As filed with the Securities and Exchange Commission on May 12, 2004. Registration No. 333-113514 and 811-5075 ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No._1__ [ ] Post-Effective Amendment No.____ (Check appropriate box or boxes) -------------------------------------------------------------------------------- THE AAL MUTUAL FUNDS (Exact name of Registrant as Specified in Charter) 625 Fourth Avenue South Minneapolis, Minnesota 55415 (Address of Principal Executive Offices) 612-340-8492 (Registrant's Telephone Number) Marlene J. Nogle 625 Fourth Avenue South Minneapolis, Minnesota 55415 (Name and Address of Agent for Service) Approximate Date of Proposed Public Offering: As soon as possible following the effective date of this Registration Statement. -------------------------------------------------------------------------------- Title of Securities Being Registered: Shares of Beneficial Interest No filing fee is required because of reliance on Section 24(f) under the Investment Company Act of 1940, as amended. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ LUTHERAN BROTHERHOOD WORLD GROWTH FUND LUTHERAN BROTHERHOOD GROWTH FUND LUTHERAN BROTHERHOOD FUND LUTHERAN BROTHERHOOD VALUE FUND LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND LUTHERAN BROTHERHOOD MONEY MARKET FUND LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND LUTHERAN BROTHERHOOD MID CAP GROWTH FUND LUTHERAN BROTHERHOOD HIGH YIELD FUND LUTHERAN BROTHERHOOD INCOME FUND LUTHERAN BROTHERHOOD LIMITED MATURITY BOND FUND Series of THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS The Lutheran Brotherhood Family of Funds 625 Fourth Avenue South Minneapolis, Minnesota 55415 May 17, 2004 Dear Shareholder: As previously announced, in January 2002, Aid Association for Lutherans and Lutheran Brotherhood merged to form Thrivent Financial for Lutherans. Since that time, we have implemented several changes to combine the best of both organizations. The proposals described in the accompanying proxy statement are an important step to continue this process for the organizations' mutual fund families. Since the merger, we have done considerable planning and preparation to create the foundation for the new Thrivent Financial family of mutual funds. Our primary goal is to provide substantial value to shareholders through consistent, competitive performance, enhanced shareholder services and a growing business with an excellent reputation. Thrivent Financial expects to build on its many strengths as a money manager while also addressing areas that need improvement. Your Board of Trustees and Thrivent Financial are working together to develop action steps that collectively are expected to benefit shareholders. They include: o The proposed reorganization of funds of The Lutheran Brotherhood Family of Funds into new and existing series of The AAL Mutual Funds, placing all of the funds under a single board of trustees; o Investment of $4-5 million by Thrivent Financial to enhance the quality of its asset management capabilities, including hiring investment professionals and making infrastructure investments to support investment research; o New product names using the Thrivent Financial brand. The merged investment company will be named the Thrivent Mutual Funds; o Expanded product offerings; and o Greater investment choice through access to an expanded array of money managers. Some of these changes require shareholder approval. Other changes have been or are expected to be implemented by Thrivent Financial working with your Board of Trustees. The Board of Trustees of The Lutheran Brotherhood Family of Funds unanimously recommends that shareholders of each fund vote FOR the reorganization proposal for each fund in the proxy statement. The Board has determined that these reorganizations will benefit the funds by: o Consolidating all of the mutual funds sponsored by Thrivent Financial under a single investment company and board of trustees. This will further streamline governance and oversight of the funds. o Simplifying administrative and regulatory requirements for the funds by, among other things, eliminating duplicative regulatory filings and duplicative fixed costs such as Federal and State registration fees, accounting and audit fees, legal fees and shareholder meetings. A special shareholder meeting is scheduled for June 16, 2004, to consider each reorganization. It is very important that you vote on the proposal for each fund in which you have invested. Please read this proxy statement and cast your vote using the enclosed proxy card. To see how the reorganization will affect your mutual fund investment, please review the enclosed information on the advisory fees, expenses, investment policies and services relating to the corresponding funds of The AAL Mutual Funds. In the midst of these important changes, your Board is committed to ensuring that The Lutheran Brotherhood Family of Funds operates in a manner that is deserving of your trust. This is especially important at a time when shareholders' confidence in money managers and fund families is being shaken. It is a commitment that we, as well as Thrivent Financial, take very seriously. Sincerely, Pamela J. Moret President Questions & Answers For Shareholders of The Lutheran Brotherhood Family of Funds The Board of Trustees of The Lutheran Brotherhood Family of Funds has provided the following questions and answers to summarize the proposals in this proxy statement. Your vote is very important. The Board unanimously supports these proposals and encourages you to read the full proxy statement and vote as soon as possible by phone, Internet or mail. Q: Why is the proxy statement and prospectus so long? A: The Board and Thrivent Investment Mgt. Inc. are required by SEC regulation to provide all of the information contained in the proxy statement and prospectus. You are entitled to be fully informed when you vote for or against the proposals. We have prepared these questions and answers to highlight certain elements of the proxy. We also encourage you to call 1-866-270-1532 to obtain answers to your questions. Q. What changes are proposed? A: The Board proposes to reorganize and merge each fund of The Lutheran Brotherhood Family of Funds into either an existing or a newly formed fund of The AAL Mutual Funds. The Board proposes that the following LB Funds be reorganized into existing funds of The AAL Mutual Funds. Immediately following the reorganizations, each of the AAL funds will be renamed using the Thrivent name. Target LB Fund AAL Fund Reorganization - -------------- -------- -------------- Lutheran Brotherhood World Growth -> AAL International Fund Thrivent Partner Fund International Stock Fund Lutheran Brotherhood Growth Fund -> AAL Aggressive Growth Fund Thrivent Large Cap Growth Fund Lutheran Brotherhood Fund -> AAL Capital Growth Fund Thrivent Large Cap Stock Fund Lutheran Brotherhood Value Fund -> AAL Equity Income Fund Thrivent Large Cap Value Fund Lutheran Brotherhood Municipal Bond -> AAL Municipal Bond Fund Thrivent Municipal Bond Fund Fund Lutheran Brotherhood Money Market -> AAL Money Market Fund Thrivent Money Market Fund Fund The Board also proposes that the following LB Funds be reorganized into corresponding newly formed funds of The AAL Mutual Funds. Target LB Fund Corresponding Acquiring New Thrivent Fund - -------------- ----------------------------------------- Lutheran Brotherhood Opportunity Growth Fund and -> Thrivent Mid Cap Growth Fund Lutheran Brotherhood Mid Cap Growth Fund Lutheran Brotherhood High Yield Fund -> Thrivent High Yield Fund Lutheran Brotherhood Income Fund -> Thrivent Income Fund Lutheran Brotherhood Limited Maturity Bond Fund -> Thrivent Limited Maturity Bond Fund Q: Why is the reorganization proposed? A: Lutheran Brotherhood and Aid Association for Lutherans merged in January 2002 to form Thrivent Financial for Lutherans. The proposed reorganization is part of a multi-phase plan to merge and integrate the governance and operations of the mutual funds sponsored by Thrivent Financial. Q: Why did the Board approve the reorganizations? With respect to each LB Fund that will be reorganized into a Thrivent/AAL Fund, the Board has determined that the reorganization is in the best interests of the LB Fund shareholders. In reaching this decision, the Board considered the following factors among others: o The reorganizations will consolidate the mutual funds sponsored by Thrivent Financial under a single investment company and board of trustees. This will streamline governance and oversight of the mutual funds. o The reorganization offers the opportunity for operational efficiencies by simplifying the administrative and regulatory requirements for the funds and eliminating duplicative regulatory filings. The reorganization will eliminate certain duplicative costs. o The reorganization will not result in the recognition of any gain or loss for federal income tax purposes by the LB Funds, the Thrivent Funds or their shareholders. o Thrivent Investment Mgt., and not the funds or its shareholders, will be responsible for payment of the expenses related to each reorganization. In recommending the reorganization of LB Funds into new Thrivent Funds, the Board further noted that: o The investment objective of each new Thrivent Fund will be identical to the investment objective of the corresponding LB Fund, and, except in the case of the reorganization of the Lutheran Brotherhood Opportunity Growth Fund into the Thrivent Mid Cap Growth Fund, the investment strategy of each new Thrivent Fund will be identical to the investment strategy of the corresponding LB Fund. In recommending the reorganization of the Lutheran Brotherhood Opportunity Growth Fund into the Thrivent Mid Cap Growth Fund, the Board considered the following additional factors: o The investment objectives of the Lutheran Brotherhood Opportunity Growth Fund and the Thrivent Mid Cap Growth Fund are identical. There are no material differences in their investment strategies, except that the Lutheran Brotherhood Opportunity Growth Fund focuses on small cap companies while the Thrivent Mid Cap Growth Fund focuses on mid cap companies. o The potential for benefiting from economies of scale of a larger asset base, including greater portfolio diversification and the opportunity to conduct investment transactions on potentially more advantageous terms than two separate smaller funds. The reorganization also offers opportunities to spread fixed costs over a larger asset base. In recommending the reorganization of certain LB Funds into existing AAL Funds, the Board considered: o There are no material differences in the investment objectives and strategies of the LB Funds and the existing AAL Funds. o The potential for benefiting from economies of scale of a larger asset base, including greater portfolio diversification and the opportunity to conduct investment transactions on potentially more advantageous terms than two separate smaller funds. The reorganization also offers opportunities to spread fixed costs over a larger asset base. Q: How will the LB Funds be merged with the Thrivent Funds? A: In the reorganization, the shares of each LB Fund automatically will be exchanged for an equal dollar value of the same class of shares of the corresponding Thrivent Fund. Q: What will happen to the expense ratios for my mutual fund? A: You will notice that the pro forma expense tables for the merged funds in the proxy statement and prospectus show pro forma expense ratios that are higher than the historic expense ratios of the LB Fund in several instances. This answer discusses the reasons for the apparent increases and the steps to be taken to lessen or eliminate those increases. The Board of Trustees approved the reorganizations in November, 2003. Based upon actual historical figures at that time, with one exception, only Class B shareholders would have experienced an increase in expenses following the reorganizations. As discussed below, Thrivent Investment Management Inc. agreed to reimburse expenses for Class B shareholders following the reorganizations in an amount necessary to keep their net expenses at or below gross expenses as of October 31, 2003. These reimbursements are not shown in the comparative expense tables because they are contingent upon completion of the reorganizations. They are, however, described in the footnotes to the tables. The reimbursements will be in effect through at least December 31, 2004 and no portion will be refunded to Thrivent Investment Mgt. The transfer agent for The Lutheran Brotherhood Family of Funds, Thrivent Financial Investor Services, Inc. ("TFISI"), was able to negotiate a lower fee schedule with the vendor used to provide systems and other support for the transfer agent function. This agreement was reached during the fourth quarter of 2003. The transfer agent and the Fund's Trustees desired to pass on the savings to shareholders of the Fund beginning January 1, 2004, rather than wait to pass on the savings after the mergers with The AAL Mutual Funds in mid-2004. Because the fee reduction was implemented prior to filing the proxy statement and prospectus, in accordance with SEC rules the historic expenses shown in the pro forma expense tables have been restated to reflect the reduction. The restatement of the actual historic expenses causes the presentation in the pro forma expense tables to understate the overall favorable impact that we expect the reorganization will have on the expense ratios of The Lutheran Brotherhood Family of Funds. For example, the actual operating expenses for Class A shares of the Lutheran Brotherhood Money Market Fund for the year ended October 31, 2003 were 1.01%. The Pro Forma Total Annual Fund Operating Expenses for Class A shares of the Lutheran Brotherhood Money Market Fund reflected in the pro forma expense table are 0.91%, which compares favorably to actual expenses. However, as discussed above, the historic expenses of Class A shares of the Lutheran Brotherhood Money Market Fund shown in the table have been restated from 1.01% to 0.89% to reflect the transfer agent fee reduction. This restatement of historic expenses masks the fact that, on a pro forma basis, the expenses of this Fund for the year ended October 31, 2003 would have declined from 1.01% to 0.91% as a result of the reorganization. The footnotes to the expense tables state the actual operating expenses of the Funds as of October 31, 2003. In each case, with the exception of Class A shares of the Lutheran Brotherhood Municipal Bond Fund, pro forma expense ratios will be less than actual expense ratios at October 1, 2003. In approving the reorganizations, the Board of Trustees reviewed and considered comparisons of pro forma expense ratios to actual expense ratios prior to the reduction in transfer agent fees. TFISI also became the transfer agent for The AAL Mutual Funds on April 24, 2004, and it charges The AAL Mutual Funds the same fees as it charges The Lutheran Brotherhood Family of Funds. The lower transfer agency fees currently in effect for The Lutheran Brotherhood Family of Funds will not increase as a result of the reorganizations. The one exception to this overall favorable result is that the pro forma operating expense ratio for Class A shares of the Lutheran Brotherhood Municipal Bond Fund will be 0.06% higher following the reorganization as compared to its actual expense ratio at October 31, 2003. The Board of The Lutheran Brotherhood Family of Funds considered that a substantially identical municipal bond fund was being offered by The AAL Mutual Funds. Both municipal bond funds are substantially identical in terms of investment objectives, policies, and restrictions; both have the same portfolio manager; and both are in the same Lipper universe and have a 99% correlation. In view of these similarities, the Board was concerned over possible sales force and shareholder confusion arising from Thrivent offering two substantially identical funds. The Board also considered that the pro forma expense ratio of the merged funds would be higher than the expense ratio of the LB Municipal Bond Fund at that time, but the Board concluded that merging the two funds provided the opportunity for a lower expense ratio over time due to potential economies of scale, which may never occur. This opportunity would be less likely to occur if the Fund was not merged and part of the larger AAL Mutual Fund Family. Q. Is there a difference in the method of allocating fees and expenses among classes between the LB Funds and the AAL Funds? A. Yes. Both the LB Trust and the Thrivent Trust charge management fees, distribution (12b-1) fees and shareholder servicing fees directly to the shareholder class incurring the fees. Shareholder servicing fees are part of the 12b-1 plan of the Thrivent Trust. The LB Trust's shareholder servicing fees are not part of its 12b-1 plan and therefore are included in "other expenses" in the comparative expense tables. The Institutional Class shares of the Thrivent Trust are not charged a shareholder servicing fee, whereas the LB Funds charge a 0.15% shareholder servicing fee to Institutional Class shareholders. Therefore, the Institutional Class expense ratios will be lower for LB Fund Institutional shareholders following the Reorganizations. LB Fund Class A and Class B shareholders will continue to pay servicing fees as part of the 12b-1 fee. Both the LB Trust and the Thrivent Trust allocate expenses attributable to all Funds, such as custodian, audit, accounting, trustee and legal fees, proportionately based on relative asset value. The LB Trust and the Thrivent Trust allocate account-based expenses (transfer agent fess and printing and postage expenses) which can be directly attributed to a share class, differently. These account-based expenses are based upon the number of accounts in the share class. o The Thrivent Trust allocates these expenses directly to the share class incurring the expense. o The LB Trust allocates transfer agent fees attributable to the Institutional Class shares directly to the institutional shares. Transfer agent fees attributable to the Class A and Class B shares are allocated to each such class based on the net asset value of such class in relation to the aggregate net asset value of the Class A and Class B shares. o The LB Trust allocates printing and postage expenses among the Class A, Class B and Institutional Class shares proportionately based on relative net assets. In most cases Class A and Institutional Class shareholders of the LB Funds pay a larger share of other expenses than the Class A and Institutional Class shareholders of their corresponding Thrivent/AAL Funds while the Class B shareholders pay less. This is because the average account size of Class B shareholders is less than the average account size of Class A and Institutional Class shareholders. The Thrivent Trust method of allocating expenses will be used following the Reorganizations. As a result, account-based expenses for the LB Funds will be lower for Class A and Institutional Class shareholders following the Reorganizations and account-based expenses for Class B shareholders of the LB Funds will be higher. Thrivent Investment Mgt. will reimburse Class B share expenses through at least December 31, 2004, to the extent necessary to assure that, following the reorganizations, Class B share net expense ratios for the Thrivent/AAL Funds will not increase beyond the total Class B share expense ratios of the corresponding LB Funds (before any expense waiver and reimbursement) as of October 31, 2003. The reimbursement levels are set forth in the footnotes to the comparative expense tables. The reimbursements will be in effect through at least December 31, 2004 and no portion will be refunded to Thrivent Investment Mgt. Q. Who will manage the New Thrivent Funds? A. Except for the Lutheran Brotherhood World Growth Fund and the Lutheran Brotherhood Opportunity Growth Fund, the individuals who are primarily responsible for the current day-to-day management of the LB Funds will continue to be responsible immediately following the reorganizations. Q: Who will manage the Thrivent Mid Cap Growth Fund following the reorganization of the Lutheran Brotherhood Opportunity Growth Fund and Lutheran Brotherhood Mid Cap Growth Fund into the Thrivent Mid Cap Growth Fund? The portfolio managers for the Lutheran Brotherhood Mid Cap Growth Fund, Andrea J. Thomas and Brian L. Thorkelson, will co-manage the Thrivent Mid Cap Growth Fund. Q. Who will manage the LB World Growth Fund following its reorganization into the AAL International Fund? A. Oeschle International Advisors, LLC presently subadvises the AAL International Fund. T. Rowe Price International, an affiliate of T. Rowe Price Associates, Inc., presently subadvises the Lutheran Brotherhood World Growth Fund. Following the reorganization, the AAL International Fund will have two co-subadvisers: T. Rowe Price International, Inc. and Mercator Asset Management, LP. Q: When will the reorganization be effective? A: A Special Meeting of Shareholders of each of the LB Funds is scheduled for June 16, 2004 to consider the reorganizations. Subject to shareholder approval, the reorganizations are expected to be effective on or about July 16, 2004. Q: Can I make additional investments in the LB Funds before the reorganization? A: Yes. You can continue to make investments in any of the LB Funds until the effective date of the reorganization. Q: What do I need to do to exchange my shares? A: Nothing. If shareholders approve the reorganization, the shares of your LB Fund automatically will be exchanged for an equal dollar value of shares of the corresponding Thrivent/AAL Fund. Q: Will I incur taxes as a result of this reorganization? A: Each reorganization is expected to be tax-free for federal income tax purposes. The LB Funds and the Thrivent/AAL Funds will seek an opinion from counsel to this effect. Generally, shareholders will not recognize capital gains or losses on the exchange of LB Fund shares for Thrivent/AAL Fund shares having an equal dollar value as a result of this reorganization. A shareholder's basis in the Thrivent Fund shares will be the same as the shareholder's basis in the LB shares exchanged. Q. Who can vote? A. Each shareholder of an LB Fund as of the record date of March 19, 2004, is entitled to vote on the reorganization of the relevant LB Fund. Q. How does the Board recommend that I vote? A. The Board of Trustees unanimously recommends that you vote FOR these proposals. Q: How can I vote? A: You can vote by: o Internet - Use the Web site listed on the enclosed proxy card. o Telephone - Follow the directions on the enclosed proxy card. o By mail - Date and sign the enclosed proxy card and return it in the enclosed postage-paid envelope. Q. Why should I vote? A. Every vote is important and the Board encourages you to return your vote as soon as possible. Voting your proxy now will ensure that the necessary number of votes are obtained to hold the shareholder meeting as scheduled, without the time and expense required for additional proxy solicitation. Q: When should I vote? A: Please vote as soon as possible by mail, telephone or the Internet. This will help avoid additional follow-up costs. Q: Who is paying the cost of the shareholder meeting and of this proxy solicitation? A: Thrivent Financial will pay all of the shareholder meeting, proxy preparation and proxy solicitation expenses. Expenses relating to the reorganization will not be paid for out of fund or portfolio assets. Q: Who should I call if I have questions about the proposals in the proxy statement? A. Call 1-866-270-1532. Q: How can I get more information about the funds? A: A copy of the prospectus for the existing AAL Funds accompanies this proxy statement and prospectus as Appendix B. The prospectus for the new Thrivent Funds is attached as Appendix C. Management's discussion of Fund performance for the existing AAL Funds is included under the heading "Management's Discussion for Existing AAL Funds". For a copy of the prospectus or the Statement of Additional Information for the LB Funds, write to The Lutheran Brotherhood Family of Funds, 625 Fourth Avenue South, Minneapolis, Minnesota 55415 or call 1-800-THRIVENT (1-800-847-4836) and select option 1. For a copy of the Statement of Additional Information for the Thrivent/AAL Mutual Funds, or for a copy of the Statement of Additional Information relating to this proxy statement and prospectus, write to The AAL Mutual Funds, 625 Fourth Avenue South, Minneapolis, Minnesota 55415 or call 1-800-847-4836 and select option 1. LUTHERAN BROTHERHOOD WORLD GROWTH FUND LUTHERAN BROTHERHOOD GROWTH FUND LUTHERAN BROTHERHOOD FUND LUTHERAN BROTHERHOOD VALUE FUND LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND LUTHERAN BROTHERHOOD MONEY MARKET FUND LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND LUTHERAN BROTHERHOOD MID CAP GROWTH FUND LUTHERAN BROTHERHOOD HIGH YIELD FUND LUTHERAN BROTHERHOOD INCOME FUND LUTHERAN BROTHERHOOD LIMITED MATURITY BOND FUND Series of THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS 625 Fourth Avenue South Minneapolis, Minnesota 55415 NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS To be held on June 16, 2004 A Special Meeting of Shareholders (the "Special Meeting") of each series of The Lutheran Brotherhood Family of Funds (the "LB Trust") listed above (each an "LB Fund" and collectively the "LB Funds") will be held at the Thrivent Financial for Lutherans building, 625 Fourth Avenue South, Minneapolis, Minnesota on June 16, 2004, at 8:30 a.m. Central Time for the following purposes: 1. For shareholders of each of the following LB Funds separately to approve a proposed Agreement and Plan of Reorganization between the LB Trust and The AAL Mutual Funds (which will change its name to the Thrivent Mutual Funds on or about July 16, 2004, and is hereinafter referred to as the "Thrivent Trust"), whereby (a) all of the assets of the applicable LB Fund will be transferred to a corresponding existing series of the Thrivent Trust (each an "Existing AAL Fund" and collectively the "Existing AAL Funds") in exchange for shares of the corresponding class of the Existing AAL Fund's shares of equal dollar value; (b) the stated accrued and unpaid liabilities of the LB Fund will be assumed by the corresponding Existing AAL Fund; (c) the LB Fund will distribute pro rata to its shareholders, in complete liquidation, the shares of the corresponding Existing AAL Fund received in exchange for its net assets; and (d) the LB Fund will cease to exist. Target LB Fund Corresponding Acquiring Existing AAL Fund -------------- ----------------------------------------- Lutheran Brotherhood World Growth -> AAL International Fund Fund Lutheran Brotherhood Growth Fund -> AAL Aggressive Growth Fund Lutheran Brotherhood Fund -> AAL Capital Growth Fund Lutheran Brotherhood Value Fund -> AAL Equity Income Fund Lutheran Brotherhood Municipal -> AAL Municipal Bond Fund Bond Fund Lutheran Brotherhood Money Market -> AAL Money Market Fund Fund 2. For shareholders of each of the following LB Funds separately to approve a proposed Agreement and Plan of Reorganization between the LB Trust and the Thrivent Trust, whereby (a) all of the assets of the applicable LB Fund will be transferred to a corresponding newly formed series of the Thrivent Trust (each a "New Thrivent Fund") and collectively the "New Thrivent Funds") in exchange for the New Thrivent Fund's shares of the corresponding class of equal dollar value; (b) all of the liabilities of the LB Fund will be assumed by the corresponding New Thrivent Fund; (c) the LB Fund will distribute pro rata to its shareholders, in complete liquidation, the shares of the corresponding New Thrivent Fund received in exchange for its net assets; and (d) the LB Fund will cease to exist. Target LB Fund Corresponding Acquiring New Thrivent Fund -------------- ----------------------------------------- Lutheran Brotherhood Opportunity Growth Fund -> Thrivent Mid Cap Growth Fund and Lutheran Brotherhood Mid Cap Growth Fund Lutheran Brotherhood High Yield Fund -> Thrivent High Yield Fund Lutheran Brotherhood Income Fund -> Thrivent Income Fund Lutheran Brotherhood Limited Maturity Bond Fund -> Thrivent Limited Maturity Bond Fund 3. To consider and act upon any matter incidental to the foregoing and to transact such other business as may properly come before the Special Meeting and all adjournments. The Board of Trustees of the LB Trust has fixed the close of business on March 19, 2004, as the record date for the determination of shareholders entitled to notice of, and to vote at, the Special Meeting and all adjournments. By Order of the Board of Trustees, James E. Nelson, Secretary Minneapolis, Minnesota May 17, 2004 - ---------------------------------------------------------------------------------------------------------------------- YOUR VOTE IS IMPORTANT You can help Thrivent Investment Management Inc., the adviser to the LB Funds and the Thrivent Funds, avoid the necessity and expense of sending follow-up letters by promptly returning the enclosed proxy card. Regardless of whether you plan to be present in person at the Special Meeting, please mark, date, sign and return the enclosed proxy card. The enclosed envelope requires no postage if mailed in the United States. You also may vote by telephone or the Internet by following the instructions on the enclosed proxy card. - ---------------------------------------------------------------------------------------------------------------------- LUTHERAN BROTHERHOOD WORLD GROWTH FUND LUTHERAN BROTHERHOOD GROWTH FUND LUTHERAN BROTHERHOOD FUND LUTHERAN BROTHERHOOD VALUE FUND LUTHERAN BROTHERHOOD MUNICIPAL BOND FUND LUTHERAN BROTHERHOOD MONEY MARKET FUND LUTHERAN BROTHERHOOD OPPORTUNITY GROWTH FUND LUTHERAN BROTHERHOOD MID CAP GROWTH FUND LUTHERAN BROTHERHOOD HIGH YIELD FUND LUTHERAN BROTHERHOOD INCOME FUND LUTHERAN BROTHERHOOD LIMITED MATURITY BOND FUND PROXY STATEMENT AND PROSPECTUS May 17, 2004 THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS 625 Fourth Avenue South Minneapolis, Minnesota 55415 1-800-847-4836 THE AAL MUTUAL FUNDS 625 Fourth Avenue South Minneapolis, Minnesota 55415 1-800-847-4836 This proxy statement and prospectus is furnished in connection with the solicitation of proxies by and on behalf of the Board of Trustees of The Lutheran Brotherhood Family of Funds (the "LB Trust"). Shareholder votes and proxies are being solicited for a Special Meeting of Shareholders and any adjournments thereof (collectively, the "Special Meeting") of each series of the LB Trust listed above (each, an "LB Fund" and collectively, the "LB Funds") to be held at the Thrivent Financial for Lutherans building, 625 Fourth Avenue South, Minneapolis, Minnesota 55415, on June 16, 2004, at 8:30 a.m. Central Time. This proxy statement and prospectus and the accompanying Notice of Special Meeting of Shareholders and proxy card are first being mailed on or about May 17, 2004. At the Special Meeting, shareholders will be asked to approve proposed Agreements and Plans of Reorganization (each a "Reorganization Agreement" and collectively the "Reorganization Agreements") between the LB Trust and The AAL Mutual Funds (which will change its name to the Thrivent Mutual Funds on or about July 16, 2004, and is hereinafter referred to as the "Thrivent Trust"). In the reorganizations, all of the assets of each of the LB Funds will be exchanged for the same class of shares of a corresponding fund of the Thrivent Trust (each a "Thrivent/AAL Fund" and collectively the "Thrivent/AAL Funds") having an equal dollar value. Specifically: Each of the following LB Funds will be reorganized into the following existing Thrivent/AAL Fund (each an "Existing AAL Fund" and collectively the "Existing AAL Funds") if its respective Reorganization Agreement is approved: Target LB Fund Corresponding Acquiring Existing AAL Fund - -------------- ----------------------------------------- Lutheran Brotherhood World Growth Fund -> AAL International Fund Lutheran Brotherhood Growth Fund -> AAL Aggressive Growth Fund Lutheran Brotherhood Fund -> AAL Capital Growth Fund Lutheran Brotherhood Value Fund -> AAL Equity Income Fund Lutheran Brotherhood Municipal Bond Fund -> AAL Municipal Bond Fund Lutheran Brotherhood Money Market Fund -> AAL Money Market Fund The stated accrued and unpaid liabilities of an LB Fund being reorganized into an Existing AAL Fund will be assumed by the corresponding Existing AAL Fund; and Each of the following LB Funds will be reorganized into shares of the following newly formed Thrivent/AAL Fund (each a "New Thrivent Fund" and collectively the "New Thrivent Funds") if its respective Reorganization Agreement is approved: Target LB Fund Corresponding Acquiring New Thrivent Fund - -------------- ----------------------------------------- Lutheran Brotherhood Opportunity Growth Fund -> Thrivent Mid Cap Growth Fund and Lutheran Brotherhood Mid Cap Growth Fund Lutheran Brotherhood High Yield Fund -> Thrivent High Yield Fund Lutheran Brotherhood Income Fund -> Thrivent Income Fund Lutheran Brotherhood Limited Maturity Bond Fund -> Thrivent Limited Maturity Bond Fund All of the liabilities of an LB Fund being reorganized into a New Thrivent Fund will be assumed by the corresponding New Thrivent Fund. The New Thrivent Funds have no prior operating history and will not commence operations or have any assets or liabilities prior to the completion of the Reorganizations. Both the LB Trust and the Thrivent Trust are open-end investment companies, commonly called mutual funds. Each Reorganization Agreement provides that: o All of the assets of the LB Fund will be transferred to a corresponding Thrivent/AAL Fund in exchange for shares of the corresponding Thrivent/AAL Fund having a value equal to the value of the assets so transferred, less liabilities assumed by the Thrivent/AAL Fund; o Each LB Fund will then distribute pro rata to its shareholders, in complete liquidation, all of the shares it receives in the reorganization from the corresponding Thrivent/AAL Fund. In that liquidating distribution, each LB Fund shareholder will receive, with respect to his or her shares of the LB Fund, shares of the same Class(es) of the Thrivent/AAL Fund having an equal dollar value as the shares of the LB Fund held by the shareholder immediately prior to the reorganization. There are no material differences in the investment objectives and strategies of the Existing AAL Funds and their corresponding LB Funds. The investment objectives and strategies of the New Thrivent Funds are identical to their corresponding LB Funds, except in the case of the proposed reorganization of the Lutheran Brotherhood Opportunity Growth Fund into the Thrivent Mid Cap Growth Fund. The principal investment strategy of the Lutheran Brotherhood Opportunity Growth Fund is to achieve long-term growth of capital by investing in common stocks of companies with small market capitalizations, while the principal investment strategy of the New Thrivent Mid Cap Growth Fund with which it will be reorganized is to achieve long-term growth of capital by investing in common stocks of companies with medium market capitalizations. Both funds have the objective of achieving long-term growth of capital. Please retain this proxy statement and prospectus for future reference. It describes concisely the information that you should know before voting. It is the proxy statement for the Special Meeting of Shareholders of each of the LB Funds (please see the Notice of Special Meeting). It is also the prospectus that describes the shares of the Thrivent/AAL Funds. The following documents contain additional information about the LB Funds and are incorporated into this proxy statement and prospectus by reference. To obtain copies of the documents without charge, write or call The Lutheran Brotherhood Family of Funds at the address or phone number above. o The prospectus of the LB Funds dated December 30, 2003. o The Statement of Additional Information of the LB Funds dated December 30, 2003. o The Annual Report of the LB Funds dated October 31, 2003. The following documents contain additional information about the Thrivent/AAL Funds and are incorporated into this proxy statement and prospectus by reference. To obtain copies of the documents without charge, write or call The AAL Mutual Funds at the address or phone number above. o The prospectus and financial highlights of the Existing AAL Funds dated June 27, 2003, as supplemented, accompanies this proxy statement and prospectus as Appendix B. o The prospectus of each New Thrivent Fund dated February 1, 2004, accompanies this proxy statement and prospectus as Appendix C. o Management's discussion of Fund performance with respect to the Existing AAL Funds from the most recent Annual and Semi-annual Reports for the Thrivent Trust is included in this proxy statement and prospectus under the heading "Management's Discussion for Existing AAL Funds". o The Statement of Additional Information relating to this proxy statement and prospectus dated May 17, 2004. o The Statement of Additional Information for the Existing AAL Funds dated June 27, 2003. o The Statement of Additional Information for the New Thrivent Funds dated February 1, 2004. Each of these documents relating to the LB Funds and the Thrivent/AAL Funds have been filed with the Securities and Exchange Commission (the "SEC"), and you may obtain copies by accessing the SEC's Web site at http://www.sec.gov. The shares offered by this proxy statement and prospectus are not deposits or obligations of any bank or financial institution and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Investment in these shares involves investment risks, including the possible loss of principal. The Securities and Exchange Commission has not approved or disapproved these securities or determined if this proxy statement and prospectus is truthful or complete. Any representation to the contrary is a criminal offense. TABLE OF CONTENTS PAGE SUMMARY About the Reorganizations About the Funds Comparative Expense Tables Examples Comparisons of Investment Performance COMPARISON OF INVESTMENT OBJECTIVES, STRATEGIES AND RISKS LB Funds / Existing Thrivent Funds LB Funds / Thrivent Mid Cap Growth Fund LB Funds / New Thrivent Funds Principal Investment Risks Applicable to Multiple Funds Additional Policies and Limitations COMPARISON OF GOVERNANCE AND OPERATIONS Board of Trustees Investment Adviser Fund Management Other Service Providers Sales Load, Distribution and Servicing Arrangements Purchase, Redemption and Exchange Procedures Distributions Manager of Managers INFORMATION ABOUT THE REORGANIZATIONS Information Received by the Board of Trustees of the LB Funds Considerations by the Board of Trustees of the LB Funds Description of the Reorganization Agreements and Plans of Reorganization Description of Thrivent/AAL Fund Shares Federal Income Tax Consequences Capitalization Subadviser Information for the AAL International Fund SHARE OWNERSHIP INFORMATION MANAGEMENT'S DISCUSSION FOR EXISTING AAL FUNDS ADDITIONAL INFORMATION ABOUT THE LB FUNDS AND THE THRIVENT/AAL FUNDS VOTING INFORMATION Quorum and Voting Outstanding Shares and Voting Requirements Other Matters Board Recommendation FORMS OF AGREEMENTS AND PLANS OF REORGANIZATION - APPENDIX A A-1 THE AAL MUTUAL FUNDS PROSPECTUS FOR EXISTING AAL FUNDS - APPENDIX B B-1 THE AAL MUTUAL FUNDS PROSPECTUS FOR NEW THRIVENT FUNDS - APPENDIX C C-1 FORM OF SUBADVISORY AGREEMENT - APPENDIX D D-1 SUMMARY This summary is qualified in its entirety by reference to the additional information contained elsewhere in this proxy statement and prospectus (including documents incorporated by reference) and each of the Reorganization Agreements, a form of which is attached to this proxy statement and prospectus as Appendix A. About the Reorganizations The Board of Trustees of the LB Trust unanimously recommends that shareholders of each LB Fund vote to approve the Reorganization Agreements. Under each Reorganization Agreement, each Thrivent/AAL Fund will acquire all of the assets and liabilities of the corresponding LB Fund in exchange for Class A, Class B and Institutional Class shares of the Thrivent/AAL Fund having an aggregate net asset value equal to the value of the LB Fund's assets so transferred, less the amount of the liabilities assumed by the corresponding Thrivent/AAL Fund. The LB Fund will distribute in liquidation pro rata to its shareholders all of the shares of the Thrivent/AAL Fund it received in exchange for its assets. Together these transactions are referred to in this proxy statement and prospectus individually as a "Reorganization" and collectively as the "Reorganizations". As a result of the Reorganizations, each shareholder of an LB Fund will become the owner of a Thrivent/AAL Fund's shares of a corresponding class having a total net asset value equal to the total net asset value of such shareholder's shares of a corresponding class in the LB Fund on the date of the Reorganizations. Holders of Class A shares of an LB Fund will receive Class A shares of the corresponding Thrivent/AAL Fund having an equivalent total net asset value. Holders of Class B shares of an LB Fund will receive Class B shares of the corresponding Thrivent/AAL Fund having an equivalent total net asset value. Holders of Institutional Class shares of an LB Fund will receive Institutional Class shares of the corresponding Thrivent/AAL Fund having an equivalent total net asset value. It is expected that the Reorganizations will not result in any income, gain or loss for federal income tax purposes, and the receipt of an opinion of counsel to the effect that the Reorganizations will be treated as a tax-free transaction for federal income tax purposes is a condition to the closing of the Reorganizations. Shareholders of the LB Funds should consult their tax advisors regarding the effect, if any, of the proposed Reorganizations in light of their individual circumstances. The following table shows the Existing AAL Fund into which each corresponding LB Fund will be reorganized if the applicable Reorganization is approved. Target LB Fund Corresponding Acquiring Existing AAL Fund - -------------- ----------------------------------------- Lutheran Brotherhood World Growth Fund -> AAL International Fund Lutheran Brotherhood Growth Fund -> AAL Aggressive Growth Fund Lutheran Brotherhood Fund -> AAL Capital Growth Fund Lutheran Brotherhood Value Fund -> AAL Income Growth Fund Lutheran Brotherhood Municipal Bond Fund -> AAL Municipal Bond Fund Lutheran Brotherhood Money Market Fund -> AAL Money Market Fund The following table shows the New Thrivent Fund into which each corresponding LB Fund will be reorganized if the applicable Reorganization is approved. Target LB Fund Corresponding Acquiring New Thrivent Fund - -------------- ----------------------------------------- Lutheran Brotherhood Opportunity Growth Fund and -> Thrivent Mid Cap Growth Fund Lutheran Brotherhood Mid Cap Growth Fund Lutheran Brotherhood High Yield Fund -> Thrivent High Yield Fund Lutheran Brotherhood Income Fund -> Thrivent Income Fund Lutheran Brotherhood Limited Maturity Bond Fund -> Thrivent Limited Maturity Bond Fund About the Funds Purchase, Redemption and Exchange Procedures There are no material differences in the procedures for the purchase, redemption and exchange of Thrivent/AAL Fund shares and LB Fund shares. Set forth below is a brief description of the significant purchase, redemption and exchange procedures applicable to the Thrivent/AAL Fund shares and the LB Fund shares. Purchasing Shares Minimum Investments Class A and Class B Shares. The required minimum investments for Class A and Class B shares of the LB Funds and Thrivent/AAL Funds are as follows: - ----------------------------------------------------------------------------- ---------------- ---------------- Initial Additional Regular Account Purchase Purchases LB Funds: All Funds except Lutheran Brotherhood Limited Maturity Bond Fund and Lutheran Brotherhood Money Market Fund $1,000 $ 50 Lutheran Brotherhood Limited Maturity Bond Fund $2,500 $100 Lutheran Brotherhood Money Market Fund $1,500 $100 Thrivent/AAL Funds: All Funds except Thrivent Limited Maturity Bond Fund and AAL Money $1,000 $ 50 Market Fund Thrivent Limited Maturity Bond Fund $2,500 $100 AAL Money Market Fund $1,500 $100 - ----------------------------------------------------------------------------- ---------------- ---------------- - ----------------------------------------------------------------------------- ---------------- ---------------- Initial Additional IRA or Tax-Deferred Account Purchase Purchases LB Funds: All Funds except Lutheran Brotherhood Limited Maturity Bond Fund and Lutheran Brotherhood Money Market Fund $500 $ 50 Lutheran Brotherhood Limited Maturity Bond Fund and Lutheran $500 $100 Brotherhood Money Market Fund Thrivent/AAL Funds: All Funds except Thrivent Limited Maturity Bond Fund and AAL Money $500 $ 50 Market Fund AAL Money Market Fund and Thrivent Limited Maturity Bond Fund $500 $100 - ----------------------------------------------------------------------------- ---------------- ---------------- - ----------------------------------------------------------------------------- --------------------------------- Minimum Monthly Automatic Investment Plan Amount per Account LB Funds: All Funds except Lutheran Brotherhood Limited Maturity Bond Fund and Lutheran Brotherhood Money Market Fund $50 Lutheran Brotherhood Limited Maturity Bond Fund and Lutheran $100 Brotherhood Money Market Fund Thrivent/AAL Funds: All Funds except Thrivent Limited Maturity Bond Fund and AAL Money $50 Market Fund AAL Money Market Fund and Thrivent Limited Maturity Bond Fund $100 - ----------------------------------------------------------------------------- --------------------------------- Institutional Shares. The required minimum investments for Institutional Class shares of the LB Funds and Thrivent/AAL Funds are as follows: - --------------------------------------------------------- ------------------- ---------------- Initial Initial Purchase Purchase (Aggregate) (Per Fund) LB Funds: Lutheran Institutions $500,000 $50,000 Lutheran Congregations $250,000 $25,000 Thrivent/AAL Funds: Institutions $500,000 $ 50,000 Lutheran Congregations $250,000 $ 25,000 - --------------------------------------------------------- ------------------- ---------------- Initial Purchases Initial shares of the LB Funds and the Thrivent/AAL Funds may be purchased through your Registered Representative or by mail or by wire transfer. Additional Purchases Additional shares of both the LB Funds and the Thrivent/AAL Funds may be purchased through your Registered Representative or in any of the following ways: o By mail o By telephone o By the Internet o By wire transfer o Through the Automatic Investment Plan Redeeming Shares Shares of the LB Funds and the Thrivent/AAL Funds may be redeemed in any of the following ways: o By mail o By telephone o By the Internet o By wire transfer o Through the Systematic Withdrawal Plan The only differences in redemption rights pertain to the money market funds and are described below: o Institutional Class shareholders of the AAL Money Market Fund may also redeem shares by writing checks from their AAL Money Market Fund Account. Certain restrictions apply to this feature and are explained in further detail in the fund's prospectus. This feature is not available to Institutional Class shareholders of the Lutheran Brotherhood Money Market Fund. o Class A shareholders of the Lutheran Brotherhood Money Market Fund may authorize the redemption of shares by using a VISA CheckCard that is charged to their account. This feature is not available to Class A shareholders of the AAL Money Market Fund. Exchanging Shares LB Fund shareholders may exchange shares of one LB Fund for shares of the same class of any other LB Fund. Similarly, Thrivent/AAL Fund shareholders may exchange shares of one Thrivent/AAL Fund for shares of the same class of any other Thrivent/AAL Fund. Class A shareholders of the LB Funds and the Thrivent/AAL Funds may exchange Class A shares of a fund for Class A shares of another fund and not be charged an initial sales charge for the exchange. Class B shareholders of the LB Funds and the Thrivent/AAL Funds may exchange Class B shares of one fund for Class B shares of another fund and not incur a new contingent deferred sales charge at the time of the exchange. Shareholders eligible to purchase Institutional Class shares may exchange some or all of their Class A shares for Institutional Class shares of any of the funds. Shares may be exchanged by mail, telephone or the Internet. Allocation of Fees and Expenses The comparative expense tables which follow this section reflect differences in the way the LB Trust and the Thrivent Trust allocate some expenses to shareholder classes. Both the LB Trust and the Thrivent Trust charge management fees, distribution (12b-1) fees and shareholder servicing fees directly to the shareholder class incurring the fees. Shareholder servicing fees are part of the 12b-1 plan of the Thrivent Trust. The LB Trust's shareholder servicing fees are not part of its 12b-1 plan and therefore are included in "other expenses" in the comparative expense tables. The Institutional Class shares of the Thrivent Trust are not charged a shareholder servicing fee, whereas the LB Funds charge a 0.15% shareholder servicing fee to Institutional Class shareholders. Therefore, the Institutional Class expense ratios will be lower for LB Fund Institutional shareholders following the Reorganizations. LB Fund Class A and Class B shareholders will continue to pay servicing fees as part of the 12b-1 fee. Both the LB Trust and the Thrivent Trust allocate expenses attributable to all Funds, such as custodian, audit, accounting, trustee and legal fees, proportionately based on relative asset value. The LB Trust and the Thrivent Trust allocate account-based expenses (transfer agent fess and printing and postage expenses) which can be directly attributed to a share class, differently. These account-based expenses are based upon the number of accounts in the share class. o The Thrivent Trust allocates these expenses directly to the share class incurring the expense. o The LB Trust allocates transfer agent fees attributable to the Institutional Class shares directly to the institutional shares. Transfer agent fees attributable to the Class A and Class B shares are allocated to each such class based on the net asset value of such class in relation to the aggregate net asset value of the Class A and Class B shares. o The LB Trust allocates printing and postage expenses among the Class A, Class B and Institutional Class shares proportionately based on relative net assets. In most cases Class A and Institutional Class shareholders of the LB Funds pay a larger share of other expenses than the Class A and Institutional Class shareholders of their corresponding Thrivent/AAL Funds while the Class B shareholders pay less. This is because the average account size of Class B shareholders is less than the average account size of Class A and Institutional Class shareholders. The Thrivent Trust method of allocating expenses will be used following the Reorganizations. As a result, account-based expenses for the LB Funds will be lower for Class A and Institutional Class shareholders following the Reorganizations and account-based expenses for Class B shareholders of the LB Funds will be higher. Thrivent Investment Mgt. will reimburse Class B share expenses through at least December 31, 2004, to the extent necessary to assure that, following the reorganizations, Class B share net expense ratios for the Thrivent/AAL Funds will not increase beyond the total Class B share expense ratios of the corresponding LB Funds (before any expense waiver and reimbursement) as of October 31, 2003. The reimbursement levels are set forth in the footnotes to the comparative expense tables. The reimbursements will be in effect through at least December 31, 2004 and no portion will be refunded to Thrivent Investment Mgt. Comparative Expense Tables The following tables compare the annual operating expenses of each LB Fund based on total assets for the fiscal year ended October 31, 2003, as reported in the LB Trust's most recent annual report, and pro forma expenses showing these same expenses adjusted for the proposed Reorganizations Lutheran Brotherhood World Growth Fund / AAL International Fund - ------------------------------------------------------------------------------------------------------------------ Class A Shares Pro Forma Expenses Actual Expenses as of October 31, As of October 31, 2003, as adjusted 2003 Lutheran Brotherhood World AAL AAL Growth Fund International Fund International Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% 5.50% 5.50% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) 1.00%/2/ 1.00%/2/ 1.00%/2/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.86% 0.62% 0.61% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None 0.25% 0.25% (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 1.36%/3/ 0.85%/4/ 0.73% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 2.22% 1.72% 1.59% - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The maximum sales charge for the Funds depends upon the amount of your investment. In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. There is no sales charge when you invest more than $1,000,000 in Class A shares; however, there is a contingent deferred sales charge of 1.00% if the shares are redeemed within one year of purchase. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 1.72% and 2.58%, respectively, for the Lutheran Brotherhood World Growth Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Class A shareholders and is reflected in the pro forma expense table. 4. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. - ------------------------------------------------------------------------------------------------------------------ Class B Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood World AAL AAL Growth Fund International Fund International Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a percentage of net asset value at time of purchase or redemption, whichever is lower) 5.00% 5.00% 5.00% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.86% 0.62% 0.61% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing 0.75% 1.00% 1.00% (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 1.36%/2/ 1.42%/3/ 1.82% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expense 2.97% 3.04% 3.43%/2/ - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 1.72% and 3.33%, respectively, for the Lutheran Brotherhood World Growth Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in an increase in expenses for LB Fund Class B shareholders and is reflected in the pro forma expense table. If the Reorganization is completed, Thrivent Investment Mgt. has contractually agreed, through at least December 31, 2004, to reimburse certain expenses associated with operating the AAL International Fund to the extent necessary to limit net fund operating expenses to 2.75% of the average daily net assets of the Class B shares of the Fund. This reimbursement is not reflected in the above table. 3. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. - ------------------------------------------------------------------------------------------------------------------ Institutional Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood World AAL AAL Growth Fund International Fund International Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.86% 0.62% 0.61% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None None None (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 0.54%/2,3/ 0.17%/4/ 0.30% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 1.40% 0.79% 0.91% - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The Funds charge a fee of $30 for a redemption by wire. 2. A shareholder service fee of 0.15% is included in Other Expenses. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.63% and 1.49%, respectively, for the Lutheran Brotherhood World Growth Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Institutional shareholders and is reflected in the pro forma expense table. 4. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. Lutheran Brotherhood Growth Fund / AAL Aggressive Growth Fund - ------------------------------------------------------------------------------------------------------------------ Class A Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran AAL Aggressive AAL Aggressive Brotherhood Growth Growth Fund Growth Fund Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% 5.50% 5.50% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) 1.00%/2/ 1.00%/2/ 1.00%/2/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.43% 0.80% 0.75% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None 0.25% 0.25% (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 1.75%/3/ 1.52%/4/ 1.12% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 2.18% 2.57% 2.12%/5/ - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The maximum sales charge for the Funds depends upon the amount of your investment. The Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. There is no sales charge when you invest more than $1,000,000 in Class A shares; however, there is a contingent deferred sales charge of 1.00% if the shares are redeemed within one year of purchase. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 2.13% and 2.56%, respectively, for the Lutheran Brotherhood Growth Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Class A shareholders and is reflected in the pro forma expense table. 4. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. 5. If the reorganization is completed, Thrivent Investment Mgt. has contractually agreed, through at least December 31, 2005, to reimburse certain expenses associated with operating the AAL Aggressive Growth Fund in the aggregate by 0.80% of the average daily net assets of the Class A shares of the Fund. This reimbursement is not reflected in the above table. - ------------------------------------------------------------------------------------------------------------------ Class B Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood Growth AAL Aggressive AAL Aggressive Fund Growth Fund Growth Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) 5.00% 5.00% 5.00% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.43% 0.80% 0.75% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing 0.75% 1.00% 1.00% (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 1.75%/2/ 1.92%/3/ 1.64% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 2.93% 3.72% 3.39%/2/ - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 2.13% and 3.31%, respectively, for the Lutheran Brotherhood Growth Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in an increase in expenses for LB Fund Class B shareholders and is reflected in the pro forma expense table. If the Reorganization is completed, Thrivent Investment Mgt. has contractually agreed, through at least December 31, 2005, to reimburse certain expenses associated with operating the AAL Aggressive Growth Fund in the aggregate by 0.80% of the average daily net assets of the Class B shares of the Fund, or, if higher, to the extent necessary to limit net fund operating expenses to 2.75%. This reimbursement is not reflected in the above table. 3. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. - ------------------------------------------------------------------------------------------------------------------ Institutional Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood Growth AAL Aggressive AAL Aggressive Fund Growth Fund Growth Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.43% 0.80% 0.75% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None None None (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 0.63%/2, 3/ 0.38%/4/ 0.26% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 1.06% 1.18% 1.01%/5/ - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The Funds charge a fee of $30 for a redemption by wire. 2. A shareholder service fee of 0.15% is included in Other Expenses. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.81% and 1.24%, respectively, for the Lutheran Brotherhood Growth Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Institutional shareholders and is reflected in the pro forma expense table. 4. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. 5. If the reorganization is completed, Thrivent Investment Mgt. has contractually agreed, through at least December 31, 2005, to reimburse certain expenses associated with operating the AAL Aggressive Growth Fund in the aggregate by 0.80% of the average daily net assets of the Institutional Class shares of the Fund. Lutheran Brotherhood Fund / AAL Capital Growth Fund - ------------------------------------------------------------------------------------------------------------------ Class A Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran AAL Capital AAL Capital Growth Brotherhood Fund Growth Fund Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% 5.50% 5.50% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) 1.00%2 1.00%2 1.00%2 - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.38% 0.54% 0.51% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None 0.25% 0.25% (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 0.64%/3/ 0.26%/4/ 0.25% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 1.02% 1.05% 1.01% - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The maximum sales charge for the Funds depends upon the amount of your investment. In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. There is no sales charge when you invest more than $1,000,000 in Class A shares; however, there is a contingent deferred sales charge of 1.00% if the shares are redeemed within one year of purchase. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.76% and 1.14%, respectively, for the Lutheran Brotherhood Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Class A shareholders and is reflected in the pro forma expense table. 4. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. - ------------------------------------------------------------------------------------------------------------------ Class B Shares Pro Forma Expenses Actual Expenses as of October 31, As of October 31, 2003, as adjusted 2003 Lutheran AAL Capital AAL Capital Growth Brotherhood Fund Growth Fund Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) 5.00% 5.00% 5.00% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.38% 0.54% 0.51% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing 0.75% 1.00% 1.00% (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 0.64%/2/ 0.65%/3/ 0.78% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 1.77% 2.19% 2.29%/2/ - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.76% and 1.89%, respectively, for the Lutheran Brotherhood Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in an increase in expenses for LB Fund Class B shareholders and is reflected in the pro forma expense table. If the Reorganization is completed, Thrivent Investment Mgt. has contractually agreed, through at least December 31, 2004, to reimburse certain expenses associated with operating the AAL Capital Growth Fund to the extent necessary to limit net fund operating expenses to 1.89% of the average daily net assets of the Class B shares of the Fund. This reimbursement is not reflected in the above table. 3. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. - ------------------------------------------------------------------------------------------------------------------ Institutional Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran AAL Capital AAL Capital Growth Brotherhood Fund Growth Fund Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.38% 0.54% 0.51% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None None None (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 0.23%/2,3/ 0.04%/4/ 0.04% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expense 0.61% 0.58% 0.55% - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The Funds charge a fee of $30 for a redemption by wire. 2. A shareholder service fee of 0.15% is included in Other Expenses. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.29% and 0.67%, respectively, for the Lutheran Brotherhood Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Institutional shareholders and is reflected in the pro forma expense table. 4. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. Lutheran Brotherhood Value Fund / AAL Equity Income Fund - ------------------------------------------------------------------------------------------------------------------ Class A Shares Pro Forma Expenses Actual Expenses as of October 31, As of October 31, 2003, as adjusted 2003 Lutheran Brotherhood AAL Equity AAL Equity Value Fund Income Fund Income Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% 5.50% 5.50% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) 1.00%/2/ 1.00%/2/ 1.00%/2/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.40% 0.45% 0.45% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None 0.25% 0.25% (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 1.38%/3/ 0.41%/4/ 0.41% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 1.78% 1.11% 1.11% - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The maximum sales charge for the Funds depends upon the amount of your investment. In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. There is no sales charge when you invest more than $1,000,000 in Class A shares; however, there is a contingent deferred sales charge of 1.00% if the shares are redeemed within one year of purchase. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 1.66% and 2.06%, respectively, for the Lutheran Brotherhood Value Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Class A shareholders and is reflected in the pro forma expense table 4. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. - ------------------------------------------------------------------------------------------------------------------ Class B Shares Pro Forma Expenses Actual Expenses as of October 31, As of October 31, 2003, as adjusted 2003 Lutheran Brotherhood AAL Equity AAL Equity Value Fund Income Fund Income Fund - -------------------------------------------------- -------------------- -------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - -------------------------------------------------- -------------------- -------------------- --------------------- - -------------------------------------------------- -------------------- -------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None - -------------------------------------------------- -------------------- -------------------- --------------------- - -------------------------------------------------- -------------------- -------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) 5.00% 5.00% 5.00% - -------------------------------------------------- -------------------- -------------------- --------------------- - -------------------------------------------------- -------------------- -------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - -------------------------------------------------- -------------------- -------------------- --------------------- - -------------------------------------------------- -------------------- -------------------- --------------------- Management Fees 0.40% 0.45% 0.45% - -------------------------------------------------- -------------------- -------------------- --------------------- - -------------------------------------------------- -------------------- -------------------- --------------------- Distribution and/or Shareholder Servicing 0.75% 1.00% 1.00% (12b-1) Fees - -------------------------------------------------- -------------------- -------------------- --------------------- - -------------------------------------------------- -------------------- -------------------- --------------------- Other Expenses 1.38%/2/ 0.72%/3/ 0.95% - -------------------------------------------------- -------------------- -------------------- --------------------- - -------------------------------------------------- -------------------- -------------------- --------------------- Total Annual Fund Operating Expenses 2.53% 2.17% 2.40%/2/ - -------------------------------------------------- -------------------- -------------------- --------------------- 1. The Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 1.66% and 2.81%, respectively, for the Lutheran Brotherhood Value Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in an increase in expenses for LB Fund Class B shareholders and is reflected in the pro forma expense table. 3. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. - ------------------------------------------------------------------------------------------------------------------ Institutional Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood AAL Equity AAL Equity Value Fund Income Fund Income Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.40% 0.45% 0.45% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None None None (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 0.54%/2,3/ 0.10%/4/ 0.09% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 0.94% 0.55% 0.54% - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The Funds charge a fee of $30 for a redemption by wire. 2. A shareholder service fee of 0.15% is included in Other Expenses. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.69% and 1.09%, respectively, for the Lutheran Brotherhood Value Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Institutional shareholders and is reflected in the pro forma expense table. 4. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. Lutheran Brotherhood Municipal Bond Fund / AAL Municipal Bond Fund - ------------------------------------------------------------------------------------------------------------------ Class A Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood AAL AAL Municipal Municipal Municipal Bond Fund Bond Fund Bond Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.50% 4.50% 4.50% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) 1.00%/2/ 1.00%/2/ 1.00%/2/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.32% 0.45% 0.41% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None 0.25% 0.25% (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 0.38%/3/ 0.13%/4/ 0.10% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 0.70% 0.83% 0.76% - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The maximum sales charge for the Funds depends upon the amount of your investment. In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. There is no sales charge when you invest more than $1,000,000 in Class A shares; however, there is a contingent deferred sales charge of 1.00% if the shares are redeemed within one year of purchase. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.40% and 0.72%, respectively, for the Lutheran Brotherhood Municipal Bond Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Class A shareholders and is reflected in the pro forma expense table. 4. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. - ------------------------------------------------------------------------------------------------------------------ Class B Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood AAL AAL Municipal Municipal Municipal Bond Fund Bond Fund Bond Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) 5.00% 5.00% 5.00% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.32% 0.45% 0.41% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing 0.75% 1.00% 1.00% (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 0.38%/2/ 0.21%/3/ 0.18% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 1.45% 1.66% 1.59%/2/ - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.40% and 1.47%, respectively, for the Lutheran Brotherhood Municipal Bond Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in an increase in expenses for LB Fund Class B shareholders and is reflected in the pro forma expense table. If the Reorganization is completed, Thrivent Investment Mgt. has contractually agreed, through at least December 31, 2004, to reimburse certain expenses associated with operating the AAL Municipal Bond Fund to the extent necessary to limit net fund operating expenses to 1.47% of the average daily net assets of the Class B shares of the Fund. This reimbursement is not reflected in the above table. 3. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. - ------------------------------------------------------------------------------------------------------------------ Institutional Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood AAL AAL Municipal Municipal Municipal Bond Fund Bond Fund Bond Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.32% 0.45% 0.41% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None None None (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 0.22%/2, 3/ 0.06%/4/ 0.04% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expense 0.54% 0.51% 0.45% - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The Funds charge a fee of $30 for a redemption by wire. 2. A shareholder service fee of 0.15% is included in Other Expenses. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, fees were 0.24% and 0.56%, respectively, for the Lutheran Brotherhood Municipal Bond Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Institutional shareholders and is reflected in the pro forma expense table. 4. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. Lutheran Brotherhood Money Market Fund / AAL Money Market Fund - ------------------------------------------------------------------------------------------------------------------ Class A Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood Money AAL Money AAL Money Market Fund Market Fund Market Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None/2/ None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.25% 0.50% 0.44% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None 0.125% 0.125% (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 0.64%/2/ 0.305%/3/ 0.345% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 0.89% 0.93% 0.91%/4/ - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.76% and 1.01%, respectively, for the Lutheran Brotherhood Money Market Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Class A shareholders and is reflected in the pro forma expense table. 3. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. 4. If the reorganization is completed, Thrivent Investment Mgt. has contractually agreed, through at least December 31, 2005, to reimburse certain expenses associated with operating the AAL Money Market Fund equal in the aggregate to 0.10% of the average daily net assets of the Class A shares of the Fund. This reimbursement is not reflected in the above table. - ------------------------------------------------------------------------------------------------------------------ Class B Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood Money AAL Money AAL Money Market Fund Market Fund Market Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) None2 5.00% 5.00% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.25% 0.50% 0.44% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None/2/ 0.875% 0.875% (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 0.64%/3/ 0.445%/4/ 0.655% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 0.89% 1.82% 1.97%/3/ - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. Class B shares of the Lutheran Brotherhood Money Market Fund are offered solely in exchange for Class B shares of other Funds of The Lutheran Brotherhood Family of Funds. Class B shareholders of the Lutheran Brotherhood Money Market Fund will be responsible for any Contingent Deferred Sales Charge that may be payable at the time of redemption as a result of an investment in another Fund. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.76% and 1.01%, respectively, for the Lutheran Brotherhood Money Market Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in an increase in expenses for LB Fund Class B shareholders and is reflected in the pro forma expense table. If the Reorganization is completed, Thrivent Investment Mgt. has contractually agreed, through at least December 31, 2005, to reimburse certain expenses associated with operating the AAL Money Market Fund equal in the aggregate to 0.99% of daily net assets of the Class B shares of the Fund, or, if higher, to the extent necessary to limit net fund operating expenses to 1.01% of the average daily net assets of the Class B shares of the Fund. This reimbursement is not reflected in the above table. 4. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. - ------------------------------------------------------------------------------------------------------------------ Institutional Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood Money AAL Money AAL Money Market Fund Market Fund Market Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of purchase or redemption, whichever is lower) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.25% 0.50% 0.44% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None None None (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 0.25%/2,3/ 0.07%/4/ 0.16% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 0.50% 0.57% 0.60%/5/ - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The Funds charge a fee of $30 for a redemption by wire. 2. A shareholder service fee of 0.15% is included in Other Expenses. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, fees were 0.34% and 0.59%, respectively, for the Lutheran Brotherhood Money Market Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Institutional shareholders and is reflected in the pro forma expense table. 4. The amount of Other Expenses has been restated to reflect the introduction of a 0.02% fee for administrative services that became effective on January 1, 2004, and a change in fees that will become effective April 30, 2004, for the AAL Funds. 