the
Bank on an existing Plan, must be received by the Funds' transfer agent at least
13 business days prior to the transaction date. Your instructions for stopping a
Bank Draft Plan or changing the dollar amount on an existing Plan must be
received by the Funds' transfer agent at least 5 business days prior to the
transaction date. For further information contact AAL Capital Management
Corporation (Mutual Fund Service Center -- 800-553-6319) or your Registered
Representative. Instructions for changes, additions or termination of a Bank
Draft Plan must be in writing and signed by all bank account owners.
The Capital Builder Plan
The Capital Builder Plan also allows investors to make regular automatic
investments in an existing account in The AAL Technology Stock, Aggressive
Growth, Small Cap Stock, Mid Cap Stock, International, Capital Growth, Equity
Income, Large Company Index II, Mid Cap Index II, Small Cap Index II, Balanced,
High Yield Bond, Municipal Bond, and Bond Funds by redemption of shares from
their AAL Money Market Fund. 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 participate , to invest in The Funds through direct deduction
from their paychecks or commission checks.
PRESTIGE ACCOUNT
Investors who maintain a significant share balance will be provided with
additional benefits, including personal attention from Prestige Account
Representatives, an exclusive toll-free telephone number, personalized
investment analysis, complimentary financial information, a Prestige Account
organizer and more. Your AAL Capital Management Corporation Registered
Representative can provide more detailed information.
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) Plan
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
Because the Funds invest primarily in zero coupon securities, the net asset
value per share may fluctuate substantially prior to the maturity date. Although
investors may redeem shares on any business day at net asset value, a
shareholder who redeems prior to maturity may experience a significantly
different investment return than was anticipated at the time of purchase.
REDEMPTION BY MAIL
Shareholders of any of the Funds may have their shares redeemed at any time at
the net asset value per share next determined after a written request and all
additional documents, if required, are received in proper form by the Funds'
transfer agent.
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
for redemption to:
The AAL Mutual Funds
c/o Firstar Mutual Fund Services, LLC
615 East Michigan Street
P. O. Box 2981
Milwaukee, Wisconsin 53201-2981
In your redemption request, you must include your shareholder account number and
specify the dollar or share amount you wish to redeem. You and any other persons
registered as shareholders on the account must sign your redemption request. You
must sign the request exactly as the account is registered. If you wish to
redeem shares with a value in excess of $25,000, you must have your signature(s)
guaranteed. The transfer agent will accept signature guarantees from all
institutions that are eligible to provide signature guarantees under federal or
state law, provided that the individual giving the signature guarantee is
authorized to do so. Institutions that usually are eligible to provide signature
guarantees include commercial banks, trust companies, brokers, dealers, national
securities exchanges, savings and loan institutions and credit unions. Please
note that a signature guarantee is not the same as a notarized signature. If
shares are held in the name of a corporation, trust, estate, custodianship,
guardianship, partnership or pension and profit sharing plan, or if you have
requested and received share certificates, additional documentation may be
necessary. If you wish to redeem an IRA or other retirement plan you must
indicate on the redemption request whether or not federal income tax should be
withheld. Redemption requests that fail to indicate an election not to have
federal tax withheld will be subject to withholding.
TELEPHONE REDEMPTIONS
The privilege to redeem shares by telephone is automatically extended to all
accounts, unless the option is specifically declined. If you do not want the
telephone redemption option, please call the AAL Mutual Fund Service Center at
(800) 553-6319. By accepting this privilege, you assume some risks for
unauthorized transaction. 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:
o Telephone redemption checks will be issued to the same payee(s) as the
account registration and sent only to the address of record;
o There has been no change of address in the preceding 60 days;
o The request is for $25,000 or less;
o Retirement plan accounts are not eligible;
o Shares to be redeemed cannot be in certificate form; and
o Only one telephone redemption is permitted within any 30 day period for
each authorized account.
TELEPHONE REDEMPTIONS BY BANK WIRE
o 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 Mutual Fund Services, LLC
615 E. Michigan Street
P. O. Box 2981
Milwaukee, WI 53201-2981.
o Wire redemptions can be made for any amount.
o A $12.00 fee is assessed for redemptions by wire.
o Requests received in good order before the close of the NYSE (usually 3:00
p.m. Central time) receive that day's price.
If an account has multiple owners, AAL Capital Management Corporation may rely
on the instructions of any one account owner. This privilege may not be
available on all retirement plan accounts.
REINSTATEMENT PRIVILEGE
So long as sales of the Funds are closed, the following reinstatement privilege
does not apply.
A shareholder who redeems shares in a Fund on which a commission has been paid
may, within 60 days after the date of redemption, reinstate any portion or all
of a redemption in shares of a Fund (in the same Fund and with the same
registration) without sales charges at net asset value next determined after
receipt by the transfer agent of a written request for reinstatement together
with a check for the amount to be reinstated. This reinstatement privilege is
available only once with respect to any one shareholder account. Reinvested
funds must be provided by a single check. In order to receive the reinvestment
privilege, shareholders must clearly state in writing at the time of purchase
that they qualify for the privilege.
Any gain recognized on a redemption is taxable despite the reinstatement in a
Fund. Any loss realized as a result of a redemption may not be allowed as a
deduction for federal income tax purposes, but may be applied, depending on the
amount reinstated, to adjust the cost basis of the shares acquired on
reinstatement.
INVOLUNTARY REDEMPTION
Because all account owners share the high cost of maintaining accounts with low
balances, the Funds reserve the right to involuntarily redeem a shareholder's
account, other than a retirement plan account, at any time the value of the
account falls below $250 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.
In addition to the two series of The AAL U.S. Government Zero Coupon Target
Funds, fifteen other AAL Mutual Funds currently are offered in Class A and B
shares. They are: The AAL Technology Stock, Aggressive Growth, Small Cap Stock,
Mid Cap Stock, International, Capital Growth, Equity Income, Large Company Index
II, Mid Cap Index II, Small Company Index II, Balanced, High Yield Bond,
Municipal Bond, Bond and Money Market Funds. Shareholders interested in
exchanging into any of these Funds should contact the Mutual Fund Service Center
at 800-553-6319, or their AAL Capital Management Corporation Registered
Representative for a current prospectus prior to making an exchange.
Shareholders of a Fund may only exchange into such other Funds as are legally
available for sale in any state. If shares are held in the name of a
corporation, trust, estate, custodianship, guardianship, partnership or pension
and profit sharing plan, or if you have requested and received share
certificates, additional documentation may be necessary.
Exchanges are sales for tax purposes and could result in a gain or loss,
depending on the original cost of shares exchanged.
An excessive number of exchanges may be disadvantageous to the Funds. Therefore,
the Funds reserve the right to terminate the exchange privilege of any
shareholder who makes more than twelve exchanges in a year. Further, the Funds
reserve the right to modify or terminate the exchange privilege at any time with
respect to any Fund, if the Funds' Trustees determine that continuing the
privilege may be detrimental to shareholders.
Telephone Transactions
You can sell or exchange shares by phone. By doing so, you assume some risks for
unauthorized transactions. AAL Capital Management Corporation has 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.
Exchanges by Telephone
Telephone exchanges (transactions in which the registration does not change) are
subject to the requirements described above, and additional requirements as
follows.
Shareholders may exchange shares for which certificates have not been issued by
telephoning the Mutual Fund Service Center at 800-553-6319 or 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 the shareholder elects the
telephone exchange option on his initial purchase application, or requests the
telephone exchange privilege in a subsequent written request, signed by all
registered owners, with all signatures guaranteed.
During periods of extreme volume caused by dramatic economic or stock market
changes, shareholders may have difficulty reaching the Mutual Fund Service
Center by phone, and a telephone exchange may be difficult to implement at those
times. The Funds reserve the right to temporarily discontinue the telephone
exchange privilege during such periods of extreme volume.
DIVIDENDS, DISTRIBUTIONS AND TAXES
As with all funds distributing taxable income, you as a tax-paying investor will
be subject to income taxes on all dividends and distributions. You will be
subject to taxes on all dividends and distributions whether you elect to take
them in cash or have them reinvested.
Each Fund intends to distribute in December and, if necessary, at such other
times as the Fund may determine, its net investment income and any net realized
capital gains resulting from investment activity. Any dividend (including a
capital gains dividend) declared in October, November or December with a record
date in such a month and paid during the following January will be treated by
shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared. Cumulative statements showing all activity in the
account for the prior year will be mailed annually to all shareholders.
All income and capital gains distributions are reinvested in full and fractional
shares of a Fund at net asset value, without sales charges, on a payment date
unless a shareholder has requested payment in cash on the shareholder
application or by separate written request.
A shareholder's projected return at maturity assumes the reinvestment of all
income and capital gains distributions. If a shareholder elects to receive these
distributions in cash, the return at maturity will be substantially less than
was anticipated at the time of purchase.
Each Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code (the "Code") and to take all other action required so that
no federal income tax will be payable by the Funds themselves. Each Fund will be
treated as a separate regulated investment company under the Code. Shareholders
are provided annually with full information on income and capital gains
distributions for tax purposes. Shareholders should consult their tax advisers
regarding the applicability of state and local taxes to dividends and
distributions.
Under federal income tax laws, a portion of the difference between the purchase
price of zero coupon securities and their face value is considered to be income
to a Fund each year, even though the Fund will not in each year receive cash
interest payments from these securities.
The Funds must distribute substantially all their net investment income each
year, including the imputed income (the accrued interest for that year from the
discount on purchases) from their zero coupon investments. Because of its
imputed income, each Fund may be required to pay out as an income distribution
each year an amount greater than the total amount of cash interest a Fund
actually received. Such distributions may come from cash assets or from
liquidating some portfolio securities. If securities are liquidated, a Fund may
realize a gain or loss from the sale. As with all funds distributing taxable
income, tax-paying investors in the Fund will be subject to income taxes on
income and capital gain distributions whether they elect to take them in cash or
have them reinvested.
