1933 Act Registration No. 33-12911
1940 Act Registration No. 811-5075
As filed with the Securities and Exchange Commission on
April 14, 2000.
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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. 38 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 40 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):
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)
X 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.
THE AAL MUTUAL FUNDS
PROSPECTUS
INSTITUTIONAL SHARES
JULY 1, 2000
The AAL Technology Stock Fund
The AAL Aggressive Growth Fund
The AAL Small Cap Stock Fund
The AAL Mid Cap Stock Fund
The AAL International Fund
The AAL Capital Growth Fund
The AAL Equity Income Fund
The AAL Large Company Index Fund
The AAL Mid Cap Index Fund
The AAL Balanced Fund
The AAL High Yield Bond Fund
The AAL Municipal Bond Fund
The AAL Bond Fund
The AAL Bond Index Fund
The AAL Money Market Fund
As with other mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
PAGE
RISK/RETURN INFORMATION: INVESTMENT PROGRAMS AND PERFORMANCE
PROSPECTUS SUMMARY
Reading the Prospectus
Institutional Shares
Principal Risks Common to All Funds
THE AAL TECHNOLOGY STOCK FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL AGGRESSIVE GROWTH FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL SMALL CAP STOCK FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL MID CAP STOCK FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL INTERNATIONAL FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL CAPITAL GROWTH FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL EQUITY INCOME FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL LARGE COMPANY INDEX FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL MID CAP INDEX FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL BALANCED FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL HIGH YIELD BOND FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL MUNICIPAL BOND FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL BOND FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance
Expenses
THE AAL BOND INDEX FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance Expenses
THE AAL MONEY MARKET FUND
Investment Objective
Principal Investment Strategies
Principal Risks
Past Performance Expenses
MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE
Investment Adviser
Adviser Fees per Fund
Portfolio Management
The Aid Association for Lutherans Savings Plan
SHAREHOLDER INFORMATION
Pricing Funds' Shares
How to Buy Shares
How to Redeem (Sell) Shares
DIVIDENDS
TAX CONSIDERATIONS
DISTRIBUTION ARRANGEMENTS
FINANCIAL HIGHLIGHTS
<PAGE>
RISK/RETURN INFORMATION: INVESTMENT PROGRAMSAND PERFORMANCE
PROSPECTUS SUMMARY
READING THE PROSPECTUS
References to "you" and "your" in the prospectus refer to prospective investors
or shareholders. References to "we," "us" or "our" refer to the Trust or the
Funds and Fund management; the Adviser, and/or Sub-Adviser for The AAL
Aggressive Growth Fund and The AAL International Fund, Distributor,
Administrator, Transfer Agent and Custodians.
INSTITUTIONAL SHARES
In the prospectus, we provide you with information on: the investment objectives
and policies of the Funds; risks of investing in the Funds; how to buy and sell
Institutional shares; management and services provided to the Funds; and other
information.
The prospectus describes a separate class of shares for each Fund, Institutional
shares ("Class I shares"), for Lutheran organizations or enterprises with
minimum initial investment in the Funds of $500,000. We designed Institutional
shares to give Lutheran organizations and enterprises (non-natural persons) or
financial institutions acting in a fiduciary or agency capacity for them, a
convenient means of accumulating an interest in The AAL Mutual Funds. We did not
design Institutional shares for individuals, their individual retirement
accounts or trusts designed for the benefit of individuals. Investors in
Institutional shares purchase at net asset value. They pay neither initial sales
charges, redemption fees, nor 12b-1distribution and service fees.
PRINCIPAL RISKS COMMON TO ALL FUNDS
You assume certain risks when you invest in any of the Funds. Risks specific to
each Fund are discussed on the following pages. More generally, the investment
style and strategies that we use to select stocks, bonds and other securities
for each Fund depends on our ability to select those that perform well over
time. Our selections may not always achieve our growth and/or income
expectations and securities we select could decline in value. There can be no
assurance that any of the Funds will achieve its objective and you could lose
money.
<PAGE>
THE AAL TECHNOLOGY STOCK FUND
INVESTMENT OBJECTIVE
The AAL Technology Stock Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of common stocks and securities convertible
into common stocks.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, we invest at least 65% of the Fund's total assets in
common stocks, not including convertible securities, of companies in
technology-related industries. We focus on equity securities of companies
engaged in offering, using or developing products, processes or services that
will benefit significantly from technological advances and improvements. We may
invest the remaining 35% of the Fund's total assets in additional common stocks,
preferred stocks, and securities convertible into these stocks. We limit our
investment in convertible securities to no more than 5% of the Fund's net
assets.
We focus on technology-related industries where companies have potential for
growth. These technology-related industries include, but are not limited to:
o computers, including products, software, hardware, electronic
components, and semiconductors;
o network applications;
o the Internet;
o telecommunications;
o media and information services;
o chemicals and synthetic materials;
o health care;
o pharmaceuticals;
o defense and aerospace; and
o biotechnology.
The Fund may also invest in securities of foreign issuers. Typically, we
consider an issuer as domiciled in a particular country if it:
o is incorporated under the laws of that country;
o has at least 50% of the value of its assets located in that country; or
o derives at least 50% of its income from operations or sales in that
country.
The technology sector is composed of many companies representing different
market capitalizations. The Fund invests in companies of any size, from small,
emerging companies, to large, well-established companies.
PRINCIPAL RISKS
FINANCIAL RISK: Many factors affect the performance of a company in which the
Fund may invest. Some examples include strength of management, demand for a
company's products or services and general economic conditions. A company's
performance will affect the market price of its stock, and consequently, the
value of the Fund's portfolio. You could lose money investing in the Fund.
MARKET RISK: Over time, the stock market tends to move in cycles, with periods
when stock prices rise generally and periods when stock prices decline
generally. The value of the Fund's investments may move with these cycles, and
in some instances, increase or decrease more than the stock market, as measured
by the S&P 500(R) Index.
INDUSTRY SPECIFIC CONCENTRATION RISK: Sector funds may be more volatile than
funds that diversify across many industries. Fund investments are primarily
concentrated in technology-related industries. At times, stocks of companies in
the technology industries may experience periods of significant price
fluctuations. As a consequence, the Fund may be subject to more price volatility
than a fund which invests in a broader range of industries.
FOREIGN INVESTMENT RISKS: The Fund faces particular risks associated with
foreign investing. Foreign investment risks include currency, liquidity,
political, economic and market risks, as well as risks associated with
governmental regulation and non-uniform corporate disclosure standards.
[Sidebar:]
Please note, recent returns in technology-related industries were primarily
achieved during favorable conditions in the market . Such favorable returns
involve the risk of volatility and investors should not expect that they will be
consistently achieved.
PAST PERFORMANCE
The Fund commenced operations on July 1, 2000. Because the Fund has been in
operation for less than a full calendar year, we have not included any
performance information.
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES INSTITUTIONAL SHARES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
Maximum deferred sales charge (load) imposed on None
redemptions(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL SHARES
(expenses deducted from Fund assets)
Management fees ____%
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses* ____%
* Operating expenses are expressed as a percentage of average daily net assets
based on management's estimate of expenses for the fiscal year ending April 30,
2001.
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $____
3 Year $____
YOU SHOULD USE THE EXPENSE EXAMPLE FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE AAL AGGRESSIVE GROWTH FUND
INVESTMENT OBJECTIVE
The AAL Aggressive Growth Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of common stocks and securities convertible
into common stocks.
PRINCIPAL INVESTMENT STRATEGIES
We invest in companies that offer the potential for accelerated earnings or
revenue growth. Stocks of these companies are generally referred to as "growth"
stocks. Under normal circumstance we invest at least 65% of the Fund's total
assets in common stocks, not including convertible securities.
The Fund invests in companies of any size, from small, emerging-growth
companies, to large, well-established companies. The Fund will invest in
companies spanning a broad range of industries and sectors, including, but not
limited to:
o computers, including products, software, hardware, electronic
components, and semiconductors;
o technology;
o telecommunications;
o chemicals;
o defense and aerospace;
o biotechnology;
o health care; and
o transportation.
The Fund may also invest in securities of foreign issuers. Typically, we
consider an issuer as domiciled in a particular country if it:
o is incorporated under the laws of that country;
o has at least 50% of the value of its assets located in that country;
or
o derives at least 50% of its income from operations or sales in that
country.
We may invest the remaining 35% of the Fund's total assets in additional common
stocks, preferred stocks, and bonds. The Fund does not invest in bonds for
capital growth or for long time periods, but may invest in bonds for temporary
defensive measures. We limit our investment in convertible securities to no more
than 5% of the Fund's net assets.
PRINCIPAL RISKS
FINANCIAL RISK: Many factors affect the performance of a company in which the
Fund may invest. Some examples include strength of management, demand for a
company's products or services and general economic conditions. A company's
performance will affect the market price of its stock, and consequently, the
value of the Fund's portfolio. You could lose money investing in the Fund.
MARKET RISK: Over time, the stock market tends to move in cycles, with periods
when stock prices rise generally and periods when stock prices decline
generally. The value of the Fund's investments may move with these cycles, and
in some instances, increase or decrease more than the stock market, as measured
by the S&P 500 Index.
AGGRESSIVE GROWTH INVESTMENT RISK: "Growth" stocks tend to have greater price
volatility than stocks of larger, well-established companies. Generally, the
value of the Fund's investments tends to increase more than the stock market, as
measured by the S&P 500 Index, during periods of rising stock prices.
Conversely, the value of the Fund's investments tends to decrease more than the
stock market during periods of declining stock prices. However, these price
trends may not always occur.
FOREIGN INVESTMENT RISKS: The Fund faces particular risks associated with
foreign investing. Foreign investment risks include currency, liquidity,
political, economic and market risks, as well as risks associated with
governmental regulation and non-uniform corporate disclosure standards.
PAST PERFORMANCE
The Fund commenced operations on July 1, 2000. Because the Fund has been in
operation for less than a full calendar year, we have not included any
performance information.
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES
(fees paid directly from your investment) INSTITUTIONAL SHARES
Maximum sales charge (load) imposed on None
purchases (as a percentage of offering price)
Maximum deferred sales charge (load) None
(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets) INSTITUTIONAL SHARES
Management fees ____%
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses* ____%
* Operating expenses are expressed as a percentage of average daily net assets
based on management's estimate of expenses for the fiscal year ending April 30,
2001.
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $____
3 Year $____
YOU SHOULD USE THE EXPENSE EXAMPLE FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE AAL SMALL CAP STOCK FUND
INVESTMENT OBJECTIVE
The AAL Small Cap Stock Fund seeks long-term capital growth by investing
primarily in small company common stocks, and securities convertible into small
company common stocks.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, we invest at least 65% of the Fund's total assets in
small company common stocks. We may invest the remaining 35% of the Fund's total
assets in any combination of small-cap, mid-cap and large-cap stocks and
securities convertible into these stocks.
By small companies, we mean those with market capitalizations of less than $1.5
billion. We often refer to small company stocks as small-cap stocks. Small-cap
stocks trade in the over-the-counter market as well as on U.S. securities
exchanges. We focus on companies with market capitalizations ranging from $100
million to $1 billion. Generally, small companies have not yet gained a
reputation for quality. Further, small companies tend to be less recognizable
than companies listed in the S&P 500 Index or the S&P MidCap 400 Index. We look
for small companies (including companies initially offering stock to the public)
that, in our opinion:
(1) are in the early stages of development or positioned in new and
emerging industries;
(2) have an opportunity for rapid growth;
(3) have capable management; and
(4) are financially sound.
Due to certain market inefficiencies, we believe properly selected small company
stocks offer greater opportunities for long-term capital growth. We tend to sell
the stocks of companies when we think that other investments offer better
opportunities. This investment strategy may result in short-term gains or losses
for the Fund.
PRINCIPAL RISKS
FINANCIAL RISK: When compared with large companies, small, less-established
companies may have relatively lower revenues, limited product lines, less
management depth and a lower share of the market for their products or services.
Because of these and other factors, stocks of small companies present a greater
risk of losing value than stocks of larger, more established companies.
MARKET RISK: Over time, the stock market tends to move in cycles, with periods
when stock prices generally rise and periods when stock prices generally
decline. Historically, small-cap stocks have experienced more price volatility
than mid-cap and large-cap stocks.
Small company stocks tend to have greater price volatility than large company
stocks. Generally, the value of the Fund's investments tends to increase more
than the stock market, as measured by the S&P 500 Index, in a period of rising
stock prices. Conversely, the value of the Fund's investments tends to decrease
more than the stock market in a period of declining stock prices. However, these
price trends do not always occur. You could lose money investing in the Fund.
PAST PERFORMANCE
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total return. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class I shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions. There is no front-end sales charge or contingent deferred
sales charge on the Fund's Class I shares.
Annual Return
Institutional Shares
Year Ended December 31st
[Bar chart with following data:]
12/31/98 (1.80)%
12/31/99 ____%
The Fund's year-to-date return as of March 31, 2000 was ____%.
Best and Worst Quarterly Returns
Best Quarter 4th Quarter of 1998 20.71%
Worst Quarter 3rd Quarter of 1998 (21.18)%
Average Annual Total Returns
The table below compares the Fund's average annual total return for Class I
shares with the S&P SmallCap 600 Index.* The average annual total return is
calculated as of the close of the Fund's fiscal year, which ends April 30, 2000.
Returns are shown for a one-year period and since inception.
Small Cap Fund 1 Year Since Inception
Institutional Shares ____% ____% (1)
S&P SmallCap 600 Index ____% ____% (2)
(1) Inception of the Fund December 29, 1997.
(2) Performance number reflects returns of the S&P SmallCap 600 Index
since December 29, 1997.
* The S&P SmallCap 600 Index is an unmanaged index comprised of 600 stocks
designed to represent performance of the small-cap segment of the U.S. equity
markets.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES INSTITUTIONAL SHARES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
Maximum deferred sales charge (load) imposed on None
redemptions(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL SHARES
(expenses deducted from Fund assets)
Management fees ____%
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses ____%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $____
3 Year $____
5 Year $____
10 Year $____
YOU SHOULD USE THE EXPENSE EXAMPLE FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE AAL MID CAP STOCK FUND
INVESTMENT OBJECTIVE
The AAL Mid Cap Stock Fund seeks long-term capital growth by investing primarily
in common stocks and securities convertible into common stocks, of mid-sized
companies.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, we invest at least 65% of the Fund's total assets in
mid-sized company stocks. By mid-sized companies, we mean those with market
capitalizations ranging from $100 million to $7.5 billion. Within this category,
we generally focus on companies with market capitalizations ranging from $500
million to $3.5 billion. Mid-cap companies tend to be smaller and less-seasoned
than large-cap companies listed in the S&P 500 Index. Mid-cap companies may
trade in the over-the-counter market as well as on national securities
exchanges.
We may invest the remaining 35% of the Fund's total assets in any combination of
additional mid-cap stocks, large-cap stocks and securities convertible into such
stocks. We look for mid-sized companies (including companies initially offering
their stock to the public) that, in our opinion:
(1) have prospects for growth in their sales and earnings;
(2) are in an industry with a good economic outlook;
(3) have high-quality management; and
(4) have a strong financial position.
We usually pick companies in the middle stages of their development. These
companies tend to have established a record of profitability and possess a new
technology, unique product, or market niche. We tend to sell stocks of companies
when we think other investments offer better opportunities. Due to this policy,
the Fund may, from time to time, have short-term gains or losses.
PRINCIPAL RISKS
FINANCIAL RISK: Stocks of mid-sized companies may present a greater risk of
losing value than stocks of larger, more established companies, but may present
less risk than stocks of smaller companies. Mid-sized companies tend to have
relatively smaller revenues, narrower product lines, less management depth and
smaller shares of the market for their products or services than large
companies.
MARKET RISK: Over time, the stock market tends to move in cycles, with periods
when stock prices rise generally and periods when stock prices decline
generally. Due to the tendency for mid-cap stocks to have less liquidity in the
market than large company stocks, the value of the Fund's investments might
increase and decrease more than the stock market in general, as measured by the
S&P 500 Index. You could lose money investing in the Fund.
PAST PERFORMANCE
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total return. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class I shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions. There is no front-end sales charge or contingent deferred
sales charge on the Fund's Class I shares.
Annual Return
Institutional Shares
Year Ended December 31st
[Bar chart with following data:]
12/31/98 2.62%
12/31/99 ____%
The Fund's year-to-date return as of March 31, 2000 was ____%.
Best and Worst Quarterly Returns
Best Quarter 4th Quarter of 1998 22.99%
Worst Quarter 3rd Quarter of 1998 (21.14)%
Average Annual Total Returns
The table below compares the Fund's average annual total return for Class I
shares with the S&P MidCap 400 Index.* The average annual return is calculated
as of the close of the Fund's fiscal year, which ends April 30, 2000. Returns
are shown for a one-year period and since inception.
Mid Cap Fund 1 Year Since Inception
Institutional Shares ____% ____% (1)
S&P MidCap 400 Index ____% ____% (2)
(1) Inception of Fund December 29, 1997.
(2) Performance number reflects returns of the S&P MidCap 400 Index since
December 29, 1997.
* The S&P MidCap 400 Index is an unmanaged index that represents the average
performance of a group of 400 medium capitalization stocks.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES INSTITUTIONAL SHARES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
Maximum deferred sales charge (load) imposed on None
redemptions(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL SHARES
(expenses deducted from Fund assets)
Management fees ____%
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses ____%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $____
3 Year $____
5 Year $____
10 Year $____
YOU SHOULD USE THE EXPENSE EXAMPLE FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE AAL INTERNATIONAL FUND
INVESTMENT OBJECTIVE
The AAL International Fund seeks long-term capital growth by investing primarily
in a diversified portfolio of foreign stocks.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, we invest at least 65% of the Fund's total assets in
foreign stocks primarily traded in at least three countries, not including the
United States. We do not have any limitations on how much of the Fund's assets
we may invest in securities primarily traded in any one country. Typically, we
consider an issuer as domiciled in a particular country if it:
(1) is incorporated under the laws of that country;
(2) has at least 50% of the value of its assets located in that country;
or
(3) derives at least 50% of its income from operations or sales in that
country.
We may invest the remaining 35% of the Fund's total assets in a combination of
the following: additional foreign stocks; U.S. stocks; structured notes and/or
preferred stocks; and up to 20% of the Fund's total assets in U.S. and foreign
bonds and other debt obligations, including lower-rated debt, commonly referred
to as "junk bonds." We do not place any restrictions on the debt ratings of
securities acquired or the portion of the Fund's assets we may invest in a
particular rating category for the Fund.
[Sidebar: Mature and Emerging Markets]
Mature Markets: A mature market is generally defined as a stable and efficient
country economy with well-developed governmental entities and an advanced
financial infrastructure.
Emerging Markets: An emerging market refers to a lesser-developed country
economy. An emerging market is characterized by relatively weak governmental
entities and a developing financial infrastructure with market inefficiencies.
The following examples help distinguish mature markets and emerging markets.
Mature Markets Emerging Markets
United States Czech Republic
Japan Poland
Canada Malaysia
United Kingdom Brazil
We focus on stocks primarily trading in the United Kingdom, Western Europe,
Australia, Far East, Latin America and Canada. Many of these markets are mature,
while others are emerging. There are no limits on the extent to which we can
invest in either mature or emerging markets. We may invest up to 100% of the
Fund's total assets in emerging markets.
Pending the investment of cash from new sales or to meet ordinary daily cash
needs, we may, subject to the fundamental investment objective, hold cash
temporarily (U.S. dollars, foreign currencies or multinational foreign currency
units) for the Fund. For defensive purposes, we may temporarily invest any
portion of the Fund's total assets in money market instruments.
PRINCIPAL RISKS
FOREIGN INVESTMENT RISK: The Fund faces particular risks associated with foreign
investing. Foreign investment risks include currency, liquidity, political,
economic and market risks, as well as risks associated with governmental
regulation and non-uniform corporate disclosure standards.
CURRENCY FLUCTUATIONS: A change in the value of a foreign currency against the
U.S. dollar may affect the value (in terms of U.S. dollars) of the foreign
stocks held by the Fund. The value of the Fund's foreign stocks also may be
affected significantly by currency restrictions and currency exchange control
regulations enacted from time to time by foreign governments.
MARKET CHARACTERISTICS AND LIQUIDITY: Foreign exchanges and markets may be more
volatile than those in the United States and foreign stocks may be less liquid
than domestic securities. Settlement practices for transactions in foreign stock
markets may differ from those practices in U.S. stock markets and may involve
delays beyond customary periods in the United States.
POLITICAL AND ECONOMIC FACTORS: The economies of some foreign countries may
differ favorably or unfavorably from the United States economy in such respects
as growth of gross domestic product, rate of inflation, capital reinvestment,
resource self-sufficiency, diversification and balance of payments position.
Also, some foreign governments participate to a significant degree, through
ownership interests or regulation, in their economies. Actions by these
governments could include restrictions on foreign investments, nationalization,
expropriation of goods or imposition of taxes, and could have a significant
effect on the prices of stocks and the payment of interest on bonds. The
economies of many foreign countries are highly dependent on international trade
and therefore, are affected by trade policies and economic conditions of their
trading partners. If those trading partners engage in protectionist trade
legislation, the price of the stocks of the foreign country and the markets in
which they trade could be affected.
REGULATION: Some foreign countries have less supervision and regulation of
securities markets, broker/dealers and issuers of securities than is the case in
the United States. Also, many foreign countries do not require publicly traded
companies to disclose information which is as extensive and detailed as that
which public companies in the United States are required to disclose. This lack
of regulation and disclosure makes our assessment of the growth potential of
stocks we select less certain than might be the case for domestic stocks.
These risks tend to be more pronounced in emerging markets than is the case for
mature markets. We may invest up to 100% of the Fund's net assets in emerging
growth countries.
PAST PERFORMANCE
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total return. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class I shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions. There is no front-end sales charge or contingent deferred
sales charge on the Fund's Class I shares.
Annual Return
Institutional Shares
Year Ended December 31st
[Bar chart with following data:]
12/31/98 11.76%
12/31/99 ____%
The Fund's year-to date-return as of March 31, 2000 was ____%.
Best and Worst Quarterly Returns
Best Quarter 4th Quarter of 1998 15.65%
Worst Quarter 3rd Quarter of 1998 (12.38)%
Average Annual Total Returns
The table below compares the Fund's average annual total return for Class I
shares with the EAFE(R) Index.* The average annual return is calculated as of
the close of the Fund's fiscal year, which ends April 30, 2000. Returns are
shown for a one-year period and since inception.
International Fund 1 Year Since Inception
Institutional Shares ____% ____% (1)
EAFE(R)Index ____% ____% (2)
(1) Inception of Fund December 29, 1997.
(2) Performance number reflects returns of the EAFE(R)Index since
December 29, 1997.
* The Morgan Stanley Capital International, Europe, Australasia, Far East Index
(EAFE(R) Index) is a stock index designed to measure the investment returns of
the developed countries outside North America. The EAFE(R) Index currently
includes stocks from 21 countries.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES INSTITUTIONAL SHARES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
Maximum deferred sales charge (load) imposed on None
redemptions(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL SHARES
(expenses deducted from Fund assets)
Management fees ____%
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses ____%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $____
3 Year $____
5 Year $____
10 Year $____
YOU SHOULD USE THE EXPENSE EXAMPLE FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE AAL CAPITAL GROWTH FUND
INVESTMENT OBJECTIVE
The AAL Capital Growth Fund seeks long-term capital growth by investing
primarily in a diversified portfolio of common stocks and securities convertible
into common stocks.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, we invest at least 65% of the Fund's total assets in
common stocks, not including convertible securities. Generally, we focus on
dividend-paying stocks issued by companies with earnings growth per share that
is higher than stocks included in the S&P 500. In selecting stocks, we look
for quality, operating growth predictability and financial strength.
We may invest the remaining 35% of the Fund's total assets in additional common
stocks, preferred stocks and bonds. The Fund does not invest in bonds for
capital growth or for long time periods. We limit our investments in convertible
securities to no more than 5% of the Fund's net assets.
PRINCIPAL RISKS
FINANCIAL RISK: Many factors affect the performance of a company in which the
Fund may invest. Some examples include strength of management, demand for a
company's products or services and general economic conditions. A company's
performance will affect the market price of its stock, and consequently, the
value of the Fund's portfolio. You could lose money investing in the Fund.
MARKET RISK: Over time, the stock market tends to move in cycles, with periods
when stock prices rise generally and periods when stock prices decline
generally. The value of the Fund's investments may increase and decrease more
than the stock market in general, as measured by the S&P 500 Index.
PAST PERFORMANCE
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total return. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class I shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions. There is no front-end sales charge or contingent deferred
sales charge on the Fund's Class I shares.
Annual Return
Institutional Shares
Year Ended December 31st
[Bar chart with following data:]
12/31/98 28.61%
12/31/99 ____%
The Fund's year-to-date return as of March 31, 2000 was ____%.
Best and Worst Quarterly Returns
Best Quarter 4th Quarter of 1998 20.07%
Worst Quarter 3rd Quarter of 1998 (10.55)%
Average Annual Total Returns
The table below compares the Fund's average annual total return for Class I
shares with the S&P 500 Index.* The average annual return is calculated as of
the close of the Fund's fiscal year, which ends April 30, 2000. Returns are
shown for a one-year period and since inception.
Capital Growth Fund 1 Year Since Inception
Institutional Shares ____% ____% (1)
S&P 500 Index ____% ____% (2)
(1) Inception of Fund December 29, 1997.
(2) Performance number reflects returns of the S&P 500 Index since
December 29, 1997.
* The S&P 500 Index is a broad-based composite unmanaged index that represents
the average performance of a group of 500 widely-held, publicly-traded stocks.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES INSTITUTIONAL SHARES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
Maximum deferred sales charge (load) imposed on None
redemptions(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL SHARES
(expenses deducted from Fund assets)
Management fees ____%
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses ____%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $____
3 Year $____
5 Year $____
10 Year $____
YOU SHOULD USE THE EXPENSE EXAMPLE FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE AAL EQUITY INCOME FUND
INVESTMENT OBJECTIVE
The AAL Equity Income Fund seeks current income, long-term income growth and
capital growth by investing primarily in a diversified portfolio of
income-producing equity securities.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, we invest at least 65% of the Fund's total assets in
income-producing equity securities. By "income-producing equity securities," we
mean equity securities, including securities exchangeable or convertible into
equity securities, that offer dividend yields that exceed the average dividend
yields on stocks comprising the S&P 500. We may invest the remainder of the
Fund's total assets, in whole or in part, in additional income-producing equity
securities, bonds and commercial paper.
In selecting equity securities for the Fund, we look for companies that:
(1) have a good growth rate and return on capital;
(2) have favorable aspects for future growth and dividends;
(3) are financially sound;
(4) have high-quality management; and
(5) are in a favorable competitive environment.
We buy bonds, including convertible securities, if, at the time of purchase at
least two nationally recognized statistical rating organizations (NRSRO's) have
rated them investment grade; or, if unrated, we have determined them to be of a
credit quality comparable to investment grade. We may invest up to 5% of the
Fund's total assets in such securities rated below investment grade. We buy
commercial paper rated in the top two categories by a NRSRO. We may buy unrated
commercial paper, if we determine the commercial paper is of a credit quality
comparable to investment grade.
We expect to receive income from dividends paid on equity investments and
interest earned on debt securities. We seek capital appreciation by attempting
to select income-producing equity securities that we believe are under-priced
relative to the securities of companies with comparable fundamentals.
PRINCIPAL RISKS
INDUSTRY CONCENTRATION: Income-producing equity securities in which the Fund
invests tend to be more prevalent in some market sectors than others, for
example; communications, retail, energy, utilities, financial services and
consumer non-cyclical and cyclical market sectors. Prices of stocks of companies
in these industries may not always move in tandem with the market, generally,
causing the Fund's performance to lag or outperform the overall market.
FINANCIAL RISK: The market sectors in which companies tend to issue
income-producing equity securities usually have high operating, interest and
other regulatory expenses, such as the public utilities industry. Also, some of
these sectors are maturing, meaning that growth is peaking. Companies in these
market sectors frequently use their profits for paying higher dividends rather
than reinvesting for company growth. As a result, income-producing equity
securities typically have lower capital growth potential than equity securities
in other sectors. Capital growth for many income-producing equity securities
corresponds to the company's competitive position, in particular its capability
to capture market share from its competitors.
INTEREST RATE RISK: Like bonds, changes in the level of interest rates affect
the value of income-producing equity securities and the value of the Fund as a
whole. Their values tend to move in the opposite direction of interest rates.
MARKET RISK: Market cycles affect all equity securities over time, with periods
when stock prices rise generally and periods when stock prices decline
generally. However, income-producing equity securities may rise less and fall
less than the market as a whole, because of the higher income component of these
securities.
PAST PERFORMANCE
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total return. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class I shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions. There is no front-end sales charge or contingent deferred
sales charge on the Fund's Class I shares.
Annual Return
Institutional Shares
Year Ended December 31st
[Bar chart with following data:]
12/31/98 13.80%
12/31/99 ____%
The Fund's year-to-date return as of March 31, 2000 was ____%.
Best and Worst Quarterly Returns
Best Quarter 4th Quarter of 1998 15.15%
Worst Quarter 3rd Quarter of 1998 (10.17)%
Average Annual Total Returns
The table below compares the Fund's average annual total return for Class I
shares with the S&P 500 Index.* The average annual return is calculated as of
the close of the Fund's fiscal year, which ends April 30, 2000. Returns are
shown for a one-year period and since inception.
Equity Income Fund 1 Year Since Inception
Institutional Shares ____% ____% (1)
S&P 500 Index ____% ____% (2)
(1) Inception of Fund December 29, 1997.
(2) Performance number reflects returns of the S&P 500 Index since
December 29, 1997.
* The S&P 500 Index is a broad-based composite unmanaged index that represents
the average performance of a group of 500 widely-held, publicly-traded stocks.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES INSTITUTIONAL SHARES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
Maximum deferred sales charge (load) imposed on None
redemptions(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL SHARES
(expenses deducted from Fund assets)
Management fees ____%
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses ____%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $____
3 Year $____
5 Year $____
10 Year $____
YOU SHOULD USE THE EXPENSE EXAMPLE FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE AAL LARGE COMPANY INDEX FUND
INVESTMENT OBJECTIVE
The AAL Large Company Index Fund seeks total returns that track the performance
of the S&P 500 Index, by investing primarily in common stocks comprising the
Index.
PRINCIPAL INVESTMENT STRATEGIES
We select stocks through the use of computer models, instead of using
traditional analysis, to duplicate the S&P 500 Index in proportion to their
weightings in the Index. We try to hold all the stocks that comprise the Index,
however, there may be variations and delays from time to time due to periodic
changes to the Index. We expect portfolio turnover of no more than 50% per year.
We seek a correlation factor of 0.95% of the S&P 500 Index.
To the extent possible, the Fund will be fully invested in the Index. Our
ability to match the performance of the S&P 500 Index will be affected by the
size and timing of cash flows into and out of the Fund. We will try to manage
the Fund to minimize such effects. The Fund has expenses that an index does not
have, so the Fund will not be able to exactly match the performance of its
comparable index.
We may also invest to some degree in money market instruments. We do not expect
to have more than 5% of the Fund's assets in money market instruments.
Stocks have historically performed better as an asset class than bonds. Although
there is a greater potential for reward, there are also greater risks. Even
though we attempt to follow the performance of the S&P 500 Index, we cannot
guarantee these results. You could lose money investing in this Fund
PRINCIPAL RISKS
FINANCIAL RISK: Many factors affect an individual company's performance, such as
management or the demand for a company's products or services. A company's
performance will affect the market price of its stocks, and consequently, it
will impact the value of the Fund's portfolio.
MARKET RISK: Over time, the stock market tends to move in cycles, with periods
when stock prices rise generally and periods when stock prices decline
generally. The value of the Fund's investments may move with these cycles, and
in some instances, increase or decrease more than the stock market as measured
by the S&P 500 Index.
PAST PERFORMANCE
The Fund commenced operations on December 31, 1999. Because the Fund has been in
operation for less than a full calendar year, we have not included any
performance information.
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES INSTITUTIONAL SHARES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
Maximum deferred sales charge (load) imposed on None
redemptions(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL SHARES
(expenses deducted from Fund assets)
Management fees ____%
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses ____%
* Operating expenses are expressed as a percentage of average daily net assets
based on management's estimate of expenses for the fiscal year ending April 30,
2001, and do not include the Adviser's voluntary reimbursement of expenses. AAL
CMC, the Fund's Adviser, has agreed to reimburse expenses so as to limit "Total
Fund Operating Expenses," to 0.20% for the fiscal year.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $52
3 Year $164
YOU SHOULD USE THE EXPENSE EXAMPLE FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE AAL MID CAP INDEX FUND
INVESTMENT OBJECTIVE
The AAL Mid Cap Index Fund seeks total returns that track the performance of the
S&P MidCap 400 Index, by investing primarily in common stocks comprising the
Index.
PRINCIPAL INVESTMENT STRATEGIES
We select stocks through the use of computer models instead of using traditional
analysis to duplicate the S&P MidCap 400 Index in proportion to their weightings
in the index. We try to hold all the stocks that comprise the Index, however,
there may be variations and delays from time to time due to periodic changes to
the Index. We expect portfolio turnover of no more than 50% per year.
To the extent possible, the Fund will be fully invested in the Index. Our
ability to match the performance of the S&P MidCap 400 Index will be affected by
the size and timing of cash flows into and out of the Fund. We will try to
manage the Fund to minimize such effects. The Fund has expenses that an index
does not have, so the Fund will not be able to exactly match the performance of
its comparable index.
We may also invest to some degree in money market instruments. We do not expect
to have more than 5% of the Fund's assets in money market instruments. Stocks
have historically performed better as an asset class than bonds. Although there
is a greater potential for reward, there are also greater risks. Although we
attempt to follow the performance of the S&P MidCap 400 Index, we cannot
guarantee these results. You could lose money investing in this Fund
PRINCIPAL RISKS
FINANCIAL RISK: Stocks of mid-sized companies may present a greater risk of
losing value than stocks of larger, more established companies, but may present
less risk than stocks of smaller companies. Mid-sized companies tend to have
relatively smaller revenues, narrower product lines, less management depth and
smaller shares of the market for their products or services than large
companies.
Many factors affect an individual company's performance, such as management or
the demand for a company's products or services. A company's performance will
affect the market price of its stocks, and consequently, it will impact the
value of the Fund's portfolio.
MARKET RISK: Over time, the stock market tends to move in cycles, with periods
when stock prices rise generally and periods when stock prices decline
generally. Due to the tendency for mid-cap stocks to have less liquidity in the
market than large company stocks, the value of the Fund's investments might
increase or decrease more than the stock market in general, as measured by the
S&P 400 MidCap Index. You could lose money investing in the Fund.
PAST PERFORMANCE
The Fund commenced operations on December 31, 1999. Because the Fund has been in
operation for less than a full calendar year, we have not included any
performance information.
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES INSTITUTIONAL SHARES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
Maximum deferred sales charge (load) imposed on None
redemptions(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL SHARES
(expenses deducted from Fund assets)
Management fees ____%
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses ____%
* Operating expenses are expressed as a percentage of average daily net assets
based on management's estimate of expenses for the fiscal year ending April 30,
2001, and do not include the Adviser's voluntary reimbursement of expenses. AAL
CMC, the Fund's Adviser, has agreed to reimburse expenses so as to limit "Total
Fund Operating Expenses," to 0.20% for the fiscal year.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $62
3 Year $195
YOU SHOULD USE THE EXPENSE EXAMPLE FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE AAL BALANCED FUND
INVESTMENT OBJECTIVE
The AAL Balanced Fund seeks long-term total return through a balance between
income and the potential for long-term capital growth by investing primarily in
a diversified portfolio of common stocks, bonds and money market instruments.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, we invest from 50% to 60% of the Fund's total assets
in common stocks, from 30% to 40% in fixed-income securities (bonds) and up to
20% in money market instruments. However, we will at all times maintain an
investment mix within the following ranges:
(1) 35% to 75% in common stocks;
(2) 25% to 50% in fixed-income securities (bonds); and
(3) 0% to 40% in money market instruments.
We select investments in each category of security by using the following
criteria:
(1) common stocks, including the securities in which The AAL Capital
Growth Fund may invest;
(2) bonds and other debt securities with maturities generally exceeding
one year, including securities in which The AAL Bond Fund may invest;
and
(3) money market instruments and other debt securities with maturities
generally not exceeding 397 days, including the securities in which
The AAL Money Market Fund may invest.