5. If the Reorganization is completed, Thrivent Investment Mgt. has contractually agreed, through at least December 31, 2005, to reimburse certain expenses associated with operating the AAL Money Market Fund equal in the aggregate to 0.10% of daily net assets of the Institutional Class shares of the Fund. This reimbursement is not reflected in the above table. Lutheran Brotherhood Opportunity Growth Fund / Lutheran Brotherhood Mid Cap Growth Fund /Thrivent Mid Cap Growth Fund - ------------------------------------------------------------------------------------------------------------------ Class A Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Lutheran Brotherhood Brotherhood Opportunity Mid Cap Thrivent Mid Cap Growth Fund Growth Fund Growth Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% 5.50% 5.50% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a percentage of net asset value at time of purchase or redemption, whichever is lower) 1.00%/2/ 1.00%/2/ 1.00%/2/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.48% 0.44% 0.42% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None None 0.25% (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses/3/ 1.25% 1.25% 0.74% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 1.73% 1.69% 1.41% - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The maximum sales charge for the Funds depends upon the amount of your investment. In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. There is no sales charge when you invest more than $1,000,000 in Class A shares; however, there is a contingent deferred sales charge of 1.00% if the shares are redeemed within one year of purchase. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 1.52% and 2.01%, respectively, for the Lutheran Brotherhood Opportunity Growth Fund and 1.50% and 1.94%, respectively, for the Lutheran Brotherhood Mid Cap Growth Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Class A shareholders and is reflected in the pro forma expense table. - ------------------------------------------------------------------------------------------------------------------ Class B Shares Pro Forma Expenses Actual Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Lutheran Brotherhood Brotherhood Opportunity Mid Cap Thrivent Mid Cap Growth Fund Growth Fund Growth Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of purchase or redemption, whichever is lower) 5.00% 5.00% 5.00% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.48% 0.44% 0.42% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing 0.75% 0.75% 1.00% (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses/2/ 1.25% 1.25% 1.62% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 2.48% 2.44% 3.04%/2/ - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 1.53% and 2.76%, respectively, for the Lutheran Brotherhood Opportunity Growth Fund and 1.50% and 2.69%, respectively, for the Lutheran Brotherhood Mid Cap Growth Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in an increase in expenses for LB Fund Class B shareholders and is reflected in the pro forma expense table. If the Reorganization is completed, Thrivent Investment Mgt. has contractually agreed, through at least December 31, 2004, to reimburse certain expenses associated with operating the Thrivent Mid Cap Growth Fund to the extent necessary to limit net fund operating expenses to 2.69% of the average daily net assets of the Class B shares of the Fund. This reimbursement is not reflected in the above table. - ------------------------------------------------------------------------------------------------------------------ Institutional Shares Pro Forma Expenses Actual Expenses as of October 31, As of October 31, 2003, as adjusted 2003 Lutheran Lutheran Brotherhood Brotherhood Opportunity Mid Cap Thrivent Mid Cap Growth Fund Growth Fund Growth Fund - --------------------------------------------------- -------------------- ------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) None None None - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Management Fees 0.48% 0.44% 0.42% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Distribution and/or Shareholder Servicing None None None (12b-1) Fees - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Other Expenses 0.31%/2, 3/ 0.32%/2,3/ 0.14% - --------------------------------------------------- -------------------- ------------------- --------------------- - --------------------------------------------------- -------------------- ------------------- --------------------- Total Annual Fund Operating Expenses 0.79% 0.76% 0.56%/2/ - --------------------------------------------------- -------------------- ------------------- --------------------- 1. The Funds charge a fee of $30 for a redemption by wire. 2. A shareholder servicing fee of 0.15% is included in Other Expenses. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, fees were 0.55% and 1.03%, respectively, for the Lutheran Brotherhood Opportunity Growth Fund and 0.51% and 0.95%, respectively, for the Lutheran Brotherhood Mid Cap Growth Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Institutional shareholders and is reflected in the pro forma expense table. Lutheran Brotherhood High Yield Fund / Thrivent High Yield Fund (New Thrivent Fund) -------------------------------------------------------------------------------------------- Class A Shares Actual Expenses Pro Forma Expenses as of October 31, as of 2003, as adjusted October 31, 2003 Lutheran Brotherhood Thrivent High Yield Fund High Yield Fund - -------------------------------------------------- -------------------- --------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - -------------------------------------------------- -------------------- --------------------- - -------------------------------------------------- -------------------- --------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.50% 4.50% - -------------------------------------------------- -------------------- --------------------- - -------------------------------------------------- -------------------- --------------------- Maximum Deferred Sales Charge (Load) (as a percentage of net asset value at time of purchase or redemption, whichever is lower) 1.00%/2/ 1.00%/2/ - -------------------------------------------------- -------------------- --------------------- - -------------------------------------------------- -------------------- --------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - -------------------------------------------------- -------------------- --------------------- - -------------------------------------------------- -------------------- --------------------- Management Fees 0.39% 0.39% - -------------------------------------------------- -------------------- --------------------- - -------------------------------------------------- -------------------- --------------------- Distribution and/or Shareholder Servicing None 0.25% (12b-1) Fees - -------------------------------------------------- -------------------- --------------------- - -------------------------------------------------- -------------------- --------------------- Other Expenses 0.55%/3/ 0.27% - -------------------------------------------------- -------------------- --------------------- - -------------------------------------------------- -------------------- --------------------- Total Annual Fund Operating Expenses 0.94% 0.91% - -------------------------------------------------- -------------------- --------------------- 1. The maximum sales charge for the Funds depends upon the amount of your investment. In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. There is no sales charge when you invest more than $1,000,000 in Class A shares; however, there is a contingent deferred sales charge of 1.00% if the shares are redeemed within one year of purchase. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.63% and 1.02%, respectively, for the Lutheran Brotherhood High Yield Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Class A shareholders and is reflected in the pro forma expense table. - --------------------------------------------------------------------------------------------- Class B Shares Actual Expenses Pro Forma Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood Thrivent High Yield Fund High Yield Fund - --------------------------------------------------- -------------------- -------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) 5.00% 5.00% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Management Fees 0.39% 0.39% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Distribution and/or Shareholder Servicing 0.75% 1.00% (12b-1) Fees - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Other Expenses 0.55%/2/ 0.61% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Total Annual Fund Operating Expenses 1.69% 2.00%/2/ - --------------------------------------------------- -------------------- -------------------- 1. The Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.63% and 1.77%, respectively, for the Lutheran Brotherhood High Yield Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. This will result in an increase in expenses for LB Fund Class B shareholders and is reflected in the pro forma expense table. If the Reorganization is completed, Thrivent Investment Mgt. has contractually agreed, through at least December 31, 2004, to reimburse certain expenses associated with operating the Thrivent High Yield Fund to the extent necessary to limit net fund operating expenses to 1.77% of the average daily net assets of the Class B shares of the Fund. This reimbursement is not reflected in the above table. - --------------------------------------------------------------------------------------------- Institutional Shares Actual Expenses Pro Forma Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood Thrivent High Yield Fund High Yield Fund - --------------------------------------------------- -------------------- -------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of purchase or redemption, whichever is lower) None None - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Management Fees 0.39% 0.39% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Distribution and/or Shareholder Servicing None None (12b-1) Fees - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Other Expenses 0.28%/2,3/ 0.10% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Total Fund Operating Expenses 0.67% 0.49% - --------------------------------------------------- -------------------- -------------------- 1. The Funds charge a fee of $30 for a redemption by wire. 2. A shareholder service fee of 0.15% is included in Other Expenses. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.30% and 0.69%, respectively, for the Lutheran Brotherhood High Yield Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Institutional shareholders and is reflected in the pro forma expense table. Lutheran Brotherhood Income Fund / Thrivent Income Fund (New Thrivent Fund) - --------------------------------------------------------------------------------------------- Class A Shares Actual Expenses Pro Forma Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood Income Thrivent Fund Income Fund - --------------------------------------------------- -------------------- -------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.50% 4.50% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) 1.00%/2/ 1.00%/2/ - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Management Fees 0.34% 0.34% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Distribution and/or Shareholder Servicing None 0.25% (12b-1) Fees - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Other Expenses 0.48%/3/ 0.20% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Total Annual Fund Operating Expenses 0.82% 0.79% - --------------------------------------------------- -------------------- -------------------- 1. The maximum sales charge for the Funds depends upon the amount of your investment. In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. There is no sales charge when you invest more than $1,000,000 in Class A shares; however, there is a contingent deferred sales charge of 1.00% if the shares are redeemed within one year of purchase. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.54% and 0.88%, respectively, for the Lutheran Brotherhood Income Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Class A shareholders and is reflected in the pro forma expense table. - --------------------------------------------------------------------------------------------- Class B Shares Actual Expenses Pro Forma Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood Income Thrivent Fund Income Fund - --------------------------------------------------- -------------------- -------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) 5.00% 5.00% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Management Fees 0.34% 0.34% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Distribution and/or Shareholder Servicing 0.75% 1.00% (12b-1) Fees - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Other Expenses 0.48%/2/ 0.57% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Total Annual Fund Operating Expenses 1.57% 1.91%/2/ - --------------------------------------------------- -------------------- -------------------- 1. The Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.54% and 1.63%, respectively, for the Lutheran Brotherhood Income Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in an increase in expenses for LB Fund Class B shareholders and is reflected in the pro forma expense table. If the Reorganization is completed, Thrivent Investment Mgt. has contractually agreed, through at least December 31, 2004, to reimburse certain expenses associated with operating the Thrivent Income Fund to the extent necessary to limit net fund operating expenses to 1.63% of the average daily net assets of the Class B shares of the Fund. This reimbursement is not reflected in the above table. - --------------------------------------------------------------------------------------------- Institutional Shares Actual Expenses Pro Forma Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood Income Thrivent Income Fund Fund - --------------------------------------------------- -------------------- -------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) None None - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Management Fees 0.34% 0.34% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Distribution and/or Shareholder Servicing None None (12b-1) Fees - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Other Expenses 0.26%/2,3/ 0.07% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Total Annual Fund Operating Expenses 0.60% 0.41% - --------------------------------------------------- -------------------- -------------------- 1. The Funds charge a fee of $30 for a redemption by wire. 2. A shareholder service fee of 0.15% is included in Other Expenses. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.26% and 0.60%, respectively, for the Lutheran Brotherhood Income Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Institutional shareholders and is reflected in the pro forma expense table. Lutheran Brotherhood Limited Maturity Bond Fund / Thrivent Limited Maturity Bond Fund (New Thrivent Fund) - --------------------------------------------------------------------------------------------- Class A Shares Actual Expenses Pro Forma Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood Thrivent Limited Maturity Limited Maturity Bond Fund Bond Fund - --------------------------------------------------- -------------------- -------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of Purchase or redemption, whichever is lower) None None2 - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Management Fees 0.30% 0.30% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Distribution and/or Shareholder Servicing None 0.25% (12b-1) Fees - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Other Expenses 0.62%/3/ 0.39% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Total Annual Fund Operating Expenses 0.92% 0.94% - --------------------------------------------------- -------------------- -------------------- 1. The maximum sales charge for the Funds depends upon the amount of your investment. In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. There is no sales charge when you invest more than $1,000,000 in Class A shares; however, there is a contingent deferred sales charge of 1.00% if the shares are redeemed within one year of purchase. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.66% and 0.96%, respectively, for the Lutheran Brotherhood Limited Maturity Bond Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Class A shareholders and is reflected in the pro forma expense table. - --------------------------------------------------------------------------------------------- Class B Shares Actual Expenses Pro Forma Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood Thrivent Limited Maturity Limited Maturity Bond Fund Bond Fund - --------------------------------------------------- -------------------- -------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Deferred Sales Charge (Load) (as a percentage of net asset value at time of purchase or redemption, whichever is lower) None/2/ None/2/ - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Management Fees 0.30% 0.30% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Distribution and/or Shareholder Servicing None 0.25% (12b-1) Fees - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Other Expenses 0.62%/3/ 0.39% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Total Annual Fund Operating Expenses 0.92% 0.94%/3/ - --------------------------------------------------- -------------------- -------------------- 1. The Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. The Funds also charge a fee of $30 for a redemption by wire. 2. Class B shares of the Lutheran Brotherhood Limited Maturity Bond Fund are offered solely in exchange for Class B shares of other Funds of The Lutheran Brotherhood Family of Funds. Class B shareholders of the Lutheran Brotherhood Limited Maturity Bond Fund will be responsible for any Contingent Deferred Sales Charge that may be payable at the time of redemption as a result of an investment in another Fund. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.66% and 0.96%, respectively, for the Lutheran Brotherhood Limited Maturity Bond Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in an increase in expenses for LB Fund Class B shareholders and is reflected in the pro forma expense table. If the Reorganization is completed, Thrivent Investment Mgt. has contractually agreed, through at least December 31, 2004, to reimburse certain expenses associated with operating the Thrivent Limited Maturity Bond Fund to the extent necessary to limit net fund operating expenses to 0.96% of the average daily net assets of the Class B shares of the Fund. This reimbursement is not reflected in the above table. - --------------------------------------------------------------------------------------------- Institutional Shares Actual Expenses Pro Forma Expenses as of October 31, as of October 31, 2003, as adjusted 2003 Lutheran Brotherhood Thrivent Limited Maturity Limited Maturity Bond Fund Bond Fund - --------------------------------------------------- -------------------- -------------------- Shareholder Fees (Fees paid directly from your investment)/1/ - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Maximum Deferred Sales Charge (Load) (as a Percentage of net asset value at time of purchase or redemption, whichever is lower) None None - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Annual Fund Operating Expenses (Expenses that are deducted from Fund assets) - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Management Fees 0.30% 0.30% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Distribution and/or Shareholder Servicing None None (12b-1) Fees - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Other Expenses 0.32%/2,3/ 0.16% - --------------------------------------------------- -------------------- -------------------- - --------------------------------------------------- -------------------- -------------------- Total Annual Fund Operating Expenses 0.62% 0.46% - --------------------------------------------------- -------------------- -------------------- 1. The Funds charge a fee of $30 for a redemption by wire. 2. A shareholder service fee of 0.15% is included in Other Expenses. 3. The amount of Other Expenses has been restated to reflect a decrease in transfer agency fees for the LB Funds that became effective on January 1, 2004. The actual amount of Other Expenses and Total Annual Fund Operating Expenses as of October 31, 2003, were 0.34% and 0.64%, respectively, for the Lutheran Brotherhood Limited Maturity Bond Fund. The amount of Other Expenses also reflects differences between the LB Funds and the AAL Funds in the method for allocating class expenses. The LB Funds allocate expense based on asset value, while the AAL Funds allocate based on actual expenses incurred by the share class. If the reorganization is completed, this will result in a decrease in expenses for LB Fund Institutional shareholders and is reflected in the pro forma expense table. Examples The following examples are intended to help you compare the cost of investing in the LB Fund whose shares you currently own with the cost of investing in the Thrivent/AAL Fund into which your LB Fund will be reorganized if the proposed Reorganization is approved. The examples are based on the expense tables above, without taking into account any waivers or reimbursements. The examples assume that you invest $10,000 in each fund for the time periods indicated and then redeem all of your shares at the end of those periods. Each example assumes your investment has a 5% return each year, the operating expenses of the LB Trust and Thrivent Trust remain the same, and you reinvest all dividends and distributions. The examples should not be considered as representative of past or future expenses or rates of return, and your actual costs may be higher or lower than those shown. Lutheran Brotherhood World Growth Fund / AAL International Fund A Shares Pro Forma Lutheran Brotherhood AAL AAL World Growth Fund International Fund International Fund 1 Year $ 763 $715 $703 3 Years $1,206 $1,062 $1,024 5 Years $1,674 $1,432 $1,368 10 Years $2,964 $2,469 $2,335 B Shares Pro Forma Lutheran Brotherhood AAL AAL World Growth Fund International Fund International Fund 1 Year $800 $807 $846 3 Years $1,218 $1,239 $1,353 5 Years $1,662 $1,696 $1,884 10 Years $2,878 $2,625 $2,719 Institutional Shares Pro Forma Lutheran Brotherhood AAL AAL World Growth Fund International Fund International Fund 1 Year $143 $81 $93 3 Years $443 $252 $290 5 Years $766 $439 $504 10 Years $1,680 $978 $1,120 Lutheran Brotherhood Growth Fund / AAL Aggressive Growth Fund A Shares Pro Forma Lutheran Brotherhood AAL Aggressive AAL Aggressive Growth Fund Growth Fund Growth Fund 1 Year $ 759 $796 $753 3 Years $1,195 $1,306 $1,177 5 Years $1,655 $1,840 $1,626 10 Years $2,925 $3,295 $2,867 B Shares Pro Forma Lutheran Brotherhood AAL Aggressive AAL Aggressive Growth Fund Growth Fund Growth Fund 1 Year $796 $874 $842 3 Years $1,207 $1,438 $1,342 5 Years $1,643 $1,020 $1,865 10 Years $2,838 $3,375 $2,998 Institutional Shares Pro Forma Lutheran Brotherhood AAL Aggressive AAL Aggressive Growth Fund Growth Fund Growth Fund 1 Year $108 $120 $103 3 Years $337 $375 $322 5 Years $585 $649 $558 10 Years $1,294 $1,432 $1,236 Lutheran Brotherhood Fund / AAL Capital Growth Fund A Shares Pro Forma Lutheran Brotherhood Fund AAL Capital Growth Fund AAL Capital Growth Fund 1 Year $648 $651 $647 3 Years $857 $866 $854 5 Years $1,082 $1,098 $1,077 10 Years $1,729 $1,762 $1,718 B Shares Pro Forma Lutheran Brotherhood Fund AAL Capital Growth Fund AAL Capital Growth Fund 1 Year $680 $722 $732 3 Years $857 $985 $1,015 5 Years $1,059 $1,275 $1,325 10 Years $1,620 $1,840 $1,863 Institutional Shares Pro Forma Lutheran Brotherhood Fund AAL Capital Growth Fund AAL Capital Growth Fund 1 Year $62 $59 $56 3 Years $195 $186 $176 5 Years $340 $324 $307 10 Years $762 $726 $689 Lutheran Brotherhood Value Fund / AAL Equity Income Fund A Shares Lutheran Brotherhood Pro Forma Value Fund AAL Equity Income Fund AAL Equity Income Fund 1 Year $721 $657 $657 3 Years $1,079 $883 $883 5 Years $1,461 $1,128 $1,128 10 Years $2,529 $1,827 $1,827 B Shares Lutheran Brotherhood Pro Forma Value Fund AAL Equity Income Fund AAL Equity Income Fund 1 Year $756 $720 $743 3 Years $1,088 $979 $1,048 5 Years $1,445 $1,264 $1,380 10 Years $2,435 $1,868 $1,976 Institutional Shares Lutheran Brotherhood Pro Forma Value Fund AAL Equity Income Fund AAL Equity Income Fund 1 Year $96 $56 $55 3 Years $300 $176 $173 5 Years $520 $307 $302 10 Years $1,155 $689 $677 Lutheran Brotherhood Municipal Bond Fund / AAL Municipal Bond Fund A Shares Pro Forma Lutheran Brotherhood AAL AAL Municipal Bond Fund Municipal Bond Fund Municipal Bond Fund 1 Year $518 $531 $524 3 Years $664 $703 $682 5 Years $822 $890 $853 10 Years $1,281 $1,429 $1,350 B Shares Pro Forma Lutheran Brotherhood AAL AAL Municipal Bond Fund Municipal Bond Fund Municipal Bond Fund 1 Year $648 $669 $663 3 Years $759 $823 $805 5 Years $892 $1,002 $971 10 Years $1,256 $1,445 $1,370 Institutional Shares Pro Forma Lutheran Brotherhood AAL AAL Municipal Bond Fund Municipal Bond Fund Municipal Bond Fund 1 Year $55 $52 $46 3 Years $173 $164 $144 5 Years $302 $285 $252 10 Years $677 $640 $567 Lutheran Brotherhood Money Market Fund / AAL Money Market Fund A Shares Pro Forma Lutheran Brotherhood AAL AAL Money Market Fund Money Market Fund Money Market Fund 1 Year $91 $95 $93 3 Years $284 $296 $290 5 Years $493 $515 $504 10 Years $1,096 $1,143 $1,120 B Shares Pro Forma Lutheran Brotherhood AAL AAL Money Market Fund Money Market Fund Money Market Fund 1 Year $591 $685 $702 3 Years $584 $873 $924 5 Years $593 $1,085 $1,173 10 Years $1,096 $1,587 $1,637 Institutional Shares Pro Forma Lutheran Brotherhood AAL AAL Money Market Fund Money Market Fund Money Market Fund 1 Year $51 $58 $61 3 Years $160 $183 $192 5 Years $280 $318 $335 10 Years $628 $714 $750 Lutheran Brotherhood Opportunity Growth Fund / Lutheran Brotherhood Mid Cap Growth Fund /Thrivent Mid Cap Growth Fund A Shares Lutheran Brotherhood Lutheran Brotherhood Pro Forma Opportunity Growth Fund Mid Cap Growth Fund Thrivent Mid Cap Growth Fund 1 Year $716 $712 $686 3 Years $1,065 $1,053 $972 5 Years $1,437 $1,417 $1,279 10 Years $2,479 $2,438 $2,148 B Shares Lutheran Brotherhood Lutheran Brotherhood Pro Forma Opportunity Growth Fund Mid Cap Growth Fund Thrivent Mid Cap Growth Fund 1 Year $751 $747 $807 3 Years $1,073 $1,061 $1,239 5 Years $1,421 $1,401 $1,696 10 Years $2,383 $2,342 $2,446 Institutional Shares Lutheran Brotherhood Lutheran Brotherhood Pro Forma Opportunity Growth Fund Mid Cap Growth Fund Thrivent Mid Cap Growth Fund 1 Year $81 $78 $57 3 Years $252 $243 $179 5 Years $439 $422 $313 10 Years $978 $942 $701 Lutheran Brotherhood High Yield Fund / Thrivent High Yield Fund A Shares Lutheran Brotherhood Pro Forma High Yield Fund Thrivent High Yield Fund 1 Year $542 $539 3 Years $736 $727 5 Years $947 $931 10 Years $1,553 $1,519 B Shares Lutheran Brotherhood Pro Forma High Yield Fund Thrivent High Yield Fund 1 Year $672 $703 3 Years $833 $927 5 Years $1,018 $1,178 10 Years $1,530 $1,662 Institutional Shares Lutheran Brotherhood Pro Forma High Yield Fund Thrivent High Yield Fund 1 Year $68 $50 3 Years $214 $157 5 Years $373 $274 10 Years $835 $616 Lutheran Brotherhood Income Fund / Thrivent Income Fund A Shares Lutheran Brotherhood Pro Forma Income Fund Thrivent Income Fund 1 Year $530 $527 3 Years $700 $691 5 Years $885 $869 10 Years $1,418 $1384 B Shares Lutheran Brotherhood Pro Forma Income Fund Thrivent Income Fund 1 Year $660 $694 3 Years $796 $900 5 Years $955 $1,132 10 Years $1,394 $1,542 Institutional Shares Pro Forma Lutheran Brotherhood Thrivent Income Fund Income Fund 1 Year $61 $42 3 Years $192 $132 5 Years $335 $230 10 Years $750 $518 Lutheran Brotherhood Limited Maturity Bond Fund / Thrivent Limited Maturity Bond Fund A Shares Lutheran Brotherhood Pro Forma Limited Maturity Thrivent Bond Fund Limited Maturity Bond Fund 1 Year $94 $96 3 Years $293 $300 5 Years $509 $520 10 Years $1,131 $1,155 B Shares Lutheran Brotherhood Pro Forma Limited Maturity Thrivent Bond Fund Limited Maturity Bond Fund 1 Year $594 $596 3 Years $593 $600 5 Years $609 $620 10 Years $1,131 $1,155 Institutional Shares Lutheran Brotherhood Pro Forma Limited Maturity Thrivent Bond Fund Limited Maturity Bond Fund 1 Year $63 $47 3 Years $199 $148 5 Years $346 $258 10 Years $774 $579 You would pay the following expenses if you did not redeem your shares. Lutheran Brotherhood World Growth Fund / AAL International Fund A Shares Pro Forma Lutheran Brotherhood World AAL AAL Growth Fund International Fund International Fund 1 Year $ 763 $715 $703 3 Years $1,206 $1,062 $1,024 5 Years $1,674 $1,432 $1,368 10 Years $2,964 $2,469 $2,335 B Shares Pro Forma Lutheran Brotherhood World AAL AAL Growth Fund International Fund International Fund 1 Year $300 $307 $346 3 Years $918 $939 $1,053 5 Years $1562 $1,596 $1,784 10 Years $2,878 $2,625 $2,719 Institutional Shares Pro Forma Lutheran Brotherhood World AAL AAL Growth Fund International Fund International Fund 1 Year $143 $81 $93 3 Years $443 $252 $290 5 Years $766 $439 $504 10 Years $1,680 $978 $1,120 Lutheran Brotherhood Growth Fund / AAL Aggressive Growth Fund A Shares Pro Forma Lutheran Brotherhood Growth AAL Aggressive AAL Aggressive Fund Growth Fund Growth Fund 1 Year $ 759 $796 $753 3 Years $1,195 $1,306 $1,177 5 Years $1,655 $1,840 $1,626 10 Years $2,925 $3,295 $2,869 B Shares Pro Forma Lutheran Brotherhood Growth AAL Aggressive AAL Aggressive Fund Growth Fund Growth Fund 1 Year $296 $374 $342 3 Years $907 $1,138 $1,042 5 Years $1,543 $1,920 $1,765 10 Years $2,838 $3,375 $2,998 Institutional Shares Pro Forma Lutheran Brotherhood Growth AAL Aggressive AAL Aggressive Fund Growth Fund Growth Fund 1 Year $108 $120 $103 3 Years $337 $375 $322 5 Years $585 $649 $558 10 Years $1,294 $1,432 $1,236 Lutheran Brotherhood Fund / AAL Capital Growth Fund A Shares Pro Forma Lutheran Brotherhood Fund AAL Capital Growth Fund AAL Capital Growth Fund 1 Year $648 $651 $647 3 Years $857 $866 $854 5 Years $1,082 $1,098 $1,077 10 Years $1,729 $1,762 $1,718 B Shares Pro Forma Lutheran Brotherhood Fund AAL Capital Growth Fund AAL Capital Growth Fund 1 Year $180 $222 $232 3 Years $557 $685 $715 5 Years $959 $1,175 $1,225 10 Years $1,620 $1,840 $1,863 Institutional Shares Pro Forma Lutheran Brotherhood Fund AAL Capital Growth Fund AAL Capital Growth Fund 1 Year $62 $59 $56 3 Years $195 $186 $176 5 Years $340 $324 $307 10 Years $762 $726 $689 Lutheran Brotherhood Value Fund / AAL Equity Income Fund A Shares Lutheran Brotherhood Value Pro Forma Fund AAL Equity Income Fund AAL Equity Income Fund 1 Year $721 $657 $657 3 Years $1,079 $883 $883 5 Years $1,461 $1,128 $1,128 10 Years $2,529 $1,827 $1,827 B Shares Lutheran Brotherhood Value Pro Forma Fund AAL Equity Income Fund AAL Equity Income Fund 1 Year $256 $220 $243 3 Years $788 $679 $748 5 Years $1,345 $1,164 $1,280 10 Years $2,435 $1,868 $1,976 Institutional Shares Lutheran Brotherhood Value Pro Forma Fund AAL Equity Income Fund AAL Equity Income Fund 1 Year $96 $56 $55 3 Years $300 $176 $173 5 Years $520 $307 $302 10 Years $1,155 $689 $677 Lutheran Brotherhood Municipal Bond Fund / AAL Municipal Bond Fund A Shares Pro Forma Lutheran Brotherhood AAL AAL Municipal Bond Fund Municipal Bond Fund Municipal Bond Fund 1 Year $518 $531 $524 3 Years $664 $703 $682 5 Years $822 $890 $853 10 Years $1,281 $1,429 $1,350 B Shares Pro Forma Lutheran Brotherhood AAL AAL Municipal Bond Fund Municipal Bond Fund Municipal Bond Fund 1 Year $148 $169 $163 3 Years $459 $523 $505 5 Years $792 $902 $871 10 Years $1,256 $1,445 $1,370 Institutional Shares Pro Forma Lutheran Brotherhood AAL AAL Municipal Bond Fund Municipal Bond Fund Municipal Bond Fund 1 Year $55 $52 $46 3 Years $173 $164 $144 5 Years $302 $285 $252 10 Years $677 $640 $567 Lutheran Brotherhood Money Market Fund / AAL Money Market Fund A Shares Pro Forma Lutheran Brotherhood Money AAL AAL Market Fund Money Market Fund Money Market Fund 1 Year $91 $95 $93 3 Years $284 $296 $290 5 Years $493 $515 $504 10 Years $1,096 $1,143 $1,120 B Shares Pro Forma Lutheran Brotherhood Money AAL AAL Market Fund Money Market Fund Money Market Fund 1 Year $91 $185 $202 3 Years $284 $573 $624 5 Years $493 $985 $1,073 10 Years $1,096 $1,587 $1,657 Institutional Shares Pro Forma Lutheran Brotherhood Money AAL AAL Market Fund Money Market Fund Money Market Fund 1 Year $51 $58 $61 3 Years $160 $183 $192 5 Years $280 $318 $335 10 Years $628 $714 $750 Lutheran Brotherhood Opportunity Growth Fund / Lutheran Brotherhood Mid Cap Growth Fund /Thrivent Mid Cap Growth Fund A Shares Lutheran Brotherhood Lutheran Brotherhood Mid Pro Forma Opportunity Growth Fund Cap Growth Fund Thrivent Mid Cap Growth Fund 1 Year $716 $712 $686 3 Years $1,065 $1,053 $972 5 Years $1,437 $1,417 $1,279 10 Years $2,479 $2,438 $2,148 B Shares Lutheran Brotherhood Lutheran Brotherhood Mid Pro Forma Opportunity Growth Fund Cap Growth Fund Thrivent Mid Cap Growth Fund 1 Year $251 $247 $307 3 Years $773 $761 $939 5 Years $1,321 $1,301 $1,596 10 Years $2,383 $2,342 $2,446 Institutional Shares Lutheran Brotherhood Lutheran Brotherhood Mid Cap Pro Forma Opportunity Growth Fund Growth Fund Thrivent Mid Cap Growth Fund 1 Year $81 $78 $57 3 Years $252 $243 $179 5 Years $439 $422 $313 10 Years $978 $942 $701 Lutheran Brotherhood High Yield Fund / Thrivent High Yield Fund A Shares Lutheran Brotherhood High Pro Forma Yield Fund Thrivent High Yield Fund 1 Year $542 $539 3 Years $736 $727 5 Years $947 $931 10 Years $1,553 $1,519 B Shares Lutheran Brotherhood High Pro Forma Yield Fund Thrivent High Yield Fund 1 Year $172 $203 3 Years $533 $627 5 Years $918 $1,078 10 Years $1,530 $1,662 Institutional Shares Lutheran Brotherhood High Pro Forma Yield Fund Thrivent High Yield Fund 1 Year $68 $50 3 Years $214 $170 5 Years $373 $296 10 Years $835 $616 Lutheran Brotherhood Income Fund / Thrivent Income Fund A Shares Lutheran Brotherhood Income Pro Forma Fund Thrivent Income Fund 1 Year $530 $527 3 Years $700 $691 5 Years $885 $869 10 Years $1,418 $1,384 B Shares Lutheran Brotherhood Income Pro Forma Fund Thrivent Income Fund 1 Year $160 $194 3 Years $496 $600 5 Years $855 $1,032 10 Years $1,394 $1,542 Institutional Shares Pro Forma Lutheran Brotherhood Income Thrivent Fund Income Fund 1 Year $61 $42 3 Years $192 $132 5 Years $335 $230 10 Years $750 $518 Lutheran Brotherhood Limited Maturity Bond Fund / Thrivent Limited Maturity Bond Fund A Shares Lutheran Brotherhood Limited Pro Forma Maturity Thrivent Bond Fund Limited Maturity Bond Fund 1 Year $94 $96 3 Years $293 $300 5 Years $509 $520 10 Years $1,131 $1,155 B Shares Lutheran Brotherhood Limited Pro Forma Maturity Thrivent Bond Fund Limited Maturity Bond Fund 1 Year $94 $96 3 Years $293 $300 5 Years $509 $520 10 Years $1,131 $1,155 Institutional Shares Lutheran Brotherhood Limited Pro Forma Maturity Thrivent Bond Fund Limited Maturity Bond Fund 1 Year $63 $47 3 Years $199 $148 5 Years $346 $258 10 Years $774 $579 Comparison of Investment Performance The average annual total returns for the LB Funds that will be reorganized into an Existing AAL Fund and the average annual total returns of the Existing AAL Fund are set forth in the charts below for one year, five years and 10 years (or since inception if less). AAL International Fund / Lutheran Brotherhood World Growth Fund Average Annual Total Returns as of December 31, 2003 A Shares 1 year 5 years Since Inception Inception Date Lutheran Brotherhood World Growth Fund 28.81% (2.01)% 2.74% 9/15/95 AAL International Fund 29.47% (2.68)% 1.30% 8/1/95 B Shares 1 year 5 years Since Inception Inception Date Lutheran Brotherhood World Growth Fund 27.82% (2.76)% 0.09% 10/31/97 AAL International Fund 27.44% (3.84)% (1.09)% 1/8/97 Institutional Shares 1 year 5 years Since Inception Inception Date Lutheran Brotherhood World Growth Fund 30.52% (1.19)% 1.43% 10/31/97 AAL International Fund 30.54% (1.96)% (0.35)% 12/29/97 Lutheran Brotherhood Growth Fund / AAL Aggressive Growth Fund Average Annual Total Return as of December 31, 2003 A Shares 1 year Since Inception Inception Date Lutheran Brotherhood Growth Fund 28.95% (8.90)% 10/29/99 AAL Aggressive Growth Fund 27.40% (20.37)% 7/1/00 B Shares 1 year Since Inception Inception Date Lutheran Brotherhood Growth Fund 27.98% (9.57)% 10/29/99 AAL Aggressive Growth Fund 25.80% (21.24)% 7/1/00 Institutional Shares 1 year Since Inception Inception Date Lutheran Brotherhood Growth Fund 30.92% (7.85)% 10/29/99 AAL Aggressive Growth Fund 29.04% (19.38)% 7/1/00 Lutheran Brotherhood Fund / AAL Capital Growth Fund Average Annual Total Return as of December 31, 2003 A Shares 1 year 5 years 10 years Lutheran Brotherhood Fund 21.39% (3.82)% 6.85% AAL Capital Growth Fund 21.13% (0.48)% 10.18% B Shares 1 year Since Inception Inception Date Lutheran Brotherhood Fund 20.46% 0.41% 10/31/97 AAL Capital Growth Fund 19.73% 6.69% 1/8/97 Institutional Shares 1 year Since Inception Inception Date Lutheran Brotherhood Fund 22.17% 1.38% 10/31/97 AAL Capital Growth Fund 21.71% 4.57% 12/29/97 Lutheran Brotherhood Value Fund / AAL Equity Income Fund Average Annual Total Return as of December 31, 2003 A Shares 1 year Since Inception Inception Date Lutheran Brotherhood Value Fund 26.40% (1.69)% 10/29/99 AAL Equity Income Fund 27.10% 5.95% 3/18/94 B Shares 1 year Since Inception Inception Date Lutheran Brotherhood Value Fund 25.50% (2.42)% 10/29/99 AAL Equity Income Fund 25.58% 4.24% 1/8/97 Institutional Shares 1 year Since Inception Inception Date Lutheran Brotherhood Value Fund 27.86% (0.85)% 10/29/99 AAL Equity Income Fund 27.79% 2.88% 12/29/97 Lutheran Brotherhood Municipal Bond Fund / AAL Municipal Bond Fund Average Annual Total Return as of December 31, 2003 A Shares 1 year 5 years 10 years Lutheran Brotherhood Municipal Bond Fund 4.42% 5.24% 5.52% AAL Municipal Bond Fund 4.81% 4.87% 5.62% B Shares 1 year 5 years Since Inception Inception Date Lutheran Brotherhood Municipal Bond Fund 3.76% 4.50% 4.98% 10/31/97 AAL Municipal Bond Fund 3.87% 4.00% 5.26% 1/8/97 Institutional Shares 1 year 5 years Since Inception Date Inception Lutheran Brotherhood Municipal Bond Fund 4.74% 5.49% 5.86% 10/31/97 AAL Municipal Bond Fund 5.12% 5.20% 5.36% 12/29/97 Lutheran Brotherhood Money Market Fund / AAL Money Market Fund Average Annual Total Return as of December 31, 2003 A Shares 1 year 5 years 10 years Lutheran Brotherhood Money Market Fund 0.34% 2.91% 3.69% AAL Money Market Fund 0.44% 3.08% 3.84% B Shares 1 year 5 years Since Inception Inception Date LB Money Market Fund 0.34% 2.91% 3.26% 10/31/97 AAL Money Market Fund 0.20% 2.28% 2.93% 1/8/97 Institutional Shares 1 year 5 years Since Inception Inception Date LB Money Market Fund 0.81% 3.30% 3.63% 10/31/97 AAL Money Market Fund 0.69% 3.39% 3.68% 12/29/97 Lutheran Brotherhood Opportunity Growth Fund / Lutheran Brotherhood Mid Cap Growth Fund /Thrivent Mid Cap Growth Fund Average Annual Total Return as of December 31, 2003 A Shares 1 year 5 years Since Inception Inception Date Lutheran Brotherhood Opportunity Growth Fund 40.52% (2.08)% 4.95% 1/8/93 Lutheran Brotherhood Mid Cap Growth Fund 33.72% 5.41% 7.73% 5/30/97 B Shares 1 year 5 years Since Inception Inception Date Lutheran Brotherhood Opportunity Growth Fund 39.43% (2.80)% (4.22)% 10/31/97 Lutheran Brotherhood Mid Cap Growth