If the Funds hold zero coupon bonds until maturity, they should not realize
capital gains on these securities. However, if a Fund has to sell zero coupon
securities to meet redemptions prior to their maturity (and the target date of
the Fund) the value the Fund receives for the securities sold may reflect a
premium over the principal and interest. This may happen particularly when
interest rates are lower at the time of redemption. As a result, redemptions of
shares prior to the target date may result in greater capital gains to the Fund,
which would be distributed to the shareholders, than would otherwise have been
realized. Capital gains distributed to shareholders result in a taxable event in
the year of distribution.
OTHER TAX INFORMATION
The Funds are required by federal law to withhold 31% of reportable payments
(which include dividends, capital gain distributions and redemption proceeds)
paid to certain shareholders who have not properly certified that the Social
Security or other taxpayer identification number provided by the shareholder is
correct and that he or she is not otherwise subject to backup withholding. The
Funds' shareholder application includes the required certification.
No attempt is made herein to provide information as to state and local tax
consequences of ownership of shares of the Funds. Investors should consult their
personal tax adviser to determine the consequences of state and local taxes.
DISTRIBUTION ARRANGEMENTS
SALES CHARGES (LOADS)
The public offering price of the shares of the Funds is the net asset value per
share next computed after receipt of an order in proper form by the Funds'
transfer agent plus a sales charge received by the distributor, AAL CMC. The
sales charge is expressed as a percentage of the public offering price, and the
net amount invested, in the table below:
<TABLE>
<CAPTION>
<S> <C> <C>
Sales Charge as a % of Public Sales Charge as a % of Net
Amount of Purchase Offering Price Amount Invested
Less than $25,000 4.75% 4.99%
$25,000 or more, but less than $100,000 4.50% 4.71%
$100,000 or more, but less than $250,000 3.50% 3.63%
$250,000 or more, but less than $500,000 2.00% 2.04%
$500,000 or more, but less than $,1,000,000 0.50% 0.50%
$1,000,000 or more* No Load No Load
</TABLE>
* Registered Representatives may receive, from the distributor, compensation not
exceeding 0.25 of 1% of amounts invested at this purchase level.
Trustees, directors, and employees of the Funds and the adviser, as well as
persons licensed to receive commissions for sales of The AAL Mutual Funds, may
not pay a sales charge on their purchases or on the purchases made by family
members residing with them. We reserve the right to change or stop these
reductions at any time. We will notify you in advance of any changes.
Reduced Sales Charges
Investors may benefit from a reduction of the sales charges shown in the above
table through several purchase plans which are described below. To receive the
benefit of a reduced sales charge, a shareholder must inform the Funds' transfer
agent in writing at the time of the new purchase that the purchase qualifies for
a reduced sales charge and provide substantiating information. Reduced sales
charge provisions may be modified or terminated at any time on notice to
shareholders.
AAL branches, Lutheran congregations, Lutheran charitable organizations,
charitable remainder unitrusts and other charitable organizations sponsored by
or affiliated with Lutheran congregations, which qualify for tax exemption under
Section 501(c)(3) or (13) of the Internal Revenue Code, will be charged one-half
of the standard sales charge for purchase of the Funds, except that no reduction
will be given in connection with 403(b)(7) custodial accounts, which are
individual custodial accounts. Qualifying charitable non-profit organizations
will generally include churches, schools, colleges, seminaries, cemetery funds,
and foundations organized for charitable purposes. Lutheran organizations
qualified to receive the reduced sales charge must include substantiating
information at the time of purchase. The reduced sales charges, expressed as a
percentage of the public offering price and the net amount invested, for this
exception to the standard sales charges are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sales Charge as a % of Sales Charge as a % of 50% Sales Charge as a %
Amount of Purchase Public Offering Price Net Amount Invested of Public Offering Price
Less than $25,000 2.375% 2.430% 1.187%
$25,000 or more, but less than 2.250% 2.302% 1.125%
$100,000
$100,000 or more, but less than 1.750% 1.781% 0.875%
$250,000
$250,000 or more, but less than 1.000% 1.010% 0.500%
$500,000
$500,000 or more, but less than 0.250% 0.250% 0.125%
$,1,000,000
$1,000,000 or more No Load No Load No Load
</TABLE>
RIGHT OF ACCUMULATION
An investor with multiple accounts and investors who are related and living
within the same household may "link" their accounts in the Funds and in the
other AAL Mutual Funds so they are eligible for a reduced sales charge based on
the current value of shares owned, computed at the public offering price, plus
the amount of the new investment. The AAL Money Market Fund shares may be
included if they were acquired in a simultaneous transaction (i.e. exchange) in
which shares of another AAL Mutual Fund on which a sales charge was paid are
redeemed and the proceeds of sale were used to purchase AAL Money Market Fund
shares. SEPs, SARSEPs and 403(b)(7) custodial accounts (except individual IRAs)
are linked with all other accounts in the plan and therefore may not be linked
with individual accounts. Accounts of institutional trustees will not be linked,
except within individual trusts. Please refer to the table on page 25 for the
sales charges, expressed as a percentage of the public offering price and the
net amount invested, at the different breakpoint levels.
LETTER OF INTENT
Investors who establish a total investment goal in shares of any of The AAL
Mutual Funds (except The AAL Money Market Fund) of $25,000 or more to be made
over a 13-month period may purchase shares during this period at the reduced
sales charge applicable to the goal amount. To meet the Letter of Intent goal,
the investment amount must be fully invested at some point in time during the
13-month period. The effective date of a Letter of Intent may be back-dated up
to 90 days, in order that any investment made during this 90-day period, valued
at the purchaser's cost, can be applied to the fulfillment of the Letter of
Intent goal. Sales charges on prior purchases will not be recalculated or
refunded. All shares of the Funds with the same registration, and shares in
accounts which have been "linked" under the Right of Accumulation, which are
purchased during the 13-month period, and still owned, will be included at the
purchaser's cost in determining the applicable sales charge, provided, however,
that AAL Money Market Fund shares may be included only to the extent they were
acquired in a simultaneous transaction (i.e. exchange) in which shares of
another AAL Mutual Fund, on which a sales charge was paid, are redeemed and the
proceeds of sale were used to purchase the Money Market Fund shares. The Letter
of Intent option is not available on 403(b)(7) custodial accounts, SEP-IRAs or
SARSEP-IRAs. Please refer to the table on page 19 for the sales charges,
expressed as a percentage of the public offering price and the net amount
invested, at the different breakpoint levels above $25,000.
A Letter of Intent does not obligate the investor to buy any Fund shares.
However, if the goal amount is not purchased during the term of the Letter of
Intent, the sales charge will be recalculated and charged at the rate applicable
to the shares actually purchased, and the difference between the sales charge
paid and the sales charge due will be charged against the account. During the
term of the Letter of Intent, the transfer agent will escrow shares totaling 5%
of the investment goal indicated in the Letter of Intent to cover any additional
sales charge which may become due, and will redeem the number of shares
necessary to pay the additional sales charge after expiration of a Letter of
Intent if the goal amount is not met. A Letter of Intent will be considered in
default and the additional sales charges will be recovered if redemptions reduce
the account value below 5% of the investment goal during the 13-month period.
DISTRIBUTION (12B-1) FEES
In addition to the sales charge deducted at the time of purchase, each of the
Funds is authorized under a distribution plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940 to use a portion of its assets to
finance certain activities relating to the distribution of its shares to
investors. The Plan permits payments to be made by each of the Funds to the
distributor to reimburse it for expenditures incurred by it in connection with
the distribution of each of the Funds' shares to investors. These payments
include, but are not limited to, the payment of compensation to selling
representatives (excluding the initial sales charge), advertising, preparation
and distribution of sales literature and prospectuses to prospective investors,
implementing and operating the Plan, and performing other promotional or
advertising activities on behalf of each of the Funds. Plan payments may also be
made to reimburse the distributor for its overhead expenses related to
distribution of the Funds' shares. No reimbursement may be made under the Plan
for expenses of past fiscal years or in contemplation of expenses for future
fiscal years. Distribution fees paid by one Fund may not be used to finance
distribution of shares of another Fund. Under the Plan, the payments may not
exceed an amount computed at an annual rate of 0.10 of 1% of the average daily
net assets of each Fund. The Plan is subject to review and annual approval by
the Board of Trustees.
Because the Funds' shares are no longer being sold, the distributor is waiving
its distribution (12b-1) fees under the distribution plan. The distributor will
not reinstate the receipt of such fees as long as the Funds remain closed to no
new sales.
FINANCIAL HIGHLIGHTS
SERIES 2001 AND 2006
The financial highlights table is intended to help you understand The AAL U.S.
Government Zero Coupon Target Fund, Series 2001 and Series 2006 performance for
the past 5 years. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by
PricewaterhouseCoopers, LLP, whose report, along with the Fund's financial
statements, are included in the annual report. You may obtain an annual report
free by calling 800-553-6319.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SERIES 2001 Year Year Year Year Year
Ended Ended Ended Ended Ended
4/30/00 4/30/99 4/30/98 4/30/97 4/30/96
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period $10.59 $10.61 $10.38 $10.55 $10.37
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.65 0.64 0.63 0.64 0.65
Net Realized and Unrealized Gain (Loss) on Investments (0.40) 0.02 0.30 (0.07) 0.33
Total From Investment Operations 0.25 0.66 0.93 0.57 0.98
DISTRIBUTIONS FROM:
Net Investment Income (0.65) (0.64) (0.63) (0.64) (0.76)
Net Realized Capital Gains (0.03) (0.04) (0.07) (0.10) (0.04)
Total Distributions (0.68) (0.68) (0.70) (0.74) (0.80)
Net Asset Value - End of Period $10.16 $10.59 $10.61 $10.38 $10.55
Total Return (1) 2.38% 6.23% 9.17% 5.42% 9.23%
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions) $1,428 $1,546 $1,525 $1,711 $1,811
Ratio of Expenses to Average Net Assets (2)* 1.00% 1.00% 0.77% 0.97% 1.00%
Ratio of Investment Income (Loss) to Average Net Assets 6.20% 5.88% 6.16% 6.08% 5.84%
(2)*
Portfolio Turnover Rate 0.00% 0.00% 0.00% 0.00% 0.00%
* If the Fund had paid all of its expenses the ratios
would be as follows:
Ratio of Expenses to Average Net Assets 1.02% 1.00% 0.84% 0.99% 1.74%
Ratio of Net Investment Income (Loss) to Average Net Assets 6.18% 5.88% 6.10% 6.07% 5.10%
1. Total Return assumes reinvestment of all dividends and distributions but
does not reflect any deduction for sales charge. The aggregate, not
annualized total return is shown for periods less than one year.