We periodically review and adjust the mix of investments among these three
categories to capitalize on potential variations in returns produced by the
interaction of changing financial markets and economic conditions. Changes in
the investment mix may occur several times within a year or over several years,
depending on market and economic conditions.
PRINCIPAL RISKS
Stock Investment Risks
FINANCIAL RISK: Many factors affect an individual company's performance, such as
its management or the demand for a company's products or services. Company
performance affects the value of stock and the value of stocks in the Fund's
portfolio.
MARKET RISK: Over time, the stock market tends to move in cycles, with periods
when stock prices rise generally and periods when stock prices decline
generally. The value of the Fund's investments may increase or decrease more
than the stock market in general, as measured by the S&P 500. Because we invest
35% to 75% of the Fund's assets in stocks, fluctuating stock prices will have a
significant impact on the Fund's value (the price of the Fund's shares).
Bond and Money Market Instrument Investment Risks
INTEREST RATE RISK: Changes in interest rate levels affect the value of the
bonds and money market instruments in the portfolio and the value of the Fund as
a whole.
CREDIT RISK: The creditworthiness of bond issuers will affect the value of their
bonds and money market instruments, which may decline during the Fund's holding
periods and affect the value of the Fund as a whole.
Asset Allocation Risks
We may shift the portfolio's asset mix of stocks, bonds and money market
instruments based on existing or anticipated market conditions. The returns you
receive will depend on how we have allocated the Fund's investments across these
asset categories. As the allocation fluctuates over time, your returns fluctuate
as well. The Fund's performance will depend on our ability to successfully
predict market and economic trends and to achieve optimal allocation.
The Fund seeks total return, consisting of both capital appreciation, current
income and long-term income growth, by following an asset allocation strategy.
The Fund, however, may not achieve as high a level of either capital
appreciation or income as a mutual fund that has only one of these as a primary
objective.
PAST PERFORMANCE
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total return. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class I shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions. There is no front-end sales charge or contingent deferred
sales charge on the Fund's Class I shares.
Annual Return
Institutional Shares
Year Ended December 31st
[Bar chart with following data:]
12/31/98 18.01%
12/31/99 ____%
The Fund's year-to-date return as of March 31, 2000 was ____%.
Best and Worst Quarterly Returns
Best Quarter 4th Quarter of 1998 11.37%
Worst Quarter 3rd Quarter of 1998 (4.51)%
Average Annual Total Returns
The table below compares the Fund's average annual total return for Class I
shares with the S&P 500 Index and the Lehman Brothers Aggregate Bond Index.*
The average annual return is calculated as of the close of the Fund's fiscal
year, which ends April 30, 2000. Returns are shown for a one-year period and
since inception.
Balanced Fund 1 Year Since Inception
Institutional Shares ____% ____% (1)
S&P 500 Index
Lehman Brothers Aggregate Bond Index ____% ____% (2)
(1) Inception of Fund December 29, 1997.
(2) Performance numbers reflect returns of the S&P 500 Index and the
Lehman Brothers Aggregate Bond Index since December 29, 1997.
* The S&P 500 Index is a broad-based composite unmanaged index that represents
the average performance of a group of 500 widely-held, publicly-traded stocks.
The Lehman Brothers Aggregate Bond Index(R) is an unmanaged index that
encompasses four classes of fixed-income securities in the United States: U.S.
Treasury and U.S. government agency securities, corporate debt obligations,
mortgage-backed securities and asset-backed securities.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES INSTITUTIONAL SHARES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
Maximum deferred sales charge (load) imposed on None
redemptions(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL SHARES
(expenses deducted from Fund assets)
Management fees ____%
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses ____%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $____
3 Year $____
5 Year $____
10 Year $____
YOU SHOULD USE THE EXPENSE EXAMPLE FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE AAL HIGH YIELD BOND FUND
INVESTMENT OBJECTIVE
The AAL High Yield Bond Fund seeks high current income and secondarily capital
growth by investing primarily in a diversified portfolio of high-risk,
high-yield bonds commonly referred to as "junk bonds." The Fund actively seeks
to achieve the secondary objective of capital growth to the extent it is
consistent with the primary objective of high current income.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, we invest at least 65% of the Fund's total assets in
high-yield bonds. We may invest the remaining 35% of the Fund's total assets in
any combination of:
(1) additional high-yield bonds;
(2) investment-grade bonds;
(3) common and preferred stocks (including structured preferred stocks);
and
(4) securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities ("U.S. government obligations").
We may invest up to 20% of the Fund's net assets in bonds of foreign issuers. In
evaluating the quality of a particular high-yield bond for investment in the
Fund, we do not rely exclusively on ratings assigned by the NRSRO's. In
appropriate circumstances, we perform our own credit analysis. We consider the
issuer's:
(1) financial resources;
(2) operating history;
(3) sensitivity to economic conditions and trends;
(4) management's abilities;
(5) debt maturity schedules;
(6) borrowing requirements; and
(7) relative values based on anticipated cash flow, interest and asset
coverage and earnings prospects.
We attempt to identify those issuers of high-yield bonds whose financial
condition is adequate to meet future obligations and has improved or is expected
to improve in the future. However, there are no restrictions on the rating level
of the securities in the Fund's portfolio, and we may purchase and hold
securities in default.
[Sidebar: Junk Bonds]
High-yield bonds have a higher yield to compensate for greater risk that the
issuer might not make its interest and principal payments. Most bonds are rated
by national rating agencies according to the issuers ability to maintain
interest payments and repay the principal amount at the time the bond comes due.
High-yield bonds are speculative and, therefore, typically considered to be
below investment-grade bonds by national ratings agencies. High yield bonds
include:
o fixed rate bonds;
o variable rate bonds;
o convertible bonds;
o zero coupon bonds;
o pay-in-kind bonds;
o floating rate interest debt obligations;
o deferred interest debt obligations;
o structured debt obligations;
o asset-backed debt obligations; and
o mortgage-backed debt obligations.
PRINCIPAL RISKS
INTEREST RATE RISK: Changes in interest rate levels affect the value of the
bonds in the portfolio and the value of the Fund as a whole.
CREDIT RISK: The primary risk of investing in the high-yield sector is the
credit risk. Bonds rated below investment grade have greater risk of default
than investment-grade bonds and, may in fact, be in default. Issuers of
high-yield bonds usually do not have strong historical financial conditions,
requiring them to offer higher yields to compensate for the greater risk of
default on the payment of interest and principal. These bonds have speculative
characteristics or are speculative. As a result, their market values are less
sensitive to interest rate changes on a short-term basis, but more sensitive to
adverse economic developments or individual corporate developments because of
their lower credit quality. During an economic downturn or period of rising
interest rates, issuers of lower rated bonds may have more difficulty meeting
their principal and interest payment obligations or obtaining additional
financing to make the interest payments on their debt. When issuers have
difficulty meeting projected goals or obtaining additional financing, the
default rate on high-yield bonds will likely rise.
MARKET RISK: Frequently, high-yield bonds have a less liquid resale market than
the market for investment-grade bonds. In some cases, these bonds have no resale
market at all. As a result, we may have difficulty valuing portfolio securities,
choosing the securities to sell to meet redemption requests and/or selling or
disposing of portfolio securities on favorable terms.
The high-yield market has in the past, and may in the future, experience market
risk due to adverse publicity and investor perceptions. In the past, Congress
has attempted restricting the advantages of high-yield bonds and similar
attempts could occur in the future.
PAST PERFORMANCE
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total return. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class I shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions. There is no front-end sales charge or contingent deferred
sales charge on the Fund's Class I shares.
Annual Return
Institutional Shares
Year Ended December 31st
[Bar chart with following data:]
12/31/98 (2.17)%
12/31/99 ____%
The Fund's year-to-date return as of March 31, 2000 was ____%.
Best and Worst Quarterly Returns
Best Quarter 1st Quarter of 1998 3.10%
Worst Quarter 3rd Quarter of 1998 (7.74)%
Average Annual Total Returns
The table below compares the Fund's average annual total return for Class I
shares with the Merrill Lynch High Yield Master Index.* The average annual
return is calculated as of the close of the Fund's fiscal year, which ends April
30, 2000. Returns are shown for a one-year period and since inception.
High Yield Bond Fund 1 Year Since Inception
Institutional Shares ____% ____% (1)
Merril Lynch High Yield Master Index ____% ____% (2)
(1) Inception of Fund December 29, 1997.
(2) Performance number reflects returns of the Merrill Lynch High Yield
Master Index since December 29, 1997.
* The Merrill Lynch High Yield Master Index is an unmanaged index comprised
of over 900 "cash-pay" high-yield bonds representative of the high-yield market
as a whole.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES INSTITUTIONAL SHARES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
Maximum deferred sales charge (load) imposed on None
redemptions(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL SHARES
(expenses deducted from Fund assets)
Management fees ____%
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses ____%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $____
3 Year $____
5 Year $____
10 Year $____
YOU SHOULD USE THE EXPENSE EXAMPLE FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE AAL MUNICIPAL BOND FUND
INVESTMENT OBJECTIVES
The AAL Municipal Bond Fund seeks a high level of current income exempt from
federal income taxes, consistent with capital preservation by investing
primarily in a diversified portfolio of municipal bonds.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, we invest at least 80% of the Fund's net assets in
municipal bonds where the income is exempt from federal income tax. Of the 80%
invested in municipal bonds, we invest at least 75% in bonds rated within the
three highest rating categories assigned by at least one NRSRO at the time
of purchase.
State and local governments and municipalities issue municipal bonds to raise
money for a variety of public purposes, including general financing for state
and local governments or financing for specific projects or public facilities. A
municipality may issue municipal bonds in anticipation of future revenues from a
specific municipal project (revenue bonds), or backed by the full taxing power
of a municipality (general obligation bonds), or from the revenues of a specific
project on the credit of a private organization (industrial development bonds).
Federal law generally exempts the interest paid on municipal bonds from federal
income taxes.
We may invest 25% or more of the Fund's total assets in industrial development
bonds. The Fund tries not to invest more than 25% of its total assets in
municipal bonds that are so closely related that an economic, business or
political development affecting one bond could also affect the others.
We may purchase certain tax-exempt bonds that involve a private purpose. The
interest paid on these private activity bonds is subject to the alternative
minimum tax ("AMT paper"). We limit our purchases of AMT paper to 25% of the
Fund's total assets.
Options and Futures
We may engage in transactions in options, futures contracts and options on
futures contracts to hedge against anticipated declines in the market value of
the Fund's portfolio securities or to manage the Fund's exposure to changes in
interest rates. We will not use these instruments for speculation. Our options
and futures strategies may include selling futures, buying puts and writing
calls, all of which tend to hedge the Fund's investments against price
fluctuations. We may combine options and futures transactions with each other in
order to adjust their risk and return characteristics or the Fund's overall
strategy. Successful hedging strategies depend on our skill in predicting future
movements in securities prices, interest rates and other economic factors. Our
use of these strategies may not be successful, and could reduce the Fund's total
return. In order to limit the Fund's exposure to these risks, we will not:
o commit more than 25% of the Fund's net assets to such instruments;
o commit more than 25% of the Fund's net assets to covered options; or
o commit more than 5% of the Fund's net assets to premiums for put or
call options.
[Sidebar: Tax Implications of Options and Futures on The AAL Municipal Bond
Fund]
The use of options and futures for The AAL Municipal Bond Fund portfolio may
result in taxable income. You should consult your personal tax adviser to
determine the consequences of federal, state and local taxes.
When-Issued and Delayed Delivery Securities
We may purchase securities on a when-issued or delayed delivery basis (i.e.,
obligate the Fund to purchase or sell securities with delivery and payment to
occur at a later date in order to secure what we consider to be an advantageous
price and yield at the time we enter into the transaction). We will make such
commitments on behalf of the Fund only with the intention of actually acquiring
the securities, but we may sell the securities before the settlement date if we
later determine it is advisable to do so for investment reasons.
PRINCIPAL RISKS
INTEREST RATE RISK: Changes in interest rate levels affect the value of the
bonds in the Fund's portfolio and the value of the Fund as a whole. Generally,
the value of bonds moves in the opposite direction of interest rates
CREDIT RISK: The creditworthiness of bond issuers will affect the value of their
bonds, which may decline during the Fund's holding period and reduce the value
of the Fund as a whole.
TAX RISK: Changes in federal income tax rates may affect both the net asset
value of the Fund and the taxable equivalent interest generated from its
portfolio securities..
PAST PERFORMANCE
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total return. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class I shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions. There is no front-end sales charge or contingent deferred
sales charge on the Fund's Class I shares.
Annual Return
Institutional Shares
Year Ended December 31st
[Bar chart with following data:]
12/31/98 6.24%
12/31/99 ____%
The Fund's year-to-date return as of March 31, 2000 was ____%.
Best and Worst Quarterly Returns
Best Quarter 3rd Quarter of 1998 3.54%
Worst Quarter 4th Quarter of 1998 (0.03)%
Average Annual Total Returns
The table below compares the Fund's average annual total return for Class I
shares with the Lehman Brothers Municipal Bond Index.* The average annual
return is calculated as of the close of the Fund's fiscal year, which ends April
30, 2000. Returns are shown for a one-year period and since inception.
Municipal Bond Fund 1 Year Since Inception
Institutional Shares ____% ____% (1)
Lehman Brothers Municipal Bond Index ____% ____% (2)
(1) Inception of Fund December 29, 1997.
(2) Performance number reflects returns of the Lehman Brothers Municipal
Bond Index(R) since December 29, 1997.
* Lehman Brothers Municipal Bond Index is a market value-weighted index of
investment-grade municipal bonds with maturities of one year or more.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES INSTITUTIONAL SHARES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
Maximum deferred sales charge (load) imposed on None
redemptions(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL SHARES
(expenses deducted from Fund assets)
Management fees ____%
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses ____%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $____
3 Year $____
5 Year $____
10 Year $____
You should use the expense example for comparison purposes only. It does not
represent the Fund's actual expenses and returns, either past or future. Actual
expenses may be greater or less than those shown.
THE AAL BOND FUND
INVESTMENT OBJECTIVE
The AAL Bond Fund seeks a high level of current income, consistent with capital
preservation by investing primarily in a diversified portfolio of
investment-grade bonds.
PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, we invest at least 65% of the Fund's total assets
in:
(1) bonds of U.S. and foreign issuers payable in U.S. dollars rated within the
four highest rating categories by at least two NRSROs at the time of
purchase; and
(2) bonds or other securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, primarily those securities supported by the
full faith and credit of the U.S. Treasury.
We may invest the remaining 35% of the Fund's total assets in:
(1) privately issued or guaranteed mortgage-related securities (such as home
equity asset-backed securities) rated within the four highest categories by
at least two NRSROs or unrated mortgage-related securities, if we determine
at the time of purchase that these unrated securities have credit quality
characteristics comparable to these ratings. Securities rated in the fourth
highest category have speculative investment characteristics;
(2) commercial paper rated in the highest rating category by a NRSRO, or
commercial paper issued or guaranteed by a corporation who has outstanding
debt rated in the two highest categories by a NRSRO at the time of
purchase;
(3) bank obligations, including repurchase agreements, of banks having total
assets in excess of $1 billion; and
(4) corporate obligations, including variable rate master notes, rated in the
two highest categories by a NRSRO, or issued by a corporation whose
outstanding debt has an equal or better rating at the time of purchase.
Although there are no restrictions on the maturity of the debt securities we may
purchase for the Fund, generally we maintain a weighted average effective
maturity of between 5 and 10 years. Effective maturity of a debt security takes
into account projected prepayments, call dates, put dates and sinking funds, if
any, that reduce the stated maturity date of the bond.
We anticipate that during normal market conditions the average portfolio
maturity of the Fund will not exceed 20 years. We use the stated final maturity
date (rather than effective maturity) of a security to calculate average
maturity, notwithstanding earlier call dates and possible prepayments.
PRINCIPAL RISKS
INTEREST RATE RISK: Changes in interest rate levels affect the value of the
bonds in the portfolio and the value of the Fund as a whole. Generally, the
value of a bond moves in the opposite direction of interest rates. Longer term
bond prices tend to move more in response to interest changes than shorter term
bonds.
CREDIT RISK: The creditworthiness of bond issuers will affect the value of their
bonds, which may decline during the Fund's holding periods and affect the value
of the Fund as a whole. The risk, generally, is less pronounced for U.S.
government and U.S. agency bonds than is the case for municipal and privately
issued bonds.
PAST PERFORMANCE
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total return. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class I shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions. There is no front-end sales charge or contingent deferred
sales charge on the Fund's Class I shares.
Annual Return
Institutional Shares
Year Ended December 31st
[Bar chart with following data:]
12/31/98 7.15%
12/31/99 ___%
The Fund's year-to-date return as of March 31, 2000 was ____%.
Best and Worst Quarterly Returns
Best Quarter 3rd Quarter of 1998 4.13%
Worst Quarter 1st Quarter of 1999 (0.68)%
Average Annual Total Returns
The table below compares the Fund's average annual total return for Class I
shares with the Lehman Brothers Aggregate Bond Index.* The average annual
return is calculated as of the close of the Fund's fiscal year, which ends April
30, 2000. Returns are shown for a one-year period and since inception.
Bond Fund 1 Year Since Inception
Institutional Shares ____% ____% (1)
Lehman Brothers Aggregate Bond Index ____% ____% (2)
(1) Inception of Fund December 29, 1997.
(2) Performance number reflects returns of the Lehman Brothers Aggregate Bond
Index(R) since December 29, 1997.
* The Lehman Brothers Aggregate Bond Index is an unmanaged index that
encompasses four classes of fixed-income securities in the United States: U.S.
Treasury and U.S. government agency securities, corporate debt obligations,
mortgage-backed securities and asset-backed securities.
Please note, investment returns and principal value will fluctuate. When shares
are redeemed, they may be worth more or less than the price you paid.
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES INSTITUTIONAL SHARES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
Maximum deferred sales charge (load) imposed on None
redemptions(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL SHARES
(expenses deducted from Fund assets)
Management fees ____%
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses ____%
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $____
3 Year $____
5 Year $____
10 Year $____
YOU SHOULD USE THE EXPENSE EXAMPLE FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE AAL BOND INDEX FUND
INVESTMENT OBJECTIVE
The AAL Bond Index Fund seeks total returns approximating the total return of
the Lehman Brothers Aggregate Bond Index by investing primarily in bonds and
other debt securities that comprise the Index.
PRINCIPAL INVESTMENT STRATEGIES
We invest in a representative sample of fixed-income and mortgage-backed
securities included in the Lehman Brothers Aggregate Bond Index (Lehman Bond
Index), an unmanaged, broad-based bond index. It is not possible for us to
invest in and manage all 6,300 issues that comprise the Lehman Bond Index,
however, we consider this Fund to be "indexed" (track the performance of the
Index). We invest in four classes of investment-grade, fixed-income securities
for this Fund:
(1) U.S. Treasury and U.S. government agency securities;
(2) corporate debt obligations;
(3) mortgage-backed securities; and
(4) asset-backed securities.
We seek to invest 80% or more of the Fund's total assets in securities of the
Lehman Bond Index. For inclusion in the Fund, the security must:
(1) have a maturity of no less than one year;
(2) have at least $100 million par amount outstanding;
(3) be rated as investment quality;
(4) have a fixed rate;
(5) be dollar-denominated and nonconvertible; and
(6) be publicly issued.
Fixed-income securities are securities that pay a fixed rate of return until
they mature. When they mature, the principal is paid back. Such an investment
provides the security of a fixed income stream but does not protect against the
eroding effects of inflation. These fixed-income securities make-up the bulk of
the Fund.
We may also invest in mortgage-backed securities. These are securities that are
"backed" by real property that has a mortgage. This type of investment pays
principal and interest on a monthly basis. At the end of the life of a mortgage,
the entire principal is repaid and no more interest is due.
For this Fund, we may select securities issued by business or the government. We
will invest in the securities of a particular agency only when we determine
there is a minimal credit risk. Even though some securities are guaranteed by
the U.S. government, it only guarantees timely payment of principal and
interest, the U.S. government does not guarantee market value.
We try to keep the Fund fully invested, allowing for some liquidity for
purchases and sales. Typically, we will invest no more than 5% of the Fund's
assets in money market instruments. Although we try to match the performance of
the Lehman Bond Index, we cannot guarantee that the Fund will achieve such
results. We do not expect the portfolio turnover rate for the Fund to be more
than 50% a year. Lehman Brothers reserves the right to make changes to the
Lehman Bond Index at any time, and eligible investments for the Fund will
include additional asset classes included in the Lehman Bond Index.
PRINCIPAL RISKS
INTEREST RATE RISK: Changes in interest rate levels affect the value of the
bonds in the portfolio and the value of the Fund as a whole. Generally, the
value of a bond moves in the opposite direction of interest rates. Longer term
bond prices tend to move more in response to interest changes than shorter term
bonds.
CREDIT RISK: The creditworthiness of bond issuers will affect the value of their
bonds, which may decline during the Fund's holding periods and affect the value
of the Fund as a whole. The risk, generally, is less pronounced for U.S.
government and U.S. agency bonds than is the case for municipal and privately
issued bonds.
PAST PERFORMANCE
The Fund commenced operations on December 31, 1999. Because the Fund has been in
operation for less than a full calendar year, we have not included any
performance information.
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES INSTITUTIONAL SHARES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
Maximum deferred sales charge (load) imposed on None
redemptions(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL SHARES
(expenses deducted from Fund assets)
Management fees ____%
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses ____%
* Operating expenses are expressed as a percentage of average daily net assets
based on management's estimate of expenses for the fiscal year ending April 30,
2001, and do not include the Adviser's voluntary reimbursement of expenses. AAL
CMC, the Fund's Adviser, has agreed to reimburse expenses so as to limit "Total
Fund Operating Expenses," to 0.20% for the fiscal year.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $52
3 Year $162
YOU SHOULD USE THE EXPENSE EXAMPLE FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE AAL MONEY MARKET FUND
INVESTMENT OBJECTIVE
The AAL Money Market Fund seeks a high level of current income, while
maintaining liquidity and a constant net asset value of $1.00 per share by
investing in a diversified portfolio of high-quality, short-term money market
instruments.
[Sidebar: Important Information Concerning The AAL Money Market Fund]
This portfolio is a mutual fund, not a savings account. It consists of a pool of
investments that are professionally managed. You should not consider an
investment in the Fund a deposit or other obligation of any bank, credit union
or any affiliated entity. Neither the Federal Deposit Insurance Company (FDIC)
nor any other government agency insures or protects your investment. We cannot
guarantee that the Fund will achieve its goal of maintaining a constant net
asset value of $1.00 per share.
PRINCIPAL INVESTMENT STRATEGIES
We invest in short-term money market instruments for the Fund, such as:
(1) obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
(2) certificates of deposit, bankers acceptances and similar obligations of
U.S. banks, savings associations, foreign branches of U.S. banks and
domestic branches of foreign banks, which have total assets of more than $1
billion at the time of purchase, and who are members of the Federal Deposit
Insurance Corporation (FDIC);
(3) commercial paper that at the time of purchase is defined as First Tier or
Second Tier by the Act, as long as we do not invest more than 5% of the
Fund's total assets in Second Tier commercial paper; and
(4) corporate obligations, including variable rate master notes that at the
time of purchase are in one of the two highest categories of a NRSRO, or,
if unrated, issued by a corporation with outstanding debt that has an
equivalent or better rating at the time of purchase.
We make investments for the Fund consistent with Rule 2a-7 under the Act. As
such, we invest in securities maturing in 397 days or less and maintain a
dollar-weighted average portfolio maturity of not more than 90 days. By limiting
the maturity of the Fund's investments, we seek to lessen the changes in asset
values caused by fluctuations in short-term interest rates. Part of the Fund's
objective is to maintain a constant net asset value per share of $1.00.
We may purchase participation interests (interests in securities held by others)
in securities we are authorized to invest in for the Fund as described above.
PRINCIPAL RISKS
INTEREST RATE RISK: Changes in interest rate levels affect the yield. Increases
in short-term interest rates generally cause the Fund's assets to decline in
value. The relatively short maturity of the Fund as a whole tends to reduce this
volatility, and minimizes the risk that the Fund's per share net asset value
will deviate from $1.00.
CREDIT RISK: The price of a security that the Fund holds may decline in response
to a deterioration of the creditworthiness of an issuer, or the provider of
credit support or a maturity-shortening structure for that security.
FINANCIAL SERVICES EXPOSURE: Changes in government regulations or economic
downturns can have a significant negative effect on issuers of money market
instruments in the financial services sector. The Fund frequently concentrates
its investments in this sector.
PAST PERFORMANCE
The following table and chart reflect the Fund's annual return and long-term
performance. The bar chart and table show the risks of investing in the Fund by
demonstrating the variability in the Fund's annual total return. As with all
investments, past performance is not a guarantee of future results.
Annual Total Returns
The following chart shows calendar year total returns for Class I shares since
the Fund started operations. Total returns assume reinvestment of all dividends
and distributions. There is no front-end sales charge or contingent deferred
sales charge on the Fund's Class I shares.
Annual Return
Institutional Shares
Year Ended December 31st
[Bar chart with following data:]
12/31/98 5.17%
12/31/99 ____%
The Fund's year-to-date return as of March 31, 2000 was ____%.
The 7-day yield for the period ended 4/30/00 for The AAL Money Market Fund was
____%.
Best and Worst Quarterly Returns
Best Quarter 3rd Quarter of 1998 1.31%
Worst Quarter 1st Quarter of 1999 (1.13)%
Average Annual Total Returns
The table below compares the Fund's average annual total return for Class I
shares with the Salomon Brothers Short-Term Index.* The average annual return
is calculated as of the close of the Fund's fiscal year which ends April 30,
2000. Returns are shown for a one-year period and since inception.
Money Market Fund 1 Year Since Inception
Institutional Shares ____% ____% (1)
Salomon Brothers Short-Term Index ____% ____% (2)
(1) Inception of Fund December 29, 1997.
(2) Performance number reflects returns of the Salomon Brothers Short-Term
Index since December 29, 1997.
* The Salomon Brothers Short-Term Index is an unmanaged index composed of
1-month U.S. Treasury Bills.
The Fund attempts to maintain a stable net asset value per share of $1.00.
EXPENSES
Like any investor, you directly pay certain expenses related to your
investments. We refer to these direct expenses as shareholder fees. Other
expenses, called annual fund operating expenses, are paid from Fund assets, so
they reduce your share price. Institutional shares have no shareholder fees.
Annual fund operating expenses are outlined below.
Fee Table
This table describes the fees and expenses you may pay if you buy and hold the
Fund's shares:
SHAREHOLDER FEES INSTITUTIONAL SHARES
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
Maximum deferred sales charge (load) imposed on None
redemptions(as a percentage of net asset value)
ANNUAL FUND OPERATING EXPENSES INSTITUTIONAL SHARES
(expenses deducted from Fund assets)
Management fees ____%(1)
Distribution and service (12b-1) fees None
Other expenses ____%
- --------------------------------------------------------------------------------
Total fund operating expenses ____%(2)
(1) AAL CMC, as the adviser to the Fund, voluntarily waives a portion of the
maximum management fee for Class I shares. With this waiver, the actual
management fee was 0.275 of 1% for Class I shares.
(2) Operating expenses are expressed as a percentage of net assets for the
fiscal year ended April 30, 2000, and do not include the adviser's fee
waivers. Actual expenses with fee waivers, "Total Fund Operating Expenses,"
were 0.495 of 1% for Class I shares.
Expense Example
This example is intended to help you compare the costs of investing in the Fund
with the costs of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
your shares at the end of those periods. It also assumes that your investment
has a 5% return each year, and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:
Time Period Institutional Shares
1 Year $____
3 Year $____
5 Year $____
10 Year $____
YOU SHOULD USE THE EXPENSE EXAMPLE FOR COMPARISON PURPOSES ONLY. IT DOES NOT
REPRESENT THE FUND'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE
INVESTMENT ADVISER
AAL Capital Management Corporation (AAL CMC) serves as investment adviser and
distributor to the Funds. AAL CMC was organized in 1986 as a Delaware
corporation. AAL Holdings Inc., a wholly owned subsidiary of Aid Association for
Lutherans (AAL) 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 ___, 2000, AAL CMC managed over $____ billion for The AAL Mutual
Funds.
[Sidebar: The adviser's principal address is:]
AAL Capital Management Corporation
222 West College Avenue
Appleton, WI 54919-0007
AAL's principal address is:
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919-0001
Pursuant to an investment advisory agreement with the Funds, AAL CMC manages the
investment and reinvestment of the Funds' assets. AAL CMC also provides the
Funds with personnel, facilities and administrative services, and supervises the
Funds' daily business affairs. Services provided by AAL CMC to the Funds are
subject to the supervision of the Funds' Board of Trustees. AAL CMC formulates
and implements a continuous investment program for the Funds consistent with
each Fund's investment objectives, policies and restrictions.
ADVISER FEES PER FUND
The table below reflects advisory fees paid by each Fund as a percentage of
average daily net assets, for the fiscal year ended April 30, 2000.
<TABLE>
<CAPTION>
<S> <C>
THE AAL TECHNOLOGY STOCK FUND ____% on the average daily net assets(1)
THE AAL AGGRESSIVE GROWTH FUND ____% on the average daily net assets(1)
THE AAL SMALL CAP STOCK FUND ____% on the average daily net assets
THE AAL MID CAP STOCK FUND ____% on the average daily net assets
THE AAL INTERNATIONAL FUND 0.25% on average daily net assets above the sub-adviser's fee
Sub-Adviser Fees
Oechsle International Advisors LLC ____% on the average daily net assets
THE AAL CAPITAL GROWTH FUND ____% on the average daily net assets
THE AAL EQUITY INCOME FUND ____% on the average daily net assets
THE AAL LARGE COMPANY INDEX FUND ____% on the average daily net assets(2)
THE AAL MID CAP INDEX FUND ____% on the average daily net assets(2)
THE AAL BALANCED FUND ____% on the average daily net assets
THE AAL HIGH YIELD BOND FUND ____% on the average daily net assets
THE AAL MUNICIPAL BOND FUND ____% on the average daily net assets
THE AAL BOND FUND ____% on the average daily net assets
THE AAL BOND INDEX FUND ____% on the average daily net assets(2)
THE AAL MONEY MARKET FUND ____% on the average daily net assets
</TABLE>
(1) Projected advisory fee per Fund.
(2) Advisory fees for the Index Funds do not include the Adviser's
reimbursement of Fund expenses. Actual expenses with reimbursements, "Total
Fund Operating Expenses," will be 0.20%.
PORTFOLIO MANAGEMENT
THE AAL TECHNOLOGY STOCK FUND
Brian J. Flanagan, CFA has been the co-portfolio manager of The AAL Technology
Stock Fund since it commenced operations on July 1, 2000. Mr. Flanagan is also
portfolio manager of The AAL Small Cap Index Fund II, which commenced operations
on July 1, 2000. He is also the portfolio manager of the AAL Variable Product
Series Fund Small Company Portfolio, a series of an affiliated mutual fund group
with an investment objective similar to the Funds. From 1996 to 1998, he served
first as analyst and later as portfolio manager for the small cap portfolio of
the AAL Savings Plan. From 1994 to 1995, Mr. Flanagan was the analyst for the
fixed-income portfolio for the plan.
James A. Grossman has been co-portfolio manager for The AAL Technology Stock
Fund since it commenced operations on July 1, 2000. From 1996 through 2000, Mr.
Grossman served as a securities analyst, following selected technology
investments for The AAL Mutual Funds. Prior to joining AAL CMC, Mr. Grossman
served as a securities analyst for Monetta Financial Services.
THE AAL AGGRESSIVE GROWTH FUND
THE AAL SMALL CAP STOCK FUND
Kevin A. Schmitting, CFA, has managed the day-to-day Fund investments since its
inception on July 1, 1996. Mr. Schmitting also managed The AAL Mid Cap Stock
Fund from November 1, 1995, through March 17, 1997. Prior to November 1, 1995,
Mr. Schmitting served as investment director and in other investment capacities
for the State of Wisconsin Investment Board from 1984 through 1995.
THE AAL MID CAP STOCK FUND
Michael R. Hochholzer, CFA, has managed the day-to-day Fund investments since
March 1997. Prior to managing the Fund, Mr. Hochholzer served as a securities
analyst and portfolio manager for Aid Association for Lutherans, the parent
company of AAL Capital Management Corporation from 1989.
THE AAL INTERNATIONAL FUND
Oechsle International Advisers, LLC (Oechsle) makes the day-to-day investment
decisions for the International Fund portfolio under AAL CMC's direction and
control. Oechsle determines which securities to purchase and sell, arranges the
purchases and sales and gives other help in formulating and implementing the
investment program for the International Fund portfolio.
The portfolio managers for The AAL International Fund are Kathleen Harris and
Sean Roche. Ms. Harris has been a portfolio manager at Oechsle since January,
1995. Prior to this, she was portfolio manager and investment director for the
State of Wisconsin Investment Board and a fund manager and equity analyst for
Northern Trust Company. Mr. Roche has been a general partner and portfolio
manager with Oechsle since 1986.
THE AAL CAPITAL GROWTH FUND
Frederick L. Plautz has managed the day-to-day Fund investments since November
1, 1995. Prior to managing the Fund, Mr. Plautz served as vice president and
portfolio manager for Federated Investors from 1990 through October 1995.
THE AAL EQUITY INCOME FUND
Lewis A. Bohannon, CFA, has managed the day-to-day Fund investments since
November 1, 1995. From 1980 through 1994, Mr. Bohannon was at Cigna Corporation,
serving as managing director and portfolio manager from 1990 to 1994.
THE AAL LARGE COMPANY INDEX FUND
David J. Schnarsky, CFA, has been the portfolio manager of The AAL Large Company
Index Fund since it commenced operations on December 31, 1999. He also manages
The AAL Large Company Index Fund II, which is another series of The AAL Mutual
Funds with the same investment objective as the Fund. Mr. Schnarsky is also
portfolio manager of the AAL Variable Product Series Fund Large Company Stock
Portfolio, a series of an affiliated mutual fund group with an investment
objective similar to the Funds. He serves as portfolio manager of the
equity portfolio of AAL's general account and the AAL Savings Plan.
THE AAL MID CAP INDEX FUND
Michael R. Hochholzer, CFA, has managed the day-to-day Fund investments for The
AAL Mid Cap Index Fund since it commenced operations on December 31, 1999. Mr.
Hochholzer also serves as portfolio manager for The AAL Mid Cap Stock Fund and
The AAL Mid Cap Index Fund II, two additional series of The AAL Mutual Funds.
Mr. Hochholzer previously served as a securities analyst and portfolio manager
for AAL from 1989 through 1997.
THE AAL BALANCED FUND
Frederick L. Plautz, portfolio manager of The AAL Capital Growth Fund and Alan
D. Onstad, manager of The AAL Bond Fund, serve as co-managers of the Fund. Mr.
Onstad currently manages 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 has been employed by AAL since 1973, most
recently as Assistant Vice-President of Securities.
THE AAL HIGH YIELD BOND FUND
David G. Carroll, CFA, has managed the day-to-day Fund investments since its
inception on January 8, 1997. Prior to managing the Fund, he served as an
analyst and trader for Cargill Financial Services from January through September
1996. From 1986 to August 1995 he was a second vice president and portfolio
manager for Fortis Advisers, Inc.
THE AAL MUNICIPAL BOND FUND
Duane A. McAllister, CFA, has managed the day-to-day Fund investments since
April 1994. Prior to joining AAL Capital Management Corporation on November 1,
1995, he managed the Fund while serving as vice president of Duff & Phelps
Investment Management Co. For the five-year period before managing the Fund, Mr.
McAllister managed portfolios for Northern Trust Company and First National Bank
and Trust in Rockford, Illinois.
THE AAL BOND FUND
Alan D. Onstad has managed the day-to-day Fund investments since July 19, 1999.
Mr. Onstad currently manages 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.
THE AAL BOND INDEX FUND
Gregory R. Anderson, CPA, is an assistant portfolio manager of the mortgage and
asset-backed security portfolio of AAL's general account. He has served in a
number of investment roles with AAL since 1997. From 1991 through 1997, Mr
Anderson was employed at Telephone and Data Systems, Inc., serving as a senior
treasury analyst from 1994 through 1997.
THE AAL MONEY MARKET FUND
Michael R. Hilt, CFA, has managed the day-to-day Fund investments since November
1, 1995. From April 1994 through August 1995, Mr. Hilt served as portfolio
manager and quantitative analyst for Conseco Capital Management, Inc. From
August 1992 through April 1994, he served as a portfolio manager and
quantitative analyst for PPM America, Inc.