Fund 32.60% 4.62% 5.71% 10/31/97 Institutional Shares 1 year 5 years Since Inception Inception Date Lutheran Brotherhood Opportunity Growth Fund 42.14% (1.33)% (3.02)% 10/31/97 Lutheran Brotherhood Mid Cap Growth Fund 35.25% 6.24% 7.08% 10/31/97 No performance information is shown for the New Thrivent Funds because they will not commence operations or have any assets or liabilities prior to the completion of the Reorganizations. For historical purposes, they will assume the performance history of their predecessor LB Funds (except that the Thrivent Mid Cap Growth Fund will assume the performance history of the Lutheran Brotherhood Mid Cap Growth Fund and not of the Lutheran Brotherhood Opportunity Growth Fund). COMPARISON OF INVESTMENT OBJECTIVES, STRATEGIES AND RISKS In addition to the investment objectives and strategies described below, the LB Funds and the Thrivent/AAL Funds are subject to certain additional investment policies and limitations. See discussion under the heading "Additional Policies and Limitations". The following compares and contrasts the investment objectives, strategies, and risks of each LB Fund and its corresponding Thrivent/AAL Fund. LB Funds / Existing Thrivent Funds The investment objectives and strategies of each LB Fund that will be reorganized into an Existing AAL Fund are similar in all material respects to its corresponding Fund. Lutheran Brotherhood World Growth Fund / AAL International Fund Investment Objectives The AAL International Fund seeks long-term capital growth by investing primarily in foreign stocks. The Lutheran Brotherhood World Growth Fund seeks to achieve long-term growth of capital by investing primarily in a professionally managed diversified portfolio of common stocks of established, non-U.S. companies. Investment Strategies The AAL International Fund and the Lutheran Brotherhood World Growth Fund use substantially similar investment strategies. Under normal circumstances, the AAL International Fund invests at least 65% of its total assets in foreign stocks and convertible foreign securities of at least three different countries. It focuses on stocks primarily trading in the United Kingdom, Western Europe, Australia, Far East, Latin America and Canada. Under normal circumstances, the LB World Growth Fund invests at least 65% of its net assets in common stocks of established non-U.S. companies. While stocks may be purchased in the LB World Growth Fund without regard to a company's market capitalization, the focus typically will be on large and, to a lesser extent, medium-sized, companies. Each fund may invest in both developed and emerging markets. Bottom-up stock selection is the focus of decision-making for both funds. Using this approach, the investment adviser identifies an individual company it believes is an attractive investment opportunity, consistent with the fund's investment policy. If the Reorganization is approved, under normal market circumstances the merged fund will invest at least 80% of its net assets (plus the amount of any borrowing for investment purposes) in stocks. While stocks may be purchased without regard to a company's market capitalization, the focus typically will be on large and, to a lesser extent, medium sized, companies. The assets of the fund will be allocated generally on an equal basis among a growth style investment subadviser and a value style investment subadviser. The fund may invest in both developed and emerging markets. Bottom-up stock selection is the focus of decision-making for both subadvisers. Thrivent Investment Management Inc. has selected two subadvisers with differing management styles to subadvise the merged Fund: T. Rowe Price International, Inc. ("Price International") and Mercator Asset Management, LP ("Mercator"). Each of the subadvisers acts and invests independently of the other and uses its own methodology for selecting stocks. The fund's assets are allocated generally on an equal basis among the two investment subadvisers. T. Rowe Price International, Inc. Stock selection reflects a growth style. While stocks may be purchased without regard to a company's market capitalization, Price International's focus typically will be on large and, to a lesser extent, medium-sized, companies. Price International invests primarily in common stocks, although to a lesser extent it may also purchase other instruments and securities, including foreign currency and foreign currency exchange contracts, futures and options, in keeping with the fund's objective. In determining the appropriate distribution of investments among various countries and geographic regions, Price International employs in-depth fundamental research in an effort to identify companies capable of achieving and sustaining above-average, long-term earnings growth. (Fundamental analysis generally involves assessing a company's or security's value based on factors such as sales, assets, markets, management, products and services, earnings, and financial structure.) Price International seeks to purchase such stocks at reasonable prices in relation to present or anticipated earnings, cash flow, or book value, and valuation factors often influence its allocations among large-, mid-, or small-cap shares. While Price International invests with an awareness of the global economic backdrop and its outlook for industry sectors and individual countries, bottom-up stock selection is the focus of its decision-making. Country allocation is driven largely by stock selection, though the sub-adviser may limit investments in markets that appear to have poor overall prospects. In selecting stocks, Price International generally favors companies with one or more of the following characteristics: o Leading market position o Attractive business niche o Strong franchise or natural monopoly o Technological leadership or proprietary advantages o Seasoned management o Earnings growth and cash flow sufficient to support growing dividends o Healthy balance sheet with relatively low debt In addition, Price International may purchase some securities that do not meet its normal investment criteria, as described above, when it perceives an unusual opportunity for gain. These special situations might arise when Price International believes a security could increase in value for a variety of reasons including a change in management, an extraordinary corporate event, or a temporary imbalance in the supply of or demand for the securities. Price International may sell securities for a variety of reasons, such as to secure gains, limit losses, or reposition assets into more promising opportunities. Mercator Asset Management, LP Stock selection reflects a value style. Mercator may invest in securities of issuers of any capitalization size. Although Mercator invests primarily in equity securities, it also may invest in fixed income securities and derivatives. Mercator combines a relative value style with bottom-up stock analysis. The goal of the investment team is to maximize returns on a risk-adjusted basis. Mercator's approach is to identify attractive, undervalued securities that have good earnings prospects. Using initial screens based on historical data, Mercator uses its proprietary database to identify securities which are inexpensive relative their respective historical prices, industries, and markets. Mercator subjects the most attractive stocks to fundamental analysis, which seeks to validate projected financial data and considers company, industry, and macro factors. (Fundamental analysis generally involves assessing a company's or security's value based on factors such as sales, assets, markets, management, products and services, earnings, and financial structure.) Mercator will consider selling a security when fundamental analysis indicates that that the security is less attractive than alternative investments. Investment Risks The AAL International Fund and the Lutheran Brotherhood World Growth Fund are subject to the following principal investment risks in additional to the principal risks applicable to all Funds and to all equity Funds set forth below. Liquidity Risk. Liquidity risk is the ability to sell a security relatively quickly for a price that most closely reflects the actual value of the security. Foreign securities generally have a less liquid resale market. As a result, the Fund may have difficulty selling or disposing of securities quickly in certain markets or market environments. Foreign Securities Risk. Stocks of non-U.S. companies in which the Funds invest generally carry more risk than stocks of U.S. companies. The economies and financial markets of certain regions-such as Latin America, Asia, Europe and the Mediterranean region-can be highly interdependent and may decline at the same time. Other risks result from the varying stages of economic and political development of foreign countries, the differing regulatory environments, trading days, and accounting standards of non-U.S. markets, and higher transaction costs. The Fund's investment in any country could be subject to governmental actions such as capital or currency controls, nationalizing a company or industry, expropriating assets, or imposing punitive taxes which would have an adverse affect on security prices and impair the Fund's ability to repatriate capital or income. The Fund is also subject to the risk that the value of a foreign currency may decline against the U.S. dollar, which would reduce the dollar value of securities denominated in that currency. The overall impact of such a decline of foreign currency can be significant, unpredictable, and long lasting, depending on the currencies represented, how each one appreciates or depreciates in relation to the U.S. dollar, and whether currency positions are hedged. Under normal conditions, the Fund does not engage in extensive foreign currency hedging programs. Further, exchange rate movements are volatile, and it is not possible to effectively hedge the currency risks of many developing countries. Emerging Markets Risk. The economic and political structures of developing nations, in most cases, do not compare favorably with the U.S. or other developed countries in terms of wealth and stability, and their financial markets often lack liquidity. Fund performance will likely be negatively affected by portfolio exposure to nations in the midst of hyperinflation, currency devaluation, trade disagreements, sudden political upheaval or interventionist government policies. Significant buying or selling actions by a few major investors may also heighten the volatility of emerging markets. These factors make investing in emerging market countries significantly riskier than in other countries and any one of them could cause the Fund's share price to decline. Lutheran Brotherhood Growth Fund / AAL Aggressive Growth Fund Investment Objectives The Lutheran Brotherhood Growth Fund seeks to achieve long-term growth of capital. 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. Investment Strategies The Lutheran Brotherhood Growth Fund and the AAL Aggressive Growth Fund use substantially similar investment strategies. Under normal circumstances, both funds invest at least 65% of their respective total assets in common stocks of growth companies with large market capitalizations. If the Reorganization is approved, the AAL Aggressive Growth Fund will begin investing, under normal market conditions, 80% of its net assets (plus the amount of any borrowing for investment purposes) in common stocks of growth companies with large market capitalizations. Both funds use fundamental and technical investment research techniques to identify stocks of companies that the investment adviser believes have demonstrated and will sustain above-average earnings growth over time, or which are expected to develop rapid sales and earnings growth in the future when compared to the economy and stock market as a whole. Because of the substantial similarities in their investment objectives and strategies, and because the funds are managed by the same investment adviser and portfolio manager, the stocks included in their investment portfolios and the proportions in which they are included are substantially similar. Investment Risks The Lutheran Brotherhood Growth Fund and the AAL Aggressive Growth Fund are subject to the following principal investment risks in addition to the principal risks applicable to all Funds and to Equity Funds set forth below. Growth Securities Risk. A growth fund may invest in equity securities of companies that its portfolio manager or portfolio management team believes will experience relatively rapid earnings growth. Growth securities typically trade at higher multiples of current earnings than other securities. Therefore, the values of growth securities may be more sensitive to changes in current or expected earnings than the values of other securities. Large Company Risk. The prices of larger company stocks may not rise as quickly or as significantly as prices of stocks of well-managed smaller companies when stocks of larger companies are out of favor. Lutheran Brotherhood Fund / AAL Capital Growth Fund Investment Objectives The Lutheran Brotherhood Fund seeks growth of capital and income. 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. The investment objective of the AAL Capital Growth Fund does not involve an income component. Investment Strategies Under normal circumstances, the Lutheran Brotherhood Fund invests at least 65% of its total assets in stocks of companies with large market capitalizations (defined according to the market capitalization classifications published by Lipper, Inc.) which Thrivent Investment Management Inc. ("Thrivent Investment Mgmt."), the fund's investment adviser, believes have balance sheet strength and profitability. Under normal circumstances, the AAL Capital Growth Fund invests at least 65% of its total assets in common stocks, not including convertible securities, generally focusing on dividend-paying stocks of companies with earnings growth per share that are higher than stocks included in the S&P 500 Index. The AAL Capital Growth Fund focuses on larger companies, although it may invest across all market capitalizations, and does not invest in bonds for capital growth or for long time periods. If the Reorganization is approved, the AAL Capital Growth Fund will begin investing 80% of its net assets (plus the amount of any borrowing for investment purposes) in common stocks of large companies. The Lutheran Brotherhood Fund uses fundamental, quantitative and technical investment techniques to identify stocks of companies that it believes have a leading position and successful business strategy within their industry. The AAL Capital Growth Fund uses a bottom-up approach to investing. Using this approach, the investment adviser identifies an individual company it believes is an attractive investment opportunity, consistent with the AAL Capital Growth Fund's investment policy. Because of the substantial overlap in their investment objectives and strategies, and because the Lutheran Brotherhood Fund and the AAL Capital Growth Fund are managed by the same investment adviser and the same portfolio manager, the stocks included in their respective investment portfolios and the proportions in which they are included are substantially similar. Investment Risks The Lutheran Brotherhood Growth Fund and the AAL Capital Growth Fund are subject to the following principal investment risks in addition to the principal risks applicable to all Funds and to all equity Funds as described below. Large Company Risk. The prices of larger company stocks may not rise as quickly or as significantly as prices of stocks of well-managed smaller companies when stocks of larger companies are out of favor. Lutheran Brotherhood Value Fund / AAL Equity Income Fund Investment Objectives The Lutheran Brotherhood Value Fund seeks to achieve long-term growth of capital. The investment objective of the AAL Equity Income Fund is to achieve long-term growth of capital. Investment Strategies The Lutheran Brotherhood Value Fund and the AAL Equity Income Fund use substantially similar investment strategies. Under normal market conditions, the Lutheran Brotherhood Value Fund invests at least 65% of its assets in common stocks of companies with large market capitalizations that its investment adviser believes to be undervalued, while the AAL Equity Income Fund invests at least 80% of total assets in income-producing equity securities. Beginning approximately July 16, 2004, the AAL Income Fund will change its name to Thrivent Large Cap Value Fund and begin investing 80% of its net assets (plus the amount of any borrowing for investment purposes) in common stocks of large companies. The Lutheran Brotherhood Value Fund uses both fundamental and technical investment research techniques to identify stocks of companies that it believes are undervalued in relation to their long-term earnings power or asset value, while the AAL Equity Income Fund uses a bottom-up approach to investing. Using this approach, the investment adviser to the AAL Equity Income Fund identifies an individual company it believes is an attractive investment opportunity consistent with the fund's investment policy. Because of the substantial similarities in their investment objectives and strategies, and because the funds are managed by the same investment adviser and portfolio manager, the stocks included in their respective investment portfolios and the proportions in which they are included are substantially similar. Investment Risks The Lutheran Brotherhood Value Fund and the AAL Equity Income Fund are subject to the following principal investment risks in addition to the principal risks applicable to all Funds and to all equity Funds as described below. Value Investment Risk. There is a risk that stocks of undervalued companies may not rise as quickly as anticipated in the market doesn't recognize their intrinsic or if value stocks are out of favor. In addition, the prices of larger company stocks may not rise as quickly or as significantly as prices of stocks of well-managed smaller companies. Lutheran Brotherhood Municipal Bond Fund / AAL Municipal Bond Fund Investment Objectives The Lutheran Brotherhood Municipal Bond Fund seeks a high level of current income which is exempt from federal income tax. The AAL Municipal Bond Fund seeks a high level of current income exempt from federal income taxes, consistent with capital preservation, by investing primarily in a diversified portfolio of municipal bonds. Investment Strategies The Lutheran Brotherhood Municipal Bond Fund and the AAL Municipal Bond Fund use substantially similar investment strategies. Under normal market conditions, both funds invest at least 80% of their respective net assets (plus the amount of any borrowing for investment purposes) in municipal bonds. This is a fundamental policy and may not be changed without shareholder approval. Both funds may count securities that generate income subject to the alternative minimum tax toward the 80% investment requirement. The Lutheran Brotherhood Municipal Bond Fund's investment adviser uses fundamental investment research techniques to determine what municipal bonds to buy and sell. The investment adviser for the Lutheran Brotherhood Municipal Fond Fund focuses on investment-grade municipal bonds of issuers that it believes are financially sound and have healthy balance sheets, strong operating income and good economic prospects. Similarly, the investment adviser for the AAL Municipal Bond Fund focuses on municipal bonds rated within the three highest rating categories assigned by at least one Nationally Recognized Statistical Rating Organization at the time of purchase. Because of the substantial similarities in their investment objectives and strategies, and because the funds are managed by the same investment adviser and portfolio manager, the securities included in their investment portfolios and the proportions in which they are included are substantially similar. Investment Risks The Lutheran Brotherhood Municipal Bond Fund and the AAL Municipal Bond Fund are subject to the following principal investment risks in addition to the principal risks applicable to all Funds described below. Issuer Risk. Issuer risk is the possibility that a company's performance will affect the market price of its security and the value of the Fund. Some factors affecting the performance of a company include demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Credit Risk. Credit risk is the risk that an issuer of a bond held by the Fund may no longer be able to pay its debt. As a result of such an event, the bond may decline in price and affect the value of the Fund. Interest Rate Risk. Interest rate risk is the risk that bond prices decline in value when interest rates rise for bonds that pay a fixed rate of interest. Bonds with longer durations or maturities tend to be more sensitive to changes in interest rates than bonds with shorter durations or maturities. 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 securities in the Fund. Lutheran Brotherhood Money Market Fund / AAL Money Market Fund Investment Objectives The Lutheran Brotherhood Money Market Fund seeks current income consistent with stability of principal. 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. Investment Strategies The Lutheran Brotherhood Money Market Fund and the AAL Money Market Fund use substantially similar investment strategies. Both funds invest in high quality, dollar denominated, short-term debt securities that mature in 397 days or less and maintain a dollar-weighted average portfolio maturity of not more than 90 days. The investment adviser of both funds tries to maintain a $1 share price. Because of the substantial similarities in their investment objectives and strategies, and because the Lutheran Brotherhood Money Market Fund and the AAL Money Market Fund are managed by the same investment adviser and portfolio manager, the securities included in their investment portfolios and proportions in which they are included are substantially similar. An investment in either the Lutheran Brotherhood Money Market Fund or the AAL Money Market Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in either fund. Investment Risks The Lutheran Brotherhood Money Market Fund and the AAL Money Market Fund are subject to the following principal investment risks in addition to principal risks that apply to all Funds as described below. Credit Risk. Credit risk is the risk that an issuer of a security held by the Fund may no longer be able to pay its debt. As a result of such an event, the security may decline in price and affect the value of the Fund. Interest Rate Risk. A weak economy, strong equity markets, or changes by the Federal Reserve to its monetary policies may cause short-term interest rates to decline and affect the value of the Fund. Loss of Principal. The success of the Fund's investment strategy depends significantly on Thrivent Investment Mgt.'s skill in assessing the potential of the securities in which the Fund invests. An investment in the AAL Money Market Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the AAL Money Market Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. LB Funds / Thrivent Mid Cap Growth Fund Lutheran Brotherhood Opportunity Growth Fund / Lutheran Brotherhood Mid Cap Growth Fund / Thrivent Mid Cap Growth Fund Investment Objectives The investment objective of each of the Lutheran Brotherhood Opportunity Growth Fund, the Lutheran Brotherhood Mid Cap Growth Fund and the Thrivent Mid Cap Growth Fund is to achieve long-term growth of capital. The Thrivent Mid Cap Growth Fund was organized in connection with this Reorganization solely for the purpose of continuing the business of the Lutheran Brotherhood Mid Cap Growth Fund and the Lutheran Brotherhood Opportunity Growth Fund. Investment Strategies The principal strategy of both the Lutheran Brotherhood Mid Cap Growth Fund and the Thrivent Mid Cap Growth Fund is to invest in common stocks of companies with medium market capitalizations. Under normal market conditions, both funds invest at least 80% of their respective assets (plus the amount of any borrowing for investment purposes) in companies with market capitalizations similar to those companies included in widely known mid cap indices such as the Russell Midcap Growth Index and the S&P Mid Cap 400/Barra Growth Index at the time of the fund's investment. (Although market capitalizations are constantly changing, as of December 31, 2003, the Russell Midcap Growth Index included companies with capitalizations between $651 million and $17 billion. The S&P Mid Cap 400/Barra Growth Index included companies with capitalizations between $507 million and $12.4 billion.) If the Lutheran Brotherhood Mid Cap Growth Fund or the Thrivent Mid Cap Growth Fund change this policy, shareholders will be notified at least 60 days prior to such a change. The principal strategy of the Lutheran Brotherhood Opportunity Growth Fund is to invest in common stocks of companies with small market capitalizations. Under normal market conditions, the Lutheran Brotherhood Opportunity Growth Fund invests at least 65% of its assets in companies that fall within the range of companies included in the Russell 2000 Index at the time of the fund's investment. Although market capitalizations are constantly changing, as of December 31, 2003, the Russell 2000 Index included companies with capitalizations between $42 million and $2.1 billion. Thrivent Investment Mgt., the investment adviser to the Thrivent Mid Cap Growth Fund, the Lutheran Brotherhood Mid Cap Growth Fund and the Lutheran Brotherhood Opportunity Growth Fund, uses fundamental quantitative and technical investment research techniques to determine what securities to buy and sell. Fundamental investment analysis generally involves assessing a company's or security's value based on factors such as sales, assets, markets, management, products and services, earnings, and financial structure. Quantitative analysis generally involves assessing a company's or security's value based on such factors as the cost of capital; the historical and projected patterns of sales, costs, and profitability in the money market and the securities markets. Technical analysis generally involves studying trends and movements in a security's price, trading volume, and other market-related factors in an attempt to discern patterns. Thrivent Investment Mgt. focuses on companies that have a strong record of earnings growth or show good prospects for growth in sales and earnings and also considers the trends in the market as a whole. Investment Risks The Lutheran Brotherhood Mid Cap Growth Fund, the Lutheran Brotherhood Opportunity Growth Fund and the Thrivent Mid Cap Growth Fund are subject to the following principal investment risks in addition to the principal risks applicable to all Funds and to all Equity Funds as described below. Growth Securities Risk. A growth fund may invest in equity securities of companies that its portfolio manager or portfolio management team believes will experience relatively rapid earnings growth. Growth securities typically trade at higher multiples of current earnings than other securities. Therefore, the values of growth securities may be more sensitive to changes in current or expected earnings than the values of other securities. The Lutheran Brotherhood Opportunity Growth Fund is subject to small company risk whereas the Lutheran Brotherhood Mid Cap Growth Fund and Thrivent Mid Cap Growth Fund are subject to mid-size company risk. Small Company Risk. Smaller companies often have shorter histories and less seasoned operations. Similarly, less seasoned companies often have greater price volatility, lower trading volume, and less liquidity than larger, more-established companies. These companies tend to be more dependent on the success of limited product lines and have less experienced management and financial resources. Mid-Size Company Risk. Medium-sized companies often have greater price volatility, lower trading volume, and less liquidity than larger, more-established companies. These companies tend to have smaller revenues, narrower product lines, less management depth and experience, smaller shares of their product or service markets, fewer financial resources, and less competitive strength than larger companies. LB Funds / New Thrivent Funds Lutheran Brotherhood High Yield Fund / Thrivent High Yield Fund Investment Objectives The investment objectives and strategies of the Thrivent High Yield Fund are identical to those of the Lutheran Brotherhood High Yield Fund. Both funds seek high current income and, secondarily, growth of capital. The Thrivent High Yield Fund was organized in connection with this Reorganization solely for the purpose of continuing the business of the Lutheran Brotherhood High Yield Fund. Investment Strategies Under normal market conditions, both the Thrivent High Yield Fund and the Lutheran Brotherhood High Yield Fund invest at least 80% of their respective net assets (plus the amount of any borrowing for investment purposes) in high yield, high-risk bonds, notes, debentures and other debt obligations or preferred stocks. These securities are commonly know as "junk bonds." At the time of purchase these securities are rated within or below the BB major rating category by Standard & Poor's Corporation or the Ba major rating category by Moody's Investor Services, Inc. or are unrated but considered to be of comparable quality by Thrivent Investment Mgt., the Portfolio's investment adviser. The funds invest in securities regardless of the securities' average maturity. If Thrivent Investment Mgt. determines that the funds would benefit from reducing the percentage of invested assets from 80% to a lesser amount, you will be notified at least days prior to such a change. Thrivent Investment Mgt. uses fundamental, quantitative, and technical investment research techniques to determine what securities to buy and sell. Fundamental investment analysis generally involves assessing a company's or security's value based on factors such as sales, assets, markets, management, products and services, earnings, and financial structure. Quantitative analysis generally involves assessing a company's or security's value based on such factors as the cost of capital, the historical and projected patterns of sales, costs, and profitability in the money market and the securities markets. Technical analysis generally involves studying trends and movements in a security's price, trading volume, and other market-related factors in an attempt to discern patterns. Thrivent Investment Mgt. focuses on companies that it believes are financially sound and have strong cash flow, asset values and interest or dividend earnings. Thrivent Investment Mgt. may sell securities for a variety of reasons, such as to secure gains, limit losses, or reposition assets into more promising opportunities. Investment Risks The Lutheran Brotherhood High Yield Fund and the Thrivent High Yield Fund are subject to the following principal investment risks in addition to principal risks applicable to all Funds as described below. Issuer Risk. Issuer risk is the possibility that a company's performance will affect the market price of its security and the value of the Fund. Some factors affecting the performance of a company include demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Credit Risk. Credit risk is the risk that an issuer of a bond held by the Fund may no longer be able to pay its debt. As a result of such an event, the bond may decline in price and affect the value of the Fund. Interest Rate Risk. Interest rate risk is the risk that bond prices decline in value when interest rates rise for bonds that pay a fixed rate of interest. Bonds with longer durations or maturities tend to be more sensitive to changes in interest rates than bonds with shorter durations or maturities. Liquidity Risk. Liquidity risk is the ability to sell a security relatively quickly for a price that most closely reflects the actual value of the security. High-yield bonds have a less liquid resale market. As a result, we may have difficulty selling or disposing of securities quickly in certain markets or market environments. High Yield Risk. High yield securities are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. If the issuer of the security is in default with respect to interest or principal payments, the Fund may lose its investment in that security. Lutheran Brotherhood Income Fund / Thrivent Income Fund Investment Objectives The investment objectives and strategies of the Thrivent Income Fund are identical to those of the Lutheran Brotherhood Income Fund. Both funds seek high current income while preserving principal, and have a secondary investment objective to obtain long-term growth of capital in order to maintain investors' purchasing power. The Thrivent Income Fund was organized in connection with this Reorganization solely for the purpose of continuing the business of the Lutheran Brotherhood Income Fund. Investment Strategies Both the Thrivent Income Fund and the Lutheran Brotherhood Income Fund primarily invest in investment-grade corporate bonds, government bonds, and mortgage-backed securities. Under normal conditions, at least 65% of the funds' respective assets will be invested in debt securities or preferred stock at least in the "Baa" major rating category by Moody's or at least in the "BBB" major rating category by S&P or unrated securities considered to be of comparable quality by Thrivent Investment Mgt., the funds' investment adviser. The funds may also invest in high-yield, high-risk bonds, notes, debentures and other debt obligations or preferred stock commonly known as "junk bonds." At the time of purchase these securities are rated within or below the "BB" major rating category by S&P or the "Ba" major rating category by Moody's or are unrated but considered to be of comparable quality by Thrivent Investment Mgt. Thrivent Investment Mgt. uses fundamental, quantitative and technical investment research techniques to determine what securities to buy and sell. Fundamental investment analysis generally involves assessing a company's or security's value based on factors such as sales, assets, markets, management, products and services, earnings, and financial structure. Quantitative analysis generally involves dealing with measurable factors such as the cost of capital, the historical and projected patterns of sales, costs, and profitability in the money market and the securities markets. Technical analysis generally involves studying trends and movements in a security's price, trading volume, and other market-related factors in an attempt to discern patterns. Thrivent Investment Mgt. focuses on companies which it believes are financially sound and have strong cash flow, asset values, and interest or dividend earnings. Thrivent Investment Mgt. may sell securities for a variety of reasons, such as to secure gains, limit losses, or reposition assets into more promising opportunities. Investment Risks The Lutheran Brotherhood Income Fund and the Thrivent Income Fund are subject to the following principal investment risks in addition to the principal risks applicable to all Funds as described below. Issuer Risk. Issuer risk is the possibility that a company's performance will affect the market price of its security and the value of the Fund. Some factors affecting the performance of a company include demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Credit Risk. Credit risk is the risk that an issuer of a bond held by the Fund may no longer be able to pay its debt. As a result of such an event, the bond may decline in price and affect the value of the Fund. Interest Rate Risk. Interest rate risk is the risk that bond prices decline in value when interest rates rise for bonds that pay a fixed rate of interest. Bonds with longer durations or maturities tend to be more sensitive to changes in interest rates than bonds with shorter durations or maturities. In addition, both mortgage-backed and asset-backed securities are sensitive to changes in the redemption patterns of the underlying security. If the principal payment on the underlying asset is repaid faster or slower than the holder of the asset-backed or mortgage-backed security anticipates, the price of the security may fall, particularly if the holder must reinvest the repaid principal at lower rates or must continue to hold the security when interest rates rise. This effect may cause the value of the Fund to decline and reduce the overall return of the Fund. High Yield Risk. High yield securities are considered predominantly speculative with respect to the issuer's continuing ability to make principal and interest payments. If the issuer of the security is in default with respect to interest or principal payments, the Fund may lose its investment in that security. Lutheran Brotherhood Limited Maturity Bond Fund / Thrivent Limited Maturity Bond Fund Investment Objectives The investment objectives and strategies of the Thrivent Limited Maturity Bond Fund are identical to those of the Lutheran Brotherhood Limited Maturity Bond Fund. Both funds seek a high level of current income consistent with stability of principal. The Thrivent Limited Maturity Bond Fund was organized in connection with this Reorganization solely for the purpose of continuing the business of the Lutheran Brotherhood Income Fund. Investment Strategies Both the Thrivent Limited Maturity Bond Fund and the Lutheran Brotherhood Limited Maturity Bond Fund invest their respective assets primarily in investment-grade corporate bonds, government bonds, municipal bonds, asset-backed securities, and mortgage-backed securities. Under normal conditions, at least 80% of the Funds' net assets (plus the amount of any borrowing for investment purposes) are invested in debt securities or preferred stock in at least the "Baa" major rating category by Moody's or at least in the "BBB" major rating category by Standard & Poor's Corporation or unrated securities considered to be of comparable quality by Thrivent Investment Mgt., the Fund's investment adviser. Should Thrivent Investment Mgt. determine that the Fund would benefit from reducing the percentage of invested assets from 80% to a lesser amount, you will be notified at least 60 days prior to such a change. The Funds may also invest in high-yield, high-risk bonds, notes, debentures and other debt obligations or preferred stock commonly known as "junk bonds." At the time of purchase these securities are rated within or below the "BB" major rating category by S&P or the "Ba" major rating category by Moody's or are unrated but considered to be of comparable quality by Thrivent Investment Mgt. The weighted average dollar-weighted portfolio maturity for both Funds is expected to be between one and five years. The average dollar-weighted maturity of the Fund is determined by calculating the average maturity of each debt security owned by the Fund, weighting each security according to the amount that it represents in the Fund. In addition, for asset-backed and mortgage-backed securities, as well as bonds with required prepayments or redemption rights, the calculation considers the expected prepayments of the underlying securities and/or the present value of a mandatory stream of prepayments. Thrivent Investment Mgt. uses fundamental, quantitative, and technical investment research techniques to determine what securities to buy and sell. Fundamental investment analysis generally involves assessing a company's or security's value based on factors such as sales, assets, markets, management, products and services, earnings, and financial structure. Quantitative analysis generally involves dealing with measurable factors, such as the cost of capital, the historical and projected patterns of sales, costs, and profitability in the money market and the securities markets. Technical analysis generally involves studying trends and movements in a security's price, trading volume, and other market-related factors in an attempt to discern patterns. Thrivent Investment Mgt. focuses on companies which it believes are financially sound and have strong cash flow, asset values, and interest or dividend earnings. Investment Risk The Lutheran Brotherhood Limited Maturity Bond Fund and the Thrivent Limited Maturity Bond Fund are subject to the following principal investment risks in addition to principal risks applicable to all Funds as described below. Issuer Risk. Issuer risk is the possibility that a company's performance will affect the market price of its security and the value of the Fund. Some factors affecting the performance of a company include demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Credit Risk. Credit risk is the risk that an issuer of a bond held by the Fund may no longer be able to pay its debt. As a result of such an event, the bond may decline in price and effect the value of the Fund. Interest Rate Risk. Interest rate risk is the risk that bond prices decline in value when interest rates rise for bonds that pay a fixed rate of interest. Bonds with longer durations or maturities tend to be more sensitive to changes in interest rates than bonds with shorter durations or maturities. In addition, both mortgage-backed and asset-backed securities are sensitive to changes in the redemption patterns of the underlying security. If the principal payment on the underlying asset is repaid faster or slower than the holder of the asset-backed or mortgage-backed security anticipates, the price of the security may fall, particularly if the holder must reinvest the repaid principal at lower rates or must continue to hold the security when interest rates rise. This effect may cause the value of the Fund to decline and reduce the overall return of the Fund. Principal Investment Risks Applicable To Multiple Funds Principal Risks Applicable to All Funds Each LB Fund and its corresponding Thrivent/AAL Fund are subject to the following principal investment risks: Market Risk. Over time securities markets generally tend to move in cycles with periods when securities prices rise and periods when securities prices decline. The value of the fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the fund's benchmark index. Investment Adviser Risk. The fund is actively managed, and success of the fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the fund invests. Thrivent Investment Mgt. and each individual portfolio manager will apply investment techniques and risk analysis in making investment decisions for the funds, but there can be no guarantee that these will produce the desired results. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions and investor sentiment. A fund may perform differently than other funds that employ a different style (like growth versus value) or consist of a certain category of securities (like small-capitalization stocks versus large-capitalization stocks). Bonds may also exhibit price fluctuations due to changes in interest rate or bond yield levels. As a result, the value of a fund's shares may fluctuate significantly in the short term. Principal Risks Applicable to All Equity Funds Each of the following LB Funds and their corresponding Thrivent/AAL Fund are subject to the principal investment risks described below: Target LB Fund Corresponding Acquiring AAL Fund -------------- -------------------------------- Lutheran Brotherhood World Growth Fund AAL International Fund Lutheran Brotherhood Growth Fund AAL Aggressive Growth Fund Lutheran Brotherhood Fund AAL Capital Growth Fund Lutheran Brotherhood Value Fund AAL Equity Income Fund Lutheran Brotherhood Opportunity Growth Fund and Thrivent Mid Cap Growth Fund Lutheran Brotherhood Mid Cap Growth Fund Equity Investment Risk. To the extent the fund invests in common stocks, it may be particularly subject to the risks of changing economic, stock market, industry and company conditions, currency exchange rates and the risks inherent in management's ability to anticipate such changes that can adversely affect the value of the fund's holdings. In addition, the interests of equity holders are typically subordinated to the interests of other senior shareholders, such as preferred shareholders, as well as to the interests of general creditors of the issuer. Issuer Risk. Issuer risk is the possibility that a company's performance will affect the market price of its security, and, consequently, the value of the fund. Some factors affecting the performance of a company include demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Additional Policies and Limitations Each Fund is subject to fundamental policies and limitations in addition to those stated in its investment objective. The policies and limitations of the Thrivent/AAL Fund into which an LB Fund will be reorganized are substantially the same, with the following exception: Inter-fund Lending The policies of the Thrivent/AAL Funds permits inter-fund lending, whereas the LB Fund policies do not. Thrivent/AAL Fund Policy: None of the Funds may make loans, except that any Fund may (i) lend portfolio securities, (ii) enter into repurchase agreements, (iii) purchase all or a portion of an issue of debt securities, bank loan participation interests, bank certificates of deposit, bankers' acceptances, debentures or other securities, whether or not the purchase is made upon the original issuance of the securities, and (iv) participate in an interfund lending program with other registered investment companies. Corresponding LB Fund Policy: None of the Funds may lend any of its assets except portfolio securities. The purchase of corporate or U.S. or foreign governmental bonds, debentures, notes, certificates of indebtedness, repurchase agreements or other debt securities of an issuer permitted by the Fund's investment objective and policies are not considered a loan for purposes of this limitation. The shareholders of the Thrivent/AAL Funds approved a change in the fundamental investment restriction on lending at a shareholder meeting held on March 9, 2004. The primary purpose of the change in policy was to give the Funds the flexibility to participate in an inter-fund lending program. Implementation of the inter-fund lending program is contingent upon the SEC granting exemptive relief. Under an inter-fund lending program, each Fund would be able to lend and borrow cash for temporary purposes to and from each other and other mutual funds sponsored by Thrivent Financial. Such a program provides liquidity to the Funds. Currently, the Trusts have a line of credit agreement with a bank that allows each Fund to borrow money to meet redemption requests and for other temporary purposes. None of the Funds has ever borrowed money pursuant to the line of credit agreement, yet each Fund pays a commitment fee to the bank, whether or not it ever borrows money. The establishment of an inter-fund lending program will reduce the required borrowing capacity under the line of credit agreement, which would generate savings for the Funds. It is anticipated that all loans under the inter-fund lending program will be made pursuant to a master loan agreement, and a lending Fund could lend available cash to another Fund only when the "inter-fund rate" is higher that the rate the lending Fund could earn on an overnight government repurchase agreement or on other comparable short-term investments. Each borrowing Fund could borrow through the inter-fund lending program only when the inter-fund rate is lower than the available bank loan rate. Thrivent Investment Mgt. will (i) monitor the interest rates charged and other terms and conditions of the inter-fund lending program, (ii) ensure compliance with each Fund's investment policies and limitations, (iii) ensure equitable treatment of each Fund, and (iv) make quarterly reports to the Board of Trustees concerning any transactions by the Funds under the inter-fund lending program. The LB Funds and the Thrivent/AAL Funds have the following identical policies: Borrowing None of the Funds may borrow money, except that a Fund may borrow money (through the issuance of debt securities or otherwise) in an amount not exceeding one-third of the Fund's total assets immediately after the time of such borrowing. Issuance of Senior Securities None of the Funds may issue senior securities, except as permitted under the Investment Company Act of 1940 or any exemptive order or rule issued by the Securities and Exchange Commission The substantially similar policies are compared in the table below: Target LB Funds Acquiring Thrivent/AAL Funds None of the Funds will, with respect to 75% of its None of the Funds will, with respect to 75% of its total assets, purchase securities of any issuer total assets, purchase securities of an issuer (except Government Securities, as such term is (other than the U.S. Government, its agencies, defined in the Investment Company Act of 1940) if, instrumentalities or authorities or repurchase as a result, the Fund would own more than 10% of agreements fully collateralized by U.S. Government the outstanding voting securities of such issuer or securities and other investment companies) if (a) the Fund would have more than 5% of its total such purchase would, at the time, cause more than 5% assets invested in the securities of such issuer. of the Fund's total assets taken at market value to be invested in the securities of such issuer; or (b) such purchase would, at the time, result in more than 10% of the outstanding voting securities of such issuer being held by the Fund. None of the Funds may buy or sell real estate None of the Funds may buy or sell real estate, unless acquired as a result of ownership of except that any Fund may (i) acquire or lease office securities or other instruments, except that a Fund space for its own use, (ii) invest in securities of may invest in securities or other instruments issuers that invest in real estate or interest backed by real estate or securities of companies therein, (iii) invest in mortgage-related securities engaged in the real estate business or that invest and other securities that are secured by real estate or deal in real estate. or interest therein, and (iv) hold and sell real estate acquired by the Fund as a result of the ownership of securities. None of the Funds may purchase or sell commodities None of the Funds may purchase or sell commodities or commodity contracts, except that a Fund may or commodity contracts, except that any Fund may invest in financial futures contracts, options purchase and sell derivatives (including but not thereon and similar instruments. limited to options, futures contracts, and options on futures contracts) whose value is tied to the value of a financial index or a financial instrument or other asset (including, but not limited to, securities indexes, interest rates, securities, currencies and physical commodities). Each of the Funds, except the LB Money Market Fund, Each of the Funds except the AAL Money Market Fund, may invest in derivatives. Derivatives, a category may invest in derivatives. Derivatives, a category that includes options and futures, are financial that includes options and futures, are financial instruments whose value derivatives from another instruments whose value derivatives from another security, an index or a currency. Each Fund may security, an index or a currency. Each Fund may use use derivatives for hedging (attempting to offset a derivatives for hedging (attempting to offset a potential loss in one position by establishing an potential loss in one position by establishing an interest in an opposite position). This includes interest in an opposite position). This includes the use of currency-based derivatives for hedging the use of currency-based derivatives for hedging its positions in foreign securities. Each Fund may its positions in foreign securities. Each Fund may also use derivatives for speculation (investing for also use derivatives for speculation (investing for potential income or capital gain). potential income or capital gain). None of the Funds will engage in underwriting or None of the Funds will underwrite the securities of agency distribution of securities issued by others; other issuers, except where the Fund may be deemed provided, however, that this restriction shall not to be an underwriter for purposes of certain federal be construed to prevent or limit in any manner the securities laws in connection with disposition of power of a Fund to purchase and resell restricted portfolio securities; with investments in other securities or securities for investment. investment companies; and with loans that a Fund may make consistent with its fundamental investment restriction on lending. None of the Funds will invest in a security if the None of the Funds will purchase a security if, after transaction would result in 25% or more of a Fund's giving effect to the purchase, more than 25% of its total assets being invested in any one industry. total assets would be invested in the securities of With respect to the Lutheran Brotherhood Money one or more issuers conducting their principal Market fund, this restriction does not apply to business activities in the same industry, except Government Securities (as such term is defined in that this restriction does not apply to Government the Investment Company Act of 1940) or instruments Securities (as such term is defined in the issued by domestic banks. This restriction does Investment Company Act of 1940). In addition, with not apply to the Lutheran Brotherhood Municipal respect to the Thrivent Money Market Fund, this Bond Fund. restriction does not apply to instruments issued by domestic banks. In addition to the fundamental policies described above, The Lutheran Brotherhood Family of Funds and The AAL Mutual Funds each have the following non-fundamental policy: The Fund will not purchase any security while None of the Funds will purchase any security while borrowings, including reverse repurchase borrowings, including reverse repurchase agreements, agreements, representing more than 5% of the Fund's representing more than 5% of the Fund's total assets total assets are outstanding. This is a are outstanding. The Funds intend to limit non-fundamental policy which may be changed without borrowings to amounts borrowed from a bank, reverse shareholder approval. repurchase agreements (insofar as they are considered borrowings), or an inter-fund lending agreement. This is a non-fundamental policy which may be changed without shareholder approval. COMPARISON OF GOVERNANCE AND OPERATIONS Board of Trustees Responsibility for the management and supervision of the LB Trust rests with the Board of Trustees of the LB Trust, and responsibility for the management and supervision of the Thrivent Trust rests with the Board of Trustees of the Thrivent Trust. The Board of Trustees of the LB Trust currently consists of four independent trustees (Mr. Eggerding, Mr. Estenson, Ms. Harpstead and Ms. Levi) and two representatives of Thrivent Investment Mgt. (Mssrs. Gilbert and Nicholson). The Thrivent Board of Trustees consists of these same four independent Trustees, as well as three additional independent Trustees (Mr. Campbell, Mr. Gady and Mr. Smeds), who presently serve a independent trustees of the Thrivent Trust, and one representative of Thrivent Investment Mgt. (Ms. Moret). Interested Trustees/1/ - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ Number of Portfolios in Fund Complex Principal Overseen by Term of Office Occupation(s) Trustee or Name, Address, Position(s) and Length of During Past 5 Nominee for Other Trusteeships Held by Trustee and Age Held With Trust Time Served/2/ Years Trustee/4/ or Nominee for Trustee - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ Pamela J. Moret President and President since Executive Vice 26 of the Lutheran World Relief; Minnesota 625 Fourth Avenue Trustee 2002; Trustee President, Thrivent Series Public Radio South since 2004 Marketing and Fund, Inc.; 20 Minneapolis, MN Products, of The AAL Age 48 Thrivent Mutual Funds Financial for Lutherans since 2002; Senior Vice President, Products, American Express Financial Advisors from 2001 to 2002; Vice President, Variable Assets, American Express Financial Advisors from 1996 to 2000 - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ Independent Trustees/3/ - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ Number of Portfolios in Fund Complex Principal Overseen by Term of Office Occupation(s) Trustee or Name, Address, Position(s) and Length of During Past 5 Nominee for Other Trusteeships Held by Trustee and Age Held With Trust Time Served/2/ Years Trustee/4/ or Nominee for Trustee - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ F. Gregory Trustee Trustee since President, 26 of the ELCA University and College Campbell 1992 Carthage Thrivent Series Employees' Health Benefit Board; 625 Fourth Avenue College Fund, Inc.; 20 ELCA Risk Management Board; South of The AAL Trustee, Johnson Family Funds, Minneapolis, MN Mutual Funds Inc., an investment company Age 64 consisting of four portfolios; Kenosha Hospital and Medical Center Board; Prairie School Board; United Health Systems Board - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ Herbert F. Trustee Trustee since Management 26 of the None Eggerding, Jr. 2003 consultant to Thrivent Series 625 Fourth Avenue several Fund, Inc.; 20 South privately owned of The AAL Minneapolis, MN companies Mutual Funds; Age 66 11 of The Lutheran Brotherhood Family of Funds - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ Richard L. Gady Trustee Trustee since Retired; 26 of the International Agricultural 625 Fourth Avenue 1987 previously Vice Thrivent Series Marketing Association Board South President, Fund, Inc.; 20 Minneapolis, MN Public Affairs of The AAL Age 61 and Chief Mutual Funds Economist, Conagra, Inc. (agribusiness) - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ Edward W. Smeds Trustee Trustee since Retired; 26 of the Chairman of Carthage College Board 625 Fourth Avenue 1999 previously Thrivent Series South President of Fund, Inc.; 20 Minneapolis, MN Customer of The AAL Age 68 Service and Mutual Funds Operations, Kraft Foods - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ Noel K. Estenson Trustee Trustee since Retired; 26 of the None 625 Fourth Avenue 2004 previously Thrivent Series South President and Fund, Inc.; 11 Minneapolis, MN Chief Executive of The Lutheran Age 65 Officer, Brotherhood CenexHarvestStates Family of (farm supply Funds; 20 of and marketing The AAL Mutual and food Funds business) - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ Jodi L. Harpstead Trustee Trustee since On sabbatical. 26 of the Trustee, Delta Dental Plan of 625 Fourth Avenue 2004 Vice President Thrivent Series Minnesota South & General Fund, Inc.; 11 Minneapolis, MN Manager, of The Lutheran Age 47 Cardiac Surgery Brotherhood Technologies Family of for Medtronic, Funds; 20 of Inc. (medical The AAL Mutual products and Funds technologies business) since 2002; President Global Marketing and U.S. Sales, Cardiac Rhythm Management for Medtronic, Inc. from 2001 to 2002; Vice President, U.S. Pacing Sales for Medtronic, Inc. from 1996 to 2001 - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ Connie M. Levi Trustee Trustee since Retired; 26 of the Trustee, Norstan, Inc. 625 Fourth Avenue 2004 previously Thrivent Series South President of Fund, Inc., 11 Minneapolis, MN the Greater of The Lutheran Age 64 Minneapolis Brotherhood Chamber of Family of Commerce Funds; 20 of The AAL Mutual Funds - ------------------- ----------------- ----------------- ----------------- ----------------- ------------------------------------ /1/"Interested person" of the Trust as defined in the Investment Company Act of 1940 by virtue of a position with Thrivent Financial. Ms. Moret is considered an interested person because of her principal occupation with Thrivent Financial, the parent company of the adviser and an affiliate of the Trust. /2/Each Trustee serves an indefinite term until his or her successor is duly elected and qualified. The bylaws of the Trust provide that each Trustee must retire at the end of the year in which the Trustee attains age 70. Officers serve at the discretion of the board until their successors are duly appointed and qualified. /3/The Trustees and Nominees other than Ms. Moret are not "interested persons" of the Trust and are referred to as "Independent Trustees." /4/The "Fund Complex" includes the 11 series of The Lutheran Brotherhood Family of Funds, the 20 series of The AAL Mutual Funds, and the 26 series of Thrivent Series Fund, Inc. Investment Adviser Thrivent Investment Management Inc. ("Thrivent Investment Mgt.") presently serves as investment adviser and provides investment research and supervision for each of the LB Funds and the Thrivent/AAL Funds. Following the completion of the Reorganizations, Thrivent Investment Mgt. will continue to serve as investment adviser for each of the Thrivent/AAL Funds. Thrivent Investment Mgt.'s corporate office is located at 625 Fourth Avenue South, Minneapolis, Minnesota 55415. As of December 31, 2003, Thrivent Investment Mgt. and its affiliates had approximately $62.4 billion in assets under management. Fund Management Except for the Lutheran Brotherhood World Growth Fund, the individuals who are primarily responsible for the day-to-day management of the following LB Funds will be responsible for the day-to-day management of the corresponding Thrivent/AAL Funds. Their business experience is described below. The AAL International Fund and Lutheran Brotherhood World Growth Fund Subadvisers The assets of the Lutheran Brotherhood World Growth Fund are managed by T. Rowe Price International, Inc. ("Price International"), an affiliate of T. Rowe Price Associates, Inc., located at 100 East Pratt Street, Baltimore, Maryland 21202. Price International has served as investment subadviser for the Lutheran Brotherhood World Growth Fund since 2000. Price International is one of the world's largest international mutual fund asset managers with the U.S. equivalent of approximately $22.9 billion under management as of December 31, 2003. It has offices in Baltimore, London, Tokyo, Singapore, Paris, Hong Kong and Buenos Aires. Price International has an investment advisory group that has day-to-day responsibility for managing the Lutheran Brotherhood World Growth Fund and developing and executing the Fund's investment program. The assets of The AAL International Fund are currently managed by Oechsle International Advisors, LLC ("Oechsle"), located at One International Place, Boston, Massachusetts 02110. Oechsle has served as investment subadviser to the International Fund since 1998. Oechsle is an independent money management organization founded in 1986 that specializes in international and global investments for institutional clients from its offices located in Boston, London, Frankfurt and Tokyo. It has assets under management of approximately $14.6 billion as of December 31, 2003. The portfolio manager primarily responsible for overseeing Oechsle's management of the AAL International Fund since its inception in 1998 is Kathleen Harris. Ms. Harris joined Oechsle as a portfolio manager in 1995 and has been a principal since 1997. The Board of Trustees of The AAL International Fund has approved Price International and Mercator Asset Management, L.P. ("Mercator") as co-subadvisers of the AAL International Fund effective on or about July 16, 2004. Mercator, located at 5200 Town Center Circle, Boca Raton, Florida 33486, has been managing international equity accounts since 1985. The firm, which had assets under management of approximately $6.6 billion as of December 31, 2003, utilizes a team approach to stock selection. If the proposed Reorganization is approved, Price International and Mercator will serve as co-subadvisers of The AAL International Fund. Please refer to "Subadviser Information" for additional information about Price International and Mercator. See also the discussion below captioned "Manager of Managers" regarding Thrivent Investment Mgt.'s ability to enter into and amend subadvisory agreements without shareholder approval. Lutheran Brotherhood Growth Fund Scott A. Vergin has served as portfolio manager of The Lutheran Brotherhood Growth Fund since its inception in 1999. Mr. Vergin has also served as the portfolio manager of the AAL Aggressive Growth Fund since 2002. Mr. Vergin has been with Thrivent Investment Mgt. since 1984. If the proposed Reorganization is approved, Mr. Vergin will serve as the portfolio manager of the AAL Aggressive Growth Fund, the Existing AAL Fund into which the Lutheran Brotherhood Growth Fund will be reorganized. Lutheran Brotherhood Fund Frederick L. Plautz has served as portfolio manager of the Lutheran Brotherhood Fund since 2002. Mr. Plautz has also served as the portfolio manager of the AAL Capital Growth Fund since 1995. Mr. Plautz has been with Thrivent Investment Mgt. since 1995. If the proposed Reorganization is approved, Mr. Plautz will serve as the portfolio manager of the AAL Capital Growth Fund, the Existing AAL Fund into which the Lutheran Brotherhood Fund will be reorganized. Lutheran Brotherhood Value Fund Matthew D. Finn, CFA, has served as portfolio manager of the Lutheran Brotherhood Value Fund since April 2004. Mr. Finn has also served as portfolio manager of The AAL Equity Income Fund since April 2004. Mr. Finn joined Thrivent Investment Mgt. from U.S. Bancorp Asset Management, Inc. where he was managing director and senior portfolio manager of the First American Large Cap Value Fund since June 2003. Prior to that, he was head of equities for Advantus Capital Management Inc. from July 2001 to May 2003 and chief investment officer of the growth and income group for Evergreen Investment Management Co. from March 1998 to June 2001. If the proposed Reorganization is approved, Mr. Finn will serve as the portfolio manager of the AAL Equity Income Fund, the existing AAL Fund into which the Lutheran Brotherhood Value Fund will be reorganized. Lutheran Brotherhood Municipal Bond Fund Janet I. Grangaard, CFA, has served as portfolio manager of the Lutheran Brotherhood Municipal Bond Fund since 2002. Ms. Grangaard has also served as portfolio manager for The AAL Municipal Bond Fund since 2002. Ms. Grangaard has been a portfolio manager with Thrivent Investment Mgt. since 1994. If the proposed Reorganization is approved, Ms. Grangaard will serve as the portfolio manager of The AAL Municipal Bond Fund, the Existing AAL Fund into which the Lutheran Brotherhood Municipal Bond Fund will be reorganized. Lutheran Brotherhood Money Market Fund William D. Stouten has served as the portfolio manager of the Lutheran Brotherhood Money Market Fund since October 10, 2003. Mr. Stouten has been with Thrivent Investment Mgt. since 2001, and he has served as a research analyst/trader for the money market funds at Thrivent Investment Management Inc. from 2001 to 2003. Prior to joining Thrivent Investment Mgt., Mr. Stouten served as a senior research analyst for Voyageur Asset Management from 1998 to 2001. If the proposed Reorganization is approved, Mr. Stouten will serve as the portfolio manager of The AAL Money Market Fund, the Existing AAL Fund into which the Lutheran Brotherhood Money Market Fund will be reorganized. Lutheran Brotherhood Mid Cap Growth Fund and Lutheran Brotherhood Opportunity Growth Fund Andrea J. Thomas, CFA and Brian L. Thorkelson serve as portfolio co-managers of the Lutheran Brotherhood Mid Cap Growth Fund. Ms. Thomas has served as portfolio manager of the Lutheran Brotherhood Opportunity Growth Fund since 2002 and as portfolio co-manager of the Lutheran Brotherhood Mid Cap Growth Fund since November 2003. She served as an associate portfolio manager of the Lutheran Brotherhood Opportunity Growth and Lutheran Brotherhood Mid Cap Growth Funds from 1997 to 2002. Ms. Thomas has been with Thrivent Investment Mgt. since 1993 and has served as a portfolio manager since 2002. Mr. Thorkelson served as the portfolio manager of the Lutheran Brotherhood Mid Cap Growth Fund from its inception in 1997 until November 2003 and as portfolio co-manager since November 2003. Mr. Thorkelson has been with Thrivent Investment Mgt. since 1987. If the proposed Reorganization is approved, Ms. Thomas and Mr. Thorkelson will serve as portfolio co-managers of the Thrivent Mid Cap Growth Fund, the New Thrivent Fund organized to continue the business of the Lutheran Brotherhood Opportunity Growth and Mid Cap Growth Funds. Lutheran Brotherhood High Yield Fund Paul J. Ocenasek, CFA, and Mark L. Simenstad, CFA, serve as portfolio co-managers of the Lutheran Brotherhood High Yield Fund. Mr. Ocenasek has served as a portfolio manager of the Lutheran Brotherhood High Yield Fund since 1997. Mr. Ocenasek has been with Thrivent Investment Mgt. since 1987. Mr. Simenstad has served as a portfolio manager of the Lutheran Brotherhood High Yield Fund since 2001, and he has been a portfolio manager with Thrivent Investment Mgt. since 1999. Mr. Simenstad served as chief investment officer for fixed-income investing at Voyageur Asset Management from 1996 until 1999. If the proposed Reorganization is approved. Mr. Ocenasek and Mr. Simenstad will serve as portfolio co-managers of the Thrivent High Yield Fund, the New Thrivent Fund organized to continue the business of the corresponding Lutheran Brotherhood Fund. Lutheran Brotherhood Income Fund Michael G. Landreville, CFA, and Alan D. Onstad, CFA, serve as portfolio co-managers of the Lutheran Brotherhood Income Fund. Mr. Landreville has served as a portfolio manager of the Lutheran Brotherhood Income Fund since 1998. Mr. Landreville has been with Thrivent Investment Mgt. since 1983, and he served as associate portfolio manager from 1987 through 1997. Mr. Onstad has served as a portfolio manager of the Lutheran Brotherhood Income Fund since 2002. Mr. Onstad has been a portfolio manager with Thrivent Investment Mgt. since 1995. If the proposed Reorganization is approved, Mr. Landreville and Mr. Onstad will serve as portfolio co-managers of the Thrivent Income Fund, the New Thrivent Fund organized to continue the business of the corresponding Lutheran Brotherhood Fund. Lutheran Brotherhood Limited Maturity Bond Fund Michael G. Landreville, CFA, serves as portfolio manager of the Lutheran Brotherhood Limited Maturity Bond Fund. Mr. Landreville has served as portfolio manager of the Lutheran Brotherhood Limited Maturity Bond Fund since its inception in 1999. Mr. Landreville has been with Thrivent Investment Mgt. since 1983, and he served as associate portfolio manager from 1987 through 1997. If the proposed Reorganization is approved, Mr. Landreville will serve as the portfolio manager of the Thrivent Limited Maturity Bond Fund, the New Thrivent Fund organized to continue the business of the corresponding Lutheran Brotherhood Fund. Other Service Providers The LB Funds and the Thrivent/AAL Funds have the same transfer agent, distributor, custodian, and independent accountants. In all cases, the types of services provided to the Funds under the service arrangements are similar in all material respects. Sales Load, Distribution and Servicing Arrangements Each Thrivent/AAL Fund and each LB Fund offers Class A, Class B and Institutional Class shares. The sales charges and distribution and service fees for each Class are described below. Class A and B Shares Sales Charges Initial Sales Charges (Class A Shares Only) Class A shares of both the LB Funds and the Thrivent/AAL Funds may be purchased at a public offering price equal to their net asset value per share plus an initial sales charge, except that Class A shares of the Lutheran Brotherhood Money Market Fund, Lutheran Brotherhood Limited Maturity Bond Fund, AAL Money Market Fund and Thrivent Limited Maturity Bond Fund are not subject to an initial sales charge. Initial sales charges for Class A shares of both the LB Funds and the Thrivent/AAL Funds may be waived or reduced under certain circumstances, as described in the funds' prospectuses. The initial sales charges for the Class A shares of the LB Funds and the Thrivent/AAL Funds are the same and are set forth in the following tables. - ---------------------------------------------------------------------------------------------------- Initial Sales Charges for Equity Funds/1/ (Class A Shares only) This % is deducted Which equal this % for sales charges of your investment When you invest this amount $1,000,000 or more 0%/2/ 0%/2/ $500,000 and above but less than $1,000,000 2.0% 2.04% $250,000 and above but less than $500,000 2.5% 2.56% $100,000 and above but less than $250,000 3.5% 3.63% $50,000 and above but less than $100,000 4.5% 4.71% Less than $50,000 5.5% 5.82% - ---------------------------------------------------------- -------------------- -------------------- /1/ The sales charge applies to Class A shares of the following LB Funds: Lutheran Brotherhood Opportunity Growth Fund, Lutheran Brotherhood Mid Cap Growth Fund, Lutheran Brotherhood World Growth Fund, Lutheran Brotherhood Growth Fund, Lutheran Brotherhood Fund and Lutheran Brotherhood Value Fund. The sales charge applies to Class A shares of the following Thrivent/AAL Funds: AAL Aggressive Growth Fund, Thrivent Mid Cap Growth Fund, AAL International Fund, AAL Capital Growth Fund and AAL Equity Income Fund. /2/ A contingent deferred sales charge of 1% will apply to shares redeemed within one year. - ---------------------------------------------------------------------------------------------------- Initial Sales Charges for Fixed Income Funds/1/ (Class A Shares only) This % is deducted Which equal this % for sales charges of your investment When you invest this amount $1,000,000 or more 0%/2/ 0%/2/ $500,000 and above but less than $1,000,000 2.0% 2.04% $250,000 and above but less than $500,000 2.5% 2.56% $100,000 and above but less than $250,000 3.5% 3.63% $50,000 and above but less than $100,000 4.0% 4.17% Less than $50,000 4.5% 4.71% - -------------------------------------------------------- -------------------- ---------------------- /1/ The sales charge applies to Class A shares of the following LB Fixed Income Funds: Lutheran Brotherhood High Yield Fund, Lutheran Brotherhood Income Fund and Lutheran Brotherhood Municipal Bond Fund. The sales charge applies to Class A shares of the following Thrivent Fixed Income Funds: AAL Municipal Bond Fund. /2/ A contingent deferred sales charge of 1% will apply to shares redeemed within one year. Contingent Deferred Sales Charges (Class B Only) Class B shares of the LB Funds and the Thrivent/AAL Funds are offered at their net asset value per share, without any initial sales charge. The shares are, however, subject to a contingent deferred sales charge ("CDSC") if sold within a certain period of time. The CDSC is the same for both the LB Funds and the Thrivent/AAL Funds, as shown in the table below. The CDSC for both the LB Funds and the Thrivent/AAL Funds may be waived under certain circumstances, which are described in the Funds' prospectuses. Class B shares of the LB Funds and the Thrivent/AAL Funds automatically convert to Class A shares after five years. - ------------------------------------------------------------------ CDSC (Class B Shares only) This % of net asset value at the time of purchase (or of When you sell shares sale, if lower) is deducted in this year from your after you bought them Proceeds - --------------------- --------------------------- 1st Year 5% 2nd Year 4% 3rd Year 3% 4th Year 2% 5th Year 1% - ---------------------------------- ------------------------------- Class B shares of the Lutheran Brotherhood Limited Maturity Bond Fund and Lutheran Brotherhood Money Market Fund are offered solely in exchange for Class B shares of other LB Funds. There is no 12b-1 Distribution Fee and the CDSC stops declining during the period the investment is in the Lutheran Brotherhood Limited Maturity Bond Fund or Lutheran Brotherhood Money Market Fund. Class B shares of the AAL Money Market Fund may be purchased as an initial investment. The AAL Money Market Class B shares are subject to a CDSC. If the proposed Reorganization is approved, Class B shares of the Thrivent Limited Maturity Bond Fund will be offered solely in exchange for Class B shares of other Thrivent/AAL Funds, while Class B shares of the AAL Money Market Fund will also be available for purchase as an initial investment and will carry a CDSC. Distribution and Shareholder Servicing Fees (Class A and Class B Shares) The LB Trust and the Thrivent Trust have each adopted a Rule 12b-1 plan that allows each Class B series of the funds to make payments to the distributor as reimbursement for providing distribution activities for Class B shares. The Thrivent Trust Rule 12b-1 plan also covers shareholder servicing activities for Class A and Class B shares of the Thrivent/AAL Funds. The LB Trust's Rule 12b-1 plan covers only distribution activities. The LB Trust has adopted separate shareholder servicing plans for each of the Class A and Class B shares that provide for the payment of servicing fees. With the exception of the LB Money Market Fund and the AAL Money Market Fund, as shown below, the aggregate amount of the 12b-1 fees and shareholder servicing fees for each LB Fund is the same as the total 12b-1 fee for the corresponding Thrivent/AAL Fund. The following table sets forth these fees for all LB Funds and their corresponding Thrivent/AAL Fund except the Lutheran Brotherhood Limited Maturity Bond Fund and the Lutheran Brotherhood Money Market Fund. ------------------------ ------------------------------------- ------------------------------------- Class A Shares Class B Shares ------------------------ ------------------------------------- ------------------------------------- ------------------------ ------------------ ------------------ ------------------ ------------------ Thrivent/AAL Thrivent/AAL LB Funds Funds LB Funds Funds ------------------------ ------------------ ------------------ ------------------ ------------------ ------------------------ ------------------ ------------------ ------------------ ------------------ 12b-1 Fee None 0.25% 0.75% 1.00% ------------------------ ------------------ ------------------ ------------------ ------------------ ------------------------ ------------------ ------------------ ------------------ ------------------ Servicing Fee 0.25% None 0.25% None ------------------------ ------------------ ------------------ ------------------ ------------------ ------------------------ ------------------ ------------------ ------------------ ------------------ Total 0.25% 0.25% 1.00% 1.00% ------------------------ ------------------ ------------------ ------------------ ------------------ The following table sets forth these fees for the Lutheran Brotherhood Limited Maturity Bond Fund and its corresponding New Thrivent Fund. ------------------------ --------------------------------------------------------------------------- Class B Shares ------------------------ --------------------------------------------------------------------------- ------------------------ ------------------------------------- ------------------------------------- Lutheran Brotherhood Limited Thrivent Limited Maturity Bond Fund Maturity Bond Fund ------------------------ ------------------------------------- ------------------------------------- ------------------------ ------------------------------------- ------------------------------------- 12b-1 Fee None 0.25% ------------------------ ------------------------------------- ------------------------------------- ------------------------ ------------------------------------- ------------------------------------- Servicing Fee 0.25% None ------------------------ ------------------------------------- ------------------------------------- ------------------------ ------------------------------------- ------------------------------------- Total 0.25% 0.25% ------------------------ ------------------------------------- ------------------------------------- Both Class A and Class B shareholders of the Lutheran Brotherhood Money Market Fund will experience a change in the structure and amount of 12b-1 and servicing fees as follows: - ------------------------- ---------------------------------------------- --------------------------------------------- Class A Shares Class B Shares - ------------------------- ---------------------------------------------- --------------------------------------------- - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- LB Money Market Fund AAL Money Market Fund LB Money Market Fund AAL Money Market Fund - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- 12b-1 Fee None 0.125% None 0.875% - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Servicing Fee 0.25% None 0.25% None - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Total 0.25% 0.125% 0.25% 0.875% - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- Class B shares of the Lutheran Brotherhood Money Market Fund are offered solely in exchange for Class B shares of other LB Funds. Class B shares of the AAL Money Market Fund may be purchased directly. The CDSC applicable to the shares exchanged for Class B shares of the Lutheran Brotherhood Money Market Fund does not continue to decline and must be paid if the shares are redeemed. The CDSC for Class B shares of the AAL Money Market Fund decline on the same schedule as any other Class B share of a Thrivent/AAL Fund. Institutional Class Shares Sales Charges No sales charges apply to the purchase of Institutional Class shares of either the Thrivent/AAL Funds or the LB Funds. The LB Funds and the Thrivent/AAL Funds may charge a fee, not to exceed $30, for redemptions by wire. Distribution and Shareholder Servicing Fees No 12b-1 (distribution and shareholder servicing) fees apply to a Thrivent/AAL Fund's Institutional Class shares. Institutional Class shares of an LB Fund are subject to a 0.15% shareholder servicing fee. However, the 0.15% shareholder servicing fee applicable to all of the LB Fund Institutional shares is currently contractually waived by Thrivent Investment Mgt. through at least June 15, 2004. As a result, Institutional Class shareholders will therefore experience no change in these expenses for distribution and shareholder services if the Reorganizations are approved. Accounts with Low Balances Due to the high cost of maintaining accounts with low balances, each of the funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. Before shares are redeemed to close an account or a small account fee is charged, a shareholder will be notified in writing and allowed 60 days to purchase additional shares in order to avoid being charged a small account fee. The applicable minimum balances for Class A shares and Class B shares are as follows - ------------------------------------------------------------------------------------ --------------------------------- Fund - Class A and B Minimum Balance - ------------------------------------------------------------------------------------ --------------------------------- - ------------------------------------------------------------------------------------ --------------------------------- All LB Funds except the Lutheran Brotherhood Money Market Fund and the Lutheran $1,000 Brotherhood Limited Maturity Bond Fund - ------------------------------------------------------------------------------------ --------------------------------- - ------------------------------------------------------------------------------------ --------------------------------- Lutheran Brotherhood Money Market Fund $1,500 - ------------------------------------------------------------------------------------ --------------------------------- - ------------------------------------------------------------------------------------ --------------------------------- Lutheran Brotherhood Limited Maturity Bond Fund $2,500 - ------------------------------------------------------------------------------------ --------------------------------- - ------------------------------------------------------------------------------------ --------------------------------- All Thrivent/AAL Funds - $12 small account fee $1,000 - ------------------------------------------------------------------------------------ --------------------------------- - ------------------------------------------------------------------------------------ --------------------------------- All Thrivent/AAL Funds - redeem shares $500 - ------------------------------------------------------------------------------------ --------------------------------- Institutional Class shares may be charged a small account fee or be redeemed if the account falls below the minimum amount required to open the type of account. Institutional Class shares will not be redeemed if the account's value drops below the minimum solely because of market value fluctuations. Distributions Each LB Fund and its corresponding Thrivent/AAL Fund declares and pays dividends and capital gains distributions, if any, at least annually. At the time of application, shareholders of the LB Funds and the Thrivent/AAL Funds select from one of the following options for dividends and capital gains distributions: Full Reinvestment. Distributions from a Fund will be reinvested in additional shares of the same class of that Fund. This option will be selected automatically unless one of the other options is specified. Full Reinvestment in a Different Fund. You may also choose to have your distributions reinvested into an existing account of the same class of another fund within the trust. All Cash. Distributions will be paid in cash. Your request to receive all or a portion of your distributions in cash must be received at least 10 days before the record date of the dividend or other distribution. LB Fund shareholders also have the option of requesting to have part of their distributions in cash and part reinvested in additional shares of the same class of that LB Fund. Distributions paid in shares will be credited to your account at the next determined NAV per share. Manager of Managers At a shareholders' meeting held on March 9, 2004, the shareholders of each Thrivent/AAL Fund approved a change in fundamental policy that permits the Board of Trustees to authorize Thrivent Investment Mgt., as investment adviser to the funds, to enter into and amend subadvisory agreements without shareholder approval. The policy gives Thrivent Investment Mgt. the authority, with approval of the Board of Trustees of the Thrivent Trust, to hire, fire and change subadvisers and amend subadvisory agreements accordingly without shareholder approval. A fund operating under this structure is sometimes referred to as a "manager-of-managers fund". The absence of a shareholder approval requirement eliminates the costly and time-consuming process of calling and conducting a shareholder meeting, preparing and distributing proxy materials and soliciting votes from shareholders for subadviser changes. The Board of Trustees of the Thrivent/AAL Funds were persuaded that, in today's rapidly changing securities markets, it is in shareholders' best interests if the Board represents their interests in approving or rejecting recommendations made by Thrivent Investment Mgt. regarding subadvisers. It will enable the Board to make more timely changes it deems appropriate with respect to the day-to-day management of a fund's assets. Thrivent Investment Mgt. will engage in ongoing subadviser evaluations on both a quantitative and qualitative basis. Thrivent Financial will periodically gather and analyze performance information regarding each subadvised Fund. Thrivent Investment Mgt. will also evaluate whether the subadviser's investment style is appropriate for the Fund. Thrivent Investment Mgt. will report its findings on these matters to the Boards of Trustees and make recommendations regarding subadvisers based on those findings. On February 19, 2003, the Securities and Exchange Commission granted Thrivent Trust and Thrivent Investment Mgt. an order exempting them from the federal securities law requirements to obtain approval of the appointment of unaffiliated subadvisers (the "Exemptive Order"). Under the Exemptive Order, Thrivent Trust and Thrivent Investment Mgt. are subject to several conditions imposed by the SEC to ensure that the interests of a Fund's shareholders are adequately protected. For example, within 90 days of a change to a Fund's subadvisory arrangements, the Fund must provide shareholders with an information statement that contains substantially the same information about the subadviser, the subadvisory agreement and the subadvisory fee that would have been included in a proxy statement if shareholder approval had been required. Thrivent Investment Mgt. pays all subadvisory fees out of the advisory fees it receives from a subadvised fund. There is no additional fee to the subadvised fund. Thrivent Investment Mgt., directly or through subadvisers, also continues to provide the same level of management and administrative services to the subadvised fund as it has always provided. INFORMATION ABOUT THE REORGANIZATIONS Information Received by the Board of Trustees of the LB Trust In connection with its consideration of the proposed Reorganizations and their anticipated effects on the LB Funds, the Board of Trustees of the LB Trust, including those trustees who are not interested persons (as that term is defined in the Investment Company Act of 1940, as amended) of Thrivent Investment Mgt. or any of its affiliates (the "Independent Trustees"), requested from Thrivent Investment Mgt. and reviewed information to assist the Board in its evaluation, including: o The terms of the proposed Reorganization Agreements. o Material provisions of Delaware and Massachusetts state law and the governing documents of the LB Trust and the Thrivent Trust affecting the rights and liabilities of shareholders and/or trustees. o The investment management structure for the LB Funds and the Thrivent/AAL Funds. o The investment objectives, strategies and fundamental investment restrictions of the LB Funds and the Thrivent/AAL Funds. o Information on the scope and cost of other services provided by Thrivent Investment Mgt. and its affiliates to the funds, including (i) administrative services provided by Thrivent Investment Mgt. for which each LB Fund and Thrivent/AAL Fund pays a fee at an annual rate of 0.02% of net assets, effective as of January 1, 2004, and (ii) transfer agency services. o Studies prepared by Lipper, Inc. ("Lipper"), an independent statistical service, that compared expense information for each LB and Thrivent/AAL Fund with the expense information for corresponding mutual funds selected by Lipper according to similarities in fund type, investment classification/objective, asset level, expense components or structure, and primary channel of distribution. o Information regarding the comparative performance of the LB Funds that will be reorganized into Existing AAL Funds. o Analysis of the impact on expense ratios of the proposed Reorganization of each LB Fund with its corresponding Thrivent/AAL Fund, including a comparison of actual and pro forma expense ratios, taking into account proposed expense waiver and reimbursement arrangements and other proposed changes in expenses. o Thrivent Investment Management Inc.'s agreement to reimburse certain expenses for Class B shareholders following the Reorganizations. At the time the Board considered the expense ratios in November 2003, with one exception, only Class B shareholders would have experienced an increase in expenses as a result of the Reorganizations. The increases were largely due to the Thrivent/AAL methodology of allocating expenses such as transfer agent fees, printing and postage. Thrivent Investment Mgt. therefore agreed to reimburse expenses for Class B shareholders following the Reorganizations in an amount necessary to keep their net expenses at or below gross expenses as of October 31, 2003. The reimbursements will be in effect through at least December 31, 2004 and no portion will be refunded to Thrivent Investment Mgmt. o Transfer agent efficiencies. Thrivent Financial Investor Services Inc. ("TFISI"), the current transfer agent for The Lutheran Brotherhood Family of Funds would become transfer agent for The AAL Mutual Funds prior to the Reorganizations. TFISI was contracting with an outside vendor to provide systems and other support for the transfer agent function. TFISI represented to the Board of Trustees that it intended to price its transfer agency services at or below the median and the mean for the industry and that the costs to the shareholders of The AAL Mutual Funds would be about the same as they currently were, while the costs to the shareholders of The Lutheran Brotherhood Family of Funds would likely be reduced. (The transfer agency fees were in fact lower for The Lutheran Brotherhood Family of Funds and were implemented on January 1, 2004, prior to filing this proxy statement and prospectus.) The lowered transfer agency fees currently in effect for The Lutheran Brotherhood Family of Funds will not increase as a result of the reorganizations. o The expense ratio for Class A shares of the Lutheran Brotherhood Municipal Bond Fund following the Reorganization. The expense ratio will be 0.06% higher following the Reorganization as compared to its actual expense ratio at October 31, 2003. The expense ratio will remain below the median of the Lipper Municipal Bond Universe as of October 31, 2003 (0.76% vs. 0.84%). (Lipper is a well-known objective mutual fund reporting agency that collects and provides competitive data.) o Analysis of break points in advisory fees for the Existing AAL Funds. o The manager-of-managers structure of the Thrivent/AAL Funds. o In the case of the reorganization of an LB Fund into an Existing AAL Fund, the extent of correlation of underlying investments in the Funds. Considerations by the Board of Trustees of the LB Trust The Board of Trustees of the LB Trust believes that each proposed Reorganization is in the best interests of the affected LB Fund and its shareholders. Further, the Board determined that the interests of the LB Fund shareholders will not be diluted as a result of the Reorganizations. The Contracts Committee of the Board (consisting of the Independent Trustees of the Board) considered factual matters and structural issues in connection with the transactions with the Thrivent/AAL Funds at meetings on August 26, 2003 and October 7 - 8, 2003. At these meetings, representatives of Thrivent Investment Mgt. discussed the proposed Reorganizations with the Contracts Committee in general terms and in detail. In considering the proposed Reorganizations, the Contracts Committee was advised at all formal meetings by the LB Trust's independent outside legal counsel. The Contracts Committee met again in person on November 11 - 12, 2003, to receive additional information concerning the Reorganizations. At this meeting, representatives of Thrivent Investment Mgt. reviewed the proposed Reorganizations and the related Reorganization Agreements in detail. These representatives also presented comparative performance and expense information for the LB Funds and the Thrivent/AAL Funds. After reviewing the proposed Reorganizations and Reorganization Agreements, the Contracts Committee unanimously approved the Reorganizations. Thereafter, at an in person meeting on November 12, 2003, the Board (including all of the Independent Trustees) unanimously approved the Reorganizations and Reorganization Agreements and recommended their approval by LB Fund shareholders. In approving the Reorganization Agreements, the Board considered the following factors: o The consolidation of the Funds into a single investment company incorporating the Thrivent name offers the opportunity for operational efficiencies by simplifying administrative and regulatory burdens of the Funds, including by eliminating duplicative regulatory filings and duplicative fixed costs such as accounting and audit fees, legal fees and shareholder meetings. o The consolidation of the funds sponsored by Thrivent Investment Mgt. under a single investment company and board of trustees will further streamline governance and oversight of the funds. o The rights of shareholders under applicable law and governing documents will not be adversely affected by the Reorganizations. o The Reorganizations will not result in the recognition of any gain or loss for federal income tax purposes by the LB Funds, the Thrivent/AAL Funds or their shareholders. o Thrivent Investment Mgt. has committed to invest between $4 and $5 million to enhance the quality of its asset management capabilities, including hiring additional investment and administrative support professionals and making infrastructure investments to support investment research. o Transfer agency fees will decrease for shareholders of the LB Funds. (The reduction in fees went into effect on January 1, 2004, and is reflected in the adjusted expense ratios of the LB Funds in the section titled "Comparative Expense Tables". Because of the early implementation of lower fees, in several cases the pro forma expenses are higher than the adjusted expenses for the LB Funds. Actual expenses, however, are higher only for Class A shares of the Lutheran Brotherhood Municipal Bond Fund, which remains below the median expense ratio in its Lipper Universe. o Thrivent Investment Mgt. will reimburse Class B share expenses through at least December 31, 2004, to the extent necessary to assure that, following the Reorganizations, Class B share net expense ratios for the Thrivent/AAL Funds will not increase beyond the total Class B share expense ratios of the corresponding LB Funds (before any expenses waiver and reimbursement) as of October 31, 2003. o Thrivent Investment Mgt. will be responsible for the payment of the expenses related to consummating each Reorganization. In approving the Reorganization for the LB Funds that will reorganize into an Existing AAL Fund, the Board considered the following additional factors: o The investment objective and strategies for each LB Fund and its corresponding Existing AAL Fund are materially the same. o Each Reorganization will result in the Existing AAL Fund having a larger asset base. This is expected to provide the Existing AAL Fund with potential benefits from greater fund diversification and the opportunity to conduct other investment transactions on potentially more advantageous terms than two separate smaller funds. The Reorganization also offers opportunities to spread fixed costs over a larger asset base. The larger asset base will result in a reduction in advisory fees for the AAL Money Market Fund and move other Existing AAL Funds closer to the break point, if any, in advisory fees. In approving the Reorganization of both the Lutheran Brotherhood Opportunity Growth and Lutheran Brotherhood Mid Cap Growth Funds into the Thrivent Mid Cap Growth Fund, the Board considered the following additional factors: o Each of Lutheran Brotherhood Opportunity Growth Fund, the Lutheran Brotherhood Mid Cap Growth Fund and the Thrivent Mid Cap Growth Fund has an investment objective that seeks long-term growth of capital. Although the Lutheran Brotherhood Opportunity Growth Fund normally invests in smaller capitalization companies and the Lutheran Brotherhood Mid Cap Growth Fund and Thrivent Mid Cap Growth Fund normally invest in companies with medium market capitalization, the Lutheran Brotherhood Opportunity Growth Fund is managed in the same growth style. In addition, there is a material overlap in the securities held by the two Lutheran Brotherhood Funds and in the companies that make up the benchmarks that are used for performance comparisons for all three funds. Thus, the Reorganization will enable Lutheran Brotherhood Opportunity Growth Fund shareholders to continue their current investment programs with minimal disruption. In approving the Reorganization Agreement for each other LB Fund that will reorganize into a corresponding New Thrivent Fund, the Board considered the following additional factors: o The investment objectives and strategies of each LB Fund and its corresponding New Thrivent Fund are identical. o The Reorganizations will enable shareholders of the LB Funds to continue their current investment programs without disruption. In approving the Reorganization Agreement for the Lutheran Brotherhood Municipal Bond Fund, which will reorganize into the AAL Municipal Bond Fund, the Board considered the following additional factors: o The pro forma operating expense ratio for Class A shares will be 0.06% higher following the reorganization as compared to its actual expense ratio at October 31, 2003, but the Board concluded that merging the two funds provided the opportunity for a lower expense ratio over time due to potential economies of scale, which may never be realized. The Board also noted that the expense ratio remains below the median of the Lipper Municipal Bond Universe as of October 31, 2003 (0.76% vs. 0.84%). (Lipper is a well-known objective mutual fund reporting agency that collects and provides competitive data.) o The Lutheran Brotherhood Municipal Bond Fund and the AAL Municipal Bond Fund are substantially identical in terms of investment objectives, policies and restrictions; both have the same portfolio manager; and both are in the same Lipper universe and have a 99% correlation. In view of these similarities, the Board was concerned over possible sales force and shareholder confusion arising from offering two substantially identical funds. The Board did not assign relative weights to the foregoing factors or deem any one or group of them to be controlling in and of themselves. Description of the Reorganization Agreements and Plans of Reorganization Each Reorganization Agreement provides that the LB Fund will transfer all of its assets to the corresponding Thrivent/AAL Fund in exchange solely for the Thrivent/AAL Fund's shares to be distributed pro rata by the LB Fund to its shareholders in complete liquidation of the LB Fund, which is expected to occur on or about July 16, 2004. Each New Thrivent Fund will assume all of the liabilities of the corresponding LB Fund as of the closing date. Each Existing AAL Fund will assume the stated accrued and unpaid liabilities of the corresponding LB Fund as of the closing date. The value of each LB Fund's assets and liabilities to be acquired and assumed by the Thrivent/AAL Fund will be the value of those assets computed as of the close of regular trading on the New York Stock Exchange (normally 4:00 p.m. EST) on the closing date. LB Fund shareholders will become shareholders of the corresponding Thrivent/AAL Fund as of the closing and will be entitled to the Thrivent/AAL Fund's next dividend distribution. LB Fund shareholders will receive shares in the corresponding Thrivent/AAL Fund having a total net asset value equal to the total net asset value of their LB Fund shares as of the closing date. On or before the closing date, the Lutheran Brotherhood Opportunity Growth Fund, the Lutheran Brotherhood Mid Cap Growth Fund and the LB Funds that will reorganize into an Existing AAL Fund will declare and pay a dividend or dividends which, together with all previous dividends, will have the effect of distributing to its shareholders substantially all of its net investment income and realized net capital gain, if any, for all taxable years ending on or before the closing date. Completion of each Reorganization is subject to the conditions set forth in the respective Reorganization Agreements. This includes receipt of a tax opinion in form and substance reasonably satisfactory to the LB Trust and the Thrivent Trust, as described under the caption "Federal Income Tax Consequences" below. Each Reorganization Agreement may be terminated and the Reorganization may be abandoned at any time before or after approval by the LB Fund shareholders prior to the closing date by either party if its Board of Trustees determines that consummation of the Reorganization would not be in the best interests of shareholders of the relevant Fund. Under each Reorganization Agreement, Thrivent Investment Mgt. will pay the expenses related to completing each Reorganization. Those expenses include, but are not limited to, accountants' fees, legal fees, registration fees, transfer taxes (if any), bank and transfer agent fees and the costs of preparing, printing, copying and mailing proxy solicitation materials to the LB Fund shareholders and the costs of holding the Special Meeting. By approving the proposed Reorganization Agreements for the reorganization of the LB Funds that will reorganize into corresponding New Thrivent Funds, shareholders will be deemed to have approved a new advisory contract between Thrivent Investment Mgt. and the Thrivent Trust that will be in place with respect to each New Thrivent Fund. The new advisory agreement will be substantially identical to the existing advisory agreement between Thrivent Investment Mgt. and Thrivent Trust except as to its term. If a Reorganization Agreement for an LB Fund is not approved, the LB Fund will continue to be operated as a series of the LB Trust. The closing of the Reorganizations of the Lutheran Brotherhood Opportunity Growth Fund and the Lutheran Brotherhood Mid Cap Growth Fund with the Thrivent Mid Cap Growth Fund is contingent on the shareholders of both the Lutheran Brotherhood Opportunity Growth Fund and the Lutheran Brotherhood Mid Cap Growth Fund approving their respective Reorganizations. The closing of each other Reorganization is not conditioned on the closing of any other Reorganization. This description of the Reorganization Agreements is qualified in its entirety by the terms and provisions of the Reorganization Agreements, a form of which is attached as Appendix A and incorporated into this proxy statement and prospectus by reference. Description of Thrivent/AAL Fund Shares Full and fractional shares of the Thrivent/AAL Funds will be issued in the Reorganizations without the imposition of a sales charge or other fee to the LB Fund shareholders in accordance with the procedures described above. Shares of the Thrivent/AAL Funds to be issued to LB Fund shareholders under the Reorganization Agreements will be fully paid and non-assessable when issued and will have no preemptive or conversion rights. (Reference is hereby made to the Thrivent Trust prospectus for the Thrivent/AAL Fund into which your LB Fund will be reorganized.) Because the LB Trust is a Delaware statutory trust and the Thrivent Trust is a Massachusetts business trust, there are certain differences in the powers and restrictions of these entities under state law. Significant differences between the trusts are as follows: o Trustees and shareholders of a Massachusetts business trust face the remote possibility of being subject to personal liability for obligations of the trust, although the trust instrument may provide for limited liability of trustees. In contrast, the Delaware business trust statute expressly provides that shareholders of a Delaware business trust are entitled to the same limitation of liability as stockholders of a Delaware corporation, and trustees are not personally liable to the trust or its shareholders for obligations of the business trust. It is unclear whether other states would recognize the statutory limitations of liability for Delaware business trusts. o Similarly, Delaware law provides that no series of a Delaware statutory trust is liable for the debts of another series. By comparison, there is a remote possibility under Massachusetts law that one series of a Massachusetts business trust could be liable for the obligations of another series. o The trustees of a Delaware statutory trust may only amend provisions of the trust instrument affecting shareholder liability or indemnity rights with shareholder approval, while the trust instrument of a Massachusetts business trust may authorize the trustees to amend any provision thereof without shareholder approval. The following is a summary of significant differences between the respective trust instruments and by-laws of the LB Trust and the Thrivent Trust. This is not a complete list of the differences between these trust instruments and by-laws, however. Shareholders should refer to the provisions of these documents directly for a more detailed comparison. Copies of the trust instruments and by-laws of each of the LB Trust and the Thrivent Trust are available to shareholders without charge upon written request. Amendments to Governing Documents. Under the trust instrument of the LB Trust, the trustees may amend the trust instrument without shareholder approval if the amendment does not materially adversely affect the rights of shareholders (except with respect to matters affecting shareholder liability or indemnity rights, for which Delaware law requires shareholder approval). The trust instrument of the Thrivent Trust requires the approval of the holders of 50% of the outstanding shares in connection with any amendment of the trust instrument. Shareholder Meetings. The trust instrument of the LB Trust provides that no annual meeting of shareholders is required. Shareholders holding not less than 10% of the outstanding shares may request a special meeting for the purpose of removing a trustee. No annual meeting is required under the trust instrument of the Thrivent Trust. The trust instrument of the Thrivent Trust does not provide for special meetings. However, under the 1940 Act, shareholders owning at least 10% of the outstanding shares of the Thrivent Trust may by written request call a special meeting for the purpose of removing a trustee. Federal Income Tax Consequences It is expected that the Reorganizations will not result in any income, gain or loss for federal income tax purposes. As a condition to each Reorganization, the LB Trust and the Thrivent Trust will receive an opinion from counsel to the effect that, subject to customary assumptions and representations, on the basis of the existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations thereunder, current administrative rules and court decisions, for federal income tax purposes: 1. The Reorganization will qualify as a "reorganization" under section 368(a)(1) of the Code, and the participating LB Fund and Thrivent/AAL Fund involved therein each will be "a party to a reorganization" within the meaning of section 368(b) of the Code. 2. The LB Fund will recognize no gain or loss on the transfer of its assets to the Thrivent/AAL Fund in exchange for the Thrivent/AAL Fund's shares and the assumption by the Thrivent/AAL Fund of the assumed liabilities of the LB Fund or on the subsequent distribution of those shares to the LB Fund's shareholders in exchange for their LB Fund shares. 3. The Thrivent/AAL Fund will recognize no gain or loss on its receipt of the assets of the LB Fund in exchange for Thrivent/AAL Fund shares and the assumption by the Thrivent/AAL Fund of the assumed liabilities of the LB Fund. 4. The Thrivent/AAL Fund's basis in the LB Fund assets transferred to the Thrivent/AAL Fund will be the same as the LB Fund's basis therein immediately before the Reorganization, and the Thrivent/AAL Fund's holding period for those assets will include the LB Fund's holding period. 5. An LB Fund shareholder will recognize no gain or loss on the exchange of the shareholder's LB Fund shares solely for Thrivent/AAL Fund shares in the Reorganization. 6. An LB Fund shareholder's aggregate basis in the Thrivent/AAL Fund shares received by the shareholder in the Reorganization will be the same as the aggregate basis in the shareholder's LB Fund shares surrendered in exchange for those LB Fund shares, and the holding period of the Thrivent/AAL Fund shares to be received by each LB Fund shareholder will include the period during which the shares of the LB Fund exchanged therefor were held by such shareholder (provided that the LB Fund shareholder held the shares of the LB Fund as a capital asset on the date of the Reorganization). 7. The Existing AAL Fund will succeed to and take into account as of the date of the Reorganization the items of the LB Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381(b) and (c), 382, 383 and 384 of the Code. 8. With respect to those Reorganizations in which a LB Fund will be reorganized into a New Thrivent Fund (excluding the Reorganization of the Lutheran Brotherhood Opportunity Growth Fund and the Lutheran Brotherhood Mid Cap Growth Fund into the Thrivent Mid Cap Growth Fund, with respect to which no opinion is offered on this point), the New Thrivent Fund will be treated for tax purposes the same as the LB Fund would have been treated had there been no Reorganization. As a result, the taxable year of the LB Fund will not end on the effective date of the Reorganization and the tax attributes of the LB Fund will be taken into account by the New Thrivent Fund as if there had been no Reorganization. 