2. For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) to average
net assets are calculated on an annualized basis.
SERIES 2006 Year Year Year Year Year
Ended Ended Ended Ended Ended
4/30/00 4/30/99 4/30/98 4/30/97 4/30/96
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period $12.39 $12.13 $11.24 $11.33 $10.93
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.72 0.71 0.70 0.71 0.71
Net Realized and Unrealized Gain (Loss) on Investments (1.02) 0.36 1.00 0.08 0.65
Total From Investment Operations (0.30) 1.07 1.70 0.79 1.36
DISTRIBUTIONS FROM:
Net Investment Income (0.72) (0.71) (0.70) (0.71) (0.87)
Net Realized Capital Gains (0.10) (0.10) (0.11) (0.17) (0.09)
Total Distributions (0.82) (0.81) (0.81) (0.88) (0.96)
Net Asset Value - End of Period $11.27 $12.39 $12.13 $11.24 $11.33
Total Return (1) (2.29)% 8.69% 15.30% 6.84% 11.80%
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions) $1,467 $1,575 $1,616 $1,453 $1,480
Ratio of Expenses to Average Net Assets (2)* 0.98% 0.97% 0.82% 1.00% 1.00%
Ratio of Investment Income (Loss) to Average Net Assets 6.21% 5.51% 6.03% 6.22% 5.83%
(2)*
Portfolio Turnover Rate 0.00% 0.00% 0.00% 0.00% 0.00%
* If the Fund had paid all of its expenses the ratios
would be as follows:
Ratio of Expenses to Average Net Assets 0.98% 0.97% 0.90% 1.17% 2.07%
Ratio of Net Investment Income (Loss) to Average Net Assets 6.21% 5.51% 5.96% 6.04% 4.76%
</TABLE>
1. Total Return assumes reinvestment of all dividends and distributions but
does not reflect any deduction for sales charge. The aggregate, not
annualized total return is shown for periods less than one year.
2. For periods less than one year, both the ratio of net operating expenses to
average net assets and the ratio of net investment income (loss) to average
net assets are calculated on an annualized basis.
<PAGE>
You will find additional information about the Funds that supplements
information in the prospectus in the statement of additional information. Also,
you will find additional information about the Funds' investments in the Funds'
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 electronic request to e-mail address:
[email protected], or by writing the Public Reference Section of the Securities
and Exchange Commission at 405 5th Street, N. W., Washington, D. C. 20549 -
6009.
Investment Company Act File No. 811-5075
<PAGE>
THE AAL MUTUAL FUNDS
THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUNDS
SERIES 2001 AND SERIES 2006
222 West College Ave.
Appleton, WI 54919-0007
Telephone: (800) 553-6319 TDD: 800-684-3416
STATEMENT OF ADDITIONAL INFORMATION
Dated July 1, 2000
This Statement of Additional Information is not a prospectus, but provides
additional information to supplement the prospectus for The AAL U.S. Government
Zero Coupon Target Funds, Series 2001 and 2006, dated July 1, 2000. You should
read the statement of additional information in conjunction with the prospectus,
and any supplements thereto. You may obtain the Funds' prospectus at no charge
by writing or telephoning the Funds at the address and telephone number above.
In this Statement of Additional Information, The AAL Mutual Funds are referred
to as the "Trust," and The AAL U.S. Government Zero Coupon Target Funds, Series
2001 and 2006 are referred to collectively as the "Funds" or individually as a
"Fund."
The Funds have incorporated by reference financial statements, notes to
financial statements and report of independent accountants for the Funds
included in the Annual Report to Shareholders of the Trust, for the year ended
April 30, 2000.
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Page
Fund History
Description of the Fund and Its Investments and Risks
Management of the Fund
Control Persons and Principal Holders of Securities
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Capital Stock and Other Securities
Purchases, Redemptions and Pricing of Shares
Taxation of the Fund
Underwriters
Calculation of Performance Data
Financial Statements
<PAGE>
HISTORY OF THE FUNDS
The AAL U.S. Government Zero Coupon Target Funds (the Funds) are two series of
The AAL Mutual Funds (the Trust). The Trust is a Massachusetts Business Trust,
which was organized on June 9, 1987. The Trust has different series of shares.
The Trust refers to each series as a fund. In addition to The AAL U.S.
Government Zero Coupon Target Funds, twenty other AAL Mutual Funds (series)
exist (available in both Class A, Class B and Institutional shares). The
following other series are described in separate prospectuses: The AAL
Technology Stock, Aggressive Growth, Small Cap Stock, Small Cap Index II, Mid
Cap Stock, Mid Cap Index, Mid Cap Index II, International, Capital Growth Fund,
Large Company Index, Large Company Index II, Equity Income, Balanced, High Yield
Bond, Municipal Bond, Bond and Money Market Funds.
Shares of The AAL U.S. Government Zero Coupon Target Funds, Series 2001 and
2006, became available to the public on November 14, 1991. The Funds closed
sales to new shareholders and to additional purchases by existing shareholders
on May 31, 1993, except for automatic investment plan purchases. The Funds
allowed automatic investment plan purchases to continue through June 30, 1993.
The Funds allow existing shareholders to continue their purchases of shares by
reinvesting dividends and capital gains, if any, at net asset value in their
existing shareholder accounts.
The AAL Mutual Funds offer investment opportunities to eligible Lutherans
(including their families and their enterprises), and to Aid Association for
Lutherans (AAL) members and employees. The Funds also offer investment
opportunities to AAL branches, Lutheran congregations and trusts, employee
benefit plans and organizations sponsored by or affiliated with Lutheran
congregations. Lutheran investors in The AAL Mutual Funds are eligible for
associate membership in Aid Association for Lutherans ("AAL"), which entitles
them to become a part of one of approximately 9,750 local AAL branches
throughout the U.S. Through these branches and AAL, members help each other, aid
Lutheran congregations and their institutions and reach out to their communities
through charitable, educational, social, benevolent, fraternal and patriotic
programs.
FUNDS' ORGANIZATION AND DESCRIPTION AND THEIR INVESTMENTS AND RISKS
THE FUNDS' CLASSIFICATION
The U.S. Government Zero Coupon Funds, Series 2001 and 2006 are open-end mutual
funds, meaning that they continuously issue redeemable shares representing
interests in the Funds' underlying portfolio of U.S. government securities.
OTHER INVESTMENT STRATEGIES AND RISKS
The following information supplements the information provided in the prospectus
on the Funds' principal investment strategies and risks.
ZERO COUPON SECURITIES
The Funds invest at least 80% of a Fund's net assets in U.S. government zero
coupon securities. At least 50% of each Fund's net assets will be invested in
U.S. government zero coupon securities maturing within two years of the Fund's
target date.
In addition to the types of U.S. government zero coupon securities discussed in
the prospectus, zero coupon securities may include U.S. Treasury bonds or notes
and their unmatured interest coupons which have been separated by their holder,
typically a custodian bank or investment brokerage firm. A holder will separate
the interest coupons from the underlying principal (the "corpus") of the U.S.
Treasury security. A number of securities firms and banks have stripped the
interest coupons and resold them in custodial receipt programs with a number of
different names, including "Treasury Income Growth Receipts" ("TIGRS") and
Certificate of Accrual on Treasuries ("CATS"). The underlying U.S. Treasury
bonds and notes themselves are held in book-entry form at the Federal Reserve
Bank or, in the case of bearer securities, (i.e., unregistered securities that
are owned ostensibly by the bearer or holder thereof), in trust on behalf of the
owners thereof. The staff of the Securities and Exchange Commission no longer
considers "TIGRS" and "CATS" government securities.
The Treasury has facilitated transfers of ownership of zero coupon securities by
accounting separately for the beneficial ownership of particular interest coupon
and corpus payments on Treasury securities through the Federal Reserve
book-entry record-keeping system. The Federal Reserve program as established by
the Treasury Department is known as "STRIPS" or "Separate Trading of Registered
Interest and Principal of Securities." Under the STRIPS program, a Fund will be
able to have its beneficial ownership of zero coupon securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidences of ownership of the underlying U.S. Treasury
securities.
When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic interest (cash) payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
bundled form. Purchasers of stripped obligations acquire, in effect, discount
obligations that are economically identical to the zero coupon securities that
the Treasury sells itself.
REPURCHASE AGREEMENTS
The Funds may from time to time enter into repurchase agreements. Repurchase
agreements involve the sale of securities to a Fund with the current agreement
of the seller (a bank or securities dealer) to repurchase the securities at the
same price plus an amount equal to an agreed upon interest rate within a
specified time. The specified period of time is usually one week, but on
occasion the period may be for a longer period. The Funds require continual
maintenance of collateral (in cash or U.S. government securities) held by the
custodian in an amount equal to, or in excess of, the market value of the
securities that are the subject of the repurchase agreement.
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, there may be delays and expenses in liquidating the securities,
declines in their value, and losses of interest. The Funds' adviser maintains
procedures for evaluating and monitoring the creditworthiness of firms with
which they enter into repurchase agreements. No Fund may invest more than 10% of
its total assets in repurchase agreements maturing in more than seven days or in
securities subject to legal or contractual restrictions on resale.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Funds may purchase securities on a when-issued or delayed delivery basis.
Although the payment and interest terms of these securities are established at
the time the purchaser enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase, when their
value may have changed. The Funds only purchase on a when-issued or delayed
delivery basis with the intention of actually acquiring the securities. The
Funds may sell the securities before settlement date if the adviser deems it
advisable for investment reasons.