THE AID ASSOCIATION FOR LUTHERANS SAVINGS PLAN
The Aid Association for Lutherans Savings Plan is a 401(k) plan for our
employees (plan participants). Through the savings plan, plan participants can
allocate part of their income into certain Funds (some of which may not be part
of the Funds included in this prospectus). Refer to your plan document for more
information on your investment choices and how to invest in the Funds. We may
also offer shares of the Funds to other retirement plans.
INDEX INFORMATION
On a monthly basis we compare the performance of each Fund with that of its
benchmark index. At that time we may re-balance the Funds' securities
portfolios. The AAL Large Company Index, Mid Cap Index and Bond Index Funds are
each considered to be an indexed Fund. That means we passively manage them; we
maintain the securities held by each Fund so they are the same as the securities
in each Fund's benchmark index, or a representative sample of securities of that
index. Fund performance may not exactly correspond with the performance of its
index due to market timing, shifts in the composition of the index, and Fund
expenses.
S&P 500 AND THE S&P MIDCAP 400 INDICES
Standard & Poor's ("S&P") compiles several broad-based indices used as
benchmarks for tracking certain types of markets. The most widely known is the
S&P 500 Composite Stock Price Index ("S&P 500 Index"). The S&P 500 Index
consists of 500 stocks chosen for market size, liquidity and industry group
representation. It is a market-value weighted index (stock price times the
number of shares outstanding), with each stock's weight in the Index
proportionate to its market value. Most of the largest 500 companies listed on
the U.S. stock exchanges are included in the Index. The companies whose stocks
are included in the Index tend to be the leading companies in leading industries
within the U.S. economy.
The weightings make each company's influence on the Index performance directly
proportional to that company's market value. This characteristic has made the
S&P 500 Index the investment industry standard for measuring the performance of
Funds comprised of large-capitalization stocks.
Another index from Standard & Poor's we use as a benchmark is the S&P MidCap 400
Index. The S&P MidCap 400 Index is a benchmark for tracking performance of
medium-capitalization stocks. As of December 6, 1999, the median market
capitalization for stocks in the S&P MidCap 400 was $1.56 billion. While this
Index is relatively new, the industry recognizes it as a good benchmark for
tracking mid-cap stocks. The 400 stocks that make up the Index are listed on the
New York Stock Exchange, The American Stock Exchange or the NASDAQ quotation
system. In addition, the stocks that make up the Index are liquid, meaning they
are easily traded. These characteristics of the S&P MidCap 400 Index make it
relatively easy to emulate. The easier it is to track an index, the more likely
it is for a Fund to track that index's performance.
Both the S&P 500 Index and the S&P MidCap 400 Index are comprised of U.S. equity
stocks. S&P periodically makes additions and deletions of stocks to its
respective indices. Selection of a stock for inclusion in either S&P Index in no
way implies an opinion by S&P as to its attractiveness as an investment.
Standard & Poor's only relationship to the Fund is the licensing of the Standard
& Poor's Marks, the S&P 500 Index and the S&P MidCap 400 Index. These indices
are determined, composed and calculated by Standard & Poor's without regard to
any particular Fund.
"Standard & Poor's(R)," "S&P(R)," "Standard & Poor's 500," "S&P 500(R)," "500,"
"Standard & Poor's MidCap 400 Index" and "S&P MidCap 400 Index" are trademarks
of The McGraw-Hill Companies, Inc. and have been licensed for use by AAL. The
Fund and the certificates are not sponsored, endorsed, or sold or promoted by
Standard & Poor's. Standard & Poor's makes no representation regarding the
advisability of investing in the Fund. See the Statement of Additional
Information for additional disclaimers and limitations of liabilities on behalf
of S&P.
SHAREHOLDER INFORMATION
PRICING FUNDS' SHARES
The price of a Fund's shares is based on the Fund's net asset value. The Funds
determine the net asset value (NAV) per share once daily at the close of trading
(normally 3:00 p.m. Central Time) on the New York Stock Exchange (NYSE). The
Funds do not determine NAV on holidays observed by the NYSE or AAL. 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.
Some of the Funds hold securities that trade primarily on foreign exchanges.
These exchanges may trade on weekends or other days when the Funds do not price
their shares. Accordingly, it is possible that the value of a Fund's shares may
change at times when those shares may not be purchased or redeemed.
The price at which you purchase or redeem shares of the Funds is the per share
NAV as next determined after the Funds have received your payment or your
redemption request.
HOW TO PURCHASE (BUY) SHARES
BUYING INSTITUTIONAL SHARES IN THE FUNDS
You purchase Institutional shares in a Fund at net asset value (purchase price).
Your initial minimum purchase must be at least $500,000, with a minimum of at
least $50,000 in any one Fund account. You can combine all your Class A, Class B
and Institutional shares for purposes of meeting the $500,000 minimum purchase
requirement.
For Index Funds we may pay Registered Representatives compensation of up to 0.25
of 1% of the amounts you invest. For all other Funds we will pay Registered
Representatives compensation of up to .50 of 1% of the amounts you invest.
INTERNET TRANSACTIONS
You are able to perform various AAL Mutual Fund transactions over the internet
at WWW.AAL.ORG. You are able to purchase (pre-authorized bank information is
required prior to purchase), redeem, and exchange shares within your Fund
accounts. To protect your Fund assets, we require a Personal Identification
Number ("PIN") prior to authorizing transactions on your Fund accounts. Please
call AAL Capital Management Corporation at (800) 553-6319 (The AAL Mutual Funds
Service Center ("Service Center")) to request information about obtaining a PIN.
You will receive your PIN approximately 5-7 days after your request.
OPENING A NEW ACCOUNT
Please contact the Mutual Funds Service Center, Prestige Account Services at
(800) 227-8602, (the Telecommunications Device for the Deaf (TDD) is (800)
684-3416), for help in opening an institutional account. We will need to
determine eligibility for Institutional share purchases in advance.
BUYING OR SELLING SHARES BY WIRE
If your organization's or enterprise's bank is a member of, or has a
corresponding relationship with, a member of the Federal Reserve System, your
organization can buy or sell Institutional shares of the Funds by wire transfer.
When placing your order, the following steps apply:
STEP ONE
Call, The AAL Mutual Funds Service Center, Prestige Account Services at (800)
227-8602 and provide the following information:
o your account registration;
o the name of the Fund(s) in which you want to invest;
o your address;
o your Social Security or tax identification number;
o the dollar amount;
o the name of the wiring bank; and
o the name and telephone number of the person at your bank who the
Funds can contact about your purchase.
We must receive your wire order before the close of the NYSE (normally 3:00 p.m.
Central Time) to receive that day's price.
STEP TWO
Instruct your bank to use the following instructions when wiring funds:
WIRE TO: FIRSTAR BANK MILWAUKEE, N. A. ABA #075000022
CREDIT: FIRSTAR TRUST COMPANY ACCOUNT 112-952-137
FURTHER CREDIT: NAME OF FUND (SHAREHOLDER ACCOUNT NUMBER) (SHAREHOLDER
REGISTRATION)
Please call (800) 227-8602 prior to sending the wire in order to obtain a
confirmation number and to ensure prompt and accurate handling of funds.
The Fund and its transfer agent are not responsible for the consequences of
delays resulting from the banking or Federal Reserve Wire system, or from
incomplete wiring instructions.
STEP THREE
Complete The AAL Mutual Funds Application and mail it immediately to:
THE AAL MUTUAL FUNDS
INSTITUTIONAL SALES
222 W. COLLEGE AVE.
P. O. BOX 8004
APPLETON, WI 54912-8004.
OPENING ACCOUNTS FOR RETIREMENT SAVINGS
AAL members, their enterprises and Lutheran organizations may establish their
pension, profit sharing and 401(k) plans with Institutional shares. A third
party maintenance fee may apply to some retirement accounts. Please review plan
documents for more information.
The Mutual Funds Service Center, Prestige Account Services at (800) 227-8602
will provide you with all the materials, documents and forms you need, and will
work with you in establishing your retirement plan.
AUTOMATIC INVESTMENT PLANS
The capital builder plan allows you to transfer money every month from your AAL
Money Market Fund Account into another AAL Mutual Fund Account(s). The following
rules apply:
(1) You can select the transaction date. If you do not select the date, it will
automatically transfer the money from your account on the 15th of the
month;
(2) To start, stop, or change the plan, you must notify us in writing at least
24 hours prior to the transaction date; and
(3) You must have all account owners sign the capital builder plan card.
SHARE CERTIFICATES
We will not issue share certificates for the Funds' Institutional shares.
OTHER INFORMATION
The U.S. Postal Service or private delivery services are not agents of the
Funds, the Distributor, or the Transfer Agent. We do not legally receive your
purchase application or your request for redemption when you deposit them in the
mail, send them with a private delivery service or when you deposit them in our
Post Office Box. We must have physical possession of your purchas or redemption
to consider your request received. Current law will determine the legal effect
of posting for deadline purposes.
We reserve the right to suspend the offering of shares for a period of time and
the right to reject any specific purchase of shares.
HOW TO REDEEM (SELL) SHARES
Your Lutheran organization or enterprise can sell its shares on any business day
we price The AAL Mutual Funds' shares. When you sell your shares you receive the
net asset value per share. If we receive your request in good order before the
close of the NYSE (normally 3:00 p.m. Central Time), the organization or
enterprise will receive that day's price. If we receive your redemption request
in good order on a holiday, weekend or day the NYSE or AAL are closed, we will
process the transaction on the next business day.
You must have a signature guarantee if you want:
(1) to sell shares with a value of more than $100,000;
(2) the proceeds sent to an address other than the one listed for your account;
or
(3) the check payable to someone other than the account owners(s).
SYSTEMATIC WITHDRAWAL PLAN
You can have money automatically withdrawn from your AAL Mutual Fund account(s)
on a regular basis by using our systematic withdrawal plan. The plan allows you
to receive funds or pay a bill at regular intervals. The following rules and/or
guidelines apply:
(1) you can select the date(s) on which the money is withdrawn. If you don't
select the date(s), we will withdraw the money automatically from your
account on the 15th of the month;
(2) to start the plan or change the payee(s), you must notify us in writing at
least 13 business days prior to the first withdrawal and you must have all
account owner(s) sign the appropriate form;
(3) to stop or change your plan, you must notify us at least 5 business days
prior to the next withdrawal; and
(4) because of sales charges, you must consider carefully the costs of frequent
investments in and withdrawals from your account.
THE AAL MONEY MARKET FUND CHECKS
You can write checks on your AAL Money Market Fund account, if you complete a
check writing signature card and agreement. You can request checks on your AAL
Mutual Funds Application or in writing. We do not charge a fee for supplying
your checks. The following guidelines apply:
(1) the checks you write on The AAL Money Market Fund must be for $500 or more
(because the Fund is not a bank, some features, such as stop payment, are
not available);
(2) our transfer agent may impose reasonable fees for each check that is
returned;
(3) we do not return your canceled checks; for a fee, our transfer agent will
send a copy of your check to you at your request;
(4) unless you purchased shares by bank wire, you must wait 12 days after you
purchase The AAL Money Market Fund shares to write checks against that
purchase; and
(5) you need a written request - NOT A CHECK - to close an AAL Money Market
Fund account. Your written request will require a signature guarantee to
close accounts over $100,000.
EXCHANGE PRIVILEGE
You may exchange Institutional shares in an AAL Mutual Fund for Institutional
shares in another AAL Mutual Fund. The $50,000 minimum investment rules apply
when you open a new account by exchanging shares. You may have a taxable gain or
loss as a result of an exchange. We reserve the right to end this privilege if
your enterprise or organization makes more than 12 exchanges in a year. We also
reserve the right to change or end this privilege upon 60 days notice, or
suspend this privilege without notice when economic or market changes make it
difficult to carry out such transactions.
By Mail
Please include the following in your request:
(1) name(s) of the account owner(s);
(2) account number(s);
(3) amount of shares (or dollar amount) you want to exchange;
(4) the name of the Fund you are exchanging into; and
(5) signatures of all account owners.
By Telephone
The guidelines for exchanging by telephone are:
(1) you can exchange shares by calling the Mutual Fund Service Center, Prestige
Account Services at (800) 227-8602;
(2) when you call, Mutual Fund Service Representatives will ask for a form of
personal identification to confirm your identity; and
(3) if we receive your request, in good order, before the close of the NYSE
(normally 3:00 p.m. Central Time), you will receive that day's price.
DIVIDENDS
We endeavor to qualify annually as, and elect tax treatment applicable to, a
regulated investment company under Subchapter M of the Internal Revenue Code
("Code"). Pursuant to the requirements of the Code, we intend to distribute
substantially all of the Funds' net investment income and net realized capital
gains, if any, less any available capital loss carryover, to its shareholders
annually. We do this to avoid paying income tax on the Funds' net investment
income and net realized capital gains, and to avoid a federal excise tax on
undistributed net investment income and net realized gains. Annually, we intend
to comply with all of the requirements to qualify as a regulated investment
company for each Fund. We provide you with full information on dividends and
capital gains distributions for each Fund on an annual basis.
Below, we provide you with a general description of the distribution policies
and some of the tax consequences for the Funds' shareholders. You should always
check with your tax adviser to determine whether any dividends and distributions
paid to you by a Fund are subject to any taxes, including state and local taxes.
The AAL Technology Stock, Aggressive Growth, Small Cap Stock, Mid Cap Stock,
International, Capital Growth, Equity Income, Balanced, High Yield Bond, Bond
and Money Market Funds. The dividends from net investment income of each of
these Funds, including net short-term capital gains, are taxable as ordinary
income to shareholders, whether paid in additional shares or in cash. Any
long-term capital gains distributed to shareholders are taxable as capital gains
to shareholders, whether they receive them in cash or in additional shares, and
regardless of the length of time a shareholder has owned the shares.
We distribute substantially all net investment income and any net realized
capital gains, if any, for the Funds as shown in the table below.
The AAL Bond, Municipal Bond, High Yield Bond, Bond, Bond Index and Money Market
Funds accrue income dividends daily.
FUND DIVIDENDS (IF ANY) CAPITAL GAINS (IF ANY)
THE AAL TECHNOLOGY STOCK FUND Annually Annually
The AAL AGGRESSIVE GROWTH FUND Annually Annually
THE AAL SMALL CAP STOCK FUND Annually Annually
THE AAL MID CAP STOCK FUND Annually Annually
THE AAL INTERNATIONAL FUND Annually Annually
THE AAL CAPITAL GROWTH FUND Semiannually Annually
THE AAL EQUITY INCOME FUND Quarterly Annually
THE AAL LARGE COMPANY INDEX FUND Annually Annually
THE AAL MID CAP INDEX FUND Annually Annually
THE AAL BALANCED FUND Quarterly Annually
THE AAL HIGH YIELD BOND FUND Monthly Annually
THE AAL MUNICIPAL BOND FUND Monthly Annually
THE AAL BOND FUND Monthly Annually
THE AAL BOND INDEX FUND Monthly Annually
THE AAL MONEY MARKET FUND Monthly Annually
The AAL Municipal Bond Fund
Dividends derived from the interest earned on municipal securities constitute
"exempt-interest dividends" and are generally not subject to federal income tax.
We accrue dividends daily and pay these dividends monthly for The AAL Municipal
Bond Fund. We distribute the capital gains for the Fund at least annually.
Realized capital gains on municipal securities are subject to federal income
tax. Thus, shareholders will be subject to taxation at ordinary rates on the
dividends they receive that are derived from net short-term capital gains.
Distributions of net long-term capital gains will be taxable as long-term
capital gains regardless of the length of time a shareholder holds Fund shares.
We may, for temporary defensive purposes, invest in short-term taxable
securities for the Fund. Shareholders of this Fund are subject to federal income
tax at ordinary rates on any income dividends they receive that are derived from
interest on taxable securities.
For shareholders who are receiving Social Security benefits, the federal
government requires you to add tax-exempt income, including exempt-interest
dividends from this Fund, to your taxable income in determining whether a
portion of your Social Security benefits will be subject to federal income tax.
The Internal Revenue Code provides that every person required to file a tax
return must report, solely for informational purposes, the amount of
exempt-interest dividends received from the Funds during the taxable year.
Reinvestment of Fund Distributions
You can reinvest all of your income, dividends and/or capital gains
distributions into the Funds at net asset value without any front-end load or
contingent deferred sales charges. You also can have your distributions paid in
cash. When you receive a distribution you may have to pay taxes whether or not
you reinvested the proceeds or had them paid out to you in cash. If you have
requested cash distributions and we cannot locate you, we will reinvest your
dividends.
TAX CONSIDERATIONS
As with all funds distributing taxable income, you, as a tax-paying investor,
will be subject to income taxes on all dividends and distributions. 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 must 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. 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.
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
Investors in Institutional shares purchase at net asset value. They do not pay
any sales charges, redemption fees, or 12b-1 distribution or service fees.
SHAREHOLDER MAINTENANCE AGREEMENT
The Board of Trustees authorizes us to contract with AAL CMC for certain
shareholder maintenance services. AAL CMC receives an annual fee for providing
these services. This fee is based upon, and limited by, the difference between
the current account fees charged and the normal full-service fee schedule
established by our transfer agent. It also includes reimbursement for
out-of-pocket costs including postage and telephone charges. This account
differential, including reimbursement for expenses, is currently $____ per
account per year.
FINANCIAL HIGHLIGHTS INFORMATION
The AAL Technology Stock Fund and The AAL Aggressive Growth Fund commenced
operation on July 1, 2000, and consequently do not have financial highlights
information.
The financial highlights table is intended to help you understand the Fund's
financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned or
lost on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by the accounting firm of
PricewaterhouseCoopers LLP., whose report, along with the Fund's financial
statements are included in the annual report, which is available upon request.
THE AAL SMALL CAP STOCK FUND
CLASS I SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED YEAR ENDED PERIOD:
4/30/00 4/30/99 12/29/97 TO
4/30/98
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period $13.87 $12.45
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.04) (0.01)
Net Realized and Unrealized Gain (Loss) on Investments (2.52) 1.43
Total From Investment Operations (2.56) 1.42
DISTRIBUTIONS FROM:
Net Investment Income - -
Net Realized Capital Gains (0.36) -
Total Distributions (0.36) -
Net Asset Value - End of Period $10.95 $13.87
Total Return (1) (18.41)% 11.41%
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions) $0.8 $0.4
Ratio of Expenses to Average Net Assets (2)* 1.08% 1.19%
Ratio of Investment Income (Loss) to Average Net Assets (2)* (0.40)% (0.39)%
Portfolio Turnover Rate 112.96% 105.60%
* If the Fund had paid all of its expenses for Institutional shares,
the ratios would be as follows:
Ratio of Expenses to Average Net Assets (0.40)% (0.39)%
Ratio of Net Investment Income (Loss) to Average Net Assets 112.96% 105.60%
</TABLE>
(1) Total return assumes reinvestment of all dividends and distributions. 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>
THE AAL MID CAP STOCK FUND
CLASS I SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED YEAR ENDED PERIOD:
4/30/00 4/30/99 12/29/97 TO
4/30/98
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period $15.96 $14.40
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.02 -
Net Realized and Unrealized Gain (Loss) on Investments (1.25) 1.56
Total From Investment Operations (1.23) 1.56
DISTRIBUTIONS FROM:
Net Investment Income - -
Net Realized Capital Gains (0.79) -
Total Distributions (0.79) -
Net Asset Value - End of Period $13.94 $15.96
Total Return (1) (7.17)% 10.83%
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions) $6.4 $1.2
Ratio of Expenses to Average Net Assets (2)* 0.85% 0.86%
Ratio of Investment Income (Loss) to Average Net Assets (2)* 0.33% 0.18%
Portfolio Turnover Rate 125.94% 104.73%
* If the Fund had paid all of its expenses for Institutional shares,
the ratios would be as follows:
Ratio of Expenses to Average Net Assets 0.85% 0.86%
Ratio of Net Investment Income (Loss) to Average Net Assets 0.33% 0.18%
</TABLE>
(1) Total return assumes reinvestment of all dividends and distributions. 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>
THE AAL INTERNATIONAL FUND
CLASS I SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED YEAR ENDED PERIOD:
4/30/00 4/30/99 12/29/97 TO
4/30/98
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period $11.17 $10.11
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.15 0.03
Net Realized and Unrealized Gain (Loss) on Investments 0.65 1.03
Total From Investment Operations 0.80 1.06
DISTRIBUTIONS FROM:
Net Investment Income (0.51) -
Net Realized Capital Gains (0.09) -
Total Distributions (0.60) -
Net Asset Value - End of Period $11.37 $11.17
Total Return (1) 7.49% 10.48%
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions) $1.9 0.5
Ratio of Expenses to Average Net Assets (2)* 1.09% 1.19%
Ratio of Investment Income (Loss) to Average Net Assets (2)* 1.10% 2.38%
Portfolio Turnover Rate 100.90% 19.90%
* If the Fund had paid all of its expenses for Institutional shares,
the ratios would be as follows:
Ratio of Expenses to Average Net Assets 1.09% 1.19%
Ratio of Net Investment Income (Loss) to Average Net Assets 1.10% 2.38%
</TABLE>
(1) Total return assumes reinvestment of all dividends and distributions. 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>
THE AAL CAPITAL GROWTH FUND
CLASS I SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED YEAR ENDED PERIOD:
4/30/00 4/30/99 12/29/97 TO
4/30/98
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period $26.97 $26.05
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.21 0.02
Net Realized and Unrealized Gain (Loss) on Investments 6.67 3.60
Total From Investment Operations 6.88 3.62
DISTRIBUTIONS FROM:
Net Investment Income (0.20) -
Net Realized Capital Gains (0.46) -
Total Distributions (0.66) -
Net Asset Value - End of Period $35.89 $29.67
Total Return (1) 23.55% 13.90%
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions) $46.9 $3.0
Ratio of Expenses to Average Net Assets (2)* 0.60% 0.58%
Ratio of Investment Income (Loss) to Average Net Assets (2)* 0.62% 0.52%
Portfolio Turnover Rate 8.74% 17.96%
* If the Fund had paid all of its expenses for Institutional shares,
the ratios would be as follows:
Ratio of Expenses to Average Net Assets 0.60% 0.58%
Ratio of Net Investment Income (Loss) to Average Net Assets 0.62% 0.52%
</TABLE>
(1) Total return assumes reinvestment of all dividends and distributions. 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>
THE AAL EQUITY INCOME FUND
CLASS I SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED YEAR ENDED PERIOD:
4/30/00 4/30/99 12/29/97 TO
4/30/98
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period $14.32 $13.14
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) $0.21 $0.08
Net Realized and Unrealized Gain (Loss) on Investments $1.19 $1.16
Total From Investment Operations $1.40 $1.24
DISTRIBUTIONS FROM:
Net Investment Income (0.23) (0.06)
Net Realized Capital Gains (0.79) -
Total Distributions (1.02) (0.06)
Net Asset Value - End of Period $14.70 $14.32
Total Return (1) 10.62% 9.34%
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions) $13.2 $7.1
Ratio of Expenses to Average Net Assets (2)* 0.60% 0.68%
Ratio of Investment Income (Loss) to Average Net Assets (2)* 1.65% 2.10%
Portfolio Turnover Rate 13.35% 64.00%
* If the Fund had paid all of its expenses for Institutional shares,
the ratios would be as follows:
Ratio of Expenses to Average Net Assets 0.60% 0.68%
Ratio of Net Investment Income (Loss) to Average Net Assets 1.65% 2.10%
</TABLE>
(1) Total return assumes reinvestment of all dividends and distributions. 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>
THE AAL LARGE COMPANY INDEX FUND
CLASS I SHARES
PERIOD:
12/31/99 TO
4/30/00
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)
Net Realized and Unrealized Gain (Loss) on Investments
Total From Investment Operations
DISTRIBUTIONS FROM:
Net Investment Income
Net Realized Capital Gains
Total Distributions
Net Asset Value - End of Period
Total Return (1)
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions)
Ratio of Expenses to Average Net Assets (2)*
Ratio of Investment Income (Loss) to Average Net Assets (2)*
Portfolio Turnover Rate
* If the Fund had paid all of its expenses for Institutional shares, the ratios
would be as follows:
Ratio of Expenses to Average Net Assets
Ratio of Net Investment Income (Loss) to Average Net Assets
(1) Total return assumes reinvestment of all dividends and distributions. 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>
THE AAL MID CAP INDEX FUND
CLASS I SHARES
PERIOD:
12/31/99 TO
4/30/00
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)
Net Realized and Unrealized Gain (Loss) on Investments
Total From Investment Operations
DISTRIBUTIONS FROM:
Net Investment Income
Net Realized Capital Gains
Total Distributions
Net Asset Value - End of Period
Total Return (1)
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions)
Ratio of Expenses to Average Net Assets (2)*
Ratio of Investment Income (Loss) to Average Net Assets (2)*
Portfolio Turnover Rate
* If the Fund had paid all of its expenses for Institutional shares, the ratios
would be as follows:
Ratio of Expenses to Average Net Assets
Ratio of Net Investment Income (Loss) to Average Net Assets
(1) Total return assumes reinvestment of all dividends and distributions. 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>
THE AAL BALANCED FUND
CLASS I SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED YEAR ENDED PERIOD:
4/30/00 4/30/99 12/29/97 TO
4/30/98
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period $10.79 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.23 0.04
Net Realized and Unrealized Gain (Loss) on Investments 1.35 0.78
Total From Investment Operations 1.58 0.82
DISTRIBUTIONS FROM:
Net Investment Income (0.23) (0.03)
Net Realized Capital Gains (0.01) -
Total Distributions (0.24) (0.03)
Net Asset Value - End of Period $12.13 $10.79
Total Return (1) 14.73% 8.17%
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions) $2.3 $1.1
Ratio of Expenses to Average Net Assets (2)* 0.88% 1.95%
Ratio of Investment Income (Loss) to Average Net Assets (2)* 2.50% 1.73%
Portfolio Turnover Rate 213.46 11.52
* If the Fund had paid all of its expenses for Institutional shares,
the ratios would be as follows:
Ratio of Expenses to Average Net Assets 0.88% 1.95%
Ratio of Net Investment Income (Loss) to Average Net Assets 2.50% 1.73%
</TABLE>
(1) Total return assumes reinvestment of all dividends and distributions. 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>
THE AAL HIGH YIELD BOND FUND
CLASS I SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED YEAR ENDED PERIOD:
4/30/00 4/30/99 12/29/97 TO
4/30/98
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period $10.31 $10.29
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.93 0.31
Net Realized and Unrealized Gain (Loss) on Investments (1.34) 0.02
Total From Investment Operations (0.41) 0.33
DISTRIBUTIONS FROM:
Net Investment Income (0.93) (0.31)
Net Realized Capital Gains (0.06) -
Total Distributions (0.99) (0.31)
Net Asset Value - End of Period $8.91 $10.31
Total Return (1) (3.85)% 3.28%
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions) $2.2 $0.2
Ratio of Expenses to Average Net Assets (2)* 0.76% 0.75%
Ratio of Investment Income (Loss) to Average Net Assets (2)* 10.34% 9.53%
Portfolio Turnover Rate 54.67% 112.37%
* If the Fund had paid all of its expenses for Institutional shares,
the ratios would be as follows:
Ratio of Expenses to Average Net Assets 0.76% 0.75%
Ratio of Net Investment Income (Loss) to Average Net Assets 10.34% 9.53%
</TABLE>
(1) Total return assumes reinvestment of all dividends and distributions. 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>
THE AAL MUNICIPAL BOND FUND
CLASS I SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED YEAR ENDED PERIOD:
4/30/00 4/30/99 12/29/97 TO
4/30/98
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period $11.40 $11.59
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.55 0.18
Net Realized and Unrealized Gain (Loss) on Investments 0.25 (0.19)
Total From Investment Operations 0.80 (0.01)
DISTRIBUTIONS FROM:
Net Investment Income (0.55) (0.18)
Net Realized Capital Gains (0.18) -
Total Distributions (0.73) (0.18)
Net Asset Value - End of Period $11.47 $11.40
Total Return (1) 7.09% (0.09)%
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions) $0.6 $0.0
Ratio of Expenses to Average Net Assets (2)* 0.51% 0.60%
Ratio of Investment Income (Loss) to Average Net Assets (2)* 4.78% 4.79%
Portfolio Turnover Rate 94.56% 139.18%
* If the Fund had paid all of its expenses for Institutional shares,
the ratios would be as follows:
Ratio of Expenses to Average Net Assets 0.51% 0.60%
Ratio of Net Investment Income (Loss) to Average Net Assets 4.78% 4.79%
</TABLE>
(1) Total return assumes reinvestment of all dividends and distributions. 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>
THE AAL BOND FUND
CLASS I SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED YEAR ENDED PERIOD:
4/30/00 4/30/99 12/29/97 TO
4/30/98
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period $9.99 $10.06
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.57 0.20
Net Realized and Unrealized Gain (Loss) on Investments (0.07) (0.07)
Total From Investment Operations 0.50 0.13
DISTRIBUTIONS FROM:
Net Investment Income (0.57) (0.20)
Net Realized Capital Gains - -
Total Distributions (0.57) (0.20)
Net Asset Value - End of Period $9.92 $9.99
Total Return (1) 5.02% 1.24%
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions) $44.7 $29.3
Ratio of Expenses to Average Net Assets (2)* 0.54% 0.56%
Ratio of Investment Income (Loss) to Average Net Assets (2)* 5.63% 6.29%
Portfolio Turnover Rate 572.56 483.76%
* If the Fund had paid all of its expenses for Institutional shares,
the ratios would be as follows:
Ratio of Expenses to Average Net Assets 0.54% 0.56%
Ratio of Net Investment Income (Loss) to Average Net Assets 5.63% 6.29%
</TABLE>
(1) Total return assumes reinvestment of all dividends and distributions. 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>
THE AAL BOND INDEX FUND
CLASS I SHARES
PERIOD:
12/31/99 TO
4/30/00
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss)
Net Realized and Unrealized Gain (Loss) on Investments
Total From Investment Operations
DISTRIBUTIONS FROM:
Net Investment Income
Net Realized Capital Gains
Total Distributions
Net Asset Value - End of Period
Total Return (1)
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions)
Ratio of Expenses to Average Net Assets (2)*
Ratio of Investment Income (Loss) to Average Net Assets (2)*
Portfolio Turnover Rate
* If the Fund had paid all of its expenses for Institutional shares, the ratios
would be as follows:
Ratio of Expenses to Average Net Assets
Ratio of Net Investment Income (Loss) to Average Net Assets
(1) Total return assumes reinvestment of all dividends and distributions. 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>
THE AAL MONEY MARKET FUND
CLASS I SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED YEAR ENDED PERIOD:
4/30/00 4/30/99 12/29/97 TO
4/30/98
PER SHARE DATA [IN $ DOLLARS]
Net Asset Value - Beginning of Period $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.05 0.02
Net Realized and Unrealized Gain (Loss) on Investments - -
Total From Investment Operations 0.05 0.02
DISTRIBUTIONS FROM:
Net Investment Income (0.05) (0.02)
Net Realized Capital Gains - -
Total Distributions (0.05) (0.02)
Net Asset Value - End of Period $1.00 $1.00
Total Return (1) 4.99% 1.67%
SUPPLEMENTAL DATA AND RATIOS
Net Assets at End of Period (in millions) $17.9 $0.2
Ratio of Expenses to Average Net Assets (2)* 0.48% 0.67%
Ratio of Investment Income (Loss) to Average Net Assets (2)* 4.77% 5.11%
Portfolio Turnover Rate N/A N/A
* If the Fund had paid all of its expenses for Institutional shares,
the ratios would be as follows:
Ratio of Expenses to Average Net Assets 0.72% 1.43%
Ratio of Net Investment Income (Loss) to Average Net Assets 4.53% 4.36%
</TABLE>
(1) Total return assumes reinvestment of all dividends and distributions. 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>
ADDITIONAL INFORMATION
You will find additional information in the Statement of Additional Information
and the annual and semi-annual reports to shareholders. The Funds' Statement of
Additional Information and annual and semi-annual reports are available, without
charge, upon request. To request this or other information about the Funds,
please call 800-553-6319 (TDD-800-684-3416).
Annual and Semi-Annual Reports
In the Funds' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Funds' performances
during their last fiscal year.
Statement of Additional Information
The Funds' Statement of Additional Information provides more detailed
information about the Funds.
You also may review and copy information about the Funds (including the
Statement of Additional Information) at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. For information on the operation of
the Public Reference Room call 1-800-SEC-0330. You also may obtain reports and
other information about the Funds on the Securities and Exchange Commission's
Internet site at http://www.sec.gov. You may obtain copies of this information,
upon payment of a duplication fee, by 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
[Logo]
THE AAL MUTUAL FUNDS
222 West College Ave.
Appleton, WI 54919-0007
Telephone: (800) 553-6319
TDD: 800-684-3416
www.aal.org e-mail: [email protected]
THE AAL MUTUAL FUNDS
222 WEST COLLEGE AVENUE
APPLETON, WI 54919-0007
TELEPHONE (920) 734-7633, 800-553-6319
TDD 800-684-3416
STATEMENT OF ADDITIONAL INFORMATION
INSTITUTIONAL SHARES
DATED JULY 1, 2000
Equity and Balanced Funds
- -------------------------
The AAL Technology Stock Fund
The AAL Aggressive Growth Fund
The AAL Small Cap Stock Fund:
The AAL Mid Cap Stock Fund:
The AAL International Fund:
The AAL Capital Growth Fund:
The AAL Equity Income Fund:
The AAL Balanced Fund:
Fixed-Income Funds
- ------------------
The AAL High Yield Bond Fund:
The AAL Municipal Bond Fund:
The AAL Bond Fund:
The AAL Money Market Fund:
Index Funds
- -----------
The AAL Large Company Index Fund
The AAL Mid Cap Index Fund
The AAL Bond Index Fund
This Statement of Additional Information is not a prospectus. It provides
additional information on the securities offered in the prospectus. You should
read this Statement of Additional Information in conjunction with The AAL Mutual
Funds prospectus, Class I shares, dated July 1, 2000, and any supplements
thereto. You may obtain a prospectus at no charge by writing or telephoning your
AAL Capital Management Corporation ("AAL CMC") Registered Representative or The
AAL Mutual Funds ("Funds" or "Trust") at the above address and telephone number.
The financial statements of each Fund and the independent accountant's report
thereof, are incorporated by reference into this Statement of Additional
Information from the Fund's Annual Report to Shareholders (see "Financial
Statements")
<PAGE>
TABLE OF CONTENTS
PAGE
FUNDS HISTORY
INVESTMENT STRATEGIES AND RISKS
MANAGEMENT OF THE FUNDS
Compensation Table
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
INVESTMENT ADVISORY AND OTHER SERVICES
BROKERAGE ALLOCATION AND OTHER PRACTICES
CAPITAL STOCK AND OTHER SECURITIES
PURCHASE, REDEMPTION, AND PRICING OF SHARES
TAXATION OF THE FUNDS
UNDERWRITERS
CALCULATION OF PERFORMANCE DATA
FINANCIAL STATEMENTS
<PAGE>
FUNDS HISTORY
The AAL Mutual Funds (the "Trust" or "Funds") was organized as a Massachusetts
Business Trust on March 31, 1987, and is registered as an open-end diversified
management investment company under the Investment Company Act of 1940. The
Trust commenced operations on July 16, 1987, and currently consists of twenty
series (each a "Fund" and collectively, the "Funds"): The AAL Technology Stock,
Aggressive Growth, Small Cap, Mid Cap, International, Capital Growth, Equity
Income, Balanced, High Yield Bond, Municipal Bond, Bond, Money Market, Large
Company Index, Large Company Index II, Mid Cap Index, Mid Cap Index II, Small
Cap Index II, Bond Index and U.S. Government Zero Coupon Target Funds Series
2001 and 2006 Funds.
On January 8, 1997, the Trust redesignated its existing shares as Class A shares
and began offering Class B shares of The AAL Small Cap, Mid Cap, International,
Capital Growth, Equity Income, Balanced, High Yield Bond, Municipal Bond, Bond,
and Money Market Funds. The AAL Balanced Fund commenced operations on December
29, 1997, with both Class A and Class B shares. The Class A shares are subject
to a maximum 4.00% sales charge of the offering price and a 0.25% annual 12b-1
and service fee. Class B shares are offered at net asset value and a 1.00%
annual 12b-1and service fee. In addition, Class B shares have a contingent
deferred sales charge of 5%, declining 1% each year upon redemption during the
first five years. The AAL Balanced Fund added Class B shares on its inception
date of December 29,1997.