9. After the Reorganization of the Lutheran Brotherhood Opportunity Growth Fund into the Thrivent Mid Cap Growth Fund, the utilization by the Thrivent Mid Cap Growth Fund of (a) carryovers of pre-Reorganization capital losses realized by the Lutheran Brotherhood Opportunity Growth Fund and (b) capital losses it realizes after the Reorganization that are attributable to the Lutheran Brotherhood Opportunity Growth Fund's built-in unrealized capital losses as of the closing date, will be subject to limitation under the Code. With respect to the other Reorganizations of LB Funds into New Thrivent Funds, such items will be available to each New Thrivent Fund to the same extent those items would have been available to the corresponding LB Fund had there been no Reorganization. You should recognize that an opinion of counsel is not binding on the Internal Revenue Service or any court. Neither the LB Funds nor the Thrivent/AAL Funds expect to obtain a ruling from the IRS regarding the consequences of the Reorganizations. Although it is not expected, if the IRS successfully challenged the tax treatment of any Reorganization, the Reorganization would be treated as a taxable sale of assets of the participating LB Fund to the Thrivent/AAL Fund, followed by the taxable liquidation of the LB Fund. LB Fund shareholders should consult their tax advisors regarding the effect, if any, of the proposed Reorganizations in light of their individual circumstances. Because the foregoing discussion relates only to certain federal income tax consequences of the Reorganizations, the shareholders of the LB Funds should also consult their tax advisors as to the federal, state and local tax consequences, if any, of the Reorganizations based upon the shareholders' particular circumstances. Because the investment policies and practices of the Thrivent/AAL Funds are similar in all material respects to those of their corresponding LB Funds, the Thrivent/AAL Funds do not anticipate that taxable sales involving significant amounts of securities of the combined portfolios will have to be made after the Reorganizations. Capitalization The following tables present, as of October 31, 2003: (1) the capitalization of each LB Fund being reorganized into an Existing AAL Fund; (2) the capitalization of the Existing AAL Fund; and (3) the pro forma capitalization of the Existing AAL Fund as adjusted to give effect to the Reorganization. The capitalization of each fund is likely to be different at the closing as a result of daily share purchase and redemption activity in the funds as well as the effects of the other ongoing operations of the respective funds prior to the closing. - ------------------------------------ --------------------------- ---------------------------- --------------------------- Lutheran Brotherhood Pro Forma AAL World Growth Fund AAL International Fund International Fund Class A Total Net Assets $59,798,249 $152,737,737 $212,535,986 Shares outstanding 7,129,746 18,602,047 25,884,922 Net Asset Value Per Share $8.39 $8.21 $8.21 Maximum Public Offering $8.88 $8.69 $8.69 Price - ------------------------------------ --------------------------- ---------------------------- --------------------------- Class B Total Net Assets $10,773,987 $7,531,673 $18,305,660 Shares outstanding 1,343,675 946,041 2,299,344 Net Asset Value Per Share $8.02 $7.96 $7.96 - ------------------------------------ --------------------------- ---------------------------- --------------------------- Institutional Class Total Net Assets $10,326,438 $2,890,049 $13,216,487 Shares outstanding 1,181,338 347,681 1,589,980 Net Asset Value Per Share $8.74 $8.31 $8.31 - ------------------------------------ --------------------------- ---------------------------- --------------------------- - ------------------------------------ --------------------------- ---------------------------- --------------------------- Lutheran Brotherhood AAL Aggressive Pro Forma AAL Aggressive Growth Fund Growth Fund Growth Fund Class A Total Net Assets $28,048,794 $36,154,684 $64,203,478 Shares outstanding 2,609,486 8,317,648 14,770,477 Net Asset Value Per Share $10.75 $4.35 $4.35 Maximum Public Offering $11.38 $4.60 $4.60 Price - ------------------------------------ --------------------------- ---------------------------- --------------------------- Class B Total Net Assets $10,638,574 $3,644,136 $14,282,710 Shares outstanding 1,019,679 869,470 3,407,773 Net Asset Value Per Share $10.43 $4.19 $4.19 - ------------------------------------ --------------------------- ---------------------------- --------------------------- Institutional Class Total Net Assets $3,134,968 $3,289,788 $6,424,756 Shares outstanding 278,658 726,163 1,418,152 Net Asset Value Per Share $11.25 $4.53 $4.53 - ------------------------------------ --------------------------- ---------------------------- --------------------------- - ------------------------------------ --------------------------- ---------------------------- --------------------------- Lutheran Brotherhood Fund AAL Capital Growth Fund Pro Forma AAL Capital Growth Fund Class A Total Net Assets $757,561,033 $2,793,059,763 $3,550,620,796 Shares outstanding 41,427,933 99,049,939 125,915,234 Net Asset Value Per Share $18.29 $28.20 $28.20 Maximum Public Offering $19.35 $29.84 $29.84 Price - ------------------------------------ --------------------------- ---------------------------- --------------------------- - ------------------------------------ --------------------------- ---------------------------- --------------------------- Class B Total Net Assets $64,934,652 $80,820,001 $145,754,653 Shares outstanding 3,686,935 3,021,193 5,448,564 Net Asset Value Per Share $17.61 $26.75 $26.75 - ------------------------------------ --------------------------- ---------------------------- --------------------------- Institutional Class Total Net Assets $25,097,158 $80,219,017 $105,316,175 Shares outstanding 1,364,351 2,836,964 3,724,531 Net Asset Value Per Share $18.39 $28.28 $28.28 - ------------------------------------ --------------------------- ---------------------------- --------------------------- - ------------------------------------ --------------------------- ---------------------------- --------------------------- Lutheran Brotherhood Pro Forma AAL Equity Value Fund AAL Equity Income Fund Income Fund Class A Total Net Assets $28,445,311 $228,191,216 $256,636,527 Shares outstanding 2,277,802 19,460,579 21,886,449 Net Asset Value Per Share $12.49 $11.73 $11.73 Maximum Public Offering $13.22 $12.41 $12.41 Price - ------------------------------------ --------------------------- ---------------------------- --------------------------- Class B Total Net Assets $9,128,812 $7,947,880 $17,076,692 Shares outstanding 745,112 681,098 1,463,397 Net Asset Value Per Share $12.25 $11.67 $11.67 - ------------------------------------ --------------------------- ---------------------------- --------------------------- Institutional Class Total Net Assets $3,066,627 $12,020,246 $15,086,873 Shares outstanding 241,826 1,023,897 1,285,115 Net Asset Value Per Share $12.68 $11.74 $11.74 - ------------------------------------ --------------------------- ---------------------------- --------------------------- - ------------------------------------ --------------------------- ---------------------------- --------------------------- Lutheran Brotherhood AAL Municipal Pro Forma AAL Municipal Municipal Bond Fund Bond Fund Bond Fund Class A Total Net Assets $641,710,436 $645,232,185 $1,286,942,621 Shares outstanding 70,630,347 56,493,329 112,678,311 Net Asset Value Per Share $9.09 $11.42 $11.42 Maximum Public Offering $9.52 $11.96 $11.96 Price - ------------------------------------ --------------------------- ---------------------------- --------------------------- Class B Total Net Assets $24,179,138 $12,968,864 $37,148,002 Shares outstanding 2,668,446 1,135,884 3,253,625 Net Asset Value Per Share $9.06 $11.42 $11.42 - ------------------------------------ --------------------------- ---------------------------- --------------------------- Institutional Class Total Net Assets $2,592,654 $3,480,675 $6,073,329 Shares outstanding 285,373 304,788 531,816 Net Asset Value Per Share $9.09 $11.42 $11.42 - ------------------------------------ --------------------------- ---------------------------- --------------------------- - ------------------------------------ --------------------------- ---------------------------- --------------------------- Lutheran Brotherhood Pro Forma AAL Money Money Market Fund AAL Money Market Fund Market Fund Class A Total Net Assets $500,265,347 $301,766,074 $802,031,421 Shares outstanding 500,265,347 301,766,074 802,031,421 Net Asset Value Per Share $1.00 $1.00 $1.00 - ------------------------------------ --------------------------- ---------------------------- --------------------------- Class B Total Net Assets $1,095,202 $2,278,123 $3,373,325 Shares outstanding 1,095,202 2,278,123 3,373,325 Net Asset Value Per Share $1.00 $1.00 $1.00 - ------------------------------------ --------------------------- ---------------------------- --------------------------- Institutional Class Total Net Assets $18,738,130 $112,412,495 $131,150,625 Shares outstanding 18,738,130 112,412,495 131,150,625 Net Asset Value Per Share $1.00 $1.00 $1.00 - ------------------------------------ --------------------------- ---------------------------- --------------------------- The following table presents, as of October 31, 2003: (1) the capitalization of the Lutheran Brotherhood Opportunity Growth Fund, (2) the capitalization of the Lutheran Brotherhood Mid Cap Growth Fund, and (3) the pro forma capitalization of the Thrivent Mid Cap Fund, a New Thrivent Fund, as adjusted to give effect to the Reorganization. The capitalization of each fund is likely to be different at the Closing as a result of daily share purchase and redemption activity in the funds as well as the effects of the other ongoing operations of the respective funds prior to the Closing. - --------------------------------------- ------------------------ ---------------------------- --------------------------- Pro Forma Lutheran Brotherhood Lutheran Brotherhood Mid Thrivent Mid Cap Opportunity Growth Fund Cap Growth Fund Growth Fund Class A Total Net Assets $136,808,195 $113,116,436 $249,924,631 Shares outstanding 15,261,190 9,156,225 20,230,183 Net Asset Value Per Share $8.96 $12.35 $12.35 Maximum Public Offering Price $9.48 $13.07 $13.07 - --------------------------------------- ------------------------ ---------------------------- --------------------------- Class B Total Net Assets $11,616,511 $37,234,218 $48,850,729 Shares outstanding 1,356,809 3,160,935 4,147,099 Net Asset Value Per Share $8.56 $11.78 $11.78 - --------------------------------------- ------------------------ ---------------------------- --------------------------- Institutional Class Total Net Assets $683,764 $7,257,924 $7,941,688 Shares outstanding 73,296 563,722 616,851 Net Asset Value Per Share $9.33 $12.87 $12.87 - --------------------------------------- ------------------------ ---------------------------- --------------------------- The following tables present as of October 31, 2003. (1) the capitalization of each other LB Fund that will be reorganized into a New Thrivent Fund; and (2) the pro forma capitalization of each corresponding Thrivent Fund as adjusted after the Reorganization. The capitalization of each LB Fund will be identical to its corresponding New Thrivent Fund and is likely to be different at the closing date as a result of daily share purchase and redemption activity in the LB Funds as well as the effects of the other ongoing operations of the LB Funds prior to the closing date. - ------------------------------------ --------------------------- ---------------------------- Pro Forma LB High Yield Fund Thrivent High Yield Fund Class A Total Net Assets $579,764,249 $579,764,249 Shares outstanding 114,341,994 114,341,994 Net Asset Value Per Share $5.07 $5.07 Maximum Public Offering Price $5.31 $5.31 Class B Total Net Assets $36,276,145 $36,276,145 Shares outstanding 7,157,026 7,157,026 Net Asset Value Per Share $5.07 $5.07 Institutional Class Total Net Assets $10,817,890 $10,817,890 Shares outstanding 2,131,967 2,131,967 Net Asset Value Per Share $5.07 $5.07 - ------------------------------------ --------------------------- ---------------------------- - ------------------------------------ --------------------------- ---------------------------- Pro Forma LB Income Fund Thrivent Income Fund Class A Total Net Assets $608,719,395 $608,719,395 Shares outstanding 69,712,340 69,712,340 Net Asset Value Per Share $8.73 $8.73 Maximum Public Offering Price $9.14 $9.14 Class B Total Net Assets $30,256,639 $30,256,639 Shares outstanding 3,472,800 3,472,800 Net Asset Value Per Share $8.71 $8.71 Institutional Class Total Net Assets $25,207,541 $25,207,541 Shares outstanding 2,880,470 2,880,470 Net Asset Value Per Share $8.75 $8.75 - ------------------------------------ --------------------------- ---------------------------- - ------------------------------------ --------------------------- ---------------------------- Pro Forma LB Limited Thrivent Limited Maturity Maturity Bond Fund Bond Fund Class A Total Net Assets $90,424,855 $90,424,855 Shares outstanding 6,925,780 6,925,780 Net Asset Value Per Share $13.06 $13.06 Maximum Public Offering Price $13.06 $13.06 Class B Total Net Assets $6,164,657 $6,164,657 Shares outstanding 472,141 472,141 Net Asset Value Per Share $13.06 $13.06 Institutional Class Total Net Assets $14,725,216 $14,725,216 Shares outstanding 1,128,096 1,128,096 Net Asset Value Per Share $13.05 $13.05 - ------------------------------------ --------------------------- ---------------------------- SUBADVISER INFORMATION FOR THE AAL INTERNATIONAL FUND At its meeting on February 11, 2004, the Board of Trustees (the "Board") of The AAL Mutual Funds (the "Trust"), including a majority of the Independent Trustees, voted to approve new subadvisory agreements (each a "Subadvisory Agreement") between the Trust, Thrivent Investment Management Inc. ("Thrivent Investment Mgt.") and each of Mercator Asset Management LP ("Mercator") and T. Rowe Price International, Inc. ("Price International" and collectively with Mercator, the "subadvisers") pursuant to which each Subadviser will manage a portion of the assets of the AAL International Fund. THE TRUST AND ITS INVESTMENT ADVISER The Trust has entered into an investment advisory agreement (the "Agreement") with Thrivent Investment Management Inc. ("Thrivent Investment Mgt.") dated November 28, 1990, as amended February 11, 2004. Under the Agreement, the AAL International Fund pays Thrivent Investment Mgt. an advisory fee equal to 0.65% on the first $50 million of average daily net assets and 0.60% of the average daily net assets over $50 million. From this fee, Thrivent Investment Mgt. will pay each subadviser the following fee as a percentage of assets that the respective subadviser manages: Mercator 0.47% of average daily net assets Price International 0.75% on the first $20 million of average daily net assets 0.60% on the next $30 million of average daily net assets 0.50% on the next $150 million of average daily net assets 0.50% of all average daily net assets when assets exceed $200 million/1/ 0.45% of all average daily net assets when assets exceed $500 million/1/ On February 19, 2003, the Securities and Exchange Commission granted the Trust and Thrivent Investment Mgt. an order exempting them from the federal securities law requirements to obtain approval of the appointment of unaffiliated subadvisers (the "Exemptive Order"), subject to certain conditions imposed to ensure that the interests of shareholders are adequately protected. At a shareholders meeting held on March 9, 2004, the shareholders of the AAL International Fund approved a fundamental change in investment policy allowing Thrivent Investment Mgt. to enter into and amend subadvisory agreements without shareholder approval. Under the terms of the Agreement and the Exemptive Order Thrivent Investment Mgt. will (i) select, subject to review and approval by the Board, the subadvisers based on quantitative and qualitative evaluation of the subadvisers; (ii) review and monitor the performance of the subadvisers on an ongoing basis; and (iii) recommend changes in the subadvisers to the Board as appropriate. Thrivent Investment Mgt. will also allocate the assets of the AAL International Fund among the subadvisers. INVESTMENT SUBADVISORY AGREEMENTS Each subadviser will serve pursuant to a separate Subadvisory Agreement (a form of which is attached as Appendix D hereto) that will become effective on the date of the Reorganization. Pursuant to the terms of the Subadvisory Agreements, the subadvisers will provide continuous investment management services to the AAL International Fund, subject to the overall supervision of the Board and Thrivent Investment Mgt. Thrivent Investment Mgt. intends to allocate the AAL International Fund's assets substantially equally between Mercator and Price International. Thrivent Investment Mgt. will retain the ability to reallocate the assets of the AAL International Fund between Mercator and Price International in its discretion. Each Subadvisory Agreement provides that the subadviser will not be liable for any act or omission in the course of, or connected with, rendering services under the Agreement, except when such services are rendered in bad faith, negligence or reckless disregard of its duties under the Agreement. The subadviser will, however, indemnify and hold harmless the Trust, Thrivent Investment Mgt., the Board or shareholders from any and all claims, losses, expenses, obligations or liabilities (including reasonable attorneys' fees) which arise or result from the subadviser's bad faith, negligence, willful misfeasance or reckless disregard of its duties under the Agreement. Each Subadvisory Agreement, unless sooner terminated, will remain in effect continuously for two years following its effective date. Thereafter, it would continue to be renewed for successive one-year terms provided that the renewal is specifically approved at least annually by either the Board or a majority of the outstanding shares of the AAL International Fund and, in either case, by a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of any party to the Subadvisory Agreement. The Trust may terminate the Subadvisory Agreement by a vote of a majority of the Independent Trustees or a majority of its outstanding voting securities at any time on 60 days' written notice to Thrivent Investment Mgt. and the subadviser. Thrivent Investment Mgt. may terminate the Subadvisory Agreement upon 60 days' written notice to the subadviser. The subadviser may terminate the Subadvisory Agreement at any time upon 60 days' written notice to Thrivent Investment Mgt. A Subadvisory Agreement will automatically terminate without penalty in the event of its assignment as defined in the 1940 Act. Matters Considered by the Board in Approving the New Investment Subadvisory Agreements Following its review of the performance of the AAL International Fund in 2003, Thrivent Investment Mgt. determined that the use of a blended growth and value strategy offered the best opportunity to improve the risk-adjusted returns of the AAL International Fund. Thrivent Investment Mgt. also recommended that Oechsle International Advisor, LLC, the current subadviser of the AAL International Fund, be replaced by Price International, the current subadviser to the Lutheran Brotherhood World Growth Fund, which employs a growth strategy, and an additional subadviser that utilizes a value strategy. Thrivent Investment Mgt. subsequently evaluated potential value subadvisers based on criteria that included performance, investment strategy, anticipated subadvisory fees, and other factors. Following this review, Thrivent Investment Mgt. recommended to the Board, and at a meeting held on February 10-11, 2004 the Board resolved, that Price International and Mercator be engaged to manage the assets of the AAL International Fund. The Board based its recommendation on various factors, including but not limited to the following: the potential for improved risk-adjusted performance of the AAL International Fund based on a blended growth and value strategy; the investment personnel and portfolio management approach of Mercator and Price International; the historical performance of other portfolios managed by Mercator against relevant benchmarks; and the potential subadvisory fee structure. The Board considered the following criteria utilized by Thrivent Investment Mgt. in recommending subadvisers: Information about Mercator Asset Management LP Thrivent Financial has engaged Mercator Asset Management LP, 5200 Town Center Circle, Suite 550, Boca Raton, Florida 33486 to subadvise a portion of the International Fund. Founded in 1984, Mercator manages international equity funds for institutional clients, including corporate and public retirement plans, endowments, and foundations. As of December 31, 2003, Mercator managed approximately $6.6 billion in assets including separate accounts, commingled funds and a mutual fund. Mercator is organized as a limited partnership under the laws of Delaware. Information about the principal executive officer and investment professionals is provided in the following table. The address of each person listed below is 5200 Town Center Circle, Suite 550, Boca Raton, Florida 33486. - ---------------------------------------- -------------------------------------- -------------------------------------- Name Position with Mercator Principal Occupation - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- John G. Thompson, CFA Chief Investment Officer Research Analyst/Portfolio Manager - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Peter F. Spano, CFA Chief Administrative Officer, Research Analyst/Portfolio Manager Investment Professional - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- James E. Chaney Investment Professional Research Analyst/Portfolio Manager - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Kevin J. Shaver, CFA Investment Professional Research Analyst/Portfolio Manager - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Barbara J. Trebbi, CFA Investment Professional Research Analyst/Portfolio Manager - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- Gary R. Clemons Investment Professional Research Analyst/Portfolio Manager - ---------------------------------------- -------------------------------------- -------------------------------------- Information about other mutual funds managed by Mercator with investment objectives and strategies similar to those of the International Fund is provided in the following table. - --------------------------------------- -------------------- ------------------------------------------- ------------- Net Assets of Fund Annual Rate of Compensation Fees Waived Name of Fund as of 12/31/03 (% of average net assets) or Reduced - --------------------------------------- -------------------- ------------------------------------------- ------------- - --------------------------------------- -------------------- ------------------------------------------- ------------- Preferred International Value Fund $391.2 million First $25 Million 0.75% No Next $25 Million 0.60% Next $25 Million 0.55% Next $225 Million 0.50% Next $200 Million 0.40% Next $300 Million 0.20% - --------------------------------------- -------------------- ------------------------------------------- ------------- Mercator has no affiliated brokers through whom trades would be executed on behalf of the Fund. Information about T. Rowe Price International, Inc. Thrivent Financial has engaged T. Rowe Price International, Inc., an affiliate of T. Rowe Price Associates, Inc., located at 100 East Pratt Street, Baltimore, Maryland 21202 to subadvise a portion of the Thrivent Partner International Stock Fund. Price International is one of the world's largest international mutual fund asset managers with the U.S. equivalent of approximately $22.9 billion as of December 31, 2003 in its offices in Baltimore, London, Tokyo, Singapore, Paris, Hong Kong and Buenos Aires. Information about the principal executive officer and each director of Price International is provided in the following table. The address of each person listed below is 100 East Pratt Street, Baltimore, Maryland 21202. - ---------------------------------------- -------------------------------------- -------------------------------------- Name Position with Price International Principal Occupation - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- David J.L. Warren Director, President and Chief Same Executive Officer - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- John R. Ford Director, Vice President, and Chief Same Investment Officer - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- James S. Riepe Director Vice Chairman of the Board and Director of T. Rowe Price Group, Inc. - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- George A. Roche Director Chief Financial Officer, Chairman of the Board, Director and President of T. Rowe Price Group, Inc. - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- M. David Testa Chairman of the Board and Director Vice Chairman of the Board and Director of T. Rowe Price Group, Inc. - ---------------------------------------- -------------------------------------- -------------------------------------- Information about other mutual funds managed by Price International with investment objectives and strategies similar to those of the Thrivent Partner International Stock Fund is provided in the following table. - --------------------------------- ------------------------ --------------------------------------- ------------------- Net Assets as of Investment Company Name Investment Objective Annual Rate of Compensation 12/31/03 - ---------------------------------------------------------------------------------------------------------------------- T. Rowe Price Mutual Funds: - ---------------------------------------------------------------------------------------------------------------------- - --------------------------------- ------------------------ --------------------------------------- ------------------- T. Rowe Price International Long-term growth of .35% (individual fee) $5,220,282,566 Funds, Inc.: capital .32% (group fee) T. Rowe Price International Stock Fund - --------------------------------- ------------------------ --------------------------------------- ------------------- - --------------------------------- ------------------------ --------------------------------------- ------------------- Institutional International Long-term growth of .70% of average daily net assets $1,046,428,948 Funds, Inc.: capital Foreign Equity Fund - --------------------------------- ------------------------ --------------------------------------- ------------------- T. Rowe Price International Long-term growth of 1.05% (Covers both investment $508,875,583 Series, Inc.: capital management and operating expenses) T. Rowe Price International Stock Fund - ---------------------------------------------------------------------------------------------------------------------- Subadvised Mutual Funds and Variable Annuity Funds: - ---------------------------------------------------------------------------------------------------------------------- - --------------------------------- ------------------------ --------------------------------------- ------------------- John Hancock Variable Series Long-term growth of .75% of the first $20 million $126,689,910/3/ Trust I: capital .60% of the next $30 million International Opportunities .50% above $50 million Fund .50% on all assets once assets exceed $200 million/2/ - --------------------------------- ------------------------ --------------------------------------- ------------------- - --------------------------------- ------------------------ --------------------------------------- ------------------- Thrivent Series Fund, Inc.: Long-term growth of .75% of the first $20 million Thrivent Partner International capital .60% of the next $30 million $419,632,678/3/ Stock Portfolio .50% above $50 million .50% on all assets once assets exceed $200 million/4/ .45% on all assets once assets exceed $500 million/4/ The Lutheran Brotherhood Family Long-term growth of .75% of the first $20 million $86,663,548/3/ of Funds: .60% of the next $30 million Lutheran Brotherhood World .50% above $50 million Growth Fund .50% on all assets once assets exceed $200 million/5/ .45% on all assets once assets exceed $500 million/5/ - --------------------------------- ------------------------ --------------------------------------- ------------------- Price International has no affiliated brokers through whom trades would be executed on behalf of the Funds. /1/ When average daily net assets exceed this amount, the annual rate is applicable to all amounts in the AAL International Fund. For purposes of determining breakpoints, assets invested in the Thrivent Partner International Stock Portfolio of Thrivent Series Fund, Inc. will be included in determining average daily net assets. /2/ Price International has agreed to waive its fees so that at $500 million, the Sub-Advisory fee would be .45% on all assets. /3/ The net asset figures are based on internal T. Rowe Price market value records. /4/ When average daily net assets exceed this amount, the annual rate is applicable to all amounts. For purposes of determining breakpoints, assets invested in the Lutheran Brotherhood World Growth Fund will be included in determining average daily net assets. /5/ When average daily net assets exceed this amount, the annual rate is applicable to all amounts. For purposes of determining breakpoints, assets invested in the Thrivent Partner International Stock Portfolio will be included in determining average daily net assets. Share Ownership Information On the record date, no person owned beneficially or of record any shares of the New Thrivent Funds, which were organized for the purpose of continuing the business of their corresponding LB Fund. On the record date, the trustees and officers of the LB Trust as a group owned beneficially (meaning they had the power to vote or direct the voting of) less than 1% of the outstanding shares of each LB Fund. To the best knowledge of each existing LB Fund, as of the record date, no person, except as described in the table below, owned beneficially or of record 5% or more of the outstanding shares of the existing LB Fund. Name and Address LB Fund Shares/Class Exchanged of Record Owner Shares Owned % of Outstanding - ------------------------------ ---------------- ------------ ---------------- Lutheran Brotherhood World Growth Thrivent Financial for Lutherans Foundation 1,004,305 93.96% Fund - Institutional Class 625 Fourth Avenue South Minneapolis, MN 55415-1624 Lutheran Brotherhood Growth Fund - Augsburg Fortress Publishing 369,442 80.24% Institutional Class P.O. Box 1209 Minneapolis, MN 5540-1209 Bethesda Lutheran Homes and Services Inc. 39,6401 8.61% 700 Hoffman Dr. Watertown, WI 53094-6294 Lutheran Brotherhood Fund - Thrivent Financial for Lutherans Foundation 958.594 61.72% Institutional Class 625 Fourth Avenue South Minneapolis, MN 55415-1624 Lutheran Brotherhood Value Fund - Thrivent Financial for Lutherans 9,826 43.96% Institutional Class 625 Fourth Avenue South Minneapolis, MN 55415-1624 St. Andrew by the Sea Evangelical Lutheran 7,630 34.13% Church Endowment Fund Inc. P.O. Box 1567 Atlantic City, NJ 08404-1567 Lutheran Brotherhood Municipal Bond Calahan Family Partnership 89,277 30.68% Fund - Institutional Class c/o Julie Bauer 6314 Hillview Way Missoula, MT 59803-3373 FFB Financial Partnership 33,663 11.57% Fred Bashore - G.P. 12435 E. Doubletree Road Scottsdale, AZ 85259 Better Vision Optical 25,056 8.61% 125 S. 4th St. Dekalb, IL 60115-3766 Stoner Homesteader Farms Inc. 24,573 8.44% Rural Box 355 Outlook, MT 59252 Paul and Ralph Efthimiou DBA P & R Oil Co. 24,479 8.41% 16 W. Tioga St. Spencer, NY 14883-9583 Hawkeye Telephone Company 23,560 8.10% c/o Chuck Gray 20887 U Ave. Hawkeye, IA 52147-8211 J G L Farms Inc. 18,744 6.44% c/o Thomas Johnson 501 Sunset Blvd. Conrad, MT 59425-1714 Maril & Co FBO 6X 16,997 5.84% c/o Marshall & Ilsley Trust Co P.O. Box 2977 Milwaukee, WI 53201-2977 Lutheran Brotherhood Money Market State Street Bank and Trust Cust 52,949 6.32% Fund - Class B For the Roth IRA Conversion of Rachel S. Leonard 27655 112th St. Zimmerman, MN 55396-9458 42,173 5.04% Wayne W. Wentland Nedra G. Wentland Jt. WROS TOD 508 Circle Ave. Forest Park, IL 60130-1931 Lutheran Brotherhood Money Market Thrivent Financial Investor Services Inc. 10,877,952 72.22% Fund - Institutional Class 625 Fourth Avenue South Minneapolis, MN 55415 Lutheran Brotherhood Opportunity Sowles Properties Limited Partnership 15,520 28.88% Growth Fund - Institutional Class 3045 Sibley Memorial Hwy. #120 St. Paul, MN 55121-1602 Miter & Co FBO 6X 12,342 22.96% c/o Marshall & Ilsley Trust Co NA P.O. Box 2977 Milwaukee, WI 53201-2977 St. Matthew's Lutheran Church Endowment Fund 11,156 20.76% 3281 16th St. San Francisco, CA 94103-3323 Christ Church Lutheran Endowment Fund 7,969 14.83% 1090 Quintara St. San Francisco, CA 94116-1268 Lutheran Brotherhood Mid Cap Growth Thrivent Financial for Lutherans Foundation 384,118 55.93% Fund - Institutional Class 625 Fourth Avenue South Minneapolis, MN 55415-1624 Bethesda Lutheran Homes and Services Inc. 40,541 5.81% 700 Hoffman Dr. Watertown, WI 53094-6294 Lutheran Brotherhood High Yield Fund Miter & Co FBO 6X 318,798 15.79% - - Institutional Class c/o Marshall & Ilsley Trust Co NA 1000 N. Water Street P.O. Box 2977 Milwaukee, WI 53201-2977 Lutheran Brotherhood Income Fund - Thrivent Financial for Lutherans Foundation 1,103,440 35.72% Institutional Class 625 Fourth Avenue South Minneapolis, MN 55415-1624 Lutheran Brotherhood Limited Maturity State Street Bank and Trust Cust 4,998 6.62% Bond Fund - Class B For the IRA of Kathleen Doverspike 6141 Eastview St. N. Ridgeville OH 44039-1541 C.W. Smith 3,955 5.24% P.O. Box 50581 Casper, WY 82605-0581 Lutheran Brotherhood Limited Maturity Miter & Co FBO 6X 66,727 19.49% Bond Fund - Institutional Class c/o Marshall & Ilsley Trust Co NA P.O. Box 2977 Milwaukee, WI 53201-2977 Holy Spirit Lutheran Church 46,041 13.44% 10021 NE 124th St. Kirkland, WA 98034-6725 Grace Lutheran Church 37,541 10.96% 517 N. Queen St. Lancaster, PA 17603-3097 Maril & Co FBO 6X 24,844 7.25% c/o Marshall & Ilsley Trust Co P.O. Box 2977 Milwaukee, WI 53201-2977 Metro Chicago Synod of ELCA 23,794 6.95% 1420 W Dickens Ave. Chicago, IL 60614-3004 Bethany Foundation of Council Bluffs 20,152 5.88% 7 Elliott St. Council Bluffs, IA 51503-0239 Sierra Pacific Synod Outreach Fund 17,874 5.22% 401 Roland Way, Ste. 215 Oakland, CA 94621-2034 On the record date, the trustees and officers of the Thrivent Trust as a group owned beneficially (meaning they had the power to vote or direct the voting of) less than 1% of the outstanding shares of each Existing AAL Fund. To the best knowledge of each Thrivent/AAL Fund, as of the record date, no person, except as described in the table below, owned beneficially or of record 5% or more of the outstanding shares of an Existing AAL Fund. Name and Address Existing AAL Fund Shares/Class of Record Owner Shares Owned % of Outstanding - ------------------------------ ----------------- ------------ ---------------- AAL Aggressive Growth Fund - Thrivent Financial for Lutherans 694,306 6.78% Institutional Class 625 Fourth Avenue South Minneapolis, MN 55415 MANAGEMENT'S DISCUSSION FOR EXISTING AAL FUNDS
Management's Discussion for Existing AAL Funds
from
Semiannual Report dated
October 31, 2003
The AAL Aggressive Growth Fund
[PHOTO OMITTED: SCOTT A. VERGIN]
Scott A. Vergin, Portfolio Manager
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.
Growth stocks rallied over the six-month period ending October 31, 2003, primarily due to sales and earnings improvement and positive economic data. The AAL Aggressive Growth Fund returned 16.00% over the period, while the median return of the Fund's Lipper, Inc., peer group was 14.86%. The Fund's market benchmarks, the Russell 1000 Growth Index and the S&P 500 Index, returned 16.81% and 15.62%, respectively over the same period.
Improved Earnings and Economic Reports Fuel Rally
Sales and earnings improvement as well as positive economic data fueled the market recovery in large company growth stocks over the period. Sales and earnings stopped declining from quarter to quarter and falling stock prices abated. In addition, economic data both domestically and worldwide leveled off and started to improve over the period.
Information technology was the strongest performer over the period and the Fund's overweighting in this sector contributed to the Fund's performance against its benchmarks. Also aiding performance was the Fund's low cash position and holdings in the energy, financial, and consumer staples sector. The Fund's stock selection in the heath care sector was less appealing and contributed negatively to performance over the period.
The oversold condition of the market -- since April of 2000 -- definitely helped to serve as a springboard for equity returns once corporate and economic fundamentals started to improve. Since our portfolio was aggressively postured going into the rebound, we benefited as the year progressed.
[GRAPHIC OMITTED: TOP INDUSTRIES]
Top Industries
Information Technology 32.0% Health Care 17.8% Consumer Discretionary 16.1% Financials 12.0% Consumer Staples 7.9% Industrials 7.6% Energy 2.9% Communications Services 1.3% Miscellaneous 0.3%
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition
(% of Portfolio)
Short Term Investments 1.8% Common Stocks 98.2%
Top 10 Holdings
(% of Portfolio)
Microsoft Corporation 3.5% Intel Corporation 3.2% Pfizer, Inc. 3.0% Cisco Systems, Inc. 2.9% General Electric Company 2.4% Wal-Mart Stores, Inc. 2.2% Citigroup, Inc. 2.1% Dell, Inc. 2.0% Amgen, Inc. 1.9% Johnson & Johnson 1.5%
These holdings represent 24.7% of the Fund's total investment portfolio.
Footnotes read:
Quoted Fund performance is for Class A shares and does not reflect a sales charge.
The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
Quoted Top Industries, Portfolio Composition and Top 10 Holdings are subject to change.
Outlook
We still feel that large cap growth stocks will perform well going into 2004 as long as sales and earnings and the economy continue to improve on a year-over-year basis. Also influencing our positive stance is the fact that interest rates continue to stay low. The equity markets could be construed as being overvalued considering the large run-up this year, but we feel that as long as corporate and economic fundamentals continue to rebound these factors will overshadow valuation concerns. We continue to posture the portfolio towards sectors and individual companies that tend to outperform during periods of economic recovery and growth.
Portfolio Facts As of October 31, 2003 A Share B Share Institutional Share -------------- -------------- ------------------- Ticker AAAGX BBAGX N/A Transfer Agent ID 027 077 060 Net Assets $36,154,684 $3,644,136 $3,289,788 NAV $4.35 $4.19 $4.53 NAV -- High* 10/14/2003 -- $4.35 10/14/2003 -- $4.20 10/14/2003 -- $4.53 NAV -- Low* 5/1/2003 -- $3.75 5/1/2003 -- $3.63 5/1/2003 -- $3.88 Number of Holdings: 220 * For the six months ended October 31, 2003
[GRAPHIC WORM CHART OMITTED: VALUE OF A $10,000 INVESTMENT]
Value of a $10,000 Investment
Class A Shares*/1/
The AAL Consumer Russell 1000 Aggressive S&P 500 Price Growth Date Growth Fund Index*** Index** Index**** - ----------------------------------------------------------------------------- July 1, 2000 9,450 10,000 10,000 10,000 2000 9,063 9,743 10,017 9,541 2000 9,582 10,348 10,029 10,405 2000 9,072 9,802 10,081 9,421 2000 8,666 9,761 10,099 8,975 2000 7,324 8,991 10,104 7,652 2001 7,295 9,035 10,099 7,410 2001 7,626 9,356 10,163 7,922 2001 6,199 8,503 10,203 6,577 2001 5,557 7,964 10,226 5,861 2001 6,331 8,583 10,267 6,603 2001 6,152 8,640 10,313 6,506 2001 5,906 8,430 10,331 6,355 2001 5,604 8,347 10,302 6,196 2001 5,018 7,825 10,302 5,689 2001 4,508 7,193 10,348 5,121 2001 4,564 7,330 10,313 5,390 2001 4,857 7,892 10,296 5,908 2002 4,933 7,961 10,255 5,897 2002 4,772 7,845 10,279 5,793 2002 4,460 7,694 10,319 5,552 2002 4,659 7,983 10,377 5,744 2002 4,281 7,499 10,435 5,275 2002 4,196 7,444 10,435 5,148 2002 3,752 6,914 10,441 4,672 2002 3,430 6,375 10,453 4,415 2002 3,449 6,417 10,488 4,428 2002 3,194 5,720 10,505 3,969 2002 3,459 6,223 10,531 4,333 2002 3,638 6,589 10,531 4,568 2003 3,345 6,202 10,508 4,253 2003 3,270 6,040 10,554 4,149 2003 3,241 5,949 10,636 4,130 2003 3,298 6,007 10,700 4,207 2003 3,544 6,501 10,676 4,518 2003 3,723 6,843 10,659 4,744 2003 3,752 6,931 10,671 4,809 2003 3,856 7,053 10,682 4,929 2003 3,950 7,190 10,723 5,051 2003 3,874 7,114 10,758 4,997 October 31, 2003 $4,111 $ 7,517 $10,746 $ 5,278
Average Annual Total Returns/1/
As of October 31, 2003
From Inception Class A/2/ 1-Year 7/1/2000 - ---------------------------------------------------------------- without sales charge 18.85% (22.13)% with sales charge 12.40% (23.43)% From Inception Class B/2/ 1-Year 7/1/2000 - ---------------------------------------------------------------- without sales charge 17.37% (23.00)% with sales charge 13.37% (23.46)% From Inception Institutional Class/3/ 1-Year 7/1/2000 - ---------------------------------------------------------------- Net Asset Value 20.48% (21.17)%
Footnotes read:
* As you compare performance, please note that the Fund's performance reflects the maximum 5.5% sales charge, while the Consumer Price Index, the S&P 500 Index and the Russell 1000 Growth Index do not reflect any such charges. If you were to purchase any of the above individual stocks or funds represented in these Indexes, any charges you would pay would reduce your total return as well.
** The Consumer Price Index is an inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation. It is not possible to invest directly in the Index.
*** The S&P 500 Index is an index that represents the average performance of a group of 500 large-capitalization stocks. It is not possible to invest directly in the Index. The performance of the Index does not reflect deductions for fees, expenses or taxes.
**** The Russell 1000 Growth Index is an index comprised of those Russell 1000 Index companies with higher than average price-to-book ratios and higher forecasted growth values. The Russell 1000 Index is comprised of the 1,000 largest companies in the Russell 3000 Index, which represents the 3,000 largest companies based on market capitalization and is designed to represent the performance of about 98% of the U.S. equity market. It is not possible to invest directly in these Indexes. The performance of these Indexes does not reflect deductions for fees, expenses or taxes. The composition of the Russell 1000 Growth Index serves as a better reflection of the Fund's current investment strategy than does the S&P 500 Index.
/1/ Past performance is not an indication of future results. Annualized total returns represent past performance and reflect changes in share prices, the reinvestment of all dividends and capital gains, and the effects of compounding. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. At various times, the Fund's adviser waived its management fee and/or reimbursed Fund expenses. Had the adviser not done so, the Fund's total returns would have been lower. The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions. For additional information, refer to your prospectus which can be obtained from your registered representative or by calling (800) Thrivent. Please read your prospectus carefully.
/2/ Class A performance has been restated to reflect the maximum sales charge of 5.5%. Class B performance reflects the maximum contingent deferred sales charge (CDSC) of 5%, declining 1% each year during the first five years and then converting to Class A shares after the fifth year.