At the time a Fund enters into a binding obligation to purchase securities on a
when-issued basis, the Fund will have its custodian identify liquid assets
having a value at least as great as the purchase price on its books throughout
the period of the obligation. The use of these investment strategies may
increase net asset value fluctuation.
SHORT-TERM TRADING
Although there is no present intention to do so, the Funds, consistent with
their investment policies, may engage in short-term trading (selling securities
for brief periods of time, usually less than three months). The Funds will only
engage in short-term trading if the adviser believes that such transactions, net
of costs, would further the attainment of their investment objectives. For
example, the needs of different classes of lenders and borrowers and their
changing preferences and circumstances have in the past caused market
dislocations unrelated to fundamental creditworthiness and trends in interest
rates. These market dislocations have presented market trading opportunities.
Such market dislocations might result from a broker needing to cover a
substantial short position in a security or an abnormal demand for a security
created by an unusually large purchase or sale by an institutional portfolio
manager. The Funds cannot assure that such dislocations will occur in the future
or that they will be able to take advantage of them. The Funds will limit their
voluntary short-term trading, if any, to the extent necessary to qualify as a
"regulated investment company" under the Internal Revenue Code.
LENDING PORTFOLIO SECURITIES
Although there is no present intention to do so, the Funds may from time to time
lend securities from their portfolios to brokers, dealers and financial
institutions such as banks and trust companies. The adviser will monitor the
creditworthiness of firms with which the Funds engage in securities lending
transactions. In doing so, a Fund would continue to receive the equivalent of
the interest or dividends paid by the issuer on the securities loaned, and would
also receive an additional return which may be in the form of a fixed fee or a
percentage of the collateral. A Fund would have the right to call the loan and
obtain the securities loaned at any time on notice of not more than five
business days.
The adviser will monitor the creditworthiness of firms with which the Funds
engage in securities lending transactions. Collateral values are continuously
maintained at 100% and marked to market daily. However, in the event of
bankruptcy or other default of the borrower, a Fund could experience both delays
in liquidating the loan collateral or recovering the loaned securities,
including possible decline in value of the collateral or loaned securities,
possible lack of access to income during this period, and expenses of enforcing
its rights.
OTHER FUND POLICIES
The Funds' investment objective, which is to provide a high investment return
over the selected periods of time (2001 and 2006), consistent with investments
in U.S. government securities, is a fundamental policy. This means that it may
not be changed without the approval of a "majority of the outstanding voting
securities" of that Fund. A "majority of the outstanding voting securities"
means the approval of the lesser of: (i) 67% or more of the voting securities at
a meeting if the holders of more than 50% of the outstanding voting securities
of a Fund are present or represented by proxy; or (ii) more than 50% of the
outstanding voting securities of a Fund. In addition to the Funds' investment
objective, the Fund's also have the following policies, which are fundamental
and cannot be changed without a majority vote of the outstanding shares of a
Fund.
1) Senior Securities: A Fund may not issue senior securities (the Funds only
issue one security class), except to the extent that it is necessary to
borrow money in accordance with policy (2).
2) Borrowing: A Fund may borrow money, but not in amounts in excess of 10% of
its total assets taken at current value. The Funds may only borrow from
banks as a temporary measure for extraordinary or emergency purposes. The
Funds will not borrow to increase income, but only to meet redemption
requests that otherwise might require untimely dispositions of portfolio
securities. Interest paid on any borrowings will reduce the Fund's net
income. A Fund must repay any loan outstanding before purchasing any other
securities for its portfolio.
3) Underwriting: A Fund may not underwrite securities of another issuer. A
Fund, however, may purchase securities directly from an issuer thereof in
accord with the Fund's investment objectives and policies. A Fund also may
dispose of portfolio securities even though the federal securities laws may
deem such a distribution as an underwriting.
4) Industry Concentration: A Fund may not invest more than 25% of its total
assets (taken at current value at the time of each investment) in
securities of non-governmental issuers whose principal business activities
are in the same industry.
5) Real Estate: A Fund may not purchase or sell real estate, or real estate
limited partnership interests.
6) Lending: A Fund may not make loans to other persons. However, to the extent
it is consistent with a Fund's other investment policies a Fund may: (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 loans; (b) enter
into repurchase agreements; and (c) lend portfolio securities, provided
that the Fund may not loan securities if, as a result, the aggregate value
of all securities loaned would exceed 33% of its total assets (taken at
market value at the time of such loan).
7) Issuer Concentration: A Fund may not invest more than 5% of its total
assets in securities, including repurchase agreements, of any one issuer,
except that it may invest up to 25% of its assets without regard to this
limitation. This limitation does not apply to obligations issued or
guaranteed by the U.S. government or a federal agency or evidence of
receipts of such securities. The Funds expect to invest solely in U.S.
government securities.
8) Margin: A Fund may not purchase securities on margin, except for the use of
short-term credit necessary for purchases and sales of portfolio
securities.
9) Short Sales, Options and Futures: A Fund may not make short sales of
securities or maintain short positions or write, purchase or sell puts,
calls, straddles, spreads or combinations thereof.
10) Collateral: A Fund may not mortgage, pledge, hypothecate or in any manner
transfer, as security for indebtedness, any securities held in its
portfolio except as necessary in connection with borrowings to the extent
permitted by policy (2).
11) Commodities: A Fund may not purchase or sell commodities or commodity
contracts.
12) Oil and Gas Investments: A Fund may not invest in oil, gas or mineral
related programs or leases.
13) Illiquid Securities: A Fund may invest in repurchase agreements maturing in
more than seven days and in securities with legal or contractual
restrictions on resale, but only to the extent that these investments do
not exceed 10% of the Fund's total assets at the time of purchase.
14) Young Companies: A Fund may not invest in any security if as a result the
Fund would have more than 5% of its total assets invested in securities of
companies that have not been in continuous operation for three years or
more including any predecessors.
15) Other Investment Companies: A Fund may purchase securities of other
investment companies, but only to the extent of 10% of the Fund's total
assets. A Fund may not purchase more than 3% of the outstanding voting
securities of any one investment company. A Fund also may not purchase
securities in any one investment company in an amount greater than 5% of
the Fund's total assets. These restrictions do not apply when a Fund
purchases investment company securities in connection with a merger,
consolidation, acquisition or reorganization.
16) Control: A Fund may not purchase more than 10% of the outstanding voting
securities of an issuer or invest for the purpose of exercising control or
management.
Because the Funds intend to invest solely in U.S. government securities, the
Funds generally will not have to apply its policies on other types of issuers or
investments.
THE FUNDS' MANAGEMENT
BOARD OF TRUSTEES AND EXECUTIVE OFFICERS
The Trustees and Executive Officers of the Funds and their principal occupations
during the past five years are described below. Unless otherwise specified, the
business address of all Trustees and Officers is 222 West College Avenue,
Appleton, WI 54919-0007:
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Address and Age Position with the Funds Principal Occupation
F. Gregory Campbell Trustee President, Carthage College
d/o/b 2/16/39
2001 Alford Park Drive
Kenosha, WI 53140
Woodrow E. Eno* Trustee* Senior Vice-President
d/o/b 4/5/46 Vice-President* Secretary and General Counsel
Aid Association for Lutherans
Richard L. Gady Trustee Vice-President of Public Affairs
d/o/b 2/28/43 and Chief Economist, ConAgra,
One ConAgra Drive Inc. (agribusiness)
Omaha, NE 68102-5001
John O. Gilbert* Trustee* President and Chief Executive Officer,
d/o/b 8/30/42 Aid Association for Lutherans
John H. Pender Trustee Retired; formerly Senior Vice-President
d/o/b 5/25/30 And Chief Investment Officer,
1056 S. Manzanita Ave. Aid Association for Lutherans
Palm Springs, CA 92264
Edward W. Smeds Trustee Retired; President, Customer Service
d/o/b 2/15/36 and Operations, Kraft Foods
10 Regent Wood Road (food and agriculture)
Northfield, IL 60093
Lawrence M. Woods Trustee Retired; formerly Executive
d/o/b 4/14/32 Vice-President and Director Mobil Oil
524 Sunset Drive Corporation (oil producer)
Worland, WY 82401
Robert G. Same President Vice-President, Chief Compliance
d/o/b 7/28/45 Officer and Deputy General Counsel,
Aid Association for Lutherans;
President, AAL Capital Management
Corporation
James H. Abitz Vice-President Vice-President, Investments, Aid
d/o/b 5/27/45 Association for Lutherans
Charles D. Gariboldi Treasurer Assistant Vice-President, Fund
d/o/b 12/31/59 Accounting, Aid Association for
Lutherans
Joseph R. Mauel Assistant Treasurer Director, Fund Accounting
d/o/b 11/26/59
Todd J. Kelly Assistant Treasurer Manager of Mutual Fund Accounting, Aid
d/o/b 8/15/69 Association for Lutherans
Frederick D. Kelsven Secretary Assistant General Counsel, Aid
d/o/b 2/9/47 Association for Lutherans;
Vice-President and Chief Compliance
Officer, Aetna Retirement Services
(financial services); Director of
Compliance, Nationwide Financial
Services (financial services)
Steven Fredricks Assistant Secretary Assistant General Counsel, Securities
d/o/b 7/25/70 and Investment Law, Aid Association
for Lutherans; Attorney, Azaria
Financial Services, LLP (financial
services)
</TABLE>
* Denotes Trustees who are "interested persons" of the Funds, as defined in the
Investment Company Act of 1940.
COMPENSATION
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 $27,500.
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. In addition, each Trustee of the Funds or Trust who is not
affiliated with the AAL or the Adviser is eligible to participate in a deferred
compensation plan with respect to these fees. Participants in the plan may
designate their deferred Trustee's fees as if invested in any one of the Funds.