On December 29, 1997, the Trust began issuing a third class of Fund shares
(Institutional) of The AAL Small Cap, Mid Cap, International, Capital Growth,
Equity Income, Balanced, High Yield Bond, Municipal Bond, Bond, and Money Market
Funds. The Institutional shares are offered at net asset value and have no
annual 12b-1 charges.
Each class of shares has identical rights and privileges except with respect to
voting matters affecting a single class of shares and the exchange privilege of
each class of shares.
On December 31, 1999 the Trust added three series to its existing Funds. The new
series, which offer only Institutional shares, include The AAL Large Company
Index Fund, The AAL Mid Cap Index Fund, and The AAL Bond Index Fund.
ORGANIZATION AND DESCRIPTION OF SHARES
The AAL Mutual Funds or Trust is a diversified open-end management investment
company registered under the Investment Company Act of 1940 ("1940 Act"). Each
of the Funds is a separate series of a Massachusetts Business Trust organized
under a Declaration of Trust dated March 13, 1987. The Declaration of Trust
provides that each shareholder shall be deemed to have agreed to be bound by its
terms. The Declaration of Trust may be amended by a vote of shareholders or the
Board of Trustees. The Trust may issue an unlimited number of shares in one or
more series as the Board of Trustees may authorize. Currently, the Board has
authorized twenty series. This prospectus describes Institutional class shares
for fifteen series of the Trust.
Each Fund's classes of shares represent interests in the assets of the Fund and
have identical dividend, liquidation and other rights. The separate share
classes have the same terms and conditions, except each Class A and Class B
share bears its separate distribution and shareholder servicing expenses. At the
Trustees' discretion, each class may pay a different share of other expenses,
not including advisory or custodial fees or other expenses related to the
management of the Trust's assets, if each class incurs the expenses in different
amounts, or if a class receives services of a different kind or to a different
degree than the other class. The Funds allocate all other expenses to each class
on the basis of the net asset value of that class in relation to the net asset
value of the particular Fund. Class A and B shares and Institutional shares have
identical voting rights except that each class has exclusive voting rights on
any matter submitted to shareholders relating solely to the class. In addition,
Class A and Class B shares and Institutional shares have separate voting rights
on any matter submitted to shareholders where the interests of one class differ
from the interests of the other class. Class A and Class B shares have exclusive
voting rights on matters involving the 12b-1 Distribution Plan as applied to
that class. Matters submitted to shareholder vote must be approved by each Fund
separately except:
(1) when required otherwise by the 1940 Act; or
(2) when the Trustees determine that the matter does not affect all Funds:
then, only the shareholders of the affected Funds may vote.
Shares are freely transferable, entitled to dividends declared by the Trustees,
and receive the assets of their respective Fund in the event of liquidation. The
Trust generally holds annual shareholder meetings only when required by law or
at the written request of shareholders owning at least 10% of the Trust's
outstanding shares. Shareholders may remove Trustees from office by votes cast
in person or by proxy at a shareholders meeting.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder, Trustee and/or officer
liability for acts on behalf of the Trust or for Trust obligations that are
binding only on the assets and property of the Trust. The Funds include this
disclaimer in each agreement, obligation, or contract entered into or executed
by the Trust or the Board. The Declaration of Trust provides for indemnification
out of the Trust's assets for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. The risk of a shareholder
incurring financial loss on account of shareholder liability is remote because
it is limited to circumstances where the Trust itself is unable to meets its
obligations.
INVESTMENT STRATEGIES AND RISKS
Each of the Funds is an open-end diversified management investment company. The
following information supplements our discussion of the Funds' investment
objectives, policies and strategies described in the prospectus. In pursuing the
Funds objectives, we invest as described below and employ the investment
techniques described in the prospectus and elsewhere in this Statement of
Additional Information.
INVESTMENT OBJECTIVES
Except for The AAL Balanced and High Yield Bond Funds, each Fund's investment
objective is a fundamental policy. As such, only a vote of a "majority of
outstanding voting securities" can change a Fund's investment objective. A
majority means the approval of the lesser of: (1) 67% or more of the voting
securities at a meeting if the holders of more than 50% of the outstanding
voting securities of a Fund are present or represented by proxy; or (2) more
than 50% of the outstanding voting securities of a Fund.
INVESTMENT RESTRICTIONS
In addition to those policies noted in the prospectus, each Fund must follow
certain investment restrictions. We operate under the following investment
restrictions. For any Fund, we may not:
(1) invest more than 5% of its net assets (or 5% of The AAL Small Cap Stock,
International, Balanced or High Yield Bond Funds' total assets), taken at
the value at the time of each investment, in the securities (including
repurchase agreements) of any one issuer (for this purpose, the issuer(s)
of a debt security being deemed to be only the entity or entities whose
assets or revenues are subject to the principal and interest obligations of
the security), except that up to 25% of a Fund's net assets (or 25% of The
AAL Small Cap Stock, International, Balanced or High Yield Bond Funds'
total assets) may be invested without regard to this limitation and
provided that such restrictions shall not apply to obligations issued or
guaranteed by the U.S. government or any agency or instrumentality thereof;
(2) purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities, but
we may make margin deposits in connection with transactions in options,
futures and options on futures for a Fund;
(3) make short sales of securities or maintain a short position, or write,
purchase, or sell puts, calls, straddles, spreads, or combinations thereof,
except for the described transactions in options, futures, options on
futures and short sales against the box;
(4) make loans to other persons, except that we reserve freedom of action,
consistent with a Fund's other investment policies and restrictions and as
described in the prospectus and this Statement of Additional Information,
to: (a) invest in debt obligations, including those that are either
publicly offered or of a type customarily purchased by institutional
investors, even though the purchase of such debt obligations may be deemed
the making of loans; (b) enter into repurchase agreements; and (c) lend
portfolio securities, provided we may not loan securities for a Fund if, as
a result, the aggregate value of all securities loaned would exceed 33% of
its total assets (taken at market value at the time of such loan);
(5) issue senior securities or borrow, except that we may borrow for a Fund in
amounts not in excess of 10% of its net assets, taken at current value, and
then only from banks as a temporary measure for extraordinary or emergency
purposes (we will not borrow money for the Funds to increase income, but
only to meet redemption requests that otherwise might require untimely
dispositions of portfolio securities; interest paid on any such borrowing
will reduce a Fund's net income);
(6) mortgage, pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by a Fund except as may be
necessary in connection with and subject to the limits in restriction (5);
(7) underwrite any issue of securities, except to the extent that we purchase
securities directly from an issuer thereof, in accord with a Fund's
investment objectives and policies which may be deemed to be underwriting
or to the extent that in connection with the disposition of portfolio
securities we may be deemed an underwriter for the Fund under federal
securities laws;
(8) purchase or sell real estate, or real estate limited partnership interests
provided that we may invest in securities for a Fund secured by real estate
or interests therein or issued by companies that invest in real estate or
interests therein;
(9) purchase or sell commodities or commodity contracts, except that we may
purchase or sell futures and options thereon for hedging purposes for a
Fund as described in this Statement of Additional Information;
(10) invest 25% or more of a Fund's net assets (or 25% or more of The AAL Small
Cap Stock, International, Balanced or High Yield Bond Funds' total assets),
taken at current value at the time of each investment, in securities of
non-governmental issuers whose principal business activities are in the
same industry;
(11) invest in oil, gas or mineral related programs or leases except as may be
included in the definition of public utilities, although we may invest in
securities of enterprises engaged in oil, gas or mineral exploration for a
Fund;
(12) invest in repurchase agreements maturing in more than seven days or in
other securities with legal or contractual restrictions on resale if, as a
result thereof, more than 10% of a Fund's net assets (taken at current
value at the time of such investment) would be invested in such securities;
(13) except for The AAL Technology Stock, Aggressive Growth and High Yield Bond
Fund, invest in any security, if as a result, a Fund would have more than
5% of its net assets invested in securities of companies which, together
with any predecessors, have been in continuous operation for less than
three years;
(14) purchase securities of other investment companies, if the purchase would
cause more than 10% of the value of a Fund's net assets (or 10% of the
value of The AAL Small Cap Stock, International, Balanced or High Yield
Bond Funds' total assets), to be invested in investment company securities
provided that: (a) no investment will be made in the securities of any one
investment company if immediately after such investment more than 3% of the
outstanding voting securities of such company would be owned by a Fund or
more than 5% of the value of a Fund's net assets (or 5% of the value of The
AAL Small Cap Stock, International, Balanced or High Yield Bond Funds'
total assets) would be invested in such company; and (b) no restrictions
shall apply to a purchase of investment company securities in connection
with a merger, consolidation acquisition or reorganization; or
(15) purchase more than 10% of the outstanding voting securities of an issuer or
invest for the purpose of exercising control or management.
Each of the above restrictions (1) through (15), as well as each Fund's
investment objective, except for The AAL Balanced and High Yield Bond Funds, is
a fundamental policy.
INVESTMENT TECHNIQUES
We may use the following techniques described in the prospectus and Statement of
Additional Information in pursuing the Funds' investment objectives.
TEMPORARY DEFENSIVE POSITIONS
Except for the Index Funds, we have a temporary defensive position policy that
allows us to invest up to 100% of a Fund's total assets in cash and short-term
money market obligations, including tax-exempt money market funds and investment
grade fixed-income securities when significant adverse market, economic,
political or other circumstances require immediate action to avoid losses.
Primarily, we may purchase the following types of securities for temporary
defensive purposes:
(1) securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities;
(2) commercial paper rated at the time of purchase in the highest rating
category by NRSRO's; and
(3) bank obligations, including repurchase agreements, of banks having total
assets in excess of $1 billion.
For temporary defensive purposes we may invest up to 100% of The AAL
International Fund's total assets in U.S. securities or in securities primarily
traded in one or more foreign countries, or in debt securities to a greater
extent than 20%. The AAL Large Company Index, Mid Cap Index and Bond Index Funds
do not engage in defensive strategies.
LENDING PORTFOLIO SECURITIES
Subject to the fundamental investment restriction (4) listed under "Investment
Restrictions," we may lend a Fund's portfolio securities to broker-dealers and
financial institutions, such as banks and trust companies. As the adviser, we
will monitor the creditworthiness of any firm with which a Fund engages in
securities lending transactions. We would continuously secure the loan by
collateral in cash or cash equivalents maintained (on a current basis) in an
amount equal to or greater than the market value of the securities loaned. We
would continue to receive the equivalent of the interest or dividends paid by
the issuer to the Fund on the securities loaned. We would also receive any
additional returns, such as a fixed fee or a percentage of the collateral. We
would have the right to call the loan and obtain the securities loaned at any
time on notice of not more than five business days. Generally, we would not have
the right to vote the Fund's loaned securities during the existence of the loan.
However, we would call the loan to permit voting if, in our judgment, a material
event requiring a shareholder vote would otherwise occur before the repayment
date.
In the event of the borrower's default or bankruptcy, we could experience both
delays in liquidating the loan collateral or recovering the loaned securities
and any losses sustained by the Fund. For example, during the period when we
would seek to enforce the Fund's rights to the loaned securities, the
collateral's value could decline. We might receive subnormal levels of income or
no income from the loaned securities. We also would incur the expense of
enforcing the Fund's rights to the loaned securities.
REPURCHASE AGREEMENTS AND BORROWING
Except for the Index Funds, we may earn income on available cash or for
temporary defensive purposes, we may invest in repurchase agreements for the
Funds. We must hold an amount of cash or government securities at least equal to
the market value of the securities held pursuant to the agreement. In the event
of a bankruptcy or other default of a seller of a repurchase agreement, we may
experience delays and expenses in liquidating the securities, declines in the
securities' value and loss of interest for a Fund. We maintain procedures for
evaluating and monitoring the creditworthiness of firms with which we enter into
repurchase agreements for the Funds. We may not invest more than 10% of a Fund's
net assets in repurchase agreements maturing in more than seven days. Under the
1940 Act, repurchase agreements are considered loans by
the Fund. A reverse repurchase agreement would be considered a collateralized
borrowing by the Fund.
We may borrow money, but only from banks and only for temporary or emergency
purposes. We may not borrow more than 10% of a Fund's net assets and we must
repay any amount we borrow for a Fund before we can buy additional securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
We may purchase securities on a when-issued or delayed-delivery basis for a
Fund, as described in the prospectus. We only purchase on a when-issued or
delayed delivery basis with the intention of actually acquiring the securities,
including when-issued securities with long-term issue dates of a year or more.
However, we may sell such securities before settlement date if we deem it
advisable for investment reasons.
At the time of purchase we identify liquid assets having a value at least as
great as the purchase price. We have the custodian hold these securities
identified throughout the period of the obligation. Purchasing on a when-issued
or delayed basis as we have described may increase the Fund's net asset value
fluctuation or volatility.
ILLIQUID AND RESTRICTED SECURITIES
Except for The AAL Money Market Fund, we may hold up to 15% of a Fund's net
assets in illiquid securities. We may hold up to 10% of The AAL Money Market
Fund's net assets in restricted and other illiquid securities. Illiquid
securities are securities we believe cannot be sold within seven days in the
normal course of business at approximately the amount at which we have valued or
priced the securities for a Fund, including securities we acquired in private
placements that have restrictions on their resale ("restricted securities"). We
deem time deposits and repurchase agreements maturing in more than seven days
illiquid. Because an active market may not exist for illiquid securities, we may
experience delays and additional cost when trying to sell illiquid securities.
For more information on restricted and other illiquid securities regarding The
AAL Money Market Fund, please refer to the Statement of Additional Information,
"Privately Issued Securities: The AAL Money Market Fund." The Board of Trustees
has established procedures for determining the liquidity of Fund securities and
has delegated the day-to-day liquidity determinations to the Adviser.
Subject to the limitations for illiquid investments stated above, we may
purchase liquid restricted securities eligible for resale under Rule 144A under
the Securities Act of 1933 (the "33 Act"), without regard to the 15% or 10%
limitation. Rule 144A permits certain qualified institutional buyers, such as
the Funds, to trade in privately placed securities not registered under the 33
Act. Institutional markets for restricted securities have developed as a result
of Rule 144A, providing both readily ascertainable market values for 144A
securities and the ability to liquidate these investments to satisfy redemption
orders. However, an insufficient number of qualified institutional buyers
interested in purchasing certain Rule 144A securities held by a Fund could
adversely affect their marketability, causing us to sell the securities at
unfavorable prices.
INVESTMENT GRADE AND MEDIUM GRADE BOND INVESTMENTS
We may purchase investment grade bonds for The AAL International, Equity Income,
Balanced, High Yield Bond, Municipal Bond and Bond Funds. A debt or other
fixed-income security is considered investment grade if it is rated investment
grade by a NRSRO, such as BBB or better by Duff and Phelps Credit Rating Co.
("D&P") and S&P or Baa or better by Moody's. Securities rated in the fourth
highest category, such as BBB by D&P or Standard & Poor's ("S&P") or Baa by
Moody's, are considered medium grade bonds and have more sensitivity to economic
changes and speculative characteristics. If a bond in a Fund has lost its rating
or has its rating reduced, the Fund does not have to sell the security, but the
Adviser will consider the lost or reduced rating in determining whether that
Fund should continue to hold the bond.
RATED SECURITIES
If a NRSRO reduces or eliminates its rating of a Fund security, we do not have
to sell the security. However, we consider such fact in determining whether we
should continue to hold the security for the Fund. For The AAL Money Market
Fund, we sell downgraded commercial paper to the extent required to comply with
Rule 2a-7 under the 1940 Act.
At times a NRSRO changes its ratings for debt securities as a result of changes
at the rating organization or in its rating system. When this happens, we
attempt to use comparable NRSRO ratings in reassessing investments for a Fund in
accord with its investment policies.
BOND RATINGS
Moody's Rating Scale Definitions
Aaa: Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA: Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as Aaa securities or fluctuations of protective elements may
be of greater amplitude or there may be other elements present that make
long-term risk appear somewhat larger than the Aaa securities.
A: Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present that
suggest susceptibility to impairment some time in the future.
Baa: Bonds that are rated Baa are considered medium-grade obligations (i.e. they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over a long period of time may be small.
Caa: Bonds that are rated Caa have poor standing. Such issues may be in default
or present elements of danger with respect to principal or interest.
Ca: Bonds that are rated Ca represent obligations that are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C: Bonds that are rate C are the lowest-rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Rating Scale Definitions
AAA: Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated "AA" has very strong capacity to pay interest and repay principal
and differs from the higher-rated issues only in small degrees.
A: Debt rated "A" has strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated "BBB" has an adequate capacity to pay interest and repay
principal. Whereas, it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher-rated categories.
BB, B, CC, C , C: Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The "BBB" rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied "BBB-" rating.
B: Debt rated "B" has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions likely will impair capacity or willingness to
pay interest and repay principal. The "B" rating is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC: Debt rated "CCC" has a currently identifiable vulnerability to default and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC: The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C: The rating "C" is typically applied to debt subordinated to senior debt that
is assigned an actual or implied "CCC-" debt rating. The "C" rating may be used
to cover a situation in which a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating "CI" is reserved for income bonds on which no interest is paid.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes such payments will
be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
NR: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate
the particular type of obligation as a matter of policy.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper Ratings
Moody's commercial paper ratings are opinions of the ability to repay punctually
promissory obligations. Moody's employs the following three category
designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
PRIME 1: Highest quality;
PRIME 2: Higher quality; and
PRIME 3: High quality.
S&P Commercial Paper Ratings
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment. Ratings are graded into four categories, ranging from "A" for
the highest quality obligations to "D" for the lowest.
A: Issues assigned the highest rating category, A, are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers "1", "2" and "3" to indicate the relative degree of safety.
A-1: The designation A-1 indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. A "+" designation is applied to
those issues rated "A-1" that possess extremely strong safety characteristics.
A-2: Capacity for timely payment on issues with the designation "A-2" is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3: Issues carrying the designation A-3 have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effect of
changes in circumstances than obligations carrying the higher designations.
OTHER RATINGS
Moody's Municipal Note Ratings
MIG 1: This designation category denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2: This designation category denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3: This designation category denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
Moody's Ratings of the Demand Features On Variable Rate Demand Securities
Moody's may assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:
VMIG 1: This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2: This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3: This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
S&P Note Ratings
SP-1: Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.
SP-2: Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment: (1) the amortization schedule (the
larger the final maturity relative to other maturities, the more likely the
issue will be rated as a note); (2) and the source of payment (the more
dependent the issue is on the market for its refinancing, the more likely it
will be rated as a note).
S&P Ratings of the Demand Features on Variable Rate Demand Securities
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a demand feature. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity and the commercial paper rating symbols are
usually used to denote the put (demand) options (i.e., AAA/A-1+). Normally
demand notes receive note rating symbols combined with commercial paper symbols
(i.e., SP-1+/A-1+).
Convertible Bonds
Except for The AAL Money Market Funds, we may invest in convertible bonds,
subject to any restrictions on the quality of bonds in which a Fund may invest.
We also may retain any stocks received upon conversion that do not fall within
the Fund's investment parameters to: (1) permit orderly disposition; (2)
establish a long-term holding basis for Federal income tax purposes; or (3) seek
capital growth.
Convertible bonds are often rated below investment grade or not rated because
they fall below debt obligations and just above equities in order of preference
or priority on the issuer's balance sheet. Convertible bonds rated below
investment grade are referred to as junk bonds. Any issuer with investment grade
senior debt may issue convertible securities with ratings less than investment
grade debt.
Mortgage-Backed Securities
For The AAL Balanced, High Yield Bond and Bond Funds, we may invest in
mortgage-backed securities with amortizing payments consisting of both interest
and principal and prepayment privileges (the ability to prepay the principal or
a portion thereof without penalty). Mortgaged-backed securities represent
interest in pools of mortgage loans made by lenders such as savings and loan
institutions, mortgage bankers, commercial banks and others. Various government,
government-related and private organizations combine these mortgages for sale to
investors (i.e., the Government National Mortgage Association ("GNMA")
guarantees and issues mortgage-backed securities). Mortgage-backed securities
generally provide for a "pass through" of monthly payments made by individual
borrowers on their residential mortgage loans, net of any fees paid to the
issuer or guarantor of the securities. We reinvest the periodic payments of
principal and interest and prepayments, if any, in securities at the prevailing
market interest rates. The prevailing rates may be higher or lower than the rate
on the original investment. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities tend to
accelerate. Accordingly, any prepayments on mortgage-backed securities that we
hold for a Fund reduce our ability to maintain positions in high-yielding,
mortgage-backed securities and reinvest the principal at comparable yields for
the Fund. If we buy any mortgage-backed securities for a Fund at a premium, the
Fund receives prepayments, if any, at par or stated value, which lowers the
return on the Fund.
High Yield Bond Market
We may invest in high risk, high yield bonds for The AAL International, Equity
Income and High Yield Bond Funds. We normally invest at least 65% of The AAL
High Yield Bond Fund's total assets in such securities. As stated in the
prospectus, investing in high yield bonds involves market risk. The market for
high yield bonds has existed for many years and has weathered downturns. In
particular during the late 1980s and early 1990s, the high yield market
experienced a significant downturn. Many corporations had dramatically increased
their use of high yield bonds to fund highly leveraged acquisitions and
restructuring. As a result, from 1989 to 1991, the percentage of lower-quality
securities that defaulted rose significantly above previous default levels.
After this period, default rates decreased.
We may invest in lower-rated asset and mortgage-backed securities for The AAL
High Yield Bond Fund. These securities include interests in pools of lower-rated
bonds, consumer loans or mortgages, or complex instruments such as
collateralized mortgage obligations ("CMOs") and stripped mortgage-backed
securities (the separate income or principal components). Changes in interest
rates, the market's perception of the issuers and the creditworthiness of the
parties involved may significantly affect the value of these bonds. Some of
these securities may have structures that makes their reaction to interest rates
and other factors difficult to predict, causing high volatility in their market
value. These bonds also carry prepayment risk. During periods of declining
interest rates, prepayment of the loans and mortgages underlying these
securities tends to accelerate. Investors tend to refinance their mortgages (pay
the old mortgage off with a new mortgage at a lower rate) to lower payments.
Accordingly, any prepayment on the existing securities we hold for the Fund
reduces our ability to maintain positions in high-yielding, mortgage-backed
securities and reinvest the principal at comparable yields.
Certain high yield bonds carry particular market risks. Zero coupon, deferred
interest and payment-in-kind ("PIK") bonds issued at deep discounts may
experience greater volatility in market value. Asset and mortgage-backed
securities, including CMOs, in addition to greater volatility, may carry
prepayment risks.
Collateralized Mortgage Obligations and Multi-Class Pass-Through Securities -
The AAL Balanced, High Yield Bond and Bond Funds We may invest in
mortgage-backed securities, including CMOs and multi-class pass-through
securities. CMOs and multi-class pass-through securities are debt instruments
issued by special purpose entities secured by pools of mortgage loans or other
mortgage-backed securities. Multi-class pass-through securities are interests in
a trust composed of mortgage loans or other mortgage-backed securities. Payments
of principal and interest on the underlying collateral provide the money to pay
debt service on the CMO or make scheduled distributions on the multi-class
pass-through security. Multi-class pass-through securities, CMOs, and classes
thereof (including those discussed below) are examples of the types of financial
instruments commonly referred to as "derivatives."
A CMO contains a series of bonds or certificates issued in multiple classes.
Each CMO class (referred to as "tranche") has a specified coupon rate and stated
maturity or final distribution date. When people start prepaying the principal
on the collateral underlying a CMO (such as mortgages underlying a CMO), some
classes may retire substantially earlier than the stated maturity or final
distribution dates. The issuer structures a CMO to pay or accrue interest on all
classes on a monthly, quarterly or semi-annual basis. The issuer may allocate
the principal and interest on the underlying mortgages among the classes in many
ways. In a common structure, the issuer applies the principal payments on the
underlying mortgages to the classes according to scheduled cash flow priorities.
There are many classes of CMOs. Interest only classes ("IOs") entitle the class
shareholders to receive distributions consisting solely or primarily of all or a
portion of the interest in an underlying pool of mortgages or mortgage-backed
securities ("mortgage assets"). Principal only classes ("POs") entitle the class
shareholders to receive distributions consisting solely or primarily of all or a
portion of the underlying pool of mortgage assets. In addition, there are
"inverse floaters," which have coupon rates that move in the reverse direction
to an applicable index, and accrual (or "Z") bonds (described below).
At any one time, we may not invest more than 7.5% of a Fund's net assets in IOs,
POs, inverse floaters or accrual bonds individually or more than 15% in all such
obligations combined.
Inverse floating CMO classes are typically more volatile than fixed or
adjustable rate CMO classes. We would only invest in inverse floating CMOs to
protect against a reduction in the income earned on investments due to a
predicted decline in interest rates. In the event interest rates increased, we
would lose money on investments in inverse floating CMO classes. An interest
rate increase would cause the coupon rate on an inverse CMO class to decrease.
Cash flow and yields on IO and PO classes are extremely sensitive to principal
payment rates (including prepayments) on the underlying mortgage loans or
mortgage-backed securities. For example, rapid or slow principal payment rates
may adversely affect the yield to maturity of IO or PO bonds, respectively. If
the underlying mortgage assets experience greater than anticipated prepayments
of principal, the holder of an IO bond may incur substantial losses in value due
to the lost interest stream even if the IO bond has a AAA rating. If the
underlying mortgage assets experience slower than anticipated prepayments of
principal, the PO bond will incur substantial losses in value due to lost
prepayments. Rapid or slow principal payment rates may cause IO and PO bond
holders to incur substantially more losses in market value than if they had
invested in traditional mortgage-backed securities. On the other hand, if
interest rates rise, the value of an IO might increase and partially offset
other bond value declines in a Fund's portfolio. If interest rates fall, the
value of a PO might increase offsetting lower reinvestment rates in a Fund's
portfolio.
An accrual or Z bondholder does not receive cash payments until one or more of
the other classes have received their full payments on the mortgage loans
underlying the CMO. During the period when the Z bondholders do not receive cash
payments, interest accrues on the Z class at a stated rate. The accrued interest
is added to the amount of principal due to the Z class. After the other classes
have received their payments in full, the Z class begins receiving cash payments
until it receives its full amount of principal (including the accrued interest
added to the principal amount) and interest at the stated rate. Generally, the
date when cash payments begin on the Z class depends on the prepayment rate of
the mortgage loans underlying the CMO. A faster prepayment rate results in an
earlier commencement of cash payments on the Z class. Like a zero coupon bond,
during its accrual period the Z class has the advantage of eliminating the risk
of reinvesting interest payments at lower rates during a period of declining
interest rates. Like a zero coupon bond, the market value of a Z class bond
fluctuates more widely with changes in interest rates than would the market
value of a bond from a class that pays interest currently. Changing interest
rates influence prepayment rates. As noted above, such changes in prepayment
rates affect the date at which cash payments begin on a Z tranche, which in turn
influences its market value.
Structured Securities -- The AAL International and High Yield Bond Funds
We may invest in structured notes and/or preferred stocks for The AAL
International and High Yield Bond Funds. The issuer of a structured security
links the security's coupon, dividend or redemption amount at maturity to some
sort of financial indicator. Such financial indicators can include currencies,
interest rates, commodities and indices. The coupon, dividend and/or redemption
amount at maturity may increase or decrease depending on the value of the linked
or underlying instrument.
Investments in structured securities involve certain risks. In addition to the
normal credit and interest rate risks inherent with a debt security, the
redemption amount may increase or decrease as a result of price changes in the
underlying instrument. Depending on how the issuer links the coupon and/or
dividend to the underlying instrument, the amount of the dividend may be reduced
to zero. Any further declines in the value of the underlying instrument may then
reduce the redemption amount at maturity. Structured securities may have more
volatility than the price of the underlying instrument.
Variable Rate Demand Notes
We may purchase variable rate master demand notes for The AAL Technology Stock,
Aggressive Growth, Small Cap Stock, Mid Cap Stock, International, Capital
Growth, Equity Income, Balanced, High Yield Bond, Bond and Money Market Funds.
Variable rate master demand notes are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate. The extent to which we can purchase these securities for the
Funds listed is subject to Rule 2a-7 under the 1940 Act. These notes normally do
not trade and there is no secondary market for the notes. However, we may demand
payment of the principal for a Fund at any time. We limit our purchases of
variable rate master demand notes for a Fund to those: (1) rated in one of the
two highest rating categories by a NRSRO; or (2) that have been issued by an
issuer that has received a rating from the requisite NRSRO in the top two
categories with respect to a class of short-term debt obligations that is
comparable in priority and security with the instrument. If an issuer of a
variable rate master demand note defaulted on its payment obligation, we might
not be able to dispose of the note for a Fund due to the absence of a secondary
market. We might suffer a loss to the extent of the default for the Fund. We
only invest in variable rate master demand notes when we deem them to involve
minimal credit risk.
Standard & Poor's Depositary Receipts ("SPDRs")
The Funds may invest in Standard & Poor's Depositary Receipts, commonly referred
to as SPDRs, subject to the investment restrictions concerning investment in
other mutual funds. A SPDR is a unit investment trust. In accordance with its
Declaration of Trust, a SPDR is a pooled investment designed to closely track
the price and yield performance of a specific index or group of securities; such
as the S&P 500 Index, the S&P MidCap 400 Index, the Nasdaq 100 or the S&P
SmallCap 600 Index. Each SPDR trust portfolio holds corresponding shares in all
the securities of a particular index. Each SPDR share represents an undivided
ownership interest in that SPDR's trust portfolio. SPDR shares trade on a
secondary market, the American Stock Exchange (AMEX). The Funds waive the
underlying unit investment trust's advisory fees, so there is no duplication of
fees.
Portfolio Turnover Rates
We expect The AAL Small Cap Stock, Mid Cap Stock, High Yield Bond, Municipal
Bond and Bond Funds to have portfolio turnover greater than 100%, and the other
Funds to have a portfolio turnover of less than 100%. A portfolio turnover over
100% is considered a high portfolio turnover rate. We do not calculate a
portfolio turnover rate for The AAL Money Market Fund because of the short
maturities of its investments. Due to the high volume of buying and selling
activity in a portfolio with turnover in excess of 100%, we may pay more
commissions for these Funds. We also may realize more taxable gains and losses
than in portfolios with less turnover. Increased expenses and tax consequences
of these trading practices may lower returns for shareholders. We may trade for
a Fund at a portfolio rate significantly exceeding 100% (i.e., 600% or more for
The AAL Bond Fund and 300% or more for The AAL Balanced Fund), when we believe
the benefits of short-term investments outweigh any increase in transactions
costs or capital gains.
For the fiscal year ended April 30, 2000, The AAL Small Cap Stock Fund and The
AAL Mid Cap Stock Fund had portfolio turnover rates of ____% and ____%,
respectively. The rates reflected our growth investment styles for the Funds.
These Funds also purchased stocks in initial public offerings and sold them
shortly thereafter. Stock prices in initial public offerings tend to appreciate
or decline significantly after the offering and then level off in price. The
rates also reflect the volatility of small and mid cap stock prices.
The portfolio turnover rates for The AAL Municipal Bond and Bond Funds were
____% and ____%, respectively. The rate for The AAL Bond Fund reflects our
active selection of the individual bonds that we believe provide the best income
within the Fund's investment parameters at any one time. The AAL Bond Fund may
have a portfolio turnover rate for the next fiscal year in excess of 300%, and
as high as 600% or more. Our turnover rate for The AAL Municipal Bond Fund also
reflects our active selection of the individual bonds that we believe provide
the best income and chance for capital appreciation and, thus, preservation, at
any one time. We try to exploit pricing inefficiencies we believe exist in the
municipal securities market.
The portfolio turnover rate for The AAL High Yield Bond Fund was ____%. In
seeking to achieve its objectives, we buy or sell portfolio securities whenever
the portfolio manager believes it appropriate. Generally, the length of time we
have owned the security for the Fund does not influence the portfolio manager's
decision on when we will trade the security. From time to time, we will buy
securities intending to seek short-term trading profits. As a result, The AAL
High Yield Bond Fund's portfolio turnover rate may be higher than that of other
mutual funds in this category. The turnover rate is not a limiting factor when
considering a change in the Funds' portfolio.
Options and Futures
The following sections pertain to options and futures. Except for The AAL Money
Market Fund, we may engage in options, futures and options on futures
transactions for the Funds. We may engage in options and futures transactions
for bona fide hedging. When entering into these transactions, we follow the SEC
and the Commodities Futures Trading Commission requirements and set aside liquid
assets in a separate account to secure a Fund's potential obligations under such
contracts. We cannot sell securities held in a segregated account while the
futures or options strategy is outstanding, unless we replace such assets with
other suitable assets. As a result, there is a possibility that segregation of a
large percentage of a Fund's assets could impede portfolio management or our
ability to meet redemption requests or other obligations for a Fund.
We may try to enhance returns or hedge against a decline in the value of a
Fund's securities by writing (selling) and purchasing options and futures
contracts. For example, during a neutral or declining market, we may gain
additional income by writing options and receiving premiums for a Fund. When we
write (sell) covered call options for a Fund, we forgo the opportunity to profit
from increases in the market value of the underlying securities above the sum of
the options' premium and the exercise price. On the other hand, we reduce the
amount of any decline in the value of the underlying securities to the extent of
the premium we receive from writing the call for a Fund. During a rising market,
we may gain incremental income by purchasing call options and futures contracts
for a Fund.
We also may use options and futures to hedge against an anticipated price
increase in a security we plan to buy for a Fund.
If new types of options and futures contracts become available, we may use them
for the Funds. Prior to their use, however, we must obtain a determination from
the Funds' Board of Trustees that their use would be consistent with the Fund's
investment objectives and policies.
Options on Securities and Indexes
An option contract on a security (or index) gives the holder, in return for a
premium, the right to buy from (call) or sell to (put) the option writer of the
underlying security (or cash value of underlying the index) at a specified
exercise price at any time during the option term.
Upon exercise of a call option, the writer (seller) has the obligation to
deliver the underlying security to the holder; provided the holder pays the
exercise price. Upon exercise of a put option, the writer has the obligation to
pay the holder the exercise price upon delivery of the underlying security.
Upon the exercise of an index option, the writer must pay the difference between
the cash value of the index and the exercise price multiplied by the specified
multiplier for the index option. (An index is a statistical composite that
measures changes in the economy or financial market, usually reflecting
specified facets of a particular securities market, a specific group of
financial instruments, securities or economic indicators.).
Options and futures exist on debt, equity, indexes and other securities or
instruments. They may take the form of standardized contracts traded on national
securities exchanges, boards of trade or similar entities. They also may trade
in the over-the-counter market. Some debt instruments, such as bonds, trade with
cash put options, which generally allow the holder to sell the security back to
the issuer at a specified price for a specified amount of time.
When we write options, we may only write "covered" calls or puts for a Fund.
A call option for a Fund is covered if we hold the security underlying the call
for the Fund. Also a call option for a Fund is covered if we have an absolute
and immediate right to acquire the security for the Fund without additional cash
consideration upon conversion or exchange of other securities held in the
portfolio. If additional cash consideration is required, we hold cash or cash
equivalents in such an amount in a segregated account with the Fund's custodian.
An index call option is covered if we hold cash or cash equivalents with the
Fund's custodian equal to the contract value. A written call option is covered
if we hold a call option on the same security or index under two conditions. The
first condition is where the exercise price of the call purchased is equal to or
less than the exercise price of the call written. The second conditions is where
the exercise price of the call purchased is greater than the exercise price of
the call written; provided that we maintain the difference with the Fund's
custodian in cash or cash equivalents in a segregated account.
A put option on a security or an index is covered if we maintain cash or cash
equivalents equal to the exercise price in a segregated account with the Fund's
custodian. A put option is covered if we hold a put on the same security or
index as the put written under two conditions. The first condition is where the
exercise price of the put is equal to or greater than the exercise price of the
put written. The second condition is where the exercise price of the put is less
than the exercise price of the put written; provided we maintain cash or cash
equivalents with the Fund's custodian in a segregated account.
Prior to the expiration or exercise of an option, we may close the option out by
entering into an offsetting transaction. We would affect an offsetting
transaction for a Fund by purchasing or selling an option of the same series
(type, exchange, underlying security or index, exercise price and expiration).
Due to market factors, we may not be able to affect a closing purchase or sale
at the time we would like to for a Fund.
We realize a capital gain from a closing purchase transaction if the premium for
purchasing the closing option is less than the premium received from writing the
option. If the premium for purchasing the closing option is more, we realize a
capital loss for the Fund. If the premium received from a closing sale
transaction is more than the premium paid to purchase the option, we realize a
capital gain for the Fund. If the premium is less, we realize a capital loss for
the Fund.