The value of each Trustee's deferred compensation account will increase or
decrease as if it were invested in shares of the selected Funds. The Funds
maintain their proportionate share of AAL's liability for the deferred fees. For
the fiscal year ended April 30, 2000, the Funds paid an aggregate of $66,605 in
Trustees' fees and expenses.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Capacities in Which Aggregate Total Compensation from Funds
Remuneration is Received Compensation from and Fund Complex(1) Paid to
Name Funds Trustees
F. Gregory Campbell Trustee $25,625 $31,875
Woodrow E. Eno Trustee - 0 - - 0 -
Richard L. Gady(2) Trustee $12,500 $18,750
John O . Gilbert Trustee - 0 - - 0 -
John H. Pender Trustee $0 $0
Edward W. Smeds(2) Trustee $12,500 $18,750
Lawrence M. Woods(2) Trustee $12,500 $18,750
</TABLE>
(1) The Fund Complex includes the AAL Variable Product Series Fund, Inc.
(2) Payment reflects Trustee compensation that was deferred and invested into
the Funds for the year ended April 30, 2000.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
CONTROL PERSONS
As of April 30, 2000, no one was considered a control person of the Funds. A
control person is one who has beneficial interest in more than 25% of the voting
securities of a Fund or one who asserts or is adjudicated to have control of a
Fund.
PRINCIPAL HOLDERS
As of April 30, 2000, the following were principal holders of the Funds'
securities. Principal holders are those who own (either of record or
beneficially) in excess of 5% of a Fund's outstanding shares.
Name % of Ownership
SERIES 2001
Ian T. Heriot, Guardian 6.44%
9118 Little Sweden Rd.
Cook, MN 55723-8814
Justin W. Schmehl Custodial Account 5.58%
17123 County Road 60
Rawson OH 45881-9716
Name % of Ownership
SERIES 2006
Norma J. May 6.53%
35 Interlachen Pl
Tonka Bay, MN 55331-9522
MANAGEMENT OWNERSHIP
As of April 30, 2000, the officers and Trustees owned less than 1% of the Funds'
shares.
INVESTMENT ADVISORY AND OTHER SERVICES
CONTROL
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
ADVISORY FEES
The Funds pay the adviser an investment advisory fee computed separately and
paid monthly for each Fund. Each Fund pays an advisory fee of 0.50 of 1% of the
Fund's average daily net assets. Since 1995, however, the adviser has not
charged the Funds an investment advisory fee. The adviser is also reimbursing
each Fund's expenses in excess of 1.0%. Although the Funds do not have any
intention to do so, they may discontinue or modify these waivers or
reimbursements at any time.
The Funds have paid the following advisory fees to the adviser since
commencement of operations:
The AAL U.S. Government Zero The AAL U.S. Government Zero
Coupon Coupon
Period Ended Target Fund Series 2001 Target Fund Series 2006
------------- ----------------------- -----------------------
April 30, 1991* $920 $692
April 30, 1992 5,559 3,815
April 30, 1993 10,418 7,430
April 30, 1994 1,175 833
April 30, 1995 0 0
April 30, 1996 0 0
April 30, 1997 0 0
April 30, 1998 0 0
April 30, 1999 0 0
April 30, 2000 0 0
* The Funds became available to the public on November 14, 1991.
AFFILIATED PRINCIPAL UNDERWRITER
In addition to being the adviser for The AAL Mutual Funds (Trust), AAL CMC is
the principal underwriter for the Trust under a written distribution agreement
with the Trust.
AAL CMC's address is:
AAL Capital Management Corporation
222 West College Avenue
Appleton, Wisconsin 54919-0007
The Trust's executive officers; Robert G. Same, James H. Abitz, Woodrow E. Eno,
Charles D. Gariboldi, Frederick D. Kelsven and Steven J. Fredricks also serve as
Officers of AAL CMC, the adviser and distributor of The AAL Mutual Funds.
Woodrow E. Eno also serves as a Director of AAL CMC.
ADVISORY SERVICES AND EXPENSES
The adviser furnishes the Trust, at its expense, pursuant to the investment
advisory agreement, with all office space and facilities, equipment and clerical
personnel necessary for carrying out its duties under the advisory agreement.
The adviser also pays all compensation of Trustees, officers and employees of
the Trust who are affiliated persons of the adviser. The advisory duties include
trading in any stocks, bonds or other securities or assets for a Fund's
portfolio and placing orders and negotiating commission for these trades.
Except for the specific transfer agent and custodial activities, AAL CMC, as the
adviser and distributor for the Trust, handles the other management functions of
the Trust, including its investment advisory duties. All costs and expenses not
expressly assumed by the adviser under the advisory agreement are paid by the
Trust, including, but not limited to:
1. interest and taxes;
2. brokerage commissions;
3. insurance premiums;
4. compensation and expenses of its Trustees other than those affiliated with
the adviser;
5. legal and audit expenses;
6. fees and expenses of the Trust's custodian and transfer agent;
7. 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;
8. fees and expenses incident to the registration under Federal or state
securities laws of the Trust or its shares;
9. expenses of preparing, printing and mailing reports and notices and proxy
material to shareholders of the Trust;
10. all other expenses incidental to holding meetings of the Trust's
shareholders;
11. dues or assessments of or contributions to the Investment Company Institute
or its successor, or other industry organizations;
12. such non-recurring expenses as may arise, including litigation affecting
the Trust and the legal obligations which the Trust may have to indemnify
its officers and Trustees with respect thereto; and
13. all expenses which the Trust agrees to bear in any distribution agreement
or in any plan adopted by the Trust pursuant to Rule 12b-1 under the
Investment Company Act of 1940.
The advisory agreement provides that subject to Section 36 of the Investment
Company Act of 1940, the adviser shall not be liable to the Trust for any error
of judgment or mistake of law or for any loss arising out of any investment or
for any act or omission in the management of the Trust and the performance of
its duties under the agreement except for willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of reckless
disregard of its obligations and duties under the agreements.
As to the Funds, the Board of Trustees approved the advisory agreement on
February 27, 1990. The Funds' shareholders approved the advisory agreement on
November 12, 1991. The advisory agreement continues in effect from year to year
so long as such continuance is specifically approved at least annually by the
Board of Trustees, including a majority of the Trustees who are not Interested
Persons (as defined in the Act.)
The advisory agreement is terminable upon assignment or at any time without
penalty by the Board of Trustees or by vote of the holders of a majority of the
outstanding voting securities of the Trust, with respect to any Fund by the vote
of a majority of the outstanding shares of such Fund, or by the adviser on 60
days' written notice to the Trust.
OTHER SERVICES
Administrative Services
Pursuant to an administrative services agreement with the Trust, AAL CMC
provides certain administrative, accounting and pricing services to the Funds.
These services include: calculating the daily net asset value per share;
maintaining original entry documents and books of record and general ledgers;
posting cash receipts and disbursements; reconciling bank account balance
monthly; recording purchases and sales; and preparing monthly and annual
summaries to assist in the preparation of financial statements of, and
regulatory reports for, the Funds. The Adviser has agreed to provide these
services at rates which would not exceed the rates charged by unaffiliated
vendors for similar services. The present agreement provides that the Trust
shall pay to the Funds the annual rates of payment as follows:
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 administrative services agreement will continue in effect from year to year,
as long as it is approved at least annually by the Board of Trustees or by a
vote of the outstanding voting securities of the Funds and in either case by a
majority of the Trustees who are not parties to the agreement or interest
persons of any such party. The agreement terminates automatically if either
party assigns the agreement. The agreement also terminates without penalty upon
60 days notice by either party. The agreement provides that neither the advisor
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 willful misfeasance,
bad faith or gross negligence in the performance of their duties or by reckless
disregard of their obligations and duties under the agreement.
SHAREHOLDER MAINTENANCE AGREEMENT
The Trust has entered into a contract with AAL CMC to provide 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 the Trust pays for AAL CMC to provide such shareholder services
is based upon, and limited by, the difference between the current account fees
actually charged by Firstar Mutual Fund Services, LLC, as transfer and dividend
disbursing agent, and the normal full-service fee schedule published by Firstar
Mutual Fund Services, LLC. 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 $3.75 per account, effective April 30, 2000. 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.
RULE 12B-1 ("DISTRIBUTION") PLAN
Because the Funds are no longer being sold, the distributor is waiving the 12b-1
fees under the distribution plan. The Funds will not reinstate the 12b-1 fees as
they are not open to investors for new sales. The following description applies
to the plan when such fees were paid.
The Trust's distribution plan ("Plan") is written in contemplation of Rule 12b-1
("Rule") under the Investment Company Act of 1940. The Plan authorizes the
distributor to make payments to any qualified person ("recipient") who has
rendered assistance in the distribution of a Fund's shares (such as sale or
placement of a Fund's shares, or administrative assistance, such as maintenance
of sub-accounting or other records). The Plan also authorizes the distributor to
purchase advertising for shares of the Funds, to pay for sales literature and
other promotional material, and to make payments to its sales personnel. Any
such payments to qualified recipients or expenses will be reimbursed or paid by
the Funds, up to a limit of 0.10 of 1% of the average net assets in a given
fiscal year. No reimbursement or payment may be made for expenses of past fiscal
years or in contemplation of expenses for future fiscal years.
The Plan states that if and to the extent that any of the following payments by
the Funds are considered to be "primarily intended to result in the sale of
shares" issued by a Fund within the meaning of the Rule, such payments by a Fund
are authorized without limit under the Plan and shall not be included in the
limitations contained in the Plan. Such costs include:
1. the costs of the preparation, printing, and mailing of all required reports
and notices to shareholders, irrespective of whether such reports or
notices contain or are accompanied by material intended to result in the
sale of shares of a fund or other funds or other investments;
2. the costs of preparing, printing and mailing of all prospectuses to
shareholders;
3. the costs of preparing, printing and mailing of any proxy statements and
proxies, irrespective of whether any such proxy statement includes any item
relating to, or directed toward, the sale of the Funds' shares;
4. all legal and accounting fees relating to the preparation of any such
reports, prospectuses, proxies and proxy statements;
5. 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;
6. all fees under the Act and the Securities Act of 1933, including fees in
connection with any application for exemption relating to or directed
toward the sale of the Funds' shares;
7. 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;
8. all costs of preparing and mailing confirmations of shares sold or redeemed
or share certificates and reports of share balances; and
9. all costs of responding to telephone or mail inquiries of shareholders.