If an option we write for a Fund expires unexercised, we realize a capital gain
equal to the premium received. If an option we purchased for a Fund expires
unexercised, we realize a capital loss equal to the premium we paid for the
option.
The principal factors affecting the market value of a put or call option include
supply and demand, interest rates, the current market price of the underlying
security or index in relation to the exercise price of the option, the
volatility of the underlying security or index and the time remaining until the
expiration date.
We record a premium paid for an option purchased by us for a Fund as an asset.
We record the premium received for an option written by us for a Fund as a
deferred liability. We mark-to-market the value of an option purchased or
written on a daily basis at the closing price on the exchange on which it
traded. If the option was not traded on an exchange or a closing price was not
available, we would value the option at the mean between the last bid and asked
prices.
Risks Associated with Options on Securities and Indexes
Options transactions have risks. A decision as to whether, when and how we use
options involves the exercise of skill and judgment. For example, significant
differences could exist between the market for the underlying security (or
index) and the market for the overlying options. These differences, such as
differences in the way the underlying securities are trading and the way the
options on the securities are trading, could result in an imperfect correlation
between the markets. As a result, we might not be able to achieve our objectives
in an options transaction for the Fund. Market behavior and unexpected events
may hinder otherwise well-conceived options transactions we have entered into
for a Fund.
We cannot assure you that a liquid market will exist when we seek to close out
an option position for a Fund. If we could not close out an option we had
purchased for a Fund, we would have to exercise the option to realize any profit
or let the option expire worthless. If we could not close out a covered call
option that we had written for a Fund, we could not sell the underlying security
unless the option had expired not exercised.
When we write a covered call option for a Fund, we forgo the opportunity to
profit from increases in the covering security's market value above the sum of
the premium and the call's exercise price.
If the exchange (or Board of Trade) suspends trading in an option we purchased
for a Fund, we cannot enter into a closing transaction during the suspension. If
the exchange imposes restrictions on the option's exercise, we might not be able
to exercise an option we have purchased for a Fund. Except to the extent that a
call option on an index written by a Fund is covered by an option on the same
index purchased by a Fund, movements in the index may result in a loss to a
Fund. Such losses may be mitigated by changes in the value of a Fund's portfolio
securities during the period the option was outstanding.
Futures Contracts and Options on Futures Contracts
In addition to foreign currency futures contracts, which we discuss below, we
may enter into interest rate and index futures contracts. An interest rate or
index futures contract provides for the future sale by one party and purchase by
another party of a specified quantity of a financial instrument or the cash
value of an index at a specified price and time. A futures contract on an index
is an agreement by which two parties agree to take or make delivery of an amount
of cash equal to the difference between the closing value of the index on the
contract's last trading day and the original price entered into for the
contract. Although the index's value may reflect the value of certain underlying
securities, the party responsible for delivery delivers cash (not the underlying
securities).
A public market exists in futures contracts covering a number of indexes as well
as other financial instruments. Such instruments include: U.S. Treasury bonds;
U.S. Treasury notes; GNMA certificates; three-month U.S. Treasury bills; 90-day
commercial paper; bank certificates of deposit; and Eurodollar certificates of
deposit. Boards of trade and other issuers may develop and trade other futures
contracts. As with options, if new types of futures contracts become available,
we may use them for the Funds. Prior to their use, however, we must obtain a
determination from the Funds' Board of Trustees that their use would be
consistent with the Fund's investment objectives and policies.
We may purchase and write call and put futures options for a Fund. Our ability
to write call and put futures, however, depends on whether the Commodity Futures
Trading Commission grants certain regulatory relief (such as an exemption from
being considered a commodities pool operator).
Options on futures possess many of the same characteristics as options on
securities and indexes. A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or short position (put)
in a futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder acquires a long
position in the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true.
As long as regulatory authorities require, we limit our use of futures and
options on futures to hedging transactions. We might use futures contracts to
hedge against anticipated interest rate changes we believe might adversely
affect either the value of a Fund's securities or the price of securities we
intend to purchase for a Fund. Our hedging strategy may include sales of futures
contracts to offset the effect of expected interest rate increases. It also may
include purchases of futures contracts to offset the effect of expected interest
rate declines. Although we could use other techniques to reduce a Fund's
exposure to interest rate fluctuations, we may be able to hedge a Fund's
exposure more effectively and perhaps at a lower cost by using futures and
options on futures.
The success of any hedging technique depends on our ability to correctly predict
changes in the level and direction of interest rates and other factors. Should
our predictions prove incorrect, the Fund's return might be lower than it would
have been had we not tried the hedging strategy. However, in the absence of the
ability to hedge, we might have to take portfolio actions in anticipation of the
same market movements with similar investment results at potentially greater
transaction costs.
We only enter into standardized futures or options on futures contracts that
trade on U.S. exchanges, boards of trade, or similar entities, or are quoted on
an automated quotation system.
When we purchase or sell a futures contract for a Fund, we deposit with the
custodian (or broker, if legally permitted) a specified amount of cash or U.S.
government securities ("initial margin"). The exchange or board of trade on
which the futures contract trades sets the margin requirement. The exchange may
modify the margin requirement during the term of a futures contract. The initial
margin is in the nature of a performance bond or good faith deposit on the
futures contract. The custodian or broker returns the margin to a Fund upon
termination of the contract, assuming we have fulfilled all contractual
obligations for the Fund. We expect to earn interest income on the initial
margin deposit for a Fund. We value a futures contract held for a Fund on a
daily basis at the official settlement price of the exchange on which it trades.
Each day we pay or receive cash for the Fund, called "variation margin," equal
to the daily change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or loan by
us for a Fund, but is instead a settlement between a Fund and the broker of the
amount one would owe the other if the futures contract expired. In computing
daily net asset value, we mark-to-market a Fund's open futures positions.
We are required to deposit and maintain margin on any put and call options on
futures contracts that we have written for a Fund. Such margin deposits vary
depending on the nature of the underlying futures contract (and the related
initial margin requirements), the option's current market and other futures
positions we hold for the Fund.
Some futures contracts call for making or taking delivery of the underlying
securities. Generally we would close out these obligations prior to delivery by
making offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, we realize a capital gain
for the Fund. If the offsetting purchase price is more, we realize a capital
loss for the Fund. Conversely, if an offsetting sale price is more than the
original purchase price, we realize a capital gain for a Fund. If the offsetting
sale price is less, we realize a capital loss for a Fund. We must include the
transaction costs in calculating a gain or loss on the offsetting transactions.
Risks Associated with Futures
There are several risks associated with using futures contracts and options on
futures as hedging techniques. Our purchase or sale of a futures contract may
result in losses in excess of the amount we invested in the futures contract for
a Fund. We cannot guarantee how price movements in the market for the hedging
vehicle and market for the underlying portfolio securities being hedged will
correlate. Significant differences exist between the securities and futures
markets that could result in an imperfect correlation. These differences could
cause a given hedging strategy we have entered into for a Fund to not achieve
its objectives. The degree of imperfect correlation depends on circumstances
such as the variations in the speculative market demand for the futures and/or
futures options contracts used to hedge the underlying portfolio securities. A
decision as to whether, when and how we hedge involves the exercise of skill and
judgment. Our hedges may be unsuccessful to some degree because of unexpected
market behavior or interest rate trends.
Futures exchanges may limit the amount of price fluctuation in a contract for
trading in a single day. An exchange establishes a daily limit on the amount a
contract's price may vary either up or down from the previous day's settlement
price. Once the futures contract trades above or below the daily limit, the
exchange stops trading beyond the limit. The daily limit governs price movements
during a particular trading day but does not limit potential losses for the
contract holders. The daily limit may prevent us from being able to liquidate an
unfavorable position for a Fund. For example, futures prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions and subjecting some
holders of futures contracts to substantial losses.
We cannot ensure a liquid market will exist at a time when we seek to close out
a futures or futures options position for a Fund. If a liquid market did not
exist, we would have to continue meeting margin requirements until we could
close the position. We also cannot ensure that an active secondary market will
develop or continue to exist for the futures and futures options discussed
above.
Limitations on Options and Futures
We do not enter into an open futures contract position or purchase an option if
the initial margin deposit plus the premiums paid, less the amount by which any
such position is "in the money," exceeds 5% of a Fund's net assets. A call
option is "in the money" if the value of the futures contract that is the
subject of the option exceeds the exercise price. A put option is "in the money"
if the exercise price exceeds the value of the futures contract that is the
subject of the option.
When purchasing a futures contract or writing a put on a futures contract, we
must maintain with the Fund's custodian (or broker, if legally permitted) cash
or cash equivalents (including any margin) equal to the market value of such
contract. When writing a call option on a futures contract, we maintain with the
Fund's custodian cash or cash equivalents (including any margin) equal to the
amount such option is in the money until the option expires or we have entered
into an offsetting transaction closing out the option for the Fund.
We may not maintain open short positions in futures contracts, call options
written on futures contracts or call options written on indexes for a Fund, if,
in the aggregate, the market value of all such open positions exceeds the
current value of the Fund's portfolio. In valuing the portfolio, we have to take
into account unrealized gains and losses on the open positions and adjust for
the historical relative volatility of the relationship between the portfolio and
the positions. To the extent we have written call options on specific securities
in a Fund's portfolio, we deduct the value of those securities from the
portfolio's current market value.
We avoid being deemed a "commodity pool operator" by complying with the
Commodity Futures Trading Commission Rules. As such, we do not invest in a
commodity contract for a Fund where the "underlying commodity value" of each
long position at any time exceeds the sum of:
(1) the value of the Fund's short-term U.S. debt obligations or other U.S.
dollar denominated, high-quality short-term money market instruments and
cash that we have set aside for the Fund in an identifiable manner, plus
any funds deposited as margin on the contract;
(2) unrealized appreciation on the contract held by the broker; and
(3) cash proceeds from existing investments due in not more than 30 days.
"Underlying commodity value" means the size of the contract multiplied by the
daily settlement price of the contract.
Taxation of Options and Futures
If we exercise a call option for a Fund, we add the premium paid for the call
option to the cost of the security purchased. If we exercise a put option, we
deduct the premium paid for the put option from the proceeds of the security
sold. For index options and futures, which are settled in cash, the difference
between the cash received at exercise and the premium paid is a capital gain or
loss.
Our entry into closing purchase transactions for a Fund results in a capital
gain or loss. If an option was "in the money" when we wrote it and we held the
security covering the option for more than one year before writing it for a
Fund, any loss realized in a closing purchase transaction would be long-term for
federal tax purposes. The holding period of the securities covering an "in the
money" option does not include the time period the option was outstanding.
When we hold a futures contract for a Fund until delivery, we will realize a
capital gain or loss on the futures contract. The capital gain or loss is equal
to the difference between the price at the time we entered into the futures
contract for the Fund and the settlement price on the earlier of the delivery
notice date or expiration date. If we deliver securities for a Fund under a
futures contract, we realize a capital gain or loss for the Fund on those
securities.
For Federal income tax purposes, we generally recognize as income a Fund's
yearly net unrealized gains and losses on its options, futures and options on
futures positions ("year-end mark to market"). Generally, any gain or loss
recognized with respect to such positions (either by year-end mark to market or
by actual closing of the positions) is considered to be 60% long term and 40%
short term, without regard to the holding periods of the contracts. However, in
the case of positions classified as part of a "mixed straddle," we may defer the
recognition of losses on certain positions (including options, futures and
options on futures positions, the related securities and certain successor
positions thereto) to a later taxable year for a Fund. Selling futures contracts
or writing call options (or call options on futures) or buying put options (or
put options on futures) for the purposes of hedging against an anticipated
change in the value of a Fund's securities may affect the securities' holding
period.
We distribute any recognized net capital gains for a Fund, including any
recognized net capital gains (including year-end mark-to-market gains) on
options and futures transactions for federal income tax purposes. We combine and
distribute a Fund's capital gains on its options and futures transactions and
its capital gains on other investments. We also advise shareholders on the
nature of these distributions for a Fund.
Federal Tax Treatment of Forward Foreign Exchange Contracts
We may enter into certain forward foreign exchange contracts for a Fund that the
Internal Revenue Service will treat as Section 1256 contracts or straddles under
the Internal Revenue Code.
We must consider these Section 1256 contracts as having been closed at the end
of a Fund's fiscal year and we must recognize any gains or losses on these
contracts for tax purposes at that time. The IRS characterizes such gains or
losses from the normal closing or settlement of such transactions as ordinary
gain or loss. We are required to distribute any net gains on such transactions
to the Fund's shareholders even if we have not actually closed the transaction
and received cash to pay for the distribution.
We may consider forward foreign exchange contracts that offset a foreign dollar
denominated bond or currency position as straddles for tax purposes. Considering
these contracts as straddles allows us to defer a loss on any position in a
straddle to the extent of unrealized gain in an offsetting position.
For a Fund to continue qualifying for federal income tax treatment as a
regulated investment company, it must derive at least 90% of its gross income
from qualifying income (i.e., dividends, interest, income derived from loans of
securities and gains from the sale of securities or currencies). Pending tax
regulations could limit the extent that net gains realized from options, futures
or foreign forward exchange contracts on currencies are qualifying income for
purposes of the 90% requirement.
Foreign Securities
We also may invest assets of the Fund in foreign securities trading domestically
through depository receipts or on a U.S. national securities exchange or Nasdaq
National Market for The AAL Small Cap Stock, Mid Cap Stock and Capital Growth
Funds. We do not intend to invest more than 10% of their net assets in such
foreign securities. We may invest up to 20% of The AAL Bond Fund's net assets in
debt securities of foreign issuers payable in U.S. dollars. We may invest in
foreign securities for The AAL Balanced Fund to the extent The AAL Capital
Growth and Bond Funds allow investments in foreign securities for the common
stock and fixed-income sectors of the Fund, respectively. Foreign securities may
present a greater degree of risk (including risks relating to tax provisions or
expropriation of assets) than do securities of domestic issuers.
Foreign Securities - The AAL Technology Stock, Aggressive Growth, International,
Equity Income and High Yield Bond Funds We normally invest at least 65% of The
AAL International Fund's total assets in foreign securities primarily trading in
at least 3 different countries, not including the U.S.
We may invest up to 15% of The AAL Technology Stock, Aggressive Growth and
Equity Income Fund's net assets in foreign securities. We also may invest in
foreign securities, trading domestically, through depository receipts and
securities of foreign issuers traded on a U.S. national securities exchange or
Nasdaq National Market without regard to the 15% limitation. For purposes of
diversification for a Fund, we consider depository receipts as investments in
the underlying stocks.
We may invest up to 15% of The AAL High Yield Bond Fund's net assets in foreign
bonds. At this time, we intend to limit our foreign bond purchases for the Fund
to those trading in the U.S.
Foreign investing involves risks in addition to the risks inherent in U.S.
investing. Foreign countries tend to disseminate less public information about
their issuers. Many foreign countries do not subject their companies to uniform
accounting, auditing and financial reporting standards. The value of foreign
investments may rise or fall because of changes in currency exchange rates. As a
result, we may incur costs in converting securities denominated in foreign
currencies into U.S. dollars for a Fund. Dividends and interest on foreign
securities may be subject to foreign withholding taxes, which would reduce a
Fund's income without providing a tax credit to shareholders. When necessary, we
may have more difficulty obtaining and enforcing judgments in foreign countries.
We also would incur more expense. Even though we mainly intend to invest in
securities trading in stable and developed countries, we still face the
possibility of expropriation, confiscatory taxation, nationalization, currency
blockage or political or social instability that could affect investments in
such countries.
American Depository Receipts
We may invest in American Depository Receipts ("ADRs") for The AAL Technology
Stock, Aggressive Growth, International and Equity Income Funds without limit.
ADR facilities may be either "sponsored" or "un-sponsored." While sponsored and
un-sponsored ADR facilities are similar, distinctions exist between the rights
and duties of ADR holders and market practices. Sponsored facilities have the
backing or participation of the underlying foreign issuers. Un-sponsored
facilities do not have the participation by or consent of the issuer of the
deposited shares. Un-sponsored facilities usually request a letter of
non-objection from the issuer.
Holders of un-sponsored ADRs generally bear all the costs of such facility. The
costs of the facility can include deposit and withdrawal fees, currency
conversion and other service fees. The depository of an un-sponsored facility
may not have a duty to distribute shareholder communications from the issuer or
to pass through voting rights. Issuers of un-sponsored ADRs do not have an
obligation to disclose material information about the foreign issuers in the
U.S. As a result, the value of the un-sponsored ADR may not correlate with the
value of the underlying security trading abroad or any material information
about the security or the issuer disseminated abroad.
Sponsored facilities enter into an agreement with the issuer that sets out
rights and duties of the issuer, the depository and the ADR holder. The
sponsored agreement also allocates fees among the parties. Most sponsored
agreements provide that the depository will distribute shareholder notices,
voting instructions and other communications. The AAL International and Equity
Income Funds may invest in sponsored and un-sponsored ADRs.
Other Foreign Investments
For The AAL International Fund, we also may hold foreign securities in the form
of American Depository Shares ("ADSs"), Global Depository Receipts ("GDRs") and
European Depository Receipts ("EDRs"), or other securities convertible into
foreign securities. These receipts may not be denominated in the same currency
as the underlying securities. Generally, American banks or trust companies issue
ADRs and ADSs, which evidence ownership of underlying foreign securities. GDRs
represent global offerings where an issuer issues two securities simultaneously
in two markets, usually publicly in a non-U.S. market and privately in the U.S.
market. EDRs (sometimes called Continental Depository Receipts ("CDRs")) are
similar to ADRs, but usually issued in Europe. Typically issued by foreign banks
or trust companies, EDRs and CDRs evidence ownership of foreign securities.
Generally, ADRs and ADSs in registered form trade in the U.S. securities
markets, GDRs in the U.S. and European markets, and EDRs and CDRs (in bearer
form) in European markets. For diversification purposes, we consider investments
in ADRs, ADSs, GDRs, EDRs and CDRs as investments in the underlying stocks for
the Fund.
FOREIGN CURRENCY TRANSACTIONS
Foreign Currency Spot Transactions and Forward Contracts
To manage the currency risk accompanying investments in foreign securities and
to facilitate the purchase and sale of foreign securities, we may engage in
foreign currency transactions on a spot (cash) basis for the Funds. We invest at
the spot rate prevailing in the foreign currency exchange market. We also may
enter into contracts to purchase or sell foreign currencies at a future date
("forward foreign currency contracts" or "forward contracts").
A forward contract involves an obligation to purchase or sell a specific foreign
currency at a future date at a set price. Forward contracts principally trade in
the inter-bank market and are conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement and no commissions are charged at any stage
for trades.
Whenever we intend to purchase or sell a security denominated in a foreign
currency for a Fund, we may want to "lock in" the U.S. dollar price of the
security. We can protect a Fund by entering into a forward contract for the
purchase or sale of a fixed amount of U.S. dollars equal to the amount of
foreign currency involved in the underlying security transaction. With a forward
contract, we can protect the Fund against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency between the date the security is purchased or sold and the date
on which the payment is made or received.
We may use forward contracts for a Fund when we believe that a particular
foreign currency may suffer a substantial decline against the U.S. dollar. In
this situation, we would enter into a forward contract to sell a fixed amount of
the foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency. We, however, cannot
precisely match the forward contract amounts and the value of the securities
involved. The securities' values change as a consequence of market movements
between the date we entered into the forward contract for the underlying
currency and the date it matures.
Due to the fact that movement in the short-term currency market is extremely
difficult to predict, successful execution of a short-term hedging strategy is
highly uncertain. Therefore, we do not enter into forward contracts or maintain
a net exposure to such contracts where completion would obligate us to deliver
foreign currency in excess of the value of the Fund's securities or other assets
denominated in that currency. Under normal circumstances, we consider the
long-term prospects for a particular currency. We incorporate the prospects into
our overall long-term diversification strategies. However, we believe that it is
important to have the flexibility to enter into such forward contracts when we
determine that it is in the Fund's best interest.
At the maturity of a forward contract for a Fund, we may either: (1) sell the
portfolio securities and make delivery of the foreign currency; or (2) retain
the securities and terminate our contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating us to purchase, on
the same maturity date, the same amount of foreign currency.
If we retain the portfolio securities and engage in an offsetting transaction
for the Fund, we will incur a gain or a loss to the extent that there has been
movement in forward contract prices. If we enter into an offsetting transaction,
we may subsequently enter into a forward contract to sell the foreign currency.
Should forward prices decline during the period when we entered into a forward
contract to sell a foreign currency and the date we entered into an offsetting
contract to buy a foreign currency, we will realize a gain to the extent the
price of the currency we agreed to sell exceeds the price of the currency we
agreed to buy. Should forward prices increase, we will suffer a loss to the
extent that the price of the currency we agreed to buy exceeds the price of the
currency we agreed to sell for a Fund. We may not be able to hedge against a
currency devaluation at a price above the level where the market itself has
anticipated the currency's devaluation.
A foreign currency hedge transactions does not protect against or eliminate
fluctuations in the prices of particular portfolio securities. For example, a
foreign currency hedge transaction does not prevent a security's price decline
due to an issuer's deteriorating credit situation. We also cannot forecast with
precision the market value of securities at the expiration of a forward
contract. Accordingly, we may have to purchase additional foreign currency on
the spot market (and bear the expense of such purchase) if: (1) the market value
of the Fund's securities are less than the amount of the foreign currency we are
obligated to deliver for the Fund; and (2) we made a decision to sell the
foreign securities and make delivery of the foreign currency upon expiration of
the contract for the Fund. Conversely, we may have to sell some of a Fund's
foreign currency received upon the sale of a portfolio security if the market
value of the Fund's securities exceed the amount of foreign currency we are
obligated to deliver for the Fund. We limit our dealings in forward foreign
currency exchange contracts for a Fund to the transactions described above.
Although we value the Funds' assets daily in terms of U.S. dollars, we do not
intend to convert their holdings of foreign currencies into U.S. dollars on a
daily basis. From time to time, however, we will convert a Fund's foreign
currency holdings into U.S. dollars. There are costs associated with converting
foreign currencies into U.S. dollars and you should be aware of these costs.
Although foreign exchange dealers do not charge a fee for conversion, they
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to us for a Fund at one rate, while offering a lesser
rate of exchange should we desire to resell that currency to the dealer for the
Fund.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES
We may purchase and sell currency futures and purchase and write currency
options to increase or decrease a Fund's exposure to different foreign
currencies. We also may purchase and write currency options in conjunction with
the currency futures or forward contracts of the Fund's other series. The uses
and risks of currency options and futures are similar to options and futures on
securities or indices, as discussed above.
Currency futures contracts are similar to forward foreign currency contracts,
except that they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars.
The underlying instrument of a currency option generally is either a foreign
currency or a currency futures contract. The purchaser of a currency call option
obtains the right to purchase the underlying currency. The purchaser of a
currency put option obtains the right to sell the underlying currency.
Currency futures and options values correlate with exchange rates. However, the
futures and options values do not reflect other factors affecting a Fund's
investment value. A currency hedge, for example, should protect a Japanese
Yen-denominated security from a decline in the Yen. The currency hedge, however,
will not protect the particular Fund's Yen denominated investments against a
price decline in the Yen denominated security resulting from deterioration in
the issuers' creditworthiness. Because the value of a Fund's foreign-denominated
investments change in response to many factors other than exchange rates, we
have difficulty matching the exact value of any hedge in currency options and
futures to the value of our foreign investments for a Fund over time.
FOREIGN INVESTING EXPENSES
Investing in foreign securities costs more than investing in U.S. securities due
generally to higher transaction costs, such as the commissions paid per share.
As a result, Funds that invest in foreign securities tend to have higher
expenses, particularly funds that invest primarily in foreign securities (i.e.,
The AAL International Fund). In addition to higher commissions, they generally
have higher advisory and custodial fees. However, you may find investing in a
fund that purchases foreign securities a more efficient way to invest in foreign
securities than investing in individual foreign securities. Higher expenses
attributable to a Fund that invests in foreign securities does not mean that the
Fund has higher expenses than other funds with similar investment policies and
percentages of assets invested in foreign securities.
PRIVATELY ISSUED SECURITIES: THE AAL MONEY MARKET FUND
We may invest in securities issued by major corporations without registration
under the Securities Act of 1933 for The AAL Money Market Fund in reliance on
certain exemptions, including the "private placement" exemption afforded by
Section 4(2) of that Act. Section 4(2) paper is restricted as to disposition
under the federal securities laws in that any resale must be made in an exempt
transaction. This paper normally is resold to other institutional investors
through or with the assistance of investment dealers who make a market in it,
thus providing liquidity. In our opinion (as the Adviser), Section 4(2) paper is
no less liquid or salable than commercial paper issued without legal
restrictions on disposition. The secondary market for Section 4(2) paper could
become illiquid if institutional participants lost interest in these
investments. However, should we deem that section 4(2) paper issue is illiquid,
we would purchase such security for a Fund only in accordance with our
limitations on illiquid securities.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
Due to the administration and distribution expenses of managing a mutual fund,
our investments in other investment companies (mutual funds, which are limited
by fundamental investment restriction 14 above) may cause us to increase
payments of such expenses for a Fund.
RISKS
Each of the previously described investment techniques contains an element of
risk. You should also be aware of the following risks associated with an
investment in the Funds.
INTEREST RATE RISK
For The AAL Balanced, High Yield Bond, Municipal Bond, Bond and Money Market
Funds and, to some extent, The AAL Equity Income Fund, you can expect that
interest rate changes will significantly impact upon the value of your Fund
investments. Interest rates are influenced by supply and demand as well as
economic monetary policies. In general, a decline in prevailing interest rate
levels generally will increase the value of the securities, particularly the
bonds, held in a Fund's portfolio and vice versa. As a result, interest rate
fluctuations will affect a Fund's net asset values but not the income received
from its existing portfolio. However, changes in the prevailing interest rate
level will affect the yield on subsequently purchased securities. Because yields
on the securities available for purchase by the Funds will vary over time, we
cannot assure a specific yield on a Fund's shares.
Longer-term bonds are more sensitive to interest rate changes than shorter-term
bonds, reflecting the greater risk of holding these bonds for a longer period of
time. Longer-term bond prices increase more dramatically when interest rates
fall and decrease more dramatically when interest rates rise. Prices of
short-term debt, such as money market instruments, are less price sensitive to
interest rate changes because of their short duration. Securities that pay high
dividends, like bonds, are more sensitive to interest rate levels than other
equity securities that pay low dividends.
INVESTING IN A BOND VERSUS INVESTING IN A MUTUAL FUND
Investing in a mutual fund that owns bonds is not the same as buying an
individual bond. Both bonds and funds owning bonds offer regular income. While
individual bonds can offer a fixed amount of regular income until maturity, a
mutual fund portfolio may include a constantly changing pool of bonds with
differing interest rates, maturities and prices. Both share prices and dividends
may fluctuate in a mutual fund owning bonds.
MANAGEMENT OF THE FUNDS
BOARD OF TRUSTEES AND EXECUTIVE OFFICERS
The Trustees and Executive Officers of the Funds and their principal occupations
during the past five years are described below. Unless otherwise specified, the
business address of all Trustees and Officers is 222 West College Avenue,
Appleton, WI 54919-0007:
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Address and Age Position with the Funds Principal Occupation
F. Gregory Campbell Trustee President, Carthage College
d/o/b 2/16/39
2001 Alford Park Drive
Kenosha, WI 53140
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 Second 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 Aid Association for Lutherans
Todd J. Kelly Assistant Treasurer Manager, 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 Directors who are "interested persons" of the Funds, as defined in the
Investment Company Act of 1940.
COMPENSATION TABLE
The Funds do not make payments to any of the officers for services to the Trust.
The Funds, however, pay the independent Trustees (those who are not officers or
employees of AAL CMC or Aid Association for Lutherans) an annual fee of
$_______. The Funds assess these fees pro rata to each series of the AAL Mutual
Funds. The Funds reimburse the Trustees for any expenses they may incur by
reason of attending such meetings or in connection with services they may
perform for The AAL Mutual Funds. For the fiscal year ended April 30, 2000, the
Funds paid an aggregate of $_________ in Trustees' fees and expenses. Fees paid
to the Trustees for the fiscal year ended April 30, 2000 are set forth below.
<TABLE>
<CAPTION>
<S> <C> <C>
Name, Postion Aggregate Compensation from Funds Total Compensation from Funds and Fund
Complex Paid to Trustees (1)
- ------------------------------------- --------------------------------------- ----------------------------------------
- ------------------------------------- --------------------------------------- ----------------------------------------
F. Gregory Campbell $________ $________
- ------------------------------------- --------------------------------------- ----------------------------------------
- ------------------------------------- --------------------------------------- ----------------------------------------
Woodrow E. Eno $0 $0
- ------------------------------------- --------------------------------------- ----------------------------------------
- ------------------------------------- --------------------------------------- ----------------------------------------
Richard L. Gady $________ $________
- ------------------------------------- --------------------------------------- ----------------------------------------
- ------------------------------------- --------------------------------------- ----------------------------------------
John O. Gilbert $0 $0
- ------------------------------------- --------------------------------------- ----------------------------------------
- ------------------------------------- --------------------------------------- ----------------------------------------
John H. Pender $________ $________
- ------------------------------------- --------------------------------------- ----------------------------------------
- ------------------------------------- --------------------------------------- ----------------------------------------
Edward W. Smeds $________ $________
- ------------------------------------- --------------------------------------- ----------------------------------------
- ------------------------------------- --------------------------------------- ----------------------------------------
Lawrence M. Woods $________ $________
- ------------------------------------- --------------------------------------- ----------------------------------------
</TABLE>
(1) The Fund complex includes the AAL Variable Product Series Fund, Inc..
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
THE AAL SAVINGS PLAN
As of ____________, 2000, AAL, on behalf of the Aid Association for Lutherans
Savings Plan, held in excess of 5% of the following Funds' Class I shares. The
ownership percentage for each Fund is set forth below.
Ownership
Percentage
The AAL Capital Growth Fund _____%
The AAL Equity Income Fund _____%
The AAL Mid Cap Stock Fund _____%
The AAL Bond Fund _____%
AAL CAPITAL MANAGEMENT CORPORATION
As of ____________, 2000, the Trust's officers and Trustees owned less than 1%
of the shares of any Fund. AAL CMC, as the adviser and distributor of the Funds,
held in excess of 5% of the following Funds' Class I shares. The ownership
percentage for each Fund is set forth below.
Ownership
Percentage
The AAL Balanced Fund _____%
The AAL Money Market Fund _____%
The AAL Small Cap Stock Fund _____%
The AAL Large Company Index Fund _____%
The AAL Mid Cap Index Fund _____%
The AAL Bond Index Fund _____%
THE AAL TRUST COMPANY, FSB
As of ____________, 2000, the AAL Trust Company owned, of record for the benefit
of its customers, in excess of 5% of the following Funds' Class I shares. The
ownership percentage for each Fund is set forth below.
Ownership
Percentage
The AAL Balanced Fund _____%
The AAL Municipal Bond Fund _____%
The AAL High Yield Bond Fund _____%
The AAL Money Market Fund _____%
The AAL Equity Income Fund _____%
The AAL Bond Fund _____%
OUTSIDE SHAREHOLDERS
As of ____________, 2000, the following account holders held in excess of 5% of
the following Funds' Class I shares. The ownership percentage for each Fund is
set forth below.
Ownership
Percentage
LCMS Foundation
The AAL Capital Growth Fund _____%
The AAL Bond Fund _____%
The AAL Equity Income Fund _____%
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Please refer to our description of the adviser, advisory agreement and fees
under "Management, Organization, and Capital Structure" in the prospectus. We
have incorporated the prospectus herein by reference.
AFFILIATED PERSONS
There are currently no affiliated persons of the Fund or AAL CMC, the Funds'
adviser.
ADVISER FEES PER FUND
<TABLE>
<CAPTION>
<S> <C>
THE AAL TECHNOLOGY STOCK FUND ___% on the average daily net assets
THE AAL AGGRESSIVE GROWTH FUND ___% on average daily net assets above the sub-adviser's fee
Sub-Adviser Fees ___% on the average daily net assets
THE AAL SMALL CAP STOCK FUND 0.70% on the first $200 million
0.65% on the average daily net assets over $200 million
THE AAL MID CAP STOCK FUND 0.70% on the first $200 million
0.65% on the average daily net assets over $200 million
THE AAL INTERNATIONAL FUND 0.25% on average daily net assets above the sub-adviser's fee
Sub-Adviser Fees 0.40% on the first $50 million
Oechsle International Advisers 0.35% on the average daily net assets over $50 million
THE AAL CAPITAL GROWTH FUND 0.65% on the first $500 million
0.575% on the next $500 million
0.50% on the average daily net assets over $1 billion
THE AAL EQUITY INCOME FUND 0.45% on the average daily net assets
THE AAL LARGE COMPANY INDEX FUND 0.25% on the first $50 million
0.175% on the average daily net assets over $50 million
THE AAL MID CAP INDEX FUND 0.25% on the first $50 million
0.20% on the average daily net assets over $50 million
THE AAL BALANCED FUND 0.55% on the average daily net assets
THE AAL HIGH YIELD BOND FUND 0.55% on the average daily net assets
THE AAL MUNICIPAL BOND FUND 0.45% on the average daily net assets
THE AAL BOND FUND 0.45% on the average daily net assets
THE AAL BOND INDEX FUND 0.25% on the first $50 million
0.175% on the average daily net assets over $50 million
THE AAL MONEY MARKET FUND 0.50% on the first $500 million
0.45% on the average daily net assets over $500 million
</TABLE>
ADVISORY FEES
The adviser, AAL CMC, furnishes and pays for all office space and facilities,
equipment and clerical personnel necessary for carrying out the adviser's duties
under the advisory agreement. The adviser also pays all compensation of
Trustees, officers and employees of the Trust who are the adviser's affiliated
persons. All costs and expenses not expressly assumed by the adviser under the
advisory agreement are paid by the Funds, including, but not limited to: (a)
interest and taxes; (b) brokerage commissions; (c) insurance premiums; (d)
compensation and expenses of the Funds' Trustees other than those affiliated
with the adviser; (e) legal and audit expenses; (f) fees and expenses of the
Trust's custodian and transfer agent; (g) expenses incident to the issuance of
the Trust's shares, including stock certificates and issuance of shares on the
payment of, or reinvestment of, dividends; (h) fees and expenses incident to the
registration, under federal or state securities laws, of the Trust or its
shares; (i) expenses of preparing, printing and mailing reports and notices and
proxy material to the Trust's shareholders; (j) all other expenses incidental to
holding meetings of the Trust's shareholders; (k) dues or assessments of or
contributions to the Investment Company Institute or its successor, or other
industry organizations; and (l) such non-recurring expenses as may arise,
including litigation affecting the Trust and the legal obligations that the
Trust may have to indemnify its officers and Trustees with respect thereto.
The adviser may waive its advisory fees for, assume or reimburse the expenses
of, any Fund at any time. As of September 1, 1997, the adviser is waiving .225
of 1% of its .50 of 1% maximum advisory fee for The AAL Money Market Fund.
Effectively, the adviser is charging only a 0.275 of 1% advisory fee for the
Fund. The adviser may discontinue any fee waivers or expense reimbursements at
any time. The following table shows the advisory fees, with respect to The AAL
Money Market Fund (net of reimbursements to the adviser), for the past three
fiscal years ended April 30, 2000, paid by each of the Funds respectively.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FUND APRIL 30, 2000 APRIL 30, 1999 APRIL 30, 1998
THE AAL TECHNOLOGY STOCK FUND N/A N/A N/A
THE AAL AGGRESSIVE GROWTH FUND N/A N/A N/A
THE AAL SMALL CAP STOCK FUND $_________ $913,406 $690,590
THE AAL MID CAP STOCK FUND $_________ $4,027,980 $4,070,582
THE AAL INTERNATIONAL FUND $_________ $1,050,033 $1,280,101
THE AAL CAPITAL GROWTH FUND $_________ $16,628,122 $12,742,588
THE AAL EQUITY INCOME FUND $_________ $1,091,335 $809,233
THE AAL LARGE COMPANY INDEX FUND N/A N/A N/A
THE AAL MID CAP INDEX FUND N/A N/A N/A
THE AAL BALANCED FUND $_________ $478,088 $27,618
THE AAL HIGH YIELD BOND FUND $_________ $736,426 $522,217
THE AAL MUNICIPAL BOND FUND $_________ $2,272,553 $2,163,729
THE AAL BOND FUND $_________ $1,858,562 $1,921,733
THE AAL BOND INDEX FUND N/A N/A N/A
THE AAL MONEY MARKET FUND $_________ $1,360,362 $1,088,957
</TABLE>
The sub-advisory fee for The AAL International Fund is payable from the 0.65%
annual advisory fee paid to the adviser. The advisory agreement and sub-advisory
agreement for The AAL International Fund provide that subject to Section 36 of
the Act, neither the adviser nor sub-adviser shall be liable to the Trust for
any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the management of the Trust and the
performance of their duties under the advisory agreement except for willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of reckless disregard of their obligations and duties under the
agreements.
The Trust has agreed to use its best efforts to change its name if the adviser
ceases to act as such with respect to the Funds and the continued use of the
Trust's present name (The AAL Mutual Funds) would create confusion in the
context of the adviser or AAL's business.
The investment advisory agreement was approved by the Board of Trustees,
including a majority of the Trustees who were not interested persons (as defined
in the Act) of any party to the agreement on _________________.
The advisory agreement and sub-advisory agreement will continue in effect from
year to year only so long as such continuances are specifically approved at
least annually by the Board of Trustees. The vote for approval must include the
approval of a majority of the Trustees who are not interested persons (as
defined in the Act). The advisory and sub-advisory agreements are terminable
upon assignment. The advisory agreement is also terminable at any time without
penalty by the Board of Trustees or by vote of the holders of a majority of the
outstanding voting securities of the Trust. With respect to a particular Fund,
the advisory or sub-advisory agreement, if any, is terminable by the vote of a
majority of the outstanding shares of such Fund. The adviser may terminate the
agreement on 60 days written notice to the Trust.
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 does not
prohibit persons who have knowledge of the Fund's portfolio securities trades
from investing in the same securities; however, the code of ethics establishes
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.
ADDITIONAL INFORMATION
Custodian
The custodian for the Funds is Citibank, N.A. The custodian is responsible for
holding the Funds' assets.
Administrative Services Agreement
Pursuant to an Administrative Services Agreement ("Agreement") between the Funds
and AAL, effective January 1, 1999, AAL provides certain administrative,
accounting and pricing services to the Funds. These administrative services
include calculating the daily net asset value per class share; maintaining
original entry documents and books of record and general ledgers; posting cash
receipts and disbursements; reconciling bank account balances monthly; recording
purchases and sales based on sub-adviser communications (Oechsle's
communications regarding The AAL International Fund); and preparing monthly and
annual summaries to assist in the preparation of financial statements of, and
regulatory reports for, the Funds.
The principal reason for having AAL provide these services was cost. AAL has
agreed to provide these services at rates that would not exceed the rates
charged by unaffiliated vendors for similar services. The annual rates of
payment approved by the Trustees presently are:
The AAL Technology Stock Fund - $______
The AAL Aggressive Growth Fund - $______
The AAL Small Cap Stock Fund - $40,000
The AAL Mid Cap Stock Fund - $40,000
The AAL International Fund - $45,000
The AAL Capital Growth Fund - $40,000
The AAL Equity Income Fund - $40,000
The AAL Large Company Index Fund - $35,000
The AAL Mid Cap Index Fund - $35,000
The AAL Balanced Fund - $40,000
The AAL High Yield Bond Fund - $40,000
The AAL Municipal Bond Fund - $40,000
The AAL Bond Fund - $40,000
The AAL Bond Index Fund - $35,000
The AAL Money Market Fund - $40,000
The AAL U. S. Government Zero Coupon Target Fund Series 2001 - $1,000
The AAL U. S. Government Zero Coupon Target Fund Series 2006 - $1,000
The agreement continues in effect from year to year, as long as it is approved
at least annually by the Funds' Board of Trustees or by a vote of the
outstanding voting securities of the Funds. In either case, the agreement must
also be approved at least annually by a majority of the Trustees who are not
parties to the agreement or interested persons of any such party. The agreement
terminates automatically if either party assigns the agreement. The agreement
also terminates without penalty by either party on 60-days' notice. The
agreement provides that neither AAL nor its personnel shall be liable for any
error of judgment or mistake of law or for any loss arising out of any act or
omission in the execution and the discharge of its obligations under the
agreement, except for willful misfeasance, bad faith or gross negligence in the
performance of their duties or by reason of reckless disregard of their
obligations and duties under the agreement.
Shareholder Maintenance Agreement
The Board of Trustees authorized the Funds to contract with AAL CMC for certain
shareholder maintenance services, effective April 1, 1995. These shareholder
services include answering customer inquiries regarding account status,
explaining and assisting customers with the exercise of their account options
and facilitating shareholder telephone transaction requests.
The annual fee payable to AAL CMC for providing such shareholder services is
based upon, and limited by, the difference between the current account fees
actually charged by Firstar Trust Company, as transfer and dividend disbursing
agent, and the normal full-service fee schedule published by Firstar Trust
Company. The annual fee is also based on reimbursement for certain actual
out-of-pocket costs including postage and telephone charges. This account
differential, including reimbursement for expenses, is at an annualized rate of
$____ per account, effective 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.
Independent Accountants
The Trust's independent accountants, PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"), examine the Funds' annual financial statements.
PricewaterhouseCoopers also assists in the preparation of certain reports to the
SEC and reviews the Trust's state and federal tax returns.
BROKERAGE ALLOCATION AND OTHER PRACTICES
AAL CMC, as the adviser, and Oechsle, as the sub-adviser for The AAL
International Fund, direct the placement of orders for the purchase and sale of
the Funds' portfolio securities.
The securities transaction costs for each Fund consist primarily of brokerage
commissions or dealer or underwriter spreads. Bonds and money market instruments
generally trade on a net basis and do not involve either brokerage commissions
or transfer taxes.
Occasionally, we may purchase securities directly from the issuer for a Fund.
For securities traded primarily in the over-the-counter market, we deal with the
sellers who make a market in the securities directly unless we can find better
prices and execution available elsewhere. Such dealers usually act as principals
for their own account. In placing portfolio transactions, we seek the best
combination of price and execution.
In determining which brokers provide best execution, AAL CMC looks primarily at
the prices quoted by the brokers. Normally, we place orders with the broker who
has the most favorable prices. Ordinarily, we expect to execute securities
transactions in the primary markets. In assessing the best net price, we
consider all relevant factors. The relevant factors include the security
market's breadth, the security's price, the broker or dealer's financial
condition and execution capability and the reasonableness of the commission, if
any (for the specific transaction and on a continuing basis). Although we are
the sole distributors for the Funds' shares, we (as the adviser) may in the
future consider the willingness of particular brokers to sell the Funds' shares
as a factor in the selection of brokers for the Funds' portfolio transactions.
However, our selection would still be subject to the overall best price and
execution standard.
Assuming equal execution capabilities, we may take into consideration other
factors in selecting brokers or dealers. We may consider "brokerage and research
services" (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934), statistical quotations (specifically the quotations
necessary to determine the Funds' net asset values, and other information
provided to us or the sub-adviser for The AAL International Fund (or their
affiliates). We may also cause a Fund to pay to a broker or dealer who provides
such brokerage and research services a commission for executing a portfolio
transaction which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction. We must determine, in
good faith, however, that such commission was reasonable in relation to the
value of the brokerage and research services provided. The commission must be
reasonable in terms of that particular transaction or in terms of all the
accounts over which we, as an adviser, exercise investment discretion. It is
possible that certain of the services received by us attributable to a
particular transaction benefit one or more other accounts for which we exercise
investment discretion. The Funds paid the following in brokerage commissions in
each of the past three fiscal years ended April 30, 1999:
April 30, 2000 April 30, 1999 April 30, 1998
The AAL Mutual Funds $__________ $3,693,873 $3,143,251
CAPITAL STOCK AND OTHER SECURITIES
The AAL Mutual Funds' Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest. The
Declaration also permits the Trustees to divide or combine the shares into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interest in a Fund. Pursuant to this authority, the Trustees have
issued Class A, Class B and Institutional shares for the Funds, except for The
AAL U.S. Government Zero Coupon Target Funds, Series 2001 and 2006. Each class
share represents an interest in a Fund proportionately equal to the interest of
each other share in its class. If the Trust liquidated the Funds' shares, all
shareholders of a Fund would share pro rata in its net assets for the class
available for distribution to shareholders. If the Board deems it advisable and
in the best interests of shareholders, it may create additional share classes.
These share classes may differ from each other only as to dividends or, as is
the case with the Funds, as to assets and liabilities. Where share classes
differ in regards to assets and liabilities, the different classes are referred
to as the different series of the Funds (i.e., The AAL Bond Fund is a series of
The AAL Mutual Funds). Within each series, the different classes of shares are
referred to as different share classes, such as Class A, Class B and
Institutional shares. Shares of each series are entitled to vote as a series
only to the extent required by the 1940 Act or as permitted by the Trustees. The
Trustees allocate income and operating expenses among the different Funds'
series and classes of shares fairly.
Except for the election of Trustees and ratification of the selection of
accountants, any matter that the Funds are required to submit to the
shareholders for a vote is not deemed to be effective unless approved by the
holders of a "majority" (as defined in the Rule) of the voting securities of
each Series affected by the matter.
Except for The AAL Small Cap Stock, Mid Cap Stock, Balanced, and High Yield Bond
Funds, each Fund's investment objective is a fundamental policy. As such, only a
vote of a "majority of outstanding voting securities" can change a Fund's
investment objective. A majority means the approval of the lesser of: (1) 67% or
more of the voting securities at a meeting if the holders of more than 50% of
the outstanding voting securities of a Fund are present or represented by proxy;
or (2) more than 50% of the outstanding voting securities of a Fund.
PURCHASE, REDEMPTION, AND PRICING OF SHARES
Purchases and redemptions are discussed in the prospectus under the headings;
"Purchasing Shares" and "How to Redeem Shares," and that information is
incorporated herein by reference.
We determine the Funds' net asset value only on the days the New York Stock
Exchange ("NYSE") is open for trading and on days when AAL is open for business.
The NYSE is regularly closed on Saturdays and Sundays and on New Years' Day, the
third Monday in February, Good Friday, the last Monday in May, Independence Day,
Labor Day, Thanksgiving and Christmas. If one of these holidays falls on a
Saturday or Sunday, the NYSE closes on the preceding Friday or the following
Monday, respectively.
We determine the net asset value for a Fund by adding the value of a Fund's
assets, subtracting the Fund's liabilities, and dividing the balance by the
total number of shares outstanding. In determining the current market value for
securities traded or listed on an exchange, we use the last sale price on the
exchange where the securities primarily trade. For securities that have readily
available market quotations, we use an over-the-counter or exchange bid
quotation. When a Fund holds securities or other assets that either do not have
readily available market quotations or are restricted, we value them at fair
market value, as we determine in good faith under the direction of our Board of
Trustees. We may use pricing services in determining the current or fair market
value of securities held in the Funds' portfolios. We value money market
instruments with a remaining maturity of 60 days or less on an amortized costs
basis. We comply with the SEC's requirements for using an amortized cost
valuation method.
Many long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities and foreign securities do not have reliable market quotations and are
not considered to be readily available for purchase or sale.
To determine the current or fair market value for debt securities, we may, and
generally will, use a pricing service or services approved by the Board of
Trustees. A pricing service generally will determine valuations based upon
normal, institutional-size trading units of such securities using market
transactions for comparable securities and various relationships between
securities generally recognized by institutional traders.
We generally price foreign securities in terms of U.S. dollars at the official
exchange rate. Alternatively, we may price these securities at the average of
the current bid and asked price of such currencies against the dollar last
quoted by a major bank. The bank must be a regular participant in the foreign
exchange market. We also may price foreign securities on the basis of a pricing
service that takes into account the quotes provided by a number of such major
banks. If management does not have any of these alternatives available or the
alternatives do not provide a suitable method for converting a foreign currency
into U.S. dollars, the Board of Trustees, in good faith, will establish a
conversion rate for such currency.
Foreign securities may not be traded on all days when the NYSE is open. Also,
foreign securities may trade on Saturdays and other days when the NYSE is not
open and when we do not calculate the Funds' net asset values. We value foreign
securities primarily listed and/or traded in foreign markets at the price as of
the close on its primary market. Unless we determine (under the supervision of
the Board of Trustees) that material events have occurred affecting the value of
a Fund's foreign securities between the time the foreign securities' primary
market closed and the close of the NYSE, we will not reflect the change in the
Fund's net asset value. As a result, trading on days when a Fund is not
accepting purchases or redemptions may significantly affect a Fund's net asset
value.
Generally, U.S. government securities and other fixed income securities complete
trading at various times prior to the close of the NYSE. For purposes of
computing net asset value, we use the market value of any such securities as of
the time their trading day ends. Occasionally, events affecting the value of
such securities may occur between the times these markets close and the time the
NYSE closes. We generally will not reflect these events in the computation of a
Fund's net asset value, unless they are material. If there is a material event,
we will value such securities at their fair value as determined in good faith by
the Board of Trustees.
We intend to pay all redemptions in cash. We are obligated to redeem shares
solely in cash up to the lesser of $250,000 or one percent of the net assets of
a Fund during any 90-day period for any one shareholder. However, we may pay
redemptions in excess of such limit in whole or part by a distribution in kind
of securities. If and to the extent we redeem shares in kind, you, as a
redeeming shareholder might incur brokerage fees in selling the securities
received.
We reserve the right for each Fund to suspend or postpone redemptions during any
period when: (a) trading on the NYSE is restricted, as determined by the SEC, or
the NYSE is closed for other than customary weekend and holiday closings; (b)
the SEC has by order permitted such suspension; or (c) an emergency, as
determined by the SEC, exists, making disposal of a Fund's portfolio securities
or valuation of its net assets not reasonably practicable.
THE AAL MONEY MARKET FUND-AMORTIZED COST VALUATION
We value The AAL Money Market Fund's portfolio securities on the basis of their
amortized cost. Amortized cost is an approximation of market value, whereby the
difference between acquisition cost and value at maturity is amortized on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The amortized cost method of valuation may
result in the value of a security being higher or lower than its actual market
value. In addition, if a large number of redemptions take place at a time when
interest rates have increased, we may have to sell portfolio securities for a
Fund prior to maturity and at a less desirable price.
Although we cannot assure you that we will be able to do so, we will use our
best efforts to maintain a net asset value of $1.00 per share for purchases and
redemptions of The AAL Money Market Fund. The Board of Trustees has established
procedures for this purpose. These procedures require us to review the extent of
any deviation in the Fund's net asset value per share, based on available market
quotations, from the $1.00 amortized cost per share. Should the deviation exceed
1/2 of 1% for the Fund, the Board of Trustees will promptly consider whether we
should initiate efforts to eliminate or reduce material dilution or other unfair
results to shareholders. Such action may include redemption of shares in kind,
selling portfolio securities prior to maturity, reducing or withholding
dividends, and utilizing a net asset value per share as determined by using
available market quotations. We maintain a dollar-weighted average portfolio
maturity of 90 days or less for the Fund. We also do not purchase any instrument
deemed to have a remaining maturity greater than 397 days. We limit portfolio
investments, including repurchase agreements, to those dollar denominated
instruments that the Board of Trustees determines present minimal credit risks
as advised by the Adviser. We also comply with the SEC requirements on the
quality of certain portfolio securities for money market funds using the
amortized cost method of valuation. We also comply with the SEC reporting and
record keeping procedures regarding money market funds. We cannot assure you
that we can maintain a constant net asset value at all times. In the event
amortized cost ceases to represent fair value, the Board of Trustees will take
appropriate action.
LETTER OF INTENT
Under a letter of intent, as described in the prospectus, shares totaling 5% of
the dollar amount indicated in the letter will be held in escrow by the transfer
agent in the name of the purchaser. A letter of intent neither obligates you to
purchase nor requires us to sell the indicated amount. If you do not invest the
amount indicated within the 13-month period, you, as the purchaser, are required
to pay the difference between the sales commission otherwise applicable to the
purchases made during this period and sales charges actually paid. When the
letter of intent expires, we liquidate sufficient shares in escrow to obtain the
difference.
TAXATION OF THE FUNDS
The following is only a summary of certain tax considerations generally
affecting the Funds and shareholders. We urge you to consult your tax advisors
with specific reference to your own tax situations, including state and local
tax liability.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Except for The AAL Municipal Bond Fund, any dividends from net investment income
and short-term capital gains (collectively "income dividends") that we
distribute to you from The 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, Bond and Money Market Funds are taxable to you as ordinary income whether
we have paid these distributions in cash or additional shares. Any long-term
capital gains ("capital gains distributions") that we distribute to you from the
Funds are taxable to you as long-term capital gains, whether we have paid these
distributions in cash or additional shares. Long-term capital gains are treated
as long-term capital gains regardless of the length of time you have owned the
shares. We distribute substantially all of the Funds' net investment income and
net realized long-term capital gains to avoid the imposition of federal income
and excise tax liability. We pay any dividends for The AAL Technology Stock,
Aggressive Growth, Small Cap Stock, Mid Cap Stock, International, Large Company
Index II, Mid Cap Index II and Small Index II Funds annually. We pay any
dividends for The AAL Capital Growth Fund semi-annually and we pay any dividends
for the AAL Equity Income and Balanced Funds quarterly. We accrue income
dividends daily and pay any dividends monthly for The AAL High Yield Bond, Bond
and Money Market Funds. We expect to distribute any capital gains annually for
these Funds.
The AAL Municipal Bond Fund -- This Fund expects to accrue any income dividends
daily and distribute any net investment income in monthly dividends. We
distribute any net realized capital gains at least annually. Dividends derived
from the interest earned on municipal securities constitute "exempt-interest
dividends." Generally, exempt-interest dividends are not subject to federal
income tax. Distributions of net realized capital gains (whether from tax-exempt
or taxable securities) are taxable to shareholders. We report the federal income
tax status of all distributions to shareholders annually. In the report, we
allocate income dividends between tax-exempt and taxable income (if any) in
approximately the same proportions as the Fund's total income during the year.
Accordingly, income derived from each of these sources by the Fund may vary
substantially in any particular distribution period from the allocation reported
to shareholders annually.
You may not be able to deduct any interest expense you incur on money borrowed
to purchase or carry shares of the Fund for federal income tax purposes. You
also may be subject to state and local taxes on dividends from this Fund,
including those which are exempt from federal income tax.
If you or your entity are "substantial users" (or persons who are related to
"substantial users") of facilities financed by industrial revenue bonds, you or
your entity should consult your tax advisers before purchasing shares of The AAL
Municipal Bond Fund. The term "substantial user" is defined generally to include
a "nonexempt person" who regularly uses, in trade or business, a part of a
facility financed from the proceeds of industrial development revenue bonds.
The 1986 Tax Reform Act subjects tax-exempt interest attributable to certain"
private activity bonds" to the individual and corporate alternative minimum tax.
Such tax-exempt interest includes, in the case of a regulated investment company
receiving interest on such bonds, a proportionate part of the exempt-interest
dividends paid by that company. We limit our investment in private activity
bonds to no more than 20% of the Fund's assets. Certain corporate shareholders
may be subject to a federal "environmental" tax with respect to their receipt of
dividends and distributions.
The use of options and futures for The AAL Municipal Bond Fund portfolio may
result in taxable income. You should consult your personal tax adviser to
determine the consequences of federal, state and local taxes.
THE AAL INTERNATIONAL FUND -- FOREIGN WITHHOLDING TAX
We may be subject to income and withholding taxes on income and gains derived
from The AAL International Fund's investments outside the U.S. Our payment of
such foreign taxes reduces the yield on investments for the Fund. Tax treaties
between certain countries and the U.S. may reduce or eliminate these foreign
withholding taxes. If more than 50% of the Fund's total asset value at the close
of any taxable year consists of foreign corporate stocks or other securities, we
may elect (for U.S. federal income tax purposes) to treat any foreign country
income or withholding taxes we have paid on behalf of the Fund as paid by the
Fund's shareholders. The foreign income or withholding taxes must be those that
could be treated as income taxes under U.S. income tax principles. For any year
we make such an election for the Fund, the shareholder must include as income
(in addition to taxable dividends received) his pro rata share of such foreign
income and withholding taxes. The shareholder is entitled, subject to certain
limitations, to credit his portion of these foreign taxes against his U.S.
federal income tax due or deduct it (as an itemized deduction) from his U.S.
taxable income. Generally, this foreign tax credit is subject to the limitation
that it may not exceed the shareholder's U.S. tax attributable to his foreign
source taxable income.
If we make the pass through election described above, the Fund's foreign income
flows through to the shareholders. The Internal Revenue Service will not treat
certain gains from the sale of securities and currency fluctuations as foreign
source taxable income. In addition, this foreign tax credit limitation must be
applied separately to certain categories of foreign source income, one of which
is foreign source "passive income." For this purpose, foreign "passive income"
includes dividends, interest, capital gains and certain foreign currency gains.
As a consequence, certain shareholders may not be able to claim a foreign tax
credit for the full amount of their proportionate share of the foreign tax paid
by the Fund.
Corporations and individuals can use the foreign tax credit to offset only 90%
of any alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed upon them. If we do not make the pass through election, the
foreign taxes we pay for the Fund will reduce the Fund's income. Any
distributions we make for the Fund will be treated as U.S. source income.
We will notify each shareholder within 60 days after the close of the Fund's
taxable year whether, pursuant to the election described above, we will make the
pass through election and treat any foreign taxes paid by the Fund as paid by
its shareholders for that year. If we make the pass through election, we will
designate the shareholder's portion of the foreign taxes paid to such country.
We also will designate the portion of the Fund's dividends and distributions
that represent income derived from sources within such country.
Our investments in certain foreign corporations that generate largely passive
investment type income, or that hold a significant percentage of assets which
generate passive income ("passive foreign investment companies" or "PFICs") are
subject to special tax rules. These special tax rules are designed to prevent
deferral of U.S. taxation on the Fund's share of the PFICs earnings. In the
absence of certain elections to report these earnings on a current basis, we
would have to report certain "excess distributions" and any gain from the
disposition of PFICs stock as ordinary income. We would have to report these
excess distributions and gains as ordinary income regardless of whether we
actually received any distributions from the PFIC. We would have to allocate
this ordinary income ratably throughout the holding period for the stocks. We
would have to pay taxes for the Fund on any amounts allocable to a prior taxable
year at the highest applicable tax rate from that year. We also would have to
increase this rate by an interest charge determined as though the amounts were
an underpayment of the tax for that year. We would have to include the amounts
allocated to the year of the distribution or disposition in the Fund's net
investment income for that year. To the extent the amounts allocated were
distributed as a dividend to shareholders such amounts would not be taxable to
the Fund.
UNDERWRITERS
The distributor, AAL CMC, is the exclusive underwriter for the Funds, with a
principal place of business at 222 West College Avenue, Appleton, WI 54919-0007.
The distributor has a written distribution agreement with the Funds, dated June
15, 1987, as amended. The distributor offers the Funds' shares for sale on a
continuous basis through its field sales force.
The public offering price of a Fund's Institutional shares is the net asset
value next computed. An investor can combine Class A, Class B and Institutional
shares for purposes of qualifying for the $500,000 minimum purchase requirement
for Institutional shares. The Funds began offering Institutional shares on
December 29, 1997.
The distributor does not receive compensation in connection with redemptions and
repurchases or brokerage commissions for Institutional shares.
GENERAL
The distributor, AAL CMC, acts as exclusive underwriter for the Fund's Class A
and Class B shares and two additional series of The AAL Mutual Funds: The AAL
U.S. Government Zero Coupon Target Fund, Series 2001; and The AAL U.S.
Government Zero Coupon Target Fund, Series 2006.
CALCULATION OF PERFORMANCE DATA
From time to time we advertise the yields and total returns for the Funds' Class
I shares for various investment periods. We always include uniform performance
calculations based on standardized methods established by the SEC. Yields and
total returns are calculated based on historical earnings and appreciation. We
do not intend any yield or total return calculations to indicate future
performance. You should consider performance information in light of: the
particular Fund's investment objectives and policies; characteristics and
quality of the Fund's portfolio securities; and the market conditions during the
applicable period. You should not consider the performance information as a
representation of what may be achieved in the future. When comparing any such
performance information to published performance data for alternative
investments, you should consider the differences in the methods used in
calculating performance information, and the impact of taxes on alternative
investments in addition to the factors listed.
STANDARDIZED PERFORMANCE INFORMATION
Average Annual Total Return
For each of the Funds, except The AAL Money Market Fund, we compute the
standardized average annual total return by finding the average annual
compounded rates of return for Class I shares over the 1, 5 and 10 year periods
(or the portion thereof during which the Fund has been in existence) that would
equate the initial amount invested in each class to the ending redeemable value
according to the following formula:
P(1+T)^n = ERV
Where:
P = Hypothetical $1,000 initial payment;
T = Average annual total return for the class;
n = Number of years;
ERV = Ending redeemable value for the class (of the
hypothetical $1,000 payment) at the end of the 1, 5
and 10 year periods (or fractional portion thereof),
after deduction of all non-recurring charges for the
class, assuming redemption at the end of the period;
^ = raised to the power of.
ANNUAL RETURNS FOR THE 1-YEAR AND SINCE INCEPTION PERIODS ENDED APRIL 30, 2000,
FOR INSTITUTIONAL CLASS SHARES
BASED ON GROSS AMOUNT INVESTED
<TABLE>
<CAPTION>
<S> <C> <C>
THE AAL MUTUAL FUND AND INCEPTION DATE TOTAL RETURN FOR THE 1-YEAR PERIOD AVERAGE ANNUAL RETURN FOR THE PERIOD
SINCE INCEPTION
Technology Stock
7/1/00 N/A N/A
Aggressive Growth
7/1/00 N/A N/A
Small Cap Stock
12/29/97 ____% ____%
Mid Cap Stock
12/29/97 ____% ____%
International
12/29/97 ____% ____%
Capital Growth
12/29/97 ____% ____%
Equity Income
12/29/97 ____% ____%
Large Company Index
12/31/99 N/A ____%
Mid Cap Index
12/31/99 N/A ____%
Balanced
12/29/97 ____% ____%
High Yield Bond
12/29/97 ____% ____%
Municipal Bond
12/29/97 ____% ____%
Bond
12/29/97 ____% ____%
Bond Index
12/31/99 N/A ____%
</TABLE>
Current Yield
We base current yield quotations for the Funds, except The AAL Money Market
Fund, on a 30-day (or one-month) period. We compute the current yield by
dividing the net investment income per share for each class earned during the
period by the maximum offering price per share for each class on the last day of
the period, according to the following formula:
Yield 2[((a - b)/(cd) + 1)^6 - 1]
Where:
a = Dividends and interest earned by the class during the period;
b = Expenses accrued by the class for the period (net of
reimbursements);
c = The average daily number of shares outstanding for the class during
the period that were entitled to receive dividends; and
d = The maximum offering price per share for the Class on the last day
of the period.
^ = To the power of.
For purposes of this calculation, we determine the income earned on debt
obligations by applying a calculated yield-to-maturity percentage to the
obligations held during the period. We calculate the interest earned on
mortgage-backed securities by using the coupon rate and principal amount after
adjustment for a monthly pay down. We determine the income earned on stocks by
using the stated annual dividend rate applied over the performance period. The
current yields for the 30-day period ended April 30, 2000, for Class I shares
were:
THE AAL MUTUAL FUNDS
INSTITUTIONAL CLASS SHARE YIELDS
30-DAY PERIOD ENDED 4/30/99
THE AAL MUTUAL FUND CURRENT YIELD
Technology Stock N/A
Aggressive Growth N/A
Small Cap Stock ____%
Mid Cap Stock ____%
International ____%
Capital Growth ____%
Equity Income ____%
Large Company Index ____%
Mid Cap Index ____%
Balanced Fund ____%
High Yield Bond ____%
Municipal Bond ____%
Bond ____%
Bond Index ____%
When we are advertising yield for a Fund, we will not advertise a one-month or a
30-day period that ends more than 45 days before the date on which the
advertisement is published.
Tax Equivalent Yield
We calculate a tax equivalent yield for The AAL Municipal Bond Fund based on a
30-day (or one-month) period for Class I shares. We compute the tax equivalent
yield by dividing the portion of the Fund's yield for the share class (computed
as described above) that is tax-exempt by one minus a stated income tax rate and
adding the quotient to the portion of the yield that is not tax exempt. The
formula for computation of the tax equivalent yield is:
X = ( N/1-F) + T
Where:
N = % of yield for the class derived from tax-exempt income;
F = federal income tax rate; and
T = % of yield for the class derived from taxable income.
The tax equivalent yield at 31% tax rate for the 30-day period ended April 30,
2000, for a Class I Share was ----%.
Current and Effective Yield - The AAL Money Market Fund
We may quote a current or effective yield for The AAL Money Market Fund's Class
I shares from time-to-time. The current yield is an annualized yield based on
the net change in account value for each class for a seven-day period. The
effective yield is an annualized yield based on a daily compounding of the
current yield for each share class. We compute these yields by first determining
the "Net Change in Account Value" for each share class for a hypothetical
account having a share balance of one share at the beginning of a seven-day
period ("Beginning Account Value"), excluding capital changes. The Net Change in
Account Value always equals the total dividends declared with respect to the
account. We compute the yields for each share class as follows:
Current Yield = (Net Change in Account Value per Class/Beginning Account Value
per Class) x (365/7)
Effective Yield = [(Net Change in Account Value per Class/Beginning Account
Value per Class)]^(365/7)] - 1
For the seven-day period ended April 30, 2000, the current and effective yields
of The AAL Money Market Fund for Class I Shares was ____% and ____%,
respectively.
Normal changes in the income earned and expenses affect the Fund's yield. Also,
any efforts we undertake to restrict or supplement the Fund's dividends to
maintain its net asset value at $1.00 will affect the Fund's yield. (See "Net
Asset Value" in the prospectus and in this Statement of Additional Information.)
Any portfolio changes we make due to net purchases or redemptions will affect
the Fund's yield. Accordingly, the Fund's yield may vary from day to day. The
yield stated for a particular past period is not a representation as to its
future yield. We do not guarantee the Fund's yield and the Fund's principal is
not insured. Although there is no assurance that we will be able to do so, we
use our best efforts to maintain a net asset value of $1.00 per share for the
Fund.
OTHER PERFORMANCE INFORMATION
We may from time to time, include in the Funds' sales literature and
advertisements: (1) total return quotations computed for different time periods
or by a method that differs from the computations described in the section above
for Class I shares; (2) calculations of the growth of an investment (or series
of investments), at various assumed interest rates and compounding, to show the
effect of the length of time, interest rate and/or tax deferral on an investment
for Class I shares; (3) illustrate the concepts of asset allocation by use of
hypothetical case studies using various risk levels and life cycles, as well as
illustrating the effect of various tax brackets and tax deferrals on
hypothetical systematic investing for Class I shares; and (4) performance
relative to the performance of other investments such as stocks, bonds, closed
end funds, certificates of deposit, as well as various indices such as the
Consumer Price Index and indices generated by lbbotson & Associates and Chase
Global Data and Research Products for Class I shares.
Performance information for Class I shares for the Funds may be compared to
various unmanaged indexes, such as Morgan Stanley's EAFE and World, Dow Jones
Industrial and Averages, the S&P 500, S&P MidCap 400, S&P Small Cap or Lehman
Brothers High Yield Index, Lehman Brothers Aggregate or other Lehman Bond
Indexes, as well as indiCEs of similar mutual funds, and various foreign country
and currency indices. The Funds may include in their advertising rankings
published by recognized statistical services or publishers such as Morningstar,
Lipper Analytical Services, Inc., Weisenberger Investment Companies Services or
share rankings published by other comparable national services that rank mutual
funds. They also may use information from publications such as Barron's,
Business Week, The Economist, Financial World, Forbes, Fortune, Kiplinger's
Personal Finance, Money, Smart Money, the Star, The Wall Street Journal or
Worth, and from videotapes of television shows and interviews involving
investment experts, including employees of the adviser and/or sub-adviser for
The AAL International Fund. Advertisements may depict performance graphically.
The S&P 500 Index
The S&P 500 Index is a broad index of larger capitalization stocks. It is
composed of 500 common stocks representing more than 70% of the total market
value of all publicly traded common stocks. The index is constructed by Standard
& Poor's, which chooses stocks on the basis of market values and industry
diversification. Most of the largest 500 companies listed on the U.S. stock
exchanges are included in the index. Most stocks in the index are listed on the
New York Stock Exchange. A much smaller number come from the American Stock
Exchange and the over-the-counter market. The index is capitalization-weighted,
that is, stocks with a larger capitalization (shares outstanding times current
price) have a greater weight in the index. Market capitalizations of stocks in
the index as of December 1998, range from $487 million to $345.8 billion. The
median capitalization was $7.75 billion. S&P periodically makes additions and
deletions to the index. Selection of a stock for inclusion in the S&P 500 Index
in no way implies an opinion by Standard & Poor's as to its attractiveness as an
investment.
The S&P MidCap 400 Index
The S&P MidCap 400 Index is a capitalization weighted index of 400 domestic
stocks chosen for market size, liquidity and industry representation. The
component stocks are weighted according to the total market value of their
outstanding shares. The impact of a component's price change is proportional to
the issue's total market share value, which is share price times the number of
shares outstanding. These are summed up for all 400 stocks and divided by a
predetermined base value. The base value for the Standard & Poor's MidCap 400
Index is adjusted to reflect changes in capitalization resulting from mergers,
acquisitions, stock rights and substitutions, as well as other activities.
Disclaimers and Limitations of Liabilities of Standard & Poor's
The disclaimers and limitations set forth below are set forth in a contract
between Standard & Poor's and AAL CMC. The Product refers to the Large Company
Index Fund and the Mid Cap Index Fund, and the Licensee refers to AAL CMC.
Standard & Poor's requires that such disclaimers be disclosed in this
Registration Statement.
The Product is not sponsored , endorsed, sold or promoted by Standard & Poor's,
a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no
representation or warranty, express or implied, to the owners of the Product or
any member of the public regarding the advisability of investing in securities
generally or in the Product particularly or the ability of the S&P 500 Index or
the S&P MidCap 400 Index to track general stock market performance. S&P's only
relationship to the Licensee is the licensing of certain trademarks and trade
names of S&P, the S&P 500 Index and the S&P MidCap 400 Index which is
determined, composed and calculated by S&P without regard to Licensee or the
Product. S&P has no obligation to take the needs of the Licensee or the owners
of the Product into consideration in determining, composing or calculating the
S&P 500 Index and the S&P MidCap 400 Index. S&P is not responsible for, and has
not participated in the determination of the prices and amount of the Product or
timing of the issuance or sale of the Product or in the determination or
calculation of the equation by which the Product is to be converted into cash.
S&P has no obligation or liability in connection with the administration,
marketing or trading of the Product.
S&P does not guarantee the accuracy and/or the completeness of the the S&P 500
Index and the S&P MidCap 400 Index or any data included therein and S&P shall
have no liability for any errors, omissions or interruptions therein. S&P makes
no warranty, express or implied, as to the results obtained by Licensee, owners
of the Product or any other person or entity from the use of the S&P 500 Index
and the S&P MidCap 400 Index or any data included therein. S&P makes no express
or implied warranties and expressly disclaims all warranties of merchantability
or fitness for a particular purpose or use with respect to the S&P 500 Index and
the S&P MidCap 400 Index or any data included therein. Without limiting any of
the foregoing, in no event shall S&P have any liability for any special,
punitive, indirect or consequential damages (including lost profits), even if
notified of the possibility of such damages.
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, which are incorporated by reference from the
Annual Report to Shareholders dated April 30, 2000, into this Statement of
Additional Information. The AAL Mutual Funds has filed the audited financial
statements below:
1. Schedules of Investments as of April 30, 2000.
2. Statement of Assets and Liabilities as of April 30, 2000.
3. Statement of Operations for fiscal year ended April 30, 2000.
4. Statement of Changes in Net Assets for fiscal year ended April 30, 2000.
5. Notes to Financial Statements
PART C: OTHER INFORMATION
INSTITUTIONAL SHARES
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 Filed December 29, 1999,
CMC, as amended Post-Effective Amendment No.36
(d)(ii) Sub Advisory Agreement with Oechsle Filed April 6, 1999, Post-Effective
International Advisors, LLC Amendment No.30
(e) Distribution Agreement with AAL CMC, Filed December 29, 1999,
as amended Post-Effective Amendment No.36
(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., Amendment No.30
as amended
(h)(i) Administrative Services Agreement Filed December 29, 1999,
between the Funds and AAL, as amended Post-Effective Amendment No.36
(h)(ii) Shareholder Maintenance Agreement, as Filed December 29, 1999,
amended Post-Effective Amendment No.36
(h)(iii) Transfer and Dividend Disbursing Filed December 29, 1999,
Agent Agreement, as amended Post-Effective Amendment No.36
(i) Legal Opinion N/A
(j) Consent of Independent Auditors N/A
(k) Omitted Financial Statements N/A
(l) Initial Capital Agreements N/A
(m) Rule 12b-1 Plan N/A
(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 X
Management Corporation
(p)(ii) Code of Ethics for Sub-Adviser, X
Oechsle International Advisors LLC
(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> <C> <C> <C>
-----------------------------
Parent Company AAL
(Wisconsin corp.)