The Plan also has recognized that the costs of distribution of the Trust's
shares are expected to exceed the sum of permitted payments, permitted expenses,
and the portion of the sales charge retained by the distributor, and that the
profits, if any, of the adviser are dependent primarily on the advisory fees
paid by the Funds to the Adviser. If and to the extent that any investment
advisory fees paid by the Funds might, in view of any excess distribution costs
and the common ownership of the adviser and distributor, be considered as
indirectly financing any activity that is primarily intended to result in the
sale of shares issued by the Funds, the payment of such fees is authorized under
the Plan. The Plan states that in taking any action contemplated by Section 15
of the Act as to any investment advisory contract to which the Trust is a party,
the Board of Trustees, including its Trustees who are not "interested persons"
as defined in the Act, and who have no direct or indirect financial interest in
the operation of the Plan or any agreements related to the Plan ("Qualified
Trustees"), shall, in acting on the terms of any such contract, apply the
"fiduciary duty" standard contained in Sections 36(a) and (b) of the Act.
The Plan requires that while it is in effect the distributor shall report in
writing at least quarterly to the Trustees, and the Trustees shall review, the
following:
1. the amounts of all payments, the identity of recipients of each such
payment, the basis on which each such recipient was chosen and the basis on
which the amount of the payment was made;
2. the amounts of expenses and the purpose of each such expense; and
3. all costs of the other payments specified in the Plan (making estimates of
such costs where necessary or desirable) in each case during the preceding
calendar or fiscal quarter.
The aggregate amount paid by the Funds to the distributor under the Plan for the
fiscal year ended April 30, 2000 and the manner in which this amount was spent
is as follows:
------------------------------------------------------------ ------------
Gross 12b-1 fees paid by the Funds $0
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
EXPENDITURES
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
Compensation to Registered Representatives $0
------------------------------------------------------------ ------------
------------------------------------------------------------ ------------
Other $0
------------------------------------------------------------ ------------
The Plan as it affects the Funds' shareholders was approved by the Funds'
shareholders on November 12, 1991. The Plan continues in effect from year to
year only so long as such continuance is specifically approved at least annually
by the Board of Trustees and the Qualified Trustees (as defined in the Plan)
cast in person at a meeting called for the purpose of voting on such
continuance. The Plan may be terminated at any time without penalty by a vote of
a majority of the Qualified Trustees or by the vote of the holders of a majority
of the outstanding voting securities of the Trust, and with respect to any Fund,
by the vote of a majority of the outstanding shares of such Fund. The Plan may
not be amended to increase materially the amount of payments to be made without
shareholder approval. While the Plan is in effect, the selection and nomination
of those Trustees who are not interested persons of the Trust is committed to
the discretion of such disinterested Trustees. Nothing in the Plan will prevent
the involvement of others in such selection and nomination if the final decision
on any such selection and nomination is approved by a majority of such
disinterested Trustees.
CODE OF ETHICS
Rule 17j-1 promulgated under Section 17(j) of the Investment Company Act of 1940
makes it illegal for persons associated with the Fund, the adviser or
sub-adviser, who have knowledge of portfolio securities trades that the Fund
makes or intends to make, to use that information in a manner that benefits that
person and/or harms the Fund. To protect the Fund against such conduct, the
Fund, the adviser and sub-adviser have adopted codes of ethics in accordance
with requirements established under Rule 17j-1. The code of ethics do not
prohibit persons who have knowledge of the Fund's portfolio securities trades
from investing in the same securities; however, the codes of ethics establish
time frames, prior approval procedures and reporting requirements designed to
assure that persons who have knowledge of the Funds' portfolio securities trades
cannot use that information in a manner which is detrimental to the Fund and/or
which benefits them.
OTHER SERVICE PROVIDERS
Transfer and Dividend Paying Agent
Firstar Mutual Fund Services, LLC
P.O. Box 2981
615 E. Michigan Street
Milwaukee, Wisconsin 53201-2981
As the transfer agent, Firstar handles the recordkeeping for the Funds' shares
and is authorized to make the transfers of and distributions for a Fund's shares
in accordance with instructions from the Funds.
Custodian
Citibank, N.A.
111 Wall Street
New York, NY 10043
As the custodian, Citibank holds the assets of each Fund and provides
safekeeping, clearing and other services for the Funds' portfolios.
Independent Accountants
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
The Trust's independent accountants, PricewaterhouseCoopers LLP, examine the
Funds' annual financial statements, assist in the preparation of certain reports
to the Securities and Exchange Commission and prepare the Trust's state and
Funds' federal tax returns.
BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE TRANSACTIONS
The adviser directs the placement or orders for the purchase and sale of the
Funds' portfolio securities. Generally, the adviser places purchases and sales
of portfolio securities with primary market makers (dealers) for these
securities on a net (principal) basis, without paying any brokerage commissions.
Trading does, however, involve transaction costs. Transactions with dealers
serving as primary market makers reflect the spread between the bid and asked
prices. Purchases of portfolio securities from the dealers of zero coupon
securities, in particular, may include a mark-up which may be included in a
spread between the bid and asked price. Purchases of underwritten issues may be
made which will include an underwriting fee paid to the underwriter.
COMMISSIONS
Because the Target Funds portfolios invest in U.S. government securities, which
generally trade on a principal basis through a dealer rather than on a
commission basis through a broker, the Target Funds did not pay any commissions
for the past three years. The Trust, which includes all of The AAL Mutual Funds
series, paid the following brokerage commissions:
April 30, 2000 April 30, 1999 April 30, 1998
The AAL Mutual Funds $3,736,355 $3,685,438 $3,143,251
Brokerage Selection
In placing portfolio transactions, the adviser seeks the best combination of
price and execution. In determining which dealers provide best execution, the
adviser looks primarily to the price quoted. The adviser normally places orders
with the dealer through which it can obtain the most favorable price. The
adviser will normally purchase securities in their primary markets. In assessing
the best net price and execution available to a Fund, the adviser will consider
all factors it deems relevant. These factors include:
1. the breadth of the market in the security;
2. the price of the security;
3. the financial condition and execution capability of the dealer; and
4. the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis).
Although it is expected that sales of shares of the Funds will be made only by
the distributor, the adviser may in the future consider the willingness of
particular dealers to sell shares of the Funds as a factor in the selection of
dealers for the Funds' portfolio transactions, subject to the overall best price
and execution standard.
Assuming equal execution capabilities, the adviser may take into account other
factors in selecting brokers or dealers to execute particular transactions and
in evaluating the best net price and execution available. The Adviser may
consider "brokerage and research services" (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934), statistical quotations,
specifically the quotations necessary to determine the Funds' net asset values,
and other information provided to the Funds, to the adviser or its affiliates.
The adviser may also cause a Fund to pay to a broker or dealer who provides such
brokerage or research services a commission for executing a portfolio
transaction that is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction. The adviser must
determine, in good faith, however, that such commission was reasonable in
relation to the value of the brokerage and research services provided, viewed in
terms of that particular transaction or in terms of all the accounts over which
the adviser exercises investment discretion. It is possible that certain of the
services received by the adviser attributable to a particular transaction will
benefit one or more other accounts for which investment discretion is exercised
by the adviser.
CAPITAL STOCK AND OTHER SECURITIES
The Funds are separate series of a Massachusetts Business Trust organized under
a Declaration of Trust dated March 13, 1987, which provides that each
shareholder shall be deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either its shareholders or its
Board of Trustees. The Trust may issue an unlimited number of shares, in one or
more series as the Board of Trustees may authorize. Currently, the Board has
authorized eleven series which bear the name of The AAL Mutual Funds (Trust).
Each share of a Fund is entitled to participate pro rata in any dividends or
other distributions declared by the Board with respect to that Fund, and all
shares of a Fund have equal rights in the event of liquidation of that Fund.
Each share of each Fund is entitled to one vote on each matter presented to
shareholders of that Fund. As a business trust, the Trust is not required to
hold annual shareholder meetings. However, special meetings may be called for
purposes such as electing or removing Trustees, changing fundamental policies,
or approving an investment advisory contract. On matters affecting an individual
Fund (such as approval of advisory and sub-advisory contracts and changes in
fundamental policies of a Fund) a separate vote of the shares of that Fund is
required. Shares of a Fund are not entitled to vote on any matter not affecting
that Fund. All shares of each Fund vote together in the election of Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims liability of the shareholders, the
Trustees, or officers of the Trust for acts or obligations of the Trust, which
are binding only on the assets and property of the Trust. Notice of such
disclaimer is given in each agreement, obligation, or contract entered into or
executed by the Trust or the Board. The Declaration of Trust provides for
indemnification out of the Trust's assets for all losses and expenses of any
shareholder held personally liable for the obligations of the Trust. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is remote because it is limited to circumstances where the Trust
itself is unable to meet its obligations.
Regarding the Target Funds, Series 2001 and Series 2006, they contain only one
class of shares, which are untitled but are considered to be Class A shares. The
Funds' shares, when open to investors for new sales, were sold with a front-end
sales charge (load). The Funds' shareholders have the right to retain and
dispose of their shares freely. Each share of the Funds represents an interest
in a Fund proportionately equal to the interest of each other share. As a
result, if the Target Funds (and any other Funds in the Trust's series of Funds)
were to liquidate, all shareholders of a Fund would share pro rata in its net
assets available for distributions to shareholders of its class. In addition,
each share of a Fund has a proportionate interest in any Fund distributions of
interest or capital gains and a proportionate interest upon redemption (which
equals the net asset value per share at the time). Shareholders may redeem their
shares at any time, subject to any rights a Fund may have to suspend redemptions
under the Investment Company Act of 1940.
PURCHASES, REDEMPTIONS AND PRICING OF SHARES
NET ASSET VALUE
The Funds offer their shares to the public through their distributor, AAL CMC.
You can contact your AAL registered representative for information or call The
AAL Mutual Funds directly at 800-553-6319. When the Funds were open for new
investments, the Funds sold their shares at the public offering price (POP). The
POP is based on a Fund's net asset value (NAV) per share plus a sales charge
(load):
NAV + SALES CHARGE = OFFERING PRICE.
A Fund determines the POP of a share by dividing its net asset value by 100%
minus the sales charge percentage :
NAV/(100%- SALES CHARGE %) = PUBLIC OFFERING PRICE.
For example if a Fund's NAV is $10 per share and the maximum sales charge is
4.75%, the POP would equal $10.49 per share.
The Funds calculate the net asset value of their shares once daily on days when
the New York Stock Exchange is open for business. The NYSE regularly closes on
Saturdays and Sundays and on New Years' Day, the third Monday in February, Good
Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or Sunday, the exchange
will be closed on the preceding Friday or the following Monday, respectively.
The Funds wait until after the close of the NYSE (3:00 p.m. Central Time) before
calculating the value of their shares.
Net asset value is determined by dividing the total assets of the particular
Fund, less all its liabilities, by the total number of shares of that Fund
outstanding:
NAV = (ASSETS - LIABILITIES) / NO. SHARES
Where:
Assets = Cash + Current Value of Securities in the Fund
No. Shares = Number of Shares Outstanding for the Fund
NAV = Net Asset Value per Share for the Fund
Each Fund determines the value of securities in its portfolio through the use of
pricing services approved by the Trustees. The pricing services utilize
information with respect to bond and note transactions, quotations from bond
dealers, market transactions in comparable securities and various relationships
between securities. Money market instruments with remaining maturities of 60
days or less are valued by the amortized cost method, which the Trustees believe
approximates fair value. Because of the large number of zero coupon securities
available, many may not trade each day; therefore, bid and asked prices
frequently are not available. In valuing such securities, then, the pricing
services generally take into account institutional size, trading in similar
groups of securities and any developments related to specific securities. Other
securities and assets are valued in good faith at fair value using methods
(including pricing services) determined by the Trustees and applied on a
consistent basis. The Trustees review the valuation of each Fund's portfolio
securities through receipt of regular reports from the Adviser.
Generally, trading in U.S. government securities and other fixed income
securities is substantially completed each day at various times prior to the
close of the NYSE. The values of such securities used in determining the net
asset value of a Fund's shares are computed as of such times. Occasionally,
events affecting the value of such securities may occur between such times and
the close of the NYSE, which events will not be reflected in the computation of
a Fund's net asset value. If events materially affecting the value of the
Trust's securities occur during such a period, then these securities will be
valued at their fair value as determined in good faith by the Trustees.
The difference between the POP and the NAV (net amount invested in the Funds) is
paid to the distributor, AAL CMC, the principal underwriter for The AAL Mutual
Funds.
To provide an additional benefit to those who work for the Funds, the Trustees,
directors and employees of the Funds and the adviser, as well as persons
licensed to receive commissions for sales of The AAL Mutual Funds, may not pay a
sales charge on their purchases or on the purchases made by family members
residing with them. Also, to promote Lutheranism, the Funds reduce the sales
charges on shares sold to Lutheran congregations and charitable organizations.
The Funds intend to pay all redemptions in cash and are obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of the net
assets of the Fund during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of securities. If redemptions were made in kind, the
redeeming shareholders might incur brokerage fees in selling the securities
received in the redemptions.
Each Fund reserves the right to suspend or postpone redemptions during any
period when:
1. trading on the NYSE is restricted, as determined by the Securities and
Exchange Commission, or that exchange is closed for other than customary
weekend and holiday closings;
2. the Securities and Exchange Commission has by order permitted such
suspension; or
3. an emergency, as determined by the Securities and Exchange Commission,
exists, making disposal of portfolio securities or valuation of net assets
of the Fund not reasonably practicable.
TAXATION OF THE FUNDS
Each of the Funds has elected to be treated as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code").
A regulated investment company qualifying under Subchapter M of the Code is
required to distribute to its shareholders at least 90 percent of its investment
company taxable income (including net short-term capital gains) and is not
subject to federal income tax to the extent that it distributes annually its
investment company taxable income and net realized capital gains in the manner
required under the Code.
Each Fund is subject to a 4% nondeductible excise tax on amounts required to be
distributed, but not actually distributed under a prescribed formula. The
formula requires each Fund to distribute to shareholders during a calendar year
an amount equal to at least 98% of a Fund's ordinary income for the calendar
year, at least 98% of the excess of its capital gains over capital losses
(adjusted for certain ordinary losses as prescribed in the Code) realized during
the one-year period ending October 31 during such year, and all ordinary income
and capital gains for prior years that were not previously distributed.
Investment company taxable income includes dividends, interest (including
original issue discount amortization) and net short-term capital gains in excess
of net long-term capital losses, less expenses. Net realized capital gains of a
Fund for a fiscal year are computed by taking into account any capital loss
carryforward of such Fund to the extent allowed by the Internal Revenue Code.
If any net realized long-term capital gains in excess of net realized short-term
capital losses are not distributed by a Fund for reinvestment, requiring federal
income taxes to be paid thereon by the Fund, the Fund intends to elect to treat
such capital gains as having been distributed to shareholders. As a result,
shareholders will report such capital gains as long-term capital gains, will be
able to claim their share of federal income taxes paid by the Fund on such gains
as a credit against their own federal income tax liability, and will be entitled
to increase the adjusted tax basis of their shares by the difference between
their pro rata share of such gains and their tax credit.
Distributions of investment company taxable income are taxable to shareholders
as ordinary income. Under the federal income tax law, a portion of the
difference between the purchase price and the face amount of zero coupon
securities ("original issue discount") will be treated as income to any Fund
holding securities with original issue discount each year, although no current
payments will be received by such Fund with respect to such income. This
original issue discount amortization will comprise a part of that investment
company taxable income of such Fund that must be distributed to shareholders in
order to maintain its qualification as a regulated investment company and to
avoid federal income tax at the Fund level. Taxable shareholders of such a Fund
will be subject to income tax on such original issue discount amortization,
whether or not they elect to receive their distributions in cash. In the event
that a Fund acquires a debt instrument at a market discount, it is possible that
a portion of any gain recognized on the disposition of such instrument may be
treated as ordinary income.
Since the Funds invest primarily in zero coupon securities upon which they will
not receive cash payments of interest, to the extent shareholders of the Funds
elect to take their distributions in cash, these Funds may have to generate the
required cash from interest earned on non-zero coupon securities from the
disposition of such securities, or possibly from the disposition of some of
their zero coupon securities.
Distributions of the excess of net long-term capital gain over net short-term
capital loss are taxable to shareholders as long-term capital gain, regardless
of the length of time the shares of the relevant Fund have been held by such
shareholders. Such distributions are not eligible for the dividends-received
deduction. Any loss realized upon the redemption of shares held at the time of
redemption for six months or less will be treated as a long-term capital loss to
the extent of any amounts treated as distributions of long-term capital gain
during such six-month period.
Distributions of investment company taxable income and net realized capital
gains will be taxable whether received in shares or in cash.
The foregoing is only a summary of certain tax considerations generally
affecting the Funds and their shareholders. Investors are urged to consult their
tax advisors with specific reference to their own tax situations, including
state and local tax liability.
UNDERWRITERS
Until May 31, 1993, AAL CMC, the principal underwriter, for the Funds, offered
the shares of the Funds for sale on a continuous basis through its field sales
force. The Funds paid the aggregate underwriting commissions received and the
amount of commissions retained by the underwriter for the last three years were
as follows:
Time Period Aggregate Commissions Retained Commissions
Fiscal year ended 4/30/98 $0 $0
Fiscal year ended 4/30/99 0 0
Fiscal year ended 4/30/00 0 0
With respect to all commissions and other compensation, AAL CMC, the sole
distributor for the Funds, does not receive any compensation in connection with
redemptions and repurchases, brokerage commissions or other compensation.
CALCULATION OF PERFORMANCE DATA
From time to time, the Funds may advertise yield and total return for various
periods of investment. Such information will always include uniform performance
calculations based on standardized methods established by the Securities and
Exchange Commission, and may also include other total return information. Yield
is based on historical earnings and total return is based on historical
calculated earnings; neither is intended to indicate future performance.
Performance information should be considered in light of the Funds' investment
objectives and policies, characteristics and quality of their portfolio
securities and the market conditions during the applicable period and should not
be considered as a representation of what may be achieved in the future.
Investors should consider these factors in addition to differences in the
methods used in calculating performance information, and the impact of taxes on
alternative investments when comparing a particular Fund's performance to the
performance data published for alternative investments.
STANDARDIZED PERFORMANCE INFORMATION
Average Annual Total Return
For each of the Funds, standardized average annual total return is computed by
finding the average annual compounded rates of return over the 1, 5 and 10 year
periods (or the portion thereof during which the Fund has been in existence)
that would equate the initial amount invested to the ending redeemable value
according to the following formula:
T = N/(ERV/P) - 1
Where:
T= average annual total return;
n= number of years and portion of a year;
ERV= ending redeemable value (of the hypothetical $1,000 payment) at the end
of the 1, 5 and 10 year periods, or fractional portion thereof, after
deduction of all non-recurring charges to be deducted, assuming
redemption at the end of the period; and
P= $1,000 (the hypothetical initial payment before deduction of the maximum
sales load).
Average Annual Total Return for the
Period Ended 4/30/00
Series 2001 Series 2006
----------- -----------
1-Year (total return) 2.38% (2.29)%
5-year 6.40% 7.83%
From Inception 8.13% 9.52%
Current Yield
Current yield quotations for the Funds are based on a 30-day (or one month)
period, and are computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of the
period, according to the following formula:
YIELD = 2 [(((A-B)/CD)+1)^6-1]
a = Dividends and interest earned during the period;
b = Expenses accrued for the period (net of reimbursements);
c = The average daily number of shares outstanding during the period that
were entitled to receive dividends; and
d = The maximum offering price per share on the last day of the period.
For purposes of this calculation, income earned on debt obligations is
determined by applying a calculated yield-to-maturity percentage to the
obligations held during the period. The yields for the Funds, Series 2001 and
2006, for the 30-day period ended April 30, 2000, were 5.36% and 5.40%,
respectively. When advertising yield, a Fund 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.
OTHER PERFORMANCE INFORMATION
The Funds may, from time to time, include in their advertisements quotations
computed for a time period, or by a method that differs from the computations
described in the foregoing section.