Holding Company AAL Holdings, Inc.
(Delaware corp.)
-----------------------------
------------------------------ ----------------------------- -----------------------------
Wholly-owned AAL Capital Management Corp. AAL Trust Co., FSB North Meadows Investment
subsidiaries of (Delaware corp.) (Federal charter) Ltd.
AAL Holdings, Inc. (Wisconsin corp.)
------------------------------ ----------------------------- -----------------------------
</TABLE>
ITEM 25. INDEMNIFICATION
Under Section 12 of Article Seven of the Funds' Declaration of Trust, the Funds
may not indemnify any trustee, officer or employee for expenses (e.g.,
attorney's fees, judgments, fines and settlement amounts) incurred in any
threatened, pending or completed action, if there has been an adjudication of
liability against such person based on a finding of willful misfeasance, bad
faith, gross negligence or reckless disregard of such person's duties of office
("disabling conduct").
The Funds shall indemnify their trustees, officers or employees for such
expenses whether or not there is an adjudication of liability, if, pursuant to
Investment Company Act Release 11330, a determination is made that such person
was not liable by reason of disabling conduct by: (i) final decision of the
court before which the proceeding was brought; or (ii) in the absence of such a
decision, a reasonable determination, based on factual review, that the person
was not liable for reasons of such conduct is made by: (a) a majority vote of
disinterested, independent trustees; or (b) independent legal counsel in a
written opinion.
Advancement of expenses incurred in defending such actions may be made pursuant
to Release 11330, provided that the person undertakes to repay the advance
unless it is ultimately determined that such person is entitled to
indemnification and one or more of the following conditions is met: (1) the
person provides security for the undertaking; (2) the Funds are insured against
losses arising by reason of any lawful advances; or (3) a majority of
disinterested non-party trustees or independent legal counsel in a written
opinion determines, based on review of readily available facts, that there is
reason to believe the person ultimately will be found entitled to
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of the Funds
pursuant to the foregoing provision, or otherwise, the Funds have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in that Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Funds of expenses incurred or
paid by a trustee, officer or controlling person of the Funds in the successful
defense of any action, suit or proceeding) is asserted by such trustees, officer
or controlling person in connection with the securities being registered, the
Funds will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
AAL Capital Management Corporation is the investment adviser ("Adviser") of the
Funds. Oechsle International Advisers LLC is the sub-adviser for The AAL
International Fund. For information as to the business, profession, vocation or
employment of a substantial nature of the Adviser, reference is made to Parts A
and B of this Registration Statement and to Form ADV filed under the Investment
Advisers Act of 1940 by the Adviser. AAL CMC also serves as sub-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 General Counsel, Director and Trustee and Vice-President
222 W. College Ave. Chairman
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
Krien VerBerkmoes, III Vice President and Chief Compliance None
222 W. College Avenue Officer
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
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(a) 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 April
14, 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 April 14, 2000
- -----------------------------
Robert G. Same
/s/ Charles D. Gariboldi Treasurer April 14, 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 April 14, 2000
- -------------------------------------
Robert G. Same
Attorney-in-Fact
The AAL Mutual Funds
Index to Exhibits
Exhibit Number Name of Exhibit
(p)(i) Code of Ethics for AAL Capital Management
Corporation
(p)(ii) Code of Ethics for Sub-Adviser, Oechsle
International Advisors LLC
(r) Tranmittal Letter
CODE OF ETHICS WITH RESPECT TO
SECURITIES TRANSACTIONS OF ACCESS PERSONS
FOR
THE AAL MUTUAL FUNDS
AAL VARIABLE PRODUCT SERIES FUND, INC.
AID ASSOCIATION FOR LUTHERANS
AND
AAL CAPITAL MANAGEMENT CORPORATION
<PAGE>
TABLE OF CONTENTS
PAGE
I. INTRODUCTION ...............................................3
II. DEFINITIONS ...............................................4
III. STATEMENT OF GENERAL PRINCIPLES....................................6
IV. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES......................7
V. EXEMPT TRANSACTIONS ...............................................9
VI. REPORTING REQUIREMENTS OF ACCESS PERSONS.......................... 9
VII. COMPLIANCE MONITORING..............................................11
VIII. REVIEW BY BOARD OF DIRECTORSITRUSTEES..............................11
IX. RECORDS RETENTION ...............................................12
X. CONFIDENTIAL TREATMENT.............................................12
XI. VIOLATIONS OF THIS CODE............................................13
XII. INTERPRETATION OF PROVISIONS.......................................13
XIII. AMENDMENTS TO THE CODE.............................................13
<PAGE>
APPENDIX A
APPENDIX B
APPENDIX C
APPENDIX D
APPENDIX E
APPENDIX F
THREE COMPLIANCE CATEGORIES
PERSONAL TRADING REQUEST AND AUTHORIZATION FORM
QUARTERLY SECURITIES TRANSACTIONS REPORT
INITIAL CERTIFICATION
ANNUAL CERTIFICATION
FINAL CERTIFICATION
<PAGE>
I. INTRODUCITON
Rule 17j-1 (the "Rule") under the Investment Company Act of 1940 (the "1940
Act") requires investment companies, as well as their investment advisers and
principal underwriters, to adopt written codes of ethics containing provisions
reasonably necessary to prevent "Access Persons" from engaging in any act,
practice, or course of business prohibited under the anti-fraud provisions of
the Rule.(1) Pursuant to the requirements of the Rule, The AAL Mutual Funds and
the AAL Variable Product Series Fund, Inc. (together the "Funds") and AAL
Capital Management Corporation and Aid Association for Lutherans (together the
"Advisers") have adopted this Code of Ethics (the "Code") with respect to
securities transactions of the directors/trustees, officers, and certain
employees of the Funds and the Advisers that come within the term "Access
Person," as defined below. To the extent the Funds employ a sub-adviser to
manage any series of the Funds, the provisions of the Code shall apply to the
sub-adviser with respect to the series of the Funds for which it acts as
sub-adviser.
(1) Rule 17j-1 under the 1940 Act provides that it is unlawful for any
affiliated person of or principal underwriter for a registered investment
company, or any affiliated person of such company's investment adviser or
principal underwriter, in connection with any purchase or sale, directly or
indirectly, by such person of a "security held or to be acquired" by such
investment company, to engage in any of the following acts, practices or
courses of business:
A. employ any device, scheme, or artifice to defraud such investment
company,
B. make to such investment company any untrue statement of a material
fact or omit to state to such investment company a material fact
necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading;
C. engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any such investment company;
and
D. engage in any manipulative practice with respect to such investment
company.
This Code reflects the principal recommendations in the May 9,1994 Report of the
Investment Company Institute Advisory Group on Personal Investing. It is
intended to provide guidance to access persons of the Funds and the Adviser in
the conduct of their personal investments to eliminate the possibility of
securities transactions occurring that
<PAGE>
place, or appear to place, such persons in conflict with the interests of the
Funds or their shareholders.(2)
(2) Consistent with Section 206 of the Investment Advisers Act of 1940 and
Rules 204-2(a)(12) and (13), and to the extent appropriate, the Access
Persons of the Advisers shall abide by the principles established by this
Code and the specific reporting and other requirements hereof when dealing
with other advisory clients of the Advisers.
Your receipt of this Code for your review and signature means that you
are a person to whom the Code applies. You are required to certify initially,
and annually thereafter, that you have read, understood and complied with this
Code. See Appendices D, E and F.
If you have any questions concerning this Code, please contact the
Compliance Officer ("Compliance Officer").
II. DEFINITIONS.
A. Access Person. "Access Person" means the following:
1. With respect to the Funds and AAL Capital Management Corporation,
any Director/Trustee, officer or "Advisory Person" (see
definition below) of the Funds or AAL Capital Management
Corporation.
2. With respect to Aid Association for Lutherans, any director,
officer, or Advisory Person (as defined below) of Aid Association
for Lutherans who, with respect to any of the Funds, makes any
recommendation, participates in the determination of which
recommendation shall be made, or whose principal function or
duties relate to the determination of which recommendation shall
be made to any of the Funds; or who, in connection with his/her
duties, obtains any information concerning securities
recommendations being made to any of the Funds.
B. Advisory Person. Advisory Person means (a) any employee of the Funds
or the Advisers who, in connection with his/her regular functions or
duties, makes, participates in, or obtains information regarding the
purchase or sale of a security (as defined in II.H. below) by or on
behalf of the Funds, or (b) any employee of the Funds or the Advisers
whose functions relate to the making of any recommendations with
respect to such purchases or sales.
<PAGE>
In the event that any individual or company is in a control
relationship with the Funds or the Advisers, the term "Advisory
Person" includes such individual company, or any employee of such a
company to the same extent as an employee of the Funds or the
Advisers.
THE DIFFERENCES BETWEEN ACCESS PERSONS, ADVISORY PERSONS AND PORTFOLIO
MANAGERS ARE OFTEN CONFUSING. IN AN EFFORT TO CLARIFY THIS SITUATION, PLEASE SEE
APPENDIX A.
C. Beneficial Ownership. Beneficial Ownership has the same meaning as
used in Rule 16a-1(a)(2) under the Securities Exchange Act of 1934,
except that the term applies to both debt and equity securities.
"Beneficial ownership" under Rule 16a-1(a)(2) includes accounts of a
spouse, minor children who reside in an Access Person's home and any
other relatives (parents, adult children, brothers, sisters, etc.)
whose investments the Access Person directs or controls, whether the
person lives with the Access Person or not, as well as accounts of
another person (individual, partner, corporation, trust, custodian, or
other entity) if by reason of any contract, understanding,
relationship, agreement or other arrangement the Access Person obtains
or may obtain therefrom a direct or indirect pecuniary interest. A
person does not derive a direct or indirect pecuniary interest solely
by virtue of serving as a trustee or executor unless he/she or a
member of his/her immediate family has a vested interest in the income
or principal of the trust or estate. A copy of Release No. 34-18114
issued by the Securities and Exchange Commission on the meaning of the
term "beneficial ownership" is available upon request from the
Compliance Officer, and should be reviewed carefully by any Access
Person before preparing any reports required by this Code.
D. Being Considered for Purchase or Sale. A security is Being Considered
for Purchase or Sale when a recommendation to purchase or sell such
security has been made and communicated by an Advisory Person of the
Funds or the Advisers, in the course of his/her duties and, with
respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
E. Control. Control means the power to exercise a controlling influence
over the management and policies of a company, unless such power is
solely the result of an official position with such company.
F. Independent Trustee. The term Independent Director/Trustee means a
director/trustee of the Funds who is not an "interested person" of the
Funds within the meaning of Section 2(a)(19) of the 1940 Act. These
Directors/Trustees have been designated by the Funds.
G. Portfolio Manager. A Portfolio Manager is a person who makes decisions
as to the purchase or sale of portfolio securities of the Funds.
H. Security. "Security" has the same meaning as in Section 2(a)(36) of
the 1940 Act, as well as futures and commodities. Included within the
definition are interests in self-directed retirement plans. Excluded
are interests in independently managed retirement plans. Also excluded
from this definition are shares of registered open-end investment
companies (mutual funds and variable annuities), securities issued
(irrespective of maturity) as direct obligations of the United States
Government, bankers' acceptances, bank certificates of deposit,
commercial paper, and various "money market instruments" (e.g.,
conventional repurchase agreements, U.S. Government agency
obligations, obligations issued or guaranteed by foreign governments)
maturing within 397 calendar days from the date of purchase.
I. Security Transaction. The term Security Transaction means the
execution, either directly or indirectly, of any purchase or sale of a
security.
J. Security Held or to be Acquired by the Funds. Security Held or to be
Acquired by the Funds means:
1. Any Security which, within the most recent 15 days:
a. Is or has been held by the Funds; or
b. Is Being Considered for Purchase or Sale by the Adviser for
the Funds; and
2. Any option to purchase or sell, and any Security convertible into
or exchangeable for, a Security.
III. STATEMENT OF GENERAL PRINCIPLES.
The following general fiduciary principles shall govern the personal
investment activities of all Access Persons.
Each Access Person shall adhere to the highest ethical standards and
shall:
A. at all times, place the interests of the Funds before his/her personal
interests;
B. conduct all personal securities transactions in a manner consistent
with this Code, so as to avoid any actual or potential conflicts of
interest, or any abuse of position of trust and responsibility; and
C. not take any inappropriate advantage of his/her position with or on
behalf of the Funds.
Access Persons should follow not only the letter of this Code, but also
its spirit and their transactions will be reviewed for this purpose.
IV. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES.
A. Preclearance Required for All Securities Transactions. Unless the
transaction is exempt under V. below, no Access Person (other than an
independent Director/Trustee of the Funds) may directly or indirectly,
initiate, recommend, or in any other way participate in the purchase
or sale of a security in which such Access Person has, or by reason of
the transaction may acquire, any direct or indirect beneficial
interest, without first obtaining prior written clearance for such
transaction from the Compliance Officer. When requesting preclearance,
each Access Person should be aware that:
1. all requests for preclearance must be set forth in writing on the
standard Personal Trading Request and Authorization Form, a copy
of which is attached as Appendix B.
2. preclearance of a securities transaction is effective for the day
of clearance and the next three business days.
B. Timing of Purchases and Sales (Blackout Periods). Unless the
transaction is exempt under V. below, no Access Person (other than an
independent Director/Trustee of the Funds) may (I) execute a
Securities Transaction on a day during which the Funds have a pending
"buy" or "sell" order in that same Security, until that order has been
executed or withdrawn, or (ii) purchase or sell any Security in which
he/she has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership, in a Security being considered for
purchase or sale by the Funds. Additionally, no Portfolio Manager may
purchase or sell as beneficial owner any Security within at least
seven calendar days before and after the Funds trade (or haves traded)
in that Security.
A Security is not deemed to be Being Recommended for Purchase or Sale
if it is (1) a component of an index or model which a portfolio of the AAL
Variable Product Series Fund is designed to reflect unless the determination as
to whether to add or delete the Security is within the discretion of an Advisory
Person of the Fund; and (2) the Security is not Being Recommended for Purchase
or Sale by any of the other Funds. In each case, a determination as to whether a
Security is or is not deemed to be Being Recommended for Purchase or Sale will
be made by the Compliance Officer.
The foregoing blackout periods shall not apply to a transaction
following written preclearance by the Compliance Officer as to a Security
purchased or sold by a Fund modeled on an index of Securities and which Fund
transaction is made for the purpose of maintaining existing index weightings
within the Fund.
C. Short-Term Trading Profits. Short term trading by Advisory Persons
shall be looked upon with disfavor. All sales and purchases (or
purchases and sales) of the same or equivalent securities within 60
calendar days by an Advisory Person shall be reported to the Funds'
Board of Directors/Trustees.
D. Initial Public Offerings. No Access Person may acquire any Beneficial
Ownership in any Securities in an initial public offering.
E. Gifts. No Advisory Person may receive any gift or anything else of
more than $100 value within any calendar year from any person, entity
or person affiliated with an entity that does business with or on
behalf of the Funds. Business related entertainment such as meals,
tickets to the theater or a sporting activity or event which are
infrequent and not unreasonable in nature are excepted from this
prohibition.
F. Private Placements. With regard to private placements, each Advisory
Person shall:
1. obtain express prior written approval from the Compliance Officer
(who, in making such determination, shall consider among other
factors, whether the investment opportunity should be reserved
for the Funds, and whether such opportunity is being offered to
such Advisory Person by virtue of his position with the Funds)
for any acquisition of Securities in a private placement; and,
2. if and after such authorization to acquire Securities in a
private placement has been obtained, disclose any personal
involvement any subsequent consideration by the Funds (or any
other investment company for which he acts in a capacity as an
Advisory Person) of investment in that issuer arises.
If the Funds decide to purchase Securities of an issuer the shares of
which have been previously obtained in a private placement for personal
investment by an Advisory Person, that decision shall be subject to an
independent review by the independent Directors/Trustees with no personal
interest in the issuer.
G. Service as a Director. No Advisory Person shall serve on a board of
directors of a publicly traded company, absent prior written
authorization by the Board of Directors/Trustees of the Funds, based
upon a determination that such service would be consistent with the
interests of the Funds.
If board service of an Advisory Person is authorized by the Board of
Directors/Trustees of the Funds, such Advisory Person shall be isolated from the
investment making decisions of the Funds with regard to Securities of the
company on whose board the advisory person serves.
H. Confidentiality. No Access Person shall reveal to any other person
(except in the normal course of his/her duties on behalf of the Funds
or the Advisers) any information regarding securities transactions
made, or being considered, by or on behalf of the Funds.
V. EXEMPT TRANSACTIONS.
The prohibitions described in IV.A and B above shall not apply to:
A. purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control, or in any
account of the Access Person which is managed on a discretionary basis
by a person other than the Access Person and, with respect to which
the Access Person does not in fact influence or control purchase or
sale transactions;
B. purchases or sales that are non-volitional on the part of the Access
Person or the Funds, including mergers, recapitalization or similar
transactions;
C. purchases that are part of an issuer's or broker's automatic dividend
reinvestment plan;
D. purchases effected upon the exercise of rights issued by the issuer
pro rata to all holders of a class of its Securities, to the extent
such rights were acquired from such issuer, and sales of such rights
so acquired; and
E. purchases or sales that receive the prior approval of the Compliance
Officer on the basis that (a) the transaction is not potentially
harmful to the Funds, (b) the transaction would be unlikely to affect
the market in which the portfolio securities for the Funds are traded,
or (c) the transaction is not related economically to the Securities
to be purchased, sold, or held by the Funds and the decision to
purchase or sell the Security is not the result of material non-public
information. As noted above, prior approval must be set forth in
writing on the Personal Trading Request and Authorization Form
(APPENDIX B).
VI. REPORTING REQUIREMENTS OF ACCESS PERSONS.
A. Certification. All Access Persons shall, when they first become
subject to the Code, no less often than annually thereafter and when
they change status or terminate employment, certify, in writing, that
they understand that they are/have been subject to the Code, will/have
complied with the Code, and will cooperate with any inquiry regarding
their personal trading activities by the Funds, the Advisers or the
Compliance Officer.
B. Access Persons (other than Independent Director/Trustees of the
Funds). Every Access Person (except independent Directors/Trustees of
the Funds) shall complete and submit a Quarterly Report to the
Compliance Officer which discloses the information required by VI.D.
below with respect to transactions in any Security in which such
Access Person has, or by reason of such transaction, acquires any
direct or indirect Beneficial Ownership in the Security.
C. Independent Directors/Trustees. An independent Director/Trustee of the
Funds shall report a transaction in a Security if the
Director/Trustee, at the time of the transaction, knew or, in the
ordinary course of fulfilling his/her official duties as a
Director/Trustee of the Funds, should have known that, during the
15-day period immediately preceding or after the date of the
transaction by the Director/Trustee, the Security is or was purchased
or sold by the Funds or was Being Considered for Purchase or Sale.
The foregoing provision as to a Security Being Considered for Purchase
or Sale shall not apply with respect to a Security merely because it is a
component of an index or model which a series or portfolio of the Funds is
designed to reflect.
D. Time and Content of Quarterly Report. Every Quarterly Report shall be
provided to the Compliance Officer not later than ten days after the
end of each calendar quarter, whether or not there has been a
transaction for the quarter. If there has been a transaction for that
period, the Quarterly Report shall contain the following information:
1. the date of the transaction, the name of the issuer, and the
number of shares or the principal amount of the Security
involved;
2. the nature of the transaction, i.e., purchase, sale or any other
type of acquisition or disposition;
3. the price at which the transaction was effected; and
4. the name of the broker, dealer, or bank with or through whom the
transaction was effected.
All reports shall be made on the Quarterly Report form available from
the Compliance Officer, a copy of which is attached as APPENDIX C. In lieu of
the form provided as part of Appendix C, the reporting person may provide copies
of monthly or quarterly brokerage statements reflecting equivalent information.
E. Confirmations. All Access Persons (other than independent
Directors/Trustees of the Funds) shall supply to the Compliance
Officer, on a timely basis, duplicate copies of confirmations of all
personal Securities transactions. These confirms may be provided
directly by the Access Person or through the Brokers. However, it is
the responsibility of the Access Person to ensure that confirms of all
trades are provided to the Compliance Officer.
F. Disclosure of Personal Securities Holdings. All Advisory Persons shall
disclose all personal Securities holdings upon commencement of
employment and thereafter on an annual basis.
G. Disclaimer of Beneficial Ownership. No Quarterly Report shall be
construed as an admission by the person making such report that he/she
has any direct or indirect beneficial ownership in the Security to
which the report relates.
H. Potential Conflicts of Interest. Every Access Person shall immediately
report to the Compliance Officer any factors of which the Access
Person is aware that would be relevant to a conflict of interest
analysis, including the existence of any substantial economic
relationship between the Access Person's transactions and Securities
held or to be acquired by the Funds. These factors may include, for
example, officerships or directorships with issuers or beneficial
ownership of more than 1/2 of 1% of the total outstanding shares of
any issuer whose shares are publicly traded or that may be initially
offered to the public in the foreseeable future.
I. Notification of Reporting Obligation. All Access Persons having a duty
to file Quarterly Reports hereunder shall be informed of such duty by
the Compliance Officer and shall be provided with a copy of this Code.
Once informed of the duty to file a Quarterly Report, an Access Person
has a continuing obligation to file such report, in a timely manner,
whether or not the Access Person had any Securities transactions for
the quarter.
VII. COMPLIANCE MONITORING.
The Compliance Officer shall review all Quarterly Reports,
confirmations, and other materials provided to him/her regarding personal
Securities transactions by Access Persons to ascertain compliance with the
provisions of this Code. The Compliance Officer shall institute any procedures
necessary to monitor the adequacy of such reports and to otherwise prevent or
detect violations of this Code. Upon discovery of a violation of this Code, it
shall be the responsibility of the Compliance Officer to report such violation
to the management of the Advisers, as well as to the Board of Directors/Trustees
of the Funds.
VIII. REVIEW BY BOARD OF DIRECTORS/TRUSTEES.
The Compliance Officer shall regularly (but not less frequently than
annually) furnish to the Board of Directors/Trustees of the Funds a report
regarding the administration of this Code. If any such report indicates that any
change to this Code is advisable, the Compliance Officer shall make an
appropriate recommendation to the Board of Directors/Trustees. The Compliance
Officer also shall inquire into any apparent violation of this Code and shall
report any apparent violation requiring remedial action to the Board of
Directors/Trustees. Upon finding such a violation of this Code, including the
filing of any false, incomplete, or untimely Quarterly Report, or the failure to
obtain preclearance of any personal securities transaction, the Board of
Directors/Trustees may impose any sanction or take such remedial actions as it
deems appropriate. No Director/Trustee shall participate in a determination of
whether he/she has committed a violation of this Code or of the imposition of
any sanction against himself/herself.
IX. RECORDS RETENTION.
The Funds and the Advisers shall maintain records in the manner and to
the extent set forth below, which records may be maintained on an appropriate
electronic or film media under the conditions described in Rule 31a-2(f)(1)
under the 1940 Act:
A. Retention of Copy of Code. A copy of this Code shall be preserved in
an easily accessible place;
B. Record of Violations. A record of any violation of this Code and of
any action taken as a result of such violation shall be preserved in
an easily accessible place for a period of not less than five years
following the end of the fiscal year in which the violation occurs;
C. Copy of Forms and Reports. A copy of each Personal Trading Request and
Authorization Form and each Quarterly Report prepared and filed by an
Access Person pursuant to this Code shall be preserved by the
Compliance Officer for a period of not less than five years from the
end of the fiscal year in which such report is made, the first two
years in an easily accessible place;
D. List of Access Persons. A list of all persons who are, or within the
past five years of business have been, required to file Personal
Trading Request and Authorization Forms and Quarterly Reports pursuant
to this Code shall be maintained in an easily accessible place; and
E. Sites of Records to be Kept. All such records and/or documents
required to be maintained pursuant to this Code shall be kept at the
offices of AAL Capital Management Corporation, to which each of the
Funds and Aid Association for Lutherans shall have access during
normal business hours.
X. CONFIDENTIAL TREATMENT.
All reports and other records required to be filed or maintained under
this Code shall be treated as confidential, except to the extent required by
law.
XI. VIOLATIONS OF THIS CODE.
Violations of this Code may result in the imposition of sanctions or
the taking of such remedial steps as the Funds and/or the Advisers may deem
appropriate, including, but not limited to, unwinding the transaction or, if
impractical, disgorgement of any profit from the transaction, a letter of
censure, reduction in salary, and suspension or termination of employment. No
Director/Trustee or officer of the Funds or the Advisers shall participate in a
determination of whether he/she has committed a violation of this Code or of the
imposition of any sanction against himself/herself.
In addition, the Funds or the Advisers may report any violations to the
appropriate regulatory authority, including the Securities and Exchange
Commission.
XII. INTERPRETATION OF PROVISIONS
The Board of Directors/Trustees of the Funds and management of the
Advisers may, from time to time, adopt such interpretations of this Code as such
Boards or management deems appropriate.
XIII. AMENDMENTS TO THE CODE.
Any amendment to the Code shall be effective 30 calendar days after
written notice of such amendment shall have been received by the Compliance
Officer, unless the Board of Directors/Trustees of the Funds or the management
of the Advisers, as appropriate, expressly determines that such amendment shall
become effective on another specific date or shall not be adopted.
CODE OF ETHICS
Three Compliance Categories
ACCESS PERSONS-obtain (have "access" to) information about a fund's purchase or
sale of securities in the course of their normal work. Everyone who is subject
to the Code of Ethics is an Access Person and every Access Person is subject to
the Code of Ethics.
ADVISORY PERSONS-are involved in the decision making process but do not make the
final decision (typically traders & investment analysts).
PORTFOLIO MANAGERS-make the investment decisions for the Funds.
<PAGE>
CODE OF ETHICS
Restrictions on Personal Investing
ACCESS PERSONS REQUIREMENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
(IV.A) (IV.B) (IV.D) (VI.E) (VI.B & D) (IV.H) (VI.H) (VI.A)
Preclearance of Blackout IPO prohibition Copies of B/D Quarterly Confidentiality Conflict of Initial, Annual
securities Periods confirms to Reports except in normal Interest and Final
transactions Compliance of securities course Situations Certification
Officer transactions of business
Compliance Officer
Request in writing Total Prohibition Officer
Access person can't Completed Quarterly
buy/sell a security Reports Due to
on any day that the Compliance Officer
Fund buys/sells it. by 10th day
following each
calendar quarter
Approval in writing
Clearance day plus 3
business day approval
period
</TABLE>
<PAGE>
CODE OF ETHICS
Restrictions on Personal Investing
ADDITIONAL ADVISORY PERSONS REQUIREMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
(IV.C) (IV.E) (IV.F)
Short-term profits w/in 60 days Gift prohibition Private Placements
Report to Board $100 cap on gifts, etc. from any Requires prior written approval
person doing business with or on
behalf of the investment company
If prior approval given, disclosure
requirements for that issuer in
future considerations
Disinterested Trustee review
needed if Fund considers buying
above security
</TABLE>
(IV.G) (VI.E)
Director of publicly traded Annual Disclosure of securities
company holdings
Must have prior written approval
of Fund Trustees
<PAGE>
CODE OF ETHICS
Restrictions on Personal Investing
ADDITIONAL PORTFOLIO MANAGERS REQUIREMENTS
(VI.B)
Blackout
Periods
Portfolio Manager cannot buy/sell
within 7 days either side of a Fund
trade (15 day window)
<PAGE>
APPENDIX B
PERSONAL TRADING REQUEST AND AUTHORIZATION FORM FOR THE CODES OF ETHICS FOR THE
AAL MUTUAL FUNDS, THE AAL VARIABLE PRODUCT SERIES FUND, INC., AID ASSOCIATION
FOR LUTHERANS, AND AAL CAPITAL MANAGEMENT CORPORATION
PERSONAL TRADING REQUEST (TO BE COMPLETED PRIOR TO ANY PERSONAL TRADE):
1. Name:
2. Phone ext:
3. Position:
4. Date of proposed transaction:
5. Name of the issuer and dollar amount and number of Securities of the issuer
proposed to be purchased or sold:
6. Nature of transaction (i.e., purchase, sale): (1)
7. Are you or is a member of your immediate family an officer or director of
the issuer of the Securities or any affiliate (2) of the issuer? Yes No
If yes, please describe:
8. Describe the nature of any direct or indirect professional or business
relationship that you may have with the issuer of the Securities: (3)
(1) If other than a market order, please describe any proposed limits.
(2) For purposes of this question, "affiliate" includes (I) any entity that
directly or indirectly owns, controls, or holds with power to vote 5% or
more of the outstanding voting Securities of the issuer and (ii) any entity
under common control with the issuer.
(3) A "professional relationship" includes, for example, the provision of legal
counsel or accounting services. A "business relationship" includes, for
example, the provision of consulting services or insurance coverage.
9. Are you aware of any material non-public information regarding the Security
or the issuer? Yes No
10. Does this transaction involve a Private Placement? Yes No
Note:If you marked "yes," and you are an Advisory Person or Portfolio
Manager, you must obtain written approval from the Compliance Officer
before executing the trade.
11. Is the Security being purchased part of an Initial Public Offering?
Yes No
Note:Advisory Persons and Portfolio Managers are prohibited from
participating in Initial Public Offerings.
12. Do you beneficially own more than 1/2 of 1% of the outstanding equity
Securities of the issuer? Yes No
If yes, please report the total number of shares "beneficially owned":
13. Are you aware of any facts regarding the proposed transaction, including
the existence of any substantial economic relationship between the proposed
transaction and any Securities Held or to be Acquired by the Funds or other
managed accounts or affiliates of the Advisers that may be relevant to a
determination as to the existence of a potential conflict of interest? (4)
Yes No
If yes, please describe:
(4) Facts that would be responsive to this question include, for example, the
receipt of "special favors" from a stock promoter, such as participation in
a private placement or initial public offering, as an inducement to
purchase other Securities for the Funds or the Advisers' clients. Another
example would be investment in Securities of a limited partnership that in
turn owned warrants of a company formed for the purpose of effecting a
leveraged buy-out in circumstances where the Funds' or the Advisers'
clients might invest in Securities related to the leveraged buyout. The
foregoing are only examples of pertinent facts and in no way limits the
types of facts that may be responsive to this question.
<PAGE>
14. Do you want to have an executed copy of this request for your files?
Yes No
To the best of my knowledge and belief, the answers provided above are true and
correct.
Signature:
Date:
APPROVAL OR DENIAL OF PERSONAL TRADING REQUEST
[to be completed by Compliance Officer or His/Her Designee]
______ APPROVED. The proposed transaction appears to be consistent with the
policies described in the Code. Preclearance is granted from and
including_______________ through____________.
______ DENIED. The proposed transaction does not appear to be consistent
with the policies described in the Code and/or the conditions
necessary for approval of the proposed transaction have not been
satisfied. Preclearance is denied.
Signed:
Title:
Date:
<PAGE>
APPENDIX C
QUARTERLY SECURITIES TRANSACTIONS REPORT
FOR THE QUARTER ENDED_________________
Reportable Securities Transactions are all Securities transactions of
Access Persons* of the AAL Mutual Funds, AAL Variable Product Series Fund, Inc.,
Aid Association for Lutherans and AAL Capital Management Corporation, regardless
of the size of the Securities transaction; except that it shall not include
shares of registered open-end investment companies (mutual funds and variable
annuities), securities issued as direct obligations of the United States
Government, bankers' acceptances, bank certificates of deposit, commercial
paper, and various money market instruments (e.g. conventional repurchase
agreements, U.S. government agency obligations, obligations issued or guaranteed
by foreign governments) maturing within 397 calendar days from the date of
purchase. In addition, exempt transactions, as described in the Code of Ethics
and interests in independently managed retirement plans need not be reported. A
report must be filed quarterly, by the tenth day after the end of each calendar
quarter, whether or not you have had any Securities Transactions for the prior
quarter. Each report must cover all accounts in which you have a direct or
indirect Beneficial Ownership* interest (unless you have no influence or control
over such accounts) and all non-Adviser accounts that you manage or with respect
to which you give investment or voting advice.
I [check one] had ______ had no ______ reportable securities
transactions during the above quarter. Please describe all reportable securities
transactions on the following page. Copies of individual confirmations or
monthly or quarterly broker statements may be attached to a signed report in
lieu of setting forth the information required on the following page. Use
additional copies of this form if necessary.
To the best of my knowledge and belief, the answers set out in this
Report are true and correct.
Printed Name:
Signature:
Date:
* The terms "Access Person" and "Beneficial Ownership" are defined in the
Code.
<PAGE>
REPORTABLE SECURITIES TRANSACTIONS**
1. Date of transaction:
2. Name of the issuer and dollar amount or number of securities of the issuer
purchased or sold:
3. Nature of transaction (i.e., purchase, sale, or other type of acquisition
or disposition):
4 Price at which the transaction was effected:
5. Name of broker, dealer, or bank with or through whom the transaction was
effected:
** This Report shall not be construed as an admission by the person making
such Report that he or she has any direct or indirect beneficial interest
in the security or securities to which the Report relates.
<PAGE>
APPENDIX D
INITIAL CERTIFICATION
I hereby certify that I (I) have read and understand the Code of Ethics
of The AAL Mutual Funds, AAL Variable Products Series Fund, Inc., Aid
Association for Lutherans, and AAL Capital Management Corporation, dated January
1,1997; (ii) recognize that I am subject to the Code of Ethics as of
_______________________; and (iii) will cooperate with any inquiry regarding my
personal trading activities by the Funds, the Advisers or the Compliance
Officer.
Signed:
Name:
Date:
<PAGE>
APPENDIX E
ANNUAL CERTIFICATION
I hereby certify that I (I) have read and understand the Code of Ethics
of The AAL Mutual Funds, AAL Variable Products Series Fund, Inc., Aid
Association for Lutherans and AAL Capital Management Corporation, dated January
1,1997 (ii) recognize that I am subject to the Code of Ethics, (iii) have
complied with the requirements of the Code of Ethics over the past year, (iv)
have disclosed all personal Securities transactions, over the past year,
required to disclosed by the Code of Ethics, and (v) will cooperate with any
inquiry regarding my personal trading activities by the Funds, the Advisers or
the Compliance Officer.
Signed:
Name:
Date:
<PAGE>
APPENDIX F
FINAL CERTIFICATION
I hereby certify that I (I) have read and understand the Code of Ethics
of The AAL Mutual Funds, the AAL Variable Products Series Fund, Inc., Aid
Association for Lutherans and AAL Capital Management Corporation, dated January
1,1997 (ii) recognize that I am subject to the Code of Ethics, (iii) have
complied with the requirements of the Code of Ethics over the past year, (iv)
have disclosed all personal Securities transactions, over the past year,
required to disclosed by the Code of Ethics, and (v) will no longer be subject
to the Code of Ethics after _______________________ (date of change of status or
termination of my employment).
I further certify and agree that I will assist the Compliance Officer,
if necessary, after said date, to ensure that my Personal Trading file is
complete and accurate.
Signed:
Name:
Date:
OECHSLE INTERNATIONAL ADVISORS, LLC
CODE OF ETHICS
The reputation of Oechsle International Advisors, LLC ("Oechsle") for integrity
and ethics is one of our most important assets. In order to safeguard this
reputation, we believe that it is essential not only to comply with relevant
federal and state laws and regulations, but also to maintain high standards of
personal and professional conduct. Oechsle's Code of Ethics (the "Code") is
designed to ensure that our conduct is at all times consistent with the highest
of ethical standards, with our fiduciary obligations to our clients, and with
industry and regulatory standards for investment managers.
The Code is based on the principle that the officers, directors, members, and
employees of Oechsle owe a fiduciary duty to our clients to:
o Always place the interests of our clients first.
o Conduct our personal securities transactions in a manner which does
not interfere with client transactions, create an actual or potential
conflict of interest with clients, or otherwise take unfair advantage
of our relationship with our clients.
o Avoid even the appearance of impropriety in our personal actions.