Average Annual Total Return
The Funds may advertise an average annual total return calculation for any
appropriate time period, based upon the value of a net investment in the Fund,
after deduction of the maximum sales charge according to the following formula:
T = (ERV/P)^(1/N)-1
Where:
T = average annual total return;
n = number of years and portion of a year;
ERV = ending redeemable value (of the hypothetical $1,000 payment)
at the end of any period, after deduction of all non-recurring
charges to be deducted, assuming redemption at the end of
the period;
P = $1,000 (the hypothetical initial net investment) after
deduction of the sales load; and
^ = raised to the power of.
Average Annual Total Return for the
Period Ended 4/30/00
Series 2001 Series 2006
----------- -----------
1-Year (total return) (3.46)% (6.90)%
5-year 5.36% 6.79%
From Inception (11/90) 7.57% 8.96%
ANTICIPATED GROWTH RATE
The anticipated growth rate is a calculation of predicted return. Anticipated
growth will consist primarily of the estimated amortization of discount on the
zero coupon securities in a Fund and, to a much lesser degree, of projected cash
flow on income-producing securities in excess of estimated expenses. The
anticipated growth rate is the rate which, when compounded on a semi-annual
basis, equates the current market value of a Zero Coupon Fund to the sum of the
present values of the payments to be received from securities held in the Fund.
It is calculated net of expenses on a bond-equivalent basis in order to
facilitate comparison with returns obtainable from U.S. Treasury notes, bonds
and stripped (zero coupon) securities, if held directly. The calculation is
based on certain assumptions (See "Investment Objectives and Policies"). A
shareholder who redeems prior to maturity of a Fund may experience a
significantly different investment return than was anticipated at time of
purchase.
Performance information for the Funds may be compared to various unmanaged
indices, such as the Dow Jones Industrial Average, the S & P 500 or the Lehman
Brothers Aggregate Bond Index, as well as indices of similar mutual funds. The
Funds may also include in their advertising rankings published by recognized
statistical services or publishers such as Lipper Analytical Services, Inc.,
Wiesenberger Investment Companies Services or rankings published by other
comparable national services which rank mutual funds.
FINANCIAL STATEMENTS
The AAL Mutual Funds ("Trust") has filed audited financial statements, notes to
financial statements and report of independent accountants for the Trust for the
fiscal year ended April 30, 2000, for The AAL U.S. Government Target Funds,
Series 2001 and 2006, which are incorporated by reference into this
Post-Effective Amendment to this Registration Statement. Class A, Class B and
Institutional shares for The AAL Technology Stock, Aggressive Growth, Small Cap
Stock, Mid Cap Stock, International, Capital Growth, Equity Income, Small Cap
Index II, Mid Cap Index II, Large Company Index II, Balanced, High Yield Bond,
Municipal Bond, Bond and Money Market Funds are contained in separate
prospectuses.
<PAGE>
PART C: OTHER INFORMATION
TARGET FUNDS
ITEM 23. EXHIBITS
In response to this item, the Registrant incorporates by reference the Exhibit
Index following the Signature Page to this amendment. 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:
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Exhibit Incorporated by Reference Filed Herewith
(a) Articles of Incorporation for The AAL Filed June 25, 1998, Post-Effective
Mutual Funds, as amended Amendment No. 26
(b) By-Laws of the Fund, as amended Filed June 25, 1998, Post-Effective
Amendment No. 26
(c) Instruments Defining Rights of N/A
Security Holders
(d)(i) Investment Advisory Agreement with AAL X
CMC, as amended
(d)(ii) Sub Advisory Agreement with Oechsle Filed April 6, 1999, Post-Effective
International Advisors, LLC Amendment No.30
(d)(iii) Sub-Advisory Agreement with Pacific X
Investment Management Company
(d)(iv) Sub-Advisory Agreement with Janus X
Capital Corporation
(e) Distribution Agreement with AAL CMC, X
as amended
(f) Bonus or Profit Sharing Contracts N/A
(g) Global Custodial Services Agreements Filed April 6, 1999, Post-Effective
between the Funds and Citibank, N.A., as Amendment No.30
amended
(h)(i) Administrative Services Agreement X
between the Funds and AAL, as amended
(h)(ii) Shareholder Maintenance Agreement, as X
amended
(h)(iii) Transfer and Dividend Disbursing X
Agent Agreement, as amended
(i) Legal Consent X
(j) Consent of Independent Auditors X
(k) Omitted Financial Statements N/A
(l) Initial Capital Agreements N/A
(m) Rule 12b-1 Plan X
(n) Financial Data Schedule N/A
(o) Rule 18f-3 Plan Filed June 25, 1998, Post-Effective
Amendment No. 26
(p)(i) Code of Ethics for AAL Capital Management Filed April 14, 2000, Post-Effective
Corporation Amendment No. 37
(p)(ii) Code of Ethics for Sub-Adviser, Filed April 14, 2000, Post-Effective
Oechsle International Advisors LLC Amendment No. 37
(p)(iii) Code of Ethics for Pacific Investment X
Management Company
(p)(iv) Code of Ethics for Janus Capital X
Corporation
(q) Powers of Attorney for all Trustees Filed December 29, 1999,
Post-Effective Amendment No.36
(r) Transmittal Letter X
</TABLE>
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. Janus Capital Corporation is the sub-adviser to The AAL Aggressive Growth
Fund. Oechsle International Advisers LLC is the sub-adviser for The AAL
International Fund. Pacific Investment Management Company is the sub-adviser for
The AAL High Yield Bond 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. AAL CMC also serves as Adviser
to the AAL Variable Product Series Fund, Inc..
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Not Applicable
(b) AAL Capital Management Corporation serves as principal
underwriter/distributor for shares of each of the Funds.
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Principal Position and Offices Position and Offices
Business Address with AAL CMC with the Funds
---------------------------------------- -------------------------------------- --------------------------------------
Robert G. Same President and Director President
222 W. College Ave.
Appleton, WI 54919
Charles D. Gariboldi, Jr. Vice President Treasurer
222 W. College Ave.
Appleton, WI 54919
Woodrow E. Eno Director and Chairman Trustee and Vice-President
222 W. College Ave.
Appleton, WI 54919
James H. Abitz Sr. Vice President and Director Vice-President
222 W. College Avenue
Appleton, WI 54919
Frederick D. Kelsven Vice President and Secretary Secretary
222 W. College Avenue
Appleton, WI 54919
James H. Krueger Vice President and Director None
222 W. College Avenue
Appleton, WI 54919
Marnie L. Loomans-Thuecks Vice President None
222 W. College Avenue
Appleton, WI 54919
Michael J. Mevis Vice President None
222 W. College Avenue
Appleton, WI 54919
Russell A. Evenson Director None
4321 N. Ballard Road
Appleton, WI 54919
Paul M. Stadler Vice President None
222 W. College Avenue
Appleton, WI 54919
Lori T. Richardson Vice President None
222 W. College Avenue
Appleton, WI 54919
Jeffrey L. Verhagen Vice President None
222 W. College Avenue
Appleton, WI 54919
Charles A. Friedman Vice President None
222 W. College Avenue
Appleton, WI 54919
Wendy S. Schmidt Assistant Vice President None
4321 N. Ballard Road
Appleton, WI 54919
Carl J. Rudolph Director None
222 W. College Avenue
Appleton, WI 54919
Thomas R. Mischka Vice President None
4321 N. Ballard Road
Appleton, WI 54919
Jon M. Stellmacher Vice President and Director None
4321 N. Ballard Road
Appleton, WI 54919
Gordon Beckler Vice President None
4321 N. Ballard Road
Appleton, WI 54919
Jeffrey R. Kargus Treasurer None
4321 N. Ballard Road
Appleton, WI 54919
Steven R. Wendt Vice-President and Chief Financial None
4321 N. Ballard Road Officer
Appleton, WI 54919
Steven J. Fredricks Assistant Secretary Assistant Secretary
222 W. College Avenue
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 certifies that it meets all the
requirements for effectiveness of this amended registration statement under rule
485(b) of the Securities Act of 1933 and has duly 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 June
29, 2000.
THE AAL MUTUAL FUNDS
By: /s/ Robert G. Same
-----------------------------
Robert G. Same
President
Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed below by the following persons in the
capacities and on the dates indicated:
/s/ Robert G. Same President June 29, 2000
----------------------------
Robert G. Same
/s/ Charles D. Gariboldi Treasurer June 29, 2000
---------------------------- (Principal Accounting
Charles D. Gariboldi Financial Officer)
All of the Board of Trustees:
F. Gregory Campbell Richard L. Gady
John H. Pender Edward W. Smeds
Lawrence M. Woods John O. Gilbert
Woodrow E. Eno
Robert G. Same, by signing his name hereto, does hereby sign this
document on behalf of himself and each of the other above-named Trustees of The
AAL Mutual Funds pursuant to the powers of attorney duly executed by such
persons.
/s/ Robert G. Same June 29, 2000
-------------------------------------
Robert G. Same
Attorney-in-Fact
<PAGE>
The AAL Mutual Funds
Index to Exhibits
Exhibit Number Name of Exhibit
(d)(i) Amendment No. 13 to Investment Advisory Agreement
with AAL CMC
(d)(iii) Sub-Advisory Agreement with Pacific Investment
Management Company
(d)(iv) Sub-Advisory Agreement with Janus Capital
Corporation
(e) Amendment No. 10 to Distribution Agreement with AAL
CMC
(h)(i) Amendment No. 2 to Administrative Services
Agreement between the Funds and AAL
(h)(ii) Amendment No. 8 to Shareholder Maintenance
Agreement
(h)(iii) Amendment No. 16 to Transfer and Dividend
Disbursing Agent Agreement
(i) Legal Consent
(j) Consent of Independent Auditors
(m) Amendment No. 2 to the Amended and Restated Rule
12b-1 Distribution Plan
(p)(iii) Code of Ethics for Pacific Investment Management
Company
(p)(iv) Code of Ethics for Janus Capital Corporation
(r) Transmittal Letter