Persons covered by this Code must adhere to this general principle as well as
comply with the Code's specific provisions. It bears emphasis that although the
Code provides guidance with respect to many common situations, it cannot address
every possible circumstance that could give rise to a conflict of interest,
potential conflict, or an appearance of impropriety. Regardless of whether a
specific provision of the Code applies, each of us at Oechsle must conduct his
or her activities in accordance with the general principles embodied in the Code
and in such a way as to avoid any actual or potential conflict of interest or
any abuse of an individual's position of trust and responsibility. Please
remember that even if our clients are not harmed, we cannot take inappropriate
advantage of information we learn through our position as fiduciaries.
Technical compliance with the procedures incorporated in the Code will not
insulate from scrutiny trades which contravene an individual's duties to Oechsle
and its clients. Therefore, to protect yourself and Oechsle, please be alert for
any potential for conflicts of interest, and please consult the Senior
Compliance Officer or the General Counsel whenever questions arise concerning
the application of the Code to a particular situation.
<PAGE>
PERSONS COVERED BY THE CODE
The provisions and requirements of the Code apply to all officers, directors,
members, and employees of Oechsle and its subsidiaries ("Oechsle employees"). In
addition, the provisions and requirements of the Code, including the rules
pertaining to pre-clearance of personal securities transactions, apply to all
members of any employee's "immediate family." Any family member who is presently
living in your household, or to whose financial support you make a significant
contribution, is considered to be a member of your immediate family. Please bear
in mind that the Code applies to all securities accounts:
(i) in which any Oechsle employee or his or her immediate family have any
direct or indirect beneficial interest (e.g., family trust); or
(ii) over which any Oechsle employee or his or her immediate family
exercise any investment authority; or
(iii)which receive any investment advice from any Oechsle employee or his
or her immediate family.
Please remember that the term "beneficial interest" includes more than ordinary
ownership. In general, you may be deemed to have beneficial ownership under any
of the following circumstances:
1. You have the power to sell or transfer the security, or you have the
power to direct the sale or transfer; or
2. You have the power to vote the security or the power to direct the
vote; or
3. You have an economic interest in the security; or
4. You have the right to acquire, within 60 days, the power to sell, the
power to vote, or an economic interest in the security.
You should consider yourself as having beneficial ownership of a security in the
following situations (which also apply to your immediate family):
1. The security is held by you, whether in bearer form, registered in
your name, or otherwise;
2. The security is held by others for your benefit, such as a security
held for you by a bank, custodian, broker, relative, executor,
administrator, agent, or any other person;
3. The security is held by a trust of which you are the trustee, or in
which you have an economic interest, or where you participate in the
investment decisions or otherwise have direct or indirect influence or
control;
4. The security is held by a trust of which you are the settlor if you
have the power to revoke the trust without obtaining the consent of
all the beneficiaries;
5. The security is held by any partnership in which you are a general
partner, or with respect to which you have direct or indirect
influence or control;
6. The security is held in the name of another person if, by reason of
any contract, understanding, relationship, agreement, or other
arrangement, you obtain therefrom benefits substantially equivalent to
those of ownership;
7. The security is held in the name of another person, even though you do
not obtain therefrom benefits substantially equivalent to those of
ownership, if you can vest or revest title in yourself at any time.
Although persons who are not members of your "immediate family" are not required
to comply with the pre-clearance procedures contained in the Code, they also may
not take improper advantage of information that they may receive from you
regarding the activity or holdings of Oechsle clients. In addition, it would be
a violation of the Code, and, specifically of Oechsle's Insider Trading Policy,
for an Oechsle employee to arrange for a friend or relative to trade in a
security in which that Oechsle employee would be precluded from trading for his
or her own account, or for an Oechsle employee to give information about the
activity or holdings of Oechsle clients to any person for the purpose of
facilitating securities trading by that person.
GENERAL TERMS AND PROVISIONS
These provisions apply to all employees of Oechsle and its
subsidiaries. These provisions apply only to transactions in reportable
securities.
A. Reportable Securities are all securities except:
(a) shares of registered, open-end investment companies (mutual funds) for
which Oechsle is not an advisor or sub-advisor;
(b) direct U.S. government obligations, such as Treasury bonds, notes, and
bills, and U.S. Savings Bonds;
(c) CDs, bankers' acceptances, and other money-market instruments;
(d) transactions in commodities and options and futures on commodities;
(e) investments in or by hedge funds and commingled funds managed by
Oechsle, in which Oechsle employees may have beneficial interests.
You do not need to report transfers of securities, stock splits, or other such
activity.
Thus, reportable securities include, but are not limited to:
(a) any type of equity or debt security (including, without limitation,
common and preferred stock and corporate and municipal bonds and debt
obligations issued by foreign governments);
(b) any rights relating to such a security, such as put and call options,
warrants, and convertible securities;
(c) ADRs;
(d) options and futures on security indexes.
B. Compliance Officer - the Oechsle officer assigned the responsibility of
administering this Code is the Senior Compliance Officer, or in his absence
the General Counsel.
C. Pre-Clearance - of all personal securities transactions in reportable
securities is required for all Oechsle employees.
D. Brokerage Confirmations - copies of brokerage confirmations for each
pre-cleared transaction are required.
E. Blackout Periods - for certain designated periods surrounding client trades
or while a transaction is being actively considered for a client.
F. Excessive Short-term Trading - is discouraged and profits from such trading
may have to be disgorged.
G. Quarterly Reporting - of personal securities transactions.
H. Annual Certification - that the employee has read and understood the Code.
PRE-CLEARANCE
1. GENERAL RULE:
Oechsle requires written pre-clearance of personal trades in reportable
securities.
2. PROCEDURES:
The pre-clearance requirement is satisfied by completing the Personal Securities
Transaction Pre-Trading Authorization Form (see Exhibit A). Pre-clearance is
only effective for the specific trade date (or for the next available market
session if same-date is not practicable due to foreign market constraints) and
for a specific number of shares. Trading instructions given to brokers must be
for same day execution. You may not change the trade date, and you may not
increase the size of your order, without obtaining a new pre-clearance. You may,
however, decrease the size of your trade without obtaining a new pre-clearance.
Moreover, you need not place an order for which you have obtained pre-clearance.
If you choose not to place that order, you must obtain a new pre-clearance if
you change your mind and wish to enter the order on a later date. In addition,
you must inform the Compliance Officer in writing if you decide not to execute a
pre-cleared trade.
Generally, the date on which you initiate your trade instructions should be the
date on which the trade is actually executed. However, there are some
exceptions. For purposes of this Code, the trade date for a limit order or a
stop-loss order is the date on which you give the order to your broker, not the
date on which the order is finally executed in accordance with your
instructions. Therefore, if your limit or stop-loss order is entered with the
broker in accordance with the pre-clearance requirements and consistent with the
blackout period, the subsequent execution of that trade will satisfy the Code,
even if Oechsle subsequently enters trades for client accounts that are executed
on the same day as your order is executed.
Three signatures are required on the pre-clearance form:
1. The Compliance Officer, the Senior Compliance Officer, or the General
Counsel in the Boston office (in the absence of the Compliance
Officer), or the Compliance Officer of the London office, in the case
of that office.
2. The Trading Desk.
3. A Managing Principal.
As a general rule, no person may sign a pre-clearance form for himself or
herself. In order to ensure that all personal securities transactions are
conducted in accordance with the Code, the Compliance Officer of the Boston
office will retain copies of all pre-clearance forms in each employee's personal
securities transactions file.
The Compliance Officer and the Trading Desk will monitor trading in pre-cleared
securities among Oechsle clients to ensure that all applicable blackout periods
have been complied with and that there is otherwise no activity in such
securities that would raise questions regarding any conflicts or potential
conflicts.
EXEMPTIONS:
A. Third Party Accounts. If an Oechsle employee nominally has beneficial
ownership over a particular account, but does not exercise direct or
indirect influence or control over that account and provides no investment
advice with respect to the investment decisions made for the account, he or
she may apply to the General Counsel for a waiver from the pre-clearance
provisions of the Code. Waivers are not automatic, are made on a
case-by-case basis, and are conditioned, at a minimum, upon the following:
1. The Oechsle employee discloses to the General Counsel the existence of
the Third Party Account and allows the General Counsel to review, in
her discretion, the governing documents of such accounts.
2. The Oechsle employee establishes to the satisfaction of the General
Counsel that he or she has no direct or indirect influence or control
over the Third Party Account or over investment decisions made for
that account.
3. The Oechsle employee completes the Brokerage Account Certification
(see Exhibit B) on an annual basis.
4. The Oechsle employee does not disclose to any person with influence
or control over the Third Party Account any action that Oechsle may
or may not take, or has or has not taken, with respect to any
security.
B. Stock Index Futures and Options. The pre-clearance requirements of the Code
do not apply to purchases and sales of stock index options and stock index
futures. However, such transactions must be reported on the employee's
quarterly personal securities transactions report.
PROHIBITED TRANSACTIONS
The following categories of transactions may not be engaged in by Oechsle
employees:
1. TRANSACTIONS IN CONJUNCTION WITH OECHSLE CLIENTS:
A. No Oechsle employee shall cause an Oechsle client to either take or not
take any action for such employee's personal benefit (or the personal
benefit of anyone else) rather than for the benefit of the client. For
example, an employee would violate this Code by causing a portfolio to
purchase a security he or she owned for the purpose of supporting or
increasing the price of that security. Causing a portfolio to refrain from
selling a security in an attempt to protect a personal investment, such as
an option on that security, also would violate this Code.
B. No Oechsle Employee shall use knowledge of Oechsle client transactions to
profit by the market effect of those transactions.
C. No Oechsle employee may use futures or options to take positions in
securities which the Code would prohibit if the positions were taken
directly.
D. No Oechsle employee may purchase a security with knowledge that it is being
contemplated for purchase, or will be purchased, for an Oechsle client. No
Oechsle portfolio manager, analyst or trader may buy or sell a security
within seven calendar days on either side of a date on which the security
is bought or sold for the account of any Oechsle client. As an example, if
such an account purchases a particular security on Day 8, all portfolio
managers, analysts and traders would be precluded from purchasing or
selling that security for his or her own account(s) from Day 1 through Day
15.
For all other Oechsle employees the blackout period is one day before and one
day after any trade by any Oechsle client.
If a previously-entered employee trade falls within the blackout period, the
employee must reverse the trade. Thus, for example, if an employee pre-clears a
trade and purchases the security on Day 1, and an Oechsle client purchases the
security on Day 2, the Oechsle employee must reverse the trade. If the trade can
be reversed prior to settlement, the employee should do so, with the cost of
reversal being borne by the employee. If the trade cannot be reversed prior to
settlement, the employee must engage in an offsetting transaction immediately.
If a loss results, the employee must bear the loss; if a profit results, the
employee must donate the profit to a charity of the employee's choice with
suitable evidence of such donation provided to the General Counsel, or forfeit
the profit to Oechsle.
EXEMPTIONS:
A. Large Capitalization Stocks.
An Oechsle employee may purchase or sell shares of a security which is being
actively considered for purchase or sale, or which is being purchased or sold,
for Oechsle clients if, given the number of shares the employee is purchasing or
selling and the market capitalization (outstanding shares x current price per
share) of the issuer, the employee's trading could have no material impact on
the price of the security and if Oechsle were to trade in the security, such
trading could have no material impact on the price of the security. This
exemption is subject to prior written approval by the General Counsel, the
Trading Desk, and the Chief Operating Officer. You must specifically request
this prior approval.
B. Option Exercise by Others.
An Oechsle employee who has sold ("written") a put or call option in compliance
with the Code will not violate this or any other provision of the Code if the
put or call is exercised and the Oechsle employee must honor the contractual
commitment to purchase or sell the security, as the case may be.
C. Margin Calls.
An Oechsle employee who maintains securities in a margin account with a
broker-dealer will not violate this provision of the Code if the securities are
sold by the broker-dealer pursuant to a bona fide margin call, provided,
however, that withdrawal of collateral by the employee was not a contributing
factor to the margin call.
D. Dividend Reinvestment.
An Oechsle employee will not violate this provision of the Code by participating
in an automatic dividend reinvestment program offered by the issuer of a
publicly traded security.
E. Client Small Investments.
An Oechsle employee may engage in a transaction which would otherwise violate
this provision of the Code if (a) the client buying the security, or for whom
the security is being considered, is engaged in an ongoing investment program to
augment an existing position with relatively small regular increments of cash
flow, (b) the General Counsel, after consultation with investment personnel,
determines that neither the client's nor the employee's purchases will
materially affect the market price of the security, and (c) the General Counsel
gives prior consent to the transaction.
F. Gifts.
Gifts of securities made to others, such as relatives or charities, are treated
as dispositions of beneficial ownership, and must be pre-cleared prior to
transfer of the securities. However, gifts of securities received, if
non-volitional on the Oechsle employees' part, need not be pre-cleared.
G. Acquisition and Exercise of Certain Rights.
The acquisition and exercise of rights that are offered pro rata to all
shareholders is not covered by the Code. Exercise of oversubscription rights,
however, does require pre-clearance.
H. Stock Index Futures and Stock Index Options.
The purchase and sale of stock index futures and stock index options are not
subject to the blackout periods. However, such purchases and sales must be
reported in quarterly reports.
2. PUBLIC OFFERINGS:
No Oechsle employee may purchase equity and equity-related securities in initial
public offerings, whether or not Oechsle client accounts participate in the
offering, except as described below. Oechsle employees may purchase securities
that were the subject of a recent public offering after the offering is
completed, and then only at the prevailing market prices and subject to the
usual pre-clearance procedures. Oechsle employees may not receive special
allocations of "hot issues" from brokers which receive Oechsle business.
<PAGE>
EXEMPTIONS:
A. Oechsle employees are permitted to purchase equity and equity-related
securities in secondary offerings if Oechsle client accounts do not hold
the security and if no Oechsle portfolio manager wishes to participate in
the offering for client accounts.
B. Oechsle employees are permitted to purchase equity and equity-related
securities in rights offerings if the opportunity to purchase is extended
equally to all holders of the company's common stock and the offer is
extended to the employee as a holder of the company's common stock.
C. Oechsle employees are permitted to purchase equity and equity-related
securities in an offering if they are entitled to such purchase by virtue
of being a citizen or resident of a country who qualifies for privatization
issues made available to the public in general.
Any purchase of any security in a public offering, even if permitted under these
rules, must be pre-cleared in writing by the Senior Compliance Officer.
3. PRIVATE OFFERINGS:
No Oechsle employee may purchase a security in a private offering without first
obtaining a pre-clearance from the Senior Compliance Officer. The employee
should complete and submit to the Senior Compliance Officer a checklist in the
form attached as Exhibit C hereto.
Consideration of the prior approval request will take into account, among other
factors, whether the investment opportunity should be reserved for an Oechsle
client(s), and whether the opportunity is being offered to an individual as a
favor designed to influence that employee's judgment in the performance of his
or her job duties at Oechsle or as compensation for services of an investment
advisory nature rendered to the issuer. If approval is granted and the employee
has any material role in subsequent consideration by an Oechsle client of an
investment in the same, or a directly affiliated issuer, the employee must
disclose his or her interest in the private placement to the person making the
investment decision.
4. SHORT-TERM TRADING:
Excessive short-term trading increases the risk of conflict of interest, may
over time adversely affect an Oechsle employee's investment judgment on behalf
of Oechsle clients, and may unduly occupy an Oechsle employee's time and
thoughts during working hours. Oechsle employees are hired and compensated on
the assumption that their personal investing will generally be on a long-term
basis.
Therefore, while this Code does not impose an absolute prohibition on short-term
trading, excessive short-term trading is prohibited. Whether the extent of
short-term trading by an employee is "excessive" will be determined on a
case-by-case basis, taking into account all relevant factors, including
conditions prevailing in the securities markets and the types of securities
traded. Persons determined to be engaged in excessive short-term trading will be
subject to imposition of any or all of the sanctions described at the end of
this Code, including disgorgement of profits realized from the short-term trade.
A short-term trade is any purchase and sale, or sale and purchase, of the same
(or equivalent) securities within 60 calendar days.
EXEMPTIONS:
A. Option Exercise by Others.
An Oechsle employee who has sold ("written") a put or call option in compliance
with this Code will not have effected a short-term trade if the put or call is
exercised and the Oechsle employee must honor the contractual commitment to
purchase or sell the security, as the case may be, within 90 days of selling the
option.
B. Margin Calls. An Oechsle employee who maintains securities in a margin
account with a broker-dealer will not have effected a short-term trade if the
securities are sold by the broker-dealer pursuant to a bona fide margin call,
provided, however, that withdrawal of collateral by the employee was not a
contributing factor to the margin call.
5. TRANSACTIONS WITH OR INVOLVING OECHSLE CLIENTS:
No Oechsle employee may knowingly initiate a purchase from or sell to an Oechsle
client any securities or other property, nor engage in any transaction to which
an Oechsle client is a party or with which any Oechsle client has a significant
relationship.
6. GENERAL FIDUCIARY OBLIGATION TO CLIENTS; DISCLOSURE OF PERSONAL INTEREST:
As noted above, Oechsle and its employees have a fiduciary responsibility to
Oechsle's clients. Therefore we must avoid any conduct that would be detrimental
to their interests. In order to fulfill our duty, Oechsle employees must offer
all investment opportunities to Oechsle's clients before taking advantage of
such opportunities. Therefore, before trading in any security that is not
covered by an Oechsle analyst, you should ensure that the appropriate research
analyst or portfolio manager is aware that you have identified a security that
you believe would be a good investment, and explain the basis for your interest
in the security. If, after receiving that information, the analyst or portfolio
manager does not wish to recommend the security for investment by Oechsle
clients, you are free to trade, after securing the necessary pre-approvals. If
the analyst or portfolio manger expresses an interest in that security, however,
you must refrain from trading in that security until a decision has been made as
to whether to purchase that security for Oechsle clients and until any
applicable blackout period has expired.
In addition, if one of your personal securities holdings could create a conflict
of interest, or even a potential conflict of interest, with the interest of an
Oechsle client, you must disclose that conflict or potential conflict to the
appropriate analysts or portfolio managers before participating in any decision
that could affect the security you hold. For example, if you are an analyst, and
if you are recommending that Oechsle should purchase for client accounts
securities of any company whose securities you hold personally, you must
disclose the fact that you own the securities to the portfolio manager(s) who
will make that purchase decision before making your recommendation. Similarly,
if you are a portfolio manager and you want to purchase for client accounts
securities of any company whose securities you hold personally, you must
disclose the fact that you own the securities to someone else involved in
investment decisions before initiating the purchase. Please bear in mind, that
although not prohibited, as a general matter, Oechsle does not expect that
portfolio managers will hold the same securities as the Accounts that they
manage.
WAIVERS
A written request for a waiver from the prohibited transaction rules may
be granted by the Senior Compliance Officer after consultation with the
applicable personnel, upon a determination that the waiver is warranted to avoid
undue hardship to the employee and that none of the abuses or potential abuses
that the Code is designed to prevent would occur. Seeking waivers is not
encouraged and waivers will not be granted routinely.
REPORTING
Each Oechsle employee is responsible for complying with the following
reporting requirements:
1. COPIES OF CONFIRMATIONS:
Each Oechsle employee must instruct each broker-dealer with whom he or she
maintains an account, and with respect to all other accounts as to which the
employee is deemed to have beneficial ownership, to send promptly to the
Compliance Officer a copy of all transaction confirmations generated for the
account. For your convenience, a form letter for requesting such confirmations
to be sent to Oechsle is attached as part of Exhibit A.
Confirmations must include the account description, trade date, security
description, number of shares or principal amount of each security, the nature
of the transaction (e.g., purchase, sale, etc.), the total price, and the name
of the institution (e.g., broker, bank, etc.) effecting the transaction.
Each brokerage confirmation received by Oechsle is cross-checked against
pre-clearance forms and quarterly securities transaction reports submitted by
each employee. Copies of all confirmations and associated pre-clearance forms
are retained by the Compliance Officer in the employee's personal securities
transaction file.
In order to ensure that brokerage confirmations are received for all employee
brokerage accounts, all employees are required to complete a Brokerage Account
Form (see Exhibit B) and to submit an updated form (within 5 business days)
whenever an account is added or deleted. You and members of your immediate
family must disclose promptly every brokerage account that you maintain and
every new brokerage account that you open to the Compliance Officer. In
addition, each employee is asked to certify annually that the list of brokerage
accounts that have been reported previously remains complete and accurate.
2. TRANSACTION REPORTS:
Each Oechsle employee must file a Quarterly Securities Transaction Report (see
Exhibit D) with the Compliance Officer within 10 days after the end of each
quarter, whether or not the employee entered into any personal securities
transactions during that quarter. Quarterly reports are required by the SEC for
all investment company managers and enable Oechsle to double-check that all
personal securities transactions have been appropriately pre-cleared and
reported to Oechsle.
3. ANNUAL ACKNOWLEDGMENT:
By February 28 of each year, every Oechsle employee must sign an acknowledgment
stating that he or she has reviewed, understood, and complied with the
provisions of this Code (see Exhibit E).
OTHER CONFLICTS OF INTEREST
1. GIFTS OR OTHER PREFERENTIAL TREATMENT:
No Oechsle employee may seek or accept gifts, favors, preferential treatment, or
any special arrangement of material value from certain persons because of the
employee's association with Oechsle. This prohibition applies to anyone who does
business or is soliciting business with any Oechsle entity or Oechsle client, as
well as to any organization (such as any broker, dealer, or investment adviser)
engaged in the securities business.
This rule is intended to permit only the most proper type of customary business
amenities. Listed below are examples of items which would be permitted under
proper circumstances and which are prohibited under the intent of this rule.
These examples are illustrative and not all-inclusive. Notwithstanding these
examples, an Oechsle employee may not, under any circumstances, accept anything
which could lead to or create the appearance of any kind of conflict of
interest. For example, acceptance of any consideration is prohibited if it would
create the appearance of a "reward" or inducement for business conducted with
the person providing the consideration or his employer.
Among items not considered of "material value" which, under proper
circumstances, would be considered permissible are:
(a) Occasional lunches or dinners conducted for business purposes;
(b) Occasional cocktail parties or similar social gatherings conducted for
business purposes;
(c) Occasional attendance at theater, sporting or other entertainment
events; and
(d) Small gifts, usually in the nature of reminder advertising, such as
pens, calendars, etc.
Among items of consideration of "material value" which are not permitted under
any circumstances are the following:
(a) Any gift over $250 in value, or any accumulation of gifts which in
aggregate exceeds $250 in value from one source in one calendar year;
(b) Entertainment of a recurring nature such as sporting events, theater,
golf games, etc.;
(c) The cost of transportation to a locality outside the Boston
metropolitan area, and lodging or meals while in another locality,
unless such attendance and reimbursement arrangements have been
approved in advance by the General Counsel;
(d) Personal loans to the Oechsle employee on terms more favorable than
those generally available for comparable credit standing and
collateral; and
(e) Preferential brokerage commissions or spreads or allocation of stock
in "hot issue" initial public offerings for the Oechsle employee's
personal trading account.
2. DIRECTORSHIPS AND TRUSTEESHIPS IN OUTSIDE ORGANIZATIONS:
No Oechsle employee may accept a directorship in an unaffiliated company without
the prior notification and written approval of the Senior Compliance Officer.
Persons such as portfolio managers and analysts whose primary responsibilities
include recommending and selecting securities for the accounts of Oechsle
clients will not be granted approval to accept directorships in companies which
might qualify for investment by any Oechsle clients. Approval will be based upon
the determination that the board service would not be inconsistent with the
interests of Oechsle's clients. If board service is authorized, appropriate
procedures will be implemented to ensure that confidential information is not
obtained or used by either the employee or Oechsle.
No Oechsle employee may accept a position as trustee, executor, custodian, or as
any other fiduciary, or as a private investment adviser or counselor for any
outside account, without the prior notification and written approval of the
Senior Compliance Officer.
3. PROVIDING INVESTMENT ADVICE TO OTHERS:
No Oechsle employee may provide investment advice to anyone or manage any
person's portfolio on a discretionary basis, other than for Oechsle clients or
members of the employee's immediate family. Thus, employees should not give
advice to anyone, other than immediate family members, concerning the purchase
or sale of any security. In particular, Oechsle employees may not provide
investment advice for compensation to anyone other than an Oechsle client,
unless the arrangement is disclosed and approved by Oechsle.
4. IMPROPER USE OF FUNDS:
No Oechsle employee may pay, or offer or commit to pay, any amount of
consideration which might be or appear to be a bribe, kickback, or other similar
improper use of funds.
5. GENERAL ANTI-FRAUD PROVISION:
No Oechsle employee may violate the anti-fraud provisions of the federal
securities laws and the rules and regulations promulgated thereunder. This
provision covers a broad range of conduct, including, without limitation, the
following:
A. Affirmative Duty to Disclose. Oechsle employees who own a security, or who
have decided to effect a personal transaction in a security, have an
affirmative duty to disclose this information in the course of any
communication about that security when the purpose or reasonable
consequence of such communication is to influence an Oechsle client to buy,
hold, or sell that security. The disclosure of ownership should be part of
the initial communication but need not be repeated in the case of
continuing communications directed to a specific person.
B. Disclosure of Oechsle Information. No information regarding any Oechsle
client account or actual or proposed securities trading activities of any
Oechsle client may be disclosed outside the Oechsle organization unless the
information has been publicly announced or reported. Oechsle research
information must not be disclosed unnecessarily and never for personal
gain. Information generally about Oechsle and Oechsle clients is
confidential, and should not be disclosed without a valid business purpose.
C. Use of Information. No Oechsle employee may use information from any source
in a manner contrary to the interest of, or in competition with, any
Oechsle client. In particular, an Oechsle employee may not invest in a
company which could reasonably be considered as a potential investment for
Oechsle clients and which has not been considered by Oechsle analysts until
determining with appropriate investment personnel that no portfolio
managers have a current interest in the company on behalf of an Oechsle
client. This rule is not intended to prohibit any Oechsle employees from
uncovering and capitalizing on new "investment ideas," but requires that
Oechsle have the first right to such ideas for its clients.
D. "Inside" Information and Insider Trading.
Neither Oechsle nor any Oechsle employee may utilize "inside" information
about any issuer of securities for personal benefit or the benefit of
clients. Inside information is material information not generally available
to the public. Information is considered "material" if there is a
substantial likelihood that a reasonable investor would consider it
important in making his or her investment decisions, or if it could
reasonably be expected to affect the price of a company's securities. It
need not be so important that it would have changed the investor's decision
to buy or sell. Information that has been disseminated in a way that makes
it available to investors generally (e.g., national business and financial
news wire services, such as Dow Jones and Reuters; national news services,
such as New York Times; SEC reports; brokerage firm reports) is considered
to be public information. But, for example, information given by a company
director to an acquaintance of an impending takeover prior to a public
announcement would be "nonpublic."
No Oechsle employee may trade, either personally or on behalf of others, on
material, nonpublic information (insider trading), or communicate such
information to others who trade in violation of the law (tipping). Although the
pre-clearance, reporting, and trade restriction requirements of this Code apply
only to Oechsle employees and their immediate family members, the insider
trading and tipping restrictions reach beyond to prohibit Oechsle employees from
illegally profiting or from funneling illegal profits to any other person. They
also prohibit Oechsle from insider trading or tipping in client accounts.
No Oechsle employee may solicit inside information from any company, whether or
not Oechsle clients own stock of the company or Oechsle analysts follow the
company. In addition, please note that the SEC has adopted a rule specifically
prohibiting trading while in possession of material information about a
prospective tender offer before it is publicly announced or trading during a
tender officer if in possession of information which one has reason to know is
not yet public.
Procedures to be Followed When Receiving Inside Information:
Whenever an Oechsle employee receives information that he or she believes to be
material, nonpublic information, he or she should not trade on his or her own
behalf or on behalf of Oechsle clients in the securities to which the
information relates, tip the information to others, or recommend for purchase or
sale such securities, so long as the information remains nonpublic. In addition,
the employee should contact the Senior Compliance Officer, or, in his absence,
the General Counsel immediately and should refrain from disclosing the
information to anyone else, including persons within the Oechsle organization,
unless specifically advised to do so by the Senior Compliance Officer or the
General Counsel.
SANCTIONS
Failure to comply with this Code may adversely affect an Oechsle employee's
performance evaluation, may require the employee to give up any benefit derived
from the violation, may require the employee to refrain from personal trading
for a period, and may lead to termination of employment in appropriate cases.
Penalties under the federal securities laws are also possible in certain
circumstances.
Sanctions may include:
1. Caution: Administered by the Senior Compliance Officer;
2. Warning: Administered by the Senior Compliance Officer;
3. Fine: Assessed by the General Counsel, the Chief Operating
Officer, and the Chief Investment Officer;
4. Dismissal: Determined by the Executive Committee;
5. Civil referral to the SEC or other civil regulatory authorities:
Determined by the Executive Committee;
6. Criminal referral: Determined by the Executive Committee.
Procedures:
When potential violations of the Code come to the attention of the Senior
Compliance Officer, he will investigate the matter and inform the General
Counsel. This investigation may include a meeting with the employee. Upon
completion of the investigation, if necessary, the Senior Compliance Officer may
meet with senior management (the Chief Operating Officer and/or the Chief
Investment Officer) or other appropriate parties, and a determination will be
made as to whether any sanction should be imposed. The employee will be informed
of any sanction deemed to be appropriate. If the employee believes that such
sanction is unwarranted, the employee must provide the Senior Compliance Officer
with a written explanation of such belief within 30 days of being informed after
such determination. The Senior Compliance Officer will then arrange for a review
by senior management or other appropriate party and will advise the employee as
to whether the sanction will be imposed, modified, or withdrawn. The employee
will be given an opportunity to submit a written statement to senior management
and may be represented by counsel of his or her own choosing, at his or her own
expense, at his or her election.
The Senior Compliance Officer will maintain a written record of all exceptions
granted from prohibited transactions under this Code.
<PAGE>
EXHIBIT A
PERSONAL SECURITIES TRANSACTION PRE-CLEARANCE FORM
NAME OF EMPLOYEE: ____________________________
ACCOUNT NAME AND NUMBER: ____________________________
DATE OF TRANSACTION: ____________________________
SECURITY NAME: ____________________________
SECURITY ID NUMBER (CUSIP/SEDOL): ___________________________
COUNTRY: _______________ TYPE OF SECURITY: ______________
NUMBER OF SHARES: ___________ PRICE: ___________________
BUY: ____________ SELL: _________________
IS THIS A LIMIT ORDER OR STOP-LOSS ORDER TRADE: YES / NO
NAME/ADDRESS OF BROKER: __________________________________________
__________________________________________
__________________________________________
I hereby certify that I am familiar with Oechsle's Code of Ethics, and
that this transaction complies in all material respects with Oechsle's policies.
I am not aware of any material, non-public information concerning this issuer or
the market for its securities, or any pending plans or consideration to purchase
these securities for Oechsle clients.
SIGNATURE: _________________________________ DATE: _______________
AUTHORIZATION
TRADING DESK: _________________________ DATE: ____________
MANAGING PRINCIPAL ___________________ DATE: ____________
COMPLIANCE OFFICER: __________________ DATE: ____________
*IF THIS PRE-CLEARED TRADE IS NOT EXECUTED, PLEASE WRITE CANCELED ACROSS IT AND
SUBMIT A COPY OF THIS CANCELED FORM TO THE COMPLIANCE OFFICER.
EXHIBIT A
PERSONAL SECURITIES TRANSACTION PRE-CLEARANCE FORM - (LONDON)
NAME OF EMPLOYEE: ____________________________
ACCOUNT NAME AND NUMBER: ____________________________
DATE OF TRANSACTION: ____________________________
SECURITY NAME: ____________________________
SECURITY ID NUMBER (CUSIP/SEDOL): ___________________________
COUNTRY: _______________ TYPE OF SECURITY: ______________
NUMBER OF SHARES: ___________ PRICE: ___________________
BUY: ____________ SELL: _________________
IS THIS A LIMIT ORDER OR STOP-LOSS ORDER TRADE: YES / NO
NAME/ADDRESS OF BROKER: __________________________________________
__________________________________________
__________________________________________
I hereby certify that I am familiar with Oechsle's Code of Ethics, and
that this transaction complies in all material respects with Oechsle's policies.
I am not aware of any material, non-public information concerning this issuer or
the market for its securities, or any pending plans or consideration to purchase
these securities for Oechsle clients.
SIGNATURE: _________________________________ DATE: _______________
AUTHORIZATION
TRADING DESK: ___________________________ DATE: ____________
MANAGING PRINCIPAL: ____________________ DATE: ____________
COMPLIANCE OFFICER: ____________________ DATE: ____________
*IF THIS PRE-CLEARED TRADE IS NOT EXECUTED, PLEASE WRITE CANCELED ACROSS IT AND
SUBMIT A COPY OF THIS CANCELED FORM TO THE COMPLIANCE OFFICER.
EXHIBIT A
SAMPLE LETTER TO SEND TO YOUR BROKER
TO REQUEST DUPLICATE ACCOUNT INFORMATION
[Broker-Dealer Name]
[Broker-Dealer Address]
RE: Account Number(s)
Dear [Broker]:
Please send a duplicate copy of all trade confirmations (not the monthly
statements) relating to the account(s) listed above to:
James Record
Compliance Officer
Oechsle International Advisors, LLC
One International Place, 23rd Floor
Boston, MA 02110
Very truly yours,
[Employee Name]
<PAGE>
EXHIBIT B
LIST OF BROKERAGE ACCOUNTS IN WHICH YOU HAVE DIRECT OR
INDIRECT BENEFICIAL OWNERSHIP*
ANNUAL CERTIFICATION
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
NAME OF
BROKER NAME BROKER ADDRESS ACCOUNT NUMBER ACCOUNT HOLDER RELATIONSHIP
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
- -------------------- ----------------------------------- --------------------------- -------------------------- --------------------
</TABLE>
Name of Employee___________________________________________________
(Print)
I certify that I have disclosed to Oechsle all brokerage accounts in which I
have a direct or indirect beneficial interest.
Signature___________________________________________________________
*Beneficial ownership is explained in the Code of Ethics.
<PAGE>
EXHIBIT C
PRIVATE PLACEMENT APPROVAL REQUEST
EMPLOYEE NAME: ___________________________ DATE: ______________
1. COMPANY NAME: ______________________________________
2. Business Operations Summary:
3. Who contacted you regarding this investment? _______________________
4. Which firm/company employs this individual? _______________________
5. Does this individual or firm have a relationship with Oechsle or Oechsle
clients? If so, please explain.
6. What is the individual's role within the company? __________________________
7. What is your relationship to the individual? ______________________________
8. What is the total amount of the private placement? ________________________
9. What is the value of your proposed investment? ____________________________
10. Does this company have publicly traded securities? _______________________
11. Is this investment suitable for Oechsle clients? Yes ______ No _______
If not, please explain.
__________________________________________
__________________________________________
__________________________________________
- -----------------------------------------
Employee Signature
Approved _______ Disapproved ______
Managing Principal _______________________ Date: ______________
Senior Compliance Officer _______________ Date: ______________
<PAGE>
EXHIBIT D
QUARTERLY TRANSACTION REPORT
October 1 - December 31, XXXX
The following is a record of every transaction in which I had, or by reason of
which I acquired, any direct or indirect beneficial ownership in securities from
October 1 - December 31, XXXX excluding transactions which do not have to be
reported under Oechsle's Code of Ethics.
I had no securities transactions for the quarter: __
I had the following transactions:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
Account Name / Trade Buy / Sell # of Price Name and Description (ID # ) Broker/Dealer
(Number) Date shares of Security
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
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- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
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- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
- ----------------- ----------- ------------ ----------- ----------- -------------------------------- --------------------------
</TABLE>
- ------------------------------ ------------------------------
Signature Date
- ----------------------------
Print Name
EXHIBIT E
OECHSLE INTERNATIONAL ADVISORS, LLC
CODE OF ETHICS
ANNUAL CERTIFICATION
I have received a copy of Oechsle International Advisors, LLC's Code of Ethics,
dated July 29, 1999, I have read it and understand it.
I understand that, as a condition of my employment, I am required to comply with
the Code of Ethics. I agree to comply with all provisions of the Code of Ethics,
including, but not limited to, those governing personal securities transactions.
I certify that to the best of my knowledge I have complied with the terms of the
Code of Ethics during the most recent calendar year.
I authorize Oechsle to furnish the information contained in any report of
securities transactions filed by me with the General Counsel or the Compliance
Officer to such federal, state, and self-regulatory authorities as may be
required by law or by applicable rules and regulations.
I certify that I have disclosed to Oechsle all brokerage accounts in which I
have a beneficial interest, and that I have authorized each such brokerage firm
to send directly to Oechsle duplicate copies of all transaction confirmations
for such accounts.
- --------------------------------
Date
- ---------------------------------
Name (Print)
- ----------------------------------
Signature of Employee