/3/ Institutional Class shares have no sales load and are for institutional shareholders only.
The AAL International Fund
[LOGO OMITTED: OECHSLE INTERNATIONAL ADVISORS]
Oechsle International Advisors, LLC, Portfolio Subadviser
The AAL International Fund seeks long-term capital growth by investing primarily in a diversified portfolio of foreign stocks.
Economies, sentiment and markets were all on the upswing for much of the six-month period ending October 31, 2003. The AAL International Fund posted a return of 22.90% for the period, while the median of the Fund's Lipper, Inc., peer group was 22.76%. The Fund's market benchmark, the MSCI EAFE Index, returned 24.77% for the same period.
Rising commodity prices and shipping freight rates suggest a synchronized global recovery is taking root. Improvement in several areas like Japan's small businesses and the Eurozone's industrial confidence also demonstrate that the recovery is occurring. The greater visibility of the recovery promises greater future earnings gains, and investors are responding positively.
The underperformance of the Fund in comparison to its market benchmark largely occurred in September when investors suddenly pulled back from riskier, economically-sensitive stocks, before once again growing bullish from strong earnings reports. This hiatus benefited more value-oriented stocks at the expense of the Fund's more growth-focused approach. That said, we believe that investors' risk appetite is still in the process of a long-term recovery, which is a very positive development for our growth investment style. The Fund's underweightings in more defensive areas like health care, energy, and utilities added to performance over the period as investors felt comfortable taking on more risk. The Fund's overweightings in telecommunications and underweighting in financials detracted from performance against the market benchmark over the period.
[GRAPHIC OMITTED: TOP INDUSTRIES]
Top Industries
Consumer Discretionary 29.3% Financials 23.2% Industrials 9.4% Consumer Staples 9.0% Communications Services 7.9% Information Technology 5.9% Materials 4.6% Energy 4.4% Health Care 3.1% Utilities 0.6%
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition
(% of Portfolio)
Short Term Investments 2.7% Common Stocks 97.3%
Top 10 Countries
(% of Portfolio)
Japan 19.5% United Kingdom 18.8% France 10.2% Germany 8.9% Italy 7.2% South Korea 5.1% Netherlands 4.6% Switzerland 3.9% Hong Kong 3.6% Spain 3.1%
These holdings represent 84.9% of the Fund's total investment portfolio.
Footnotes read:
Quoted Fund performance is for Class A shares and does not reflect a sales charge.
The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
Quoted Top Industries, Portfolio Composition and Top Countries are subject to change.
Outlook
Despite the market's strong performance in recent months, low valuations outside the U.S. and investor sentiment indicates that there is some room for improvement before belief that the global recovery is widespread and risk appetite returns to normal levels. We expect a continued positive environment for equities. The Fund is structured in anticipation of a global recovery and an improving earnings environment.
The Fund is partially positioned in the Asia area, excluding Japan, because most markets still trade on depressed valuations six years after the Asian debt crisis first began to agitate markets. Meanwhile, there is strong economic growth in this area, both domestically and in export markets. This investment theme has already helped improve performance of the Fund in the last few months. With the combination of low valuations, positive earnings momentum and improving sentiment that we see today and have not seen for years, we fully expect the current investment strategy to contribute more to the Fund in the coming months.
Portfolio Facts As of October 31, 2003 A Share B Share Institutional Share -------------- -------------- ------------------- Ticker AAITX BBITX N/A Transfer Agent ID 023 073 053 Net Assets $152,737,737 $7,531,673 $2,890,049 NAV $8.21 $7.96 $8.31 NAV -- High* 10/16/2003 -- $8.28 10/16/2003 -- $8.03 10/16/2003 -- $8.38 NAV -- Low* 5/1/2003 -- $6.69 5/1/2003 -- $6.53 5/1/2003 -- $6.75 Number of Holdings: 83 * For the six months ended October 31, 2003
[GRAPHIC WORM CHART OMITTED: VALUE OF A $10,000 INVESTMENT]
Value of a $10,000 Investment
Class A Shares**/1/
The AAL Consumer International MSCI EAFE Price Date Fund Index*** Index**** - ------------------------------------------------------------------------ August 1, 1995 9,450 10,000 10,000 1995 9,469 9,619 10,026 1995 9,431 9,806 10,046 1995 9,412 9,543 10,079 1995 9,412 9,808 10,072 1996 9,586 10,203 10,066 1996 9,994 10,245 10,125 1996 9,956 10,280 10,157 1996 10,107 10,498 10,210 1996 10,496 10,804 10,249 1996 10,439 10,605 10,269 1996 10,486 10,664 10,275 1996 10,136 10,353 10,295 1996 10,164 10,375 10,315 1996 10,354 10,651 10,348 1996 10,448 10,542 10,380 1996 10,818 10,961 10,400 1997 10,757 10,820 10,400 1997 10,953 10,442 10,433 1997 11,198 10,613 10,466 1997 11,179 10,651 10,492 1997 11,159 10,708 10,505 1997 11,669 11,404 10,498 1997 12,023 12,033 10,511 1997 12,101 12,228 10,525 1997 11,709 11,315 10,544 1997 11,875 11,949 10,571 1997 11,198 11,030 10,597 1997 11,012 10,918 10,590 1998 10,861 11,013 10,577 1998 11,151 11,517 10,597 1998 11,549 12,255 10,616 1998 11,903 12,633 10,636 1998 11,978 12,733 10,656 1998 12,097 12,671 10,675 1998 11,946 12,767 10,689 1998 11,828 12,896 10,702 1998 10,807 11,299 10,715 1998 10,453 10,952 10,728 1998 11,001 12,094 10,754 1998 11,592 12,714 10,754 1999 12,063 13,215 10,748 1999 12,570 13,176 10,774 1999 12,142 12,862 10,787 1999 12,333 13,399 10,820 1999 12,795 13,942 10,898 1999 12,356 13,224 10,898 1999 12,717 13,739 10,898 1999 13,066 14,148 10,931 1999 13,438 14,199 10,957 1999 13,652 14,342 11,010 1999 14,160 14,880 11,030 1999 14,937 15,397 11,036 2000 16,847 16,778 11,036 2000 16,215 15,712 11,062 2000 17,388 16,135 11,128 2000 17,332 16,761 11,220 2000 15,854 15,879 11,226 2000 15,325 15,491 11,233 2000 16,057 16,097 11,298 2000 15,415 15,422 11,318 2000 15,708 15,556 11,331 2000 14,772 14,798 11,390 2000 14,219 14,449 11,410 2000 13,475 13,907 11,416 2001 13,793 14,401 11,410 2001 13,935 14,394 11,482 2001 12,687 13,315 11,528 2001 11,722 12,427 11,554 2001 12,428 13,291 11,600 2001 11,887 12,822 11,652 2001 11,392 12,297 11,672 2001 11,110 12,074 11,639 2001 10,569 11,768 11,639 2001 9,380 10,576 11,692 2001 9,604 10,847 11,652 2001 10,086 11,246 11,633 2002 10,163 11,313 11,587 2002 9,638 10,712 11,613 2002 9,853 10,787 11,659 2002 10,306 11,371 11,725 2002 10,282 11,446 11,790 2002 10,259 11,602 11,790 2002 9,841 11,121 11,797 2002 8,803 12,227 11,810 2002 8,684 12,169 11,849 2002 7,777 10,845 11,869 2002 8,243 11,429 11,899 2002 8,493 11,948 11,899 2003 8,135 11,546 11,872 2003 7,727 11,064 11,925 2003 7,548 10,810 12,017 2003 7,284 10,598 12,089 2003 8,003 11,636 12,063 2003 8,422 12,341 12,043 2003 8,650 12,640 12,056 2003 8,925 12,945 12,069 2003 9,201 13,258 12,115 2003 9,177 13,667 12,154 October 31, 2003 $ 9,836 $14,519 $12,141
Average Annual Total Returns/1/
As of October 31, 2003
From Inception Class A/2/ 1-Year 5-Year 8/1/1995 - ---------------------------------------------------------------- without sales charge 19.33% (2.21)% 0.49% with sales charge 12.80% (3.32)% (0.20)% From Inception Class B/2/ 1-Year 5-Year 1/8/1997 - ---------------------------------------------------------------- without sales charge 17.58% (3.38)% (2.10)% with sales charge 13.58% (3.38)% (2.10)% From Inception Institutional Class/3/ 1-Year 5-Year 12/29/1997 - ---------------------------------------------------------------- Net Asset Value 20.61% (1.48)% (1.53)%
Footnotes read:
* International investing has special risks including currency fluctuation and political volatility.
** As you compare performance, please note that the Fund's performance reflects the maximum 5.5% sales charge, while the MSCI EAFE Index and the Consumer Price Index do not reflect any such charges. If you were to purchase any of the above individual stocks or funds represented in these Indexes, any charges you would pay would reduce your total return as well.
*** The Morgan Stanley Capital International Europe, Australasia, Far East Index (MSCI EAFE Index) is a stock index designed to measure the equity performance of developed countries outside North America. It is not possible to invest directly in the Index. The performance of the Index does not reflect deductions for fees, expenses or taxes.
**** The Consumer Price Index is an inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation. It is not possible to invest directly in the Index.
/1/ Past performance is not an indication of future results. Annualized total returns represent past performance and reflect changes in share prices, the reinvestment of all dividends and capital gains, and the effects of compounding. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. At various times, the Fund's adviser waived its management fee and/or reimbursed Fund expenses. Had the adviser not done so, the Fund's total returns would have been lower. The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions. For additional information, refer to your prospectus which can be obtained from your registered representative or by calling (800) Thrivent. Please read your prospectus carefully.
/2/ Class A performance has been restated to reflect the maximum sales charge of 5.5%. Class B performance reflects the maximum contingent deferred sales charge (CDSC) of 5%, declining 1% each year during the first five years and then converting to Class A shares after the fifth year.
/3/ Institutional Class shares have no sales load and are for institutional shareholders only.
The AAL Capital Growth Fund
[PHOTO OMITTED: FREDERICK L. PLAUTZ]
Frederick L. Plautz, Portfolio Manager
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.
After three years of a declining stock market, the second half of the fiscal year provided strong positive performance for large company stock investors. For the six-month period ended October 31, 2003, The AAL Capital Growth Fund provided an 11.25% total return. The S&P 500 Index benchmark return over this time period was 15.62% and the Fund's Lipper, Inc., peer group of similarly managed large-cap core funds registered a median performance of 14.42%.
Lower Exposure to Technology Impacts Performance
With the start of the war in Iraq, the negative psychology surrounding the invasion changed to one of optimism and the rally began in a way remarkably similar to the experience during the Desert Storm invasion in 1991. With confidence building around the prospect of an economic recovery, the rally built up momentum and spread to smaller companies and more speculative stocks. The Fund's positions in several investment niches away from the economic recovery theme and consistent use of higher quality companies were significant factors contributing to its underperformance relative to its benchmarks.
Information technology stocks, most unexpectedly, led the way in the market rally. After the gross over-valuation of this group during the market bubble of late 1999 and early 2000, we did not expect such a quick return to leadership over this period. The Fund's underweight position in this sector underlied its relative underperformance. Lower priced, lower quality companies rallied most significantly as confidence returned and concerns with business continuity faded. Consumer discretionary stocks also performed well but the Fund had lower participation as a result of an underweighted position. These companies were most leveraged to an economic recovery and performed exceedingly well despite often carrying higher valuations and less attractive earnings potential. The Fund did have large exposure to cable industry stocks inside this sector, but they proved less sensitive and were largely left behind by the market rally.
The Fund's position in the pharmaceutical industry weighed on performance as these companies were negatively affected by increased competition, patent expirations, lack of new product pipelines, and pressure on prescription utilization.
[GRAPHIC OMITTED: TOP INDUSTRIES]
Top Industries
Financials 19.5% Consumer Discretionary 17.4% Information Technology 15.2% Health Care 12.4% Consumer Staples 11.4% Energy 7.0% Industrials 6.2% Communications Services 2.3% Utilities 0.4%
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition
(% of Portfolio)
Short Term Investments 8.2% Common Stocks 91.8%
Top 10 Holdings
(% of Portfolio)
American International Group, Inc. 4.1% Pfizer, Inc. 3.7% Cox Communications, Inc. 3.6% Walgreen Company 3.5% General Electric Company 3.4% Comcast Corporation 3.4% Microsoft Corporation 3.2% Wal-Mart Stores, Inc. 3.0% Tiffany & Company 3.0% Altria Group, Inc. 2.7%
These holdings represent 33.6% of the Fund's total investment portfolio.
Footnotes read:
Quoted Fund performance is for Class A shares and does not reflect a sales charge.
The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
Quoted Top Industries, Portfolio Composition and Top 10 Holdings are subject to change.
Outlook
Management of the portfolio will continue to be driven by individual stock selection of companies that are high quality and well managed with businesses that are strategically differentiated with prospects for superior long-term performance. The stocks we seek typically experience "insider" buying patterns where key executives are committing personal funds to their respective firms' stock. We also seek positive earnings trends and look to buy at a valuation that appears cheap relative to a company's longer-term prospects. This approach will occasionally miss major market themes such as was experienced over the past six months, but will, we believe, over the long run, provide superior investment returns. At this point, economic indicators point to a continuation of the current recovery. Stocks appear to have discounted a good part of this recovery and our valuation discipline will continue to be applied to stock selection to the degree that the Fund's holdings reflect our growth-at-a-reasonable-price approach.
Portfolio Facts As of October 31, 2003 A Share B Share Institutional Share -------------- -------------- ------------------- Ticker AALGX BBLGX IILGX Transfer Agent ID 017 067 047 Net Assets $2,793,059,763 $80,820,001 $80,219,017 NAV $28.20 $26.75 $28.28 NAV -- High* 10/16/2003 -- $28.25 10/16/2003 -- $26.82 10/16/2003 -- $28.33 NAV -- Low* 5/1/2003 -- $25.35 5/1/2003 -- $24.15 5/1/2003 -- $25.42 Number of Holdings: 85 * For the six months ended October 31, 2003
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Value of a $10,000 Investment
Class A Shares*/1/
The AAL Consumer Capital S&P 500 Price Date Growth Fund Index** Index*** - ------------------------------------------------------------------------ October 31, 1993 9,450 10,000 10,000 1993 9,364 9,905 10,007 1994 9,436 10,024 10,007 1994 9,505 10,365 10,034 1994 9,261 10,084 10,069 1994 8,912 9,644 10,103 1994 9,037 9,768 10,117 1994 9,049 9,928 10,124 1994 8,852 9,685 10,158 1994 9,066 10,003 10,185 1994 9,325 10,413 10,226 1994 9,199 10,158 10,254 1994 9,426 10,387 10,261 1994 9,142 10,008 10,275 1995 9,306 10,157 10,275 1995 9,539 10,420 10,316 1995 9,851 10,826 10,357 1995 10,024 11,146 10,391 1995 10,336 11,474 10,426 1995 10,694 11,933 10,446 1995 10,832 12,210 10,467 1995 11,200 12,615 10,467 1995 11,153 12,646 10,494 1995 11,682 13,180 10,515 1995 11,621 13,133 10,549 1995 12,056 13,710 10,542 1996 12,191 13,974 10,535 1996 12,696 14,449 10,597 1996 12,717 14,583 10,631 1996 12,696 14,724 10,686 1996 13,008 14,941 10,728 1996 13,291 15,326 10,748 1996 13,281 15,384 10,755 1996 12,683 14,705 10,776 1996 12,947 15,015 10,796 1996 13,872 15,860 10,830 1996 14,039 16,297 10,865 1996 15,152 17,529 10,885 1997 14,879 17,182 10,885 1997 15,842 18,255 10,920 1997 15,681 18,399 10,954 1997 14,930 17,643 10,981 1997 15,681 18,696 10,995 1997 16,731 19,834 10,988 1997 17,488 20,723 11,002 1997 18,753 22,372 11,016 1997 17,831 21,118 11,036 1997 18,606 22,275 11,064 1997 18,402 21,531 11,091 1997 19,242 22,528 11,084 1998 19,874 22,914 11,071 1998 19,927 23,168 11,091 1998 21,502 24,839 11,112 1998 22,396 26,111 11,132 1998 22,656 26,373 11,153 1998 21,991 25,920 11,174 1998 23,383 26,973 11,187 1998 23,077 26,686 11,201 1998 19,571 22,827 11,215 1998 20,895 24,290 11,229 1998 22,533 26,265 11,256 1998 23,796 27,857 11,256 1999 25,476 29,463 11,249 1999 26,721 30,695 11,277 1999 26,169 29,741 11,290 1999 27,102 30,931 11,325 1999 27,912 32,129 11,407 1999 27,406 31,370 11,407 1999 28,860 33,111 11,407 1999 28,136 32,077 11,441 1999 27,443 31,919 11,469 1999 27,155 31,044 11,524 1999 29,016 33,008 11,544 1999 29,678 33,679 11,551 2000 31,236 35,663 11,551 2000 29,643 33,871 11,579 2000 28,672 33,230 11,647 2000 31,378 36,481 11,743 2000 30,502 35,383 11,750 2000 30,542 34,657 11,757 2000 31,428 35,511 11,826 2000 30,860 34,956 11,846 2000 32,195 37,127 11,860 2000 30,954 35,167 11,922 2000 31,515 35,019 11,942 2000 30,117 32,258 11,949 2001 30,895 32,416 11,942 2001 30,668 33,566 12,018 2001 29,141 30,505 12,066 2001 27,697 28,573 12,093 2001 29,225 30,793 12,141 2001 28,981 30,999 12,196 2001 27,959 30,245 12,217 2001 27,403 29,947 12,183 2001 25,675 28,073 12,183 2001 23,922 25,806 12,238 2001 24,613 26,298 12,196 2001 26,181 28,315 12,176 2002 26,585 28,563 12,128 2002 26,180 28,146 12,155 2002 25,673 27,604 12,203 2002 26,635 28,642 12,272 2002 25,176 26,905 12,340 2002 25,032 26,707 12,340 2002 23,120 24,804 12,347 2002 21,321 22,871 12,361 2002 21,405 23,022 12,402 2002 19,024 20,522 12,423 2002 20,789 22,327 12,454 2002 21,659 23,640 12,454 2003 20,536 22,252 12,426 2003 20,139 21,670 12,481 2003 19,919 21,344 12,577 2003 20,088 21,551 12,653 2003 21,484 23,325 12,626 2003 22,449 24,553 12,605 2003 22,478 24,866 12,619 2003 22,792 25,305 12,632 2003 23,122 25,798 12,681 2003 22,868 25,524 12,722 October 31, 2003 $23,902 $26,968 $12,708
Average Annual Total Returns/1/
As of October 130, 2003
Class A/2/ 1-Year 5-Year 10-Year - ---------------------------------------------------------------- without sales charge 14.97% 1.19% 9.72% with sales charge 8.66% 0.05% 9.11% From Inception Class B/2/ 1-Year 5-Year 1/8/1997 - ---------------------------------------------------------------- without sales charge 13.59% 0.13% 6.24% with sales charge 9.59% 0.13% 6.24% From Inception Institutional Class/3/ 1-Year 5-Year 12/29/1997 - ---------------------------------------------------------------- Net Asset Value 15.53% 1.59% 3.98%
Footnotes read:
* As you compare performance, please note that the Fund's performance reflects the maximum 5.5% sales charge, while the S&P 500 Index and the Consumer Price Index do not reflect any such charges. If you were to purchase any of the above individual stocks or funds represented in these Indexes, any charges you would pay would reduce your total return as well.
** The S&P 500 Index is an index that represents the average performance of a group of 500 large-capitalization stocks. It is not possible to invest directly in the Index. The performance of the Index does not reflect deductions for fees, expenses or taxes.
*** The Consumer Price Index is an inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation. It is not possible to invest directly in the Index.
/1/ Past performance is not an indication of future results. Annualized total returns represent past performance and reflect changes in share prices, the reinvestment of all dividends and capital gains, and the effects of compounding. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. At various times, the Fund's adviser waived its management fee and/or reimbursed Fund expenses. Had the adviser not done so, the Fund's total returns would have been lower. The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions. For additional information, refer to your prospectus which can be obtained from your registered representative or by calling (800) Thrivent. Please read your prospectus carefully.
/2/ Class A performance has been restated to reflect the maximum sales charge of 5.5%. Class B performance reflects the maximum contingent deferred sales charge (CDSC) of 5%, declining 1% each year during the first five years and then converting to Class A shares after the fifth year.
/3/ Institutional Class shares have no sales load and are for institutional shareholders only.
The AAL Equity Income Fund
[LOGO OMITTED: THRIVENT INVESTMENT MANAGEMENT]
Thrivent Investment Management Inc.
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.
Value stocks generated very strong returns over the six-month period ending October 31, 2003. The AAL Equity Income Fund returned 15.63% over the period, while the median return of the Fund's Lipper, Inc., peer group returned 15.64%. The Fund's market benchmark, the S&P 500/Barra Value Index, gaining 18.46% over the same period.
Low Quality Stocks Rally
Stocks continued their rally that began in early March, as economic data points began to show signs of improvement. During the period, the portfolio was gradually repositioned away from some of the more defensive sectors and into a slightly more pro-cyclical stance in anticipation of a further pick-up in the economy. Weightings were increased in sectors such as industrials and decreased in areas such as health care and consumer staples. This strategy contributed to the Fund's performance over the period.
The strongest sectors on an absolute basis during the period included information technology, industrials, and consumer discretionary. The more cyclical areas tended to perform better as the market was anticipating a strengthening economy. Health care, which is generally considered less sensitive to economic cycles, was one of the weakest performers.
The Fund's relative performance against its benchmark's was hurt by weak performance in media stocks, which have not fared well due to a soft advertising environment. Financials were the biggest contributor to absolute performance, but the Fund's commercial bank holdings underperformed on a relative basis. A major bank acquisition and speculation regarding additional buyout targets prompted a rally in these stocks that did not benefit the Fund's larger bank holdings. Strong performance in energy holdings was the biggest contributor to relative performance for the period, while solid returns in the consumer staples and materials sectors also contributed.
[GRAPHIC OMITTED: TOP INDUSTRIES]
Top Industries
Financials 30.1% Consumer Discretionary 11.7% Industrials 10.6% Energy 9.9% Information Technology 9.8% Materials 5.9% Health Care 5.9% Consumer Staples 5.6% Communications Services 4.5% Utilities 3.6%
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition
(% of Portfolio)
Short Term Investments 2.4% Common Stocks 97.6%
Top 10 Holdings
(% of Portfolio)
Citigroup, Inc. 4.1% Exxon Mobil Corporation 2.8% Bank of America Corporation 2.4% Wells Fargo & Company 2.0% ConocoPhillips 1.9% J.P. Morgan Chase & Company 1.6% Hewlett-Packard Company 1.6% American International Group, Inc. 1.4% Federal National Mortgage Corporation 1.4% U.S. Bancorp 1.4%
These holdings represent 20.6% of the Fund's total investment portfolio.
Footnotes read:
Quoted Fund performance is for Class A shares and does not reflect a sales charge.
The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
Quoted Top Industries, Portfolio Composition and Top 10 Holdings are subject to change.
Outlook
Value stocks in nearly all sectors and industries have risen substantially over the past eight months, as investors have expressed confidence in the economic recovery. Valuations now reflect much higher expectations of strong earnings growth for most companies, and the "value" parameters have broadened. What remains to be seen is whether or not those earnings come to fruition.
While we remain optimistic for both stocks and the economy, we have slightly reduced the economic sensitivity of the Fund toward a more neutral stance. Given that many value stocks are trading at levels that already reflect a fair amount of good news, we continue to look for more evidence of a continued economic expansion in the form of increasing corporate earnings. As always, we continue to search for larger company stocks with valuations that are reasonable given their business outlook, and particularly those that will benefit the most as the economy improves.
Portfolio Facts As of October 31, 2003 A Share B Share Institutional Share -------------- -------------- ------------------- Ticker AAUTX BBEIX N/A Transfer Agent ID 022 072 052 Net Assets $228,191,216 $7,947,880 $12,020,246 NAV $11.73 $11.67 $11.74 NAV -- High* 10/14/2003 -- $11.74 10/14/2003 -- $11.69 10/14/2003 -- $11.76 NAV -- Low* 5/1/2003 -- $10.18 5/1/2003 -- $10.15 5/1/2003 -- $10.20 Number of Holdings: 131 * For the six months ended October 31, 2003
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Value of a $10,000 Investment
Class A Shares*/1/
The AAL S&P Consumer Equity 500/Barra Price Date Income Fund Value Index** Index*** - ------------------------------------------------------------------------ March 18, 1994 9,450 10,000 10,000 1994 9,374 9,444 10,034 1994 9,403 9,643 10,048 1994 9,195 9,803 10,055 1994 8,977 9,532 10,089 1994 9,235 9,854 10,116 1994 9,244 10,133 10,157 1994 8,987 9,776 10,184 1994 9,083 9,989 10,191 1994 8,949 9,584 10,205 1995 8,776 9,702 10,205 1995 9,144 9,964 10,245 1995 9,134 10,351 10,286 1995 9,066 10,637 10,320 1995 9,262 10,987 10,354 1995 9,732 11,475 10,375 1995 9,800 11,563 10,395 1995 9,908 11,961 10,395 1995 9,948 12,063 10,423 1995 10,530 12,483 10,443 1995 10,669 12,288 10,477 1995 10,818 12,932 10,470 1996 11,335 13,291 10,464 1996 11,556 13,689 10,525 1996 11,285 13,817 10,559 1996 11,185 14,141 10,613 1996 11,013 14,285 10,654 1996 11,043 14,500 10,675 1996 11,417 14,430 10,682 1996 10,877 13,821 10,702 1996 10,867 14,203 10,723 1996 10,898 14,811 10,757 1996 11,320 15,313 10,791 1996 11,742 16,484 10,811 1997 11,880 16,215 10,811 1997 12,005 16,963 10,845 1997 12,077 17,086 10,879 1997 11,714 16,501 10,907 1997 11,881 17,119 10,920 1997 12,531 18,193 10,913 1997 12,913 18,888 10,927 1997 13,156 20,399 10,941 1997 12,639 19,478 10,961 1997 13,304 20,620 10,988 1997 13,166 19,862 11,016 1997 13,888 20,619 11,009 1998 14,538 21,077 10,995 1998 14,416 20,817 11,016 1998 15,113 22,378 11,036 1998 15,861 23,512 11,057 1998 15,872 23,790 11,077 1998 15,628 23,455 11,097 1998 15,968 23,633 11,111 1998 15,667 23,120 11,125 1998 13,475 19,402 11,138 1998 14,316 20,581 11,152 1998 15,210 22,193 11,179 1998 15,779 23,349 11,179 1999 16,470 24,169 11,172 1999 16,553 24,658 11,200 1999 16,303 24,127 11,213 1999 16,509 24,858 11,247 1999 17,473 27,001 11,329 1999 17,259 26,524 11,329 1999 17,791 27,543 11,329 1999 17,278 26,696 11,363 1999 16,765 26,020 11,391 1999 16,398 25,001 11,445 1999 16,829 26,413 11,466 1999 16,805 26,258 11,472 2000 17,143 27,245 11,472 2000 16,615 26,378 11,500 2000 16,399 24,730 11,568 2000 17,634 27,308 11,663 2000 17,333 27,125 11,670 2000 17,658 27,210 11,677 2000 17,065 26,135 11,745 2000 17,137 26,658 11,766 2000 18,152 28,446 11,779 2000 18,287 28,439 11,841 2000 18,311 28,970 11,861 2000 17,645 27,487 11,868 2001 18,773 28,902 11,861 2001 18,888 30,122 11,936 2001 18,478 28,126 11,984 2001 17,773 27,015 12,011 2001 18,764 28,848 12,059 2001 18,932 29,150 12,113 2001 17,870 28,206 12,134 2001 17,715 27,718 12,100 2001 16,990 26,116 12,100 2001 15,782 23,635 12,154 2001 16,029 23,635 12,113 2001 16,926 25,135 12,093 2002 17,245 25,517 12,045 2002 16,855 24,817 12,072 2002 16,607 24,595 12,120 2002 17,386 25,855 12,188 2002 16,838 24,560 12,256 2002 16,812 24,658 12,256 2002 15,691 23,104 12,263 2002 14,369 20,606 12,277 2002 14,435 20,748 12,318 2002 12,943 18,380 12,338 2002 13,127 19,905 12,369 2002 13,731 21,301 12,369 2003 13,091 20,195 12,342 2003 12,775 19,644 12,396 2003 12,485 19,108 12,492 2003 12,487 19,083 12,567 2003 13,438 20,969 12,540 2003 14,230 22,510 12,519 2003 14,423 22,675 12,533 2003 14,635 23,179 12,546 2003 14,926 23,679 12,594 2003 14,744 23,251 12,635 October 31, 2003 $15,538 $24,840 $12,621
Average Annual Total Returns/1/
As of October 31, 2003
From Inception Class A/2/ 1-Year 5-Year 3/18/1994 - ---------------------------------------------------------------- without sales charge 18.37% 0.43% 5.30% with sales charge 11.88% (0.70)% 4.69% From Inception Class B/2/ 1-Year 5-Year 1/8/1997 - ---------------------------------------------------------------- without sales charge 16.99% (0.60)% 3.31% with sales charge 12.99% (0.60)% 3.31% From Inception Institutional Class/3/ 1-Year 5-Year 12/29/1997 - ---------------------------------------------------------------- Net Asset Value 19.03% 0.91% 1.74%
* As you compare performance, please note that the Fund's performance reflects the maximum 5.5% sales charge, while the S&P 500/Barra Value Index and the Consumer Price Index do not reflect any such charges. If you were to purchase any of the above individual stocks or funds represented in these Indexes, any charges you would pay would reduce your total return as well.
** The S&P 500/Barra Value Index is an capitalization-weighted index comprised of the lowest price-to-book ratio securities in the S&P 500 Index. The S&P 500/Barra Value Index is designed so that approximately one-half of the S&P 500 market capitalization is characterized as "value" and the other half as "growth." It is not possible to invest directly in these Indexes. The performance of these Indexes does not reflect deductions for fees, expenses or taxes.
*** The Consumer Price Index is an inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation. It is not possible to invest directly in the Index.
/1/ Past performance is not an indication of future results. Annualized total returns represent past performance and reflect changes in share prices, the reinvestment of all dividends and capital gains, and the effects of compounding. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. At various times, the Fund's adviser waived its management fee and/or reimbursed Fund expenses. Had the adviser not done so, the Fund's total returns would have been lower. The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions. For additional information, refer to your prospectus which can be obtained from your registered representative or by calling (800) Thrivent. Please read your prospectus carefully.
/2/ Class A performance has been restated to reflect the maximum sales charge of 5.5%. Class B performance reflects the maximum contingent deferred sales charge (CDSC) of 5%, declining 1% each year during the first five years and then converting to Class A shares after the fifth year.
/3/ Institutional Class shares have no sales load and are for institutional shareholders only.
The AAL Municipal Bond Fund
[PHOTO OMITTED: JANET I. GRANGAARD]
Janet I. Grangaard, Portfolio Manager
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.*
Municipal bonds and bonds in general were volatile for the six-month period ending October 31, 2003, due to the end of the war with Iraq, tax cuts, and mixed economic reports. The AAL Municipal Bond Fund returned 1.24% for the period, while the median return of the Fund's Lipper, Inc., peer group was 1.07%. As a broad market comparison, the Lehman Brothers Municipal Bond Index returned 1.47%.
The end of the war with Iraq, tax cuts and mixed economic reports provided a backdrop for significant volatility in bond prices over the period. The Federal Reserve continued to remain accommodative and predicted that rates would stay low for several months. The Fed's accommodative stance resulted in a steeper yield curve with the short end of the curve reacting to Fed expectations and the long end of the curve evaluating economic growth and prospects for an increase in inflation.
Toward the middle of the period, and in the face of improving economic news, we became more convinced interest rates would move up and shortened the Fund's duration. This strategy held the Fund back from outperforming its market index but was mitigated by our success in locating certain spots on the yield curve that rallied significantly. Of course, there are expenses associated with the Fund that do not apply to an unmanaged market index.
Lower Quality Municipal Bonds Rally
Lower quality municipal bonds, especially airline bonds, rallied over the period as the war ended and investors felt comfortable taking on more risk. The Fund's BBB rated or lower quality investment grade bonds performed well and contributed to performance. Tobacco bonds were volatile over the period, but also contributed in a meaningful way to performance.
Non-investment grade bonds, the lowest quality municipal bonds, outperformed significantly for the period due to the continued low quality bias. The Fund is unable to invest in these bonds because they do not fit the appropriate risk profile. Despite the higher quality nature of the Fund, we were still able to perform relatively well within our Lipper peer group.
[GRAPHIC OMITTED: RATINGS DISTRIBUTIONS]
Moody's Bond Quality Ratings Distributions
Aaa 52.1% Aa 15.8% A 11.0% Baa 18.6% Ba 0.1% B 0.0% Caa 0.0% Ca 0.0% C 0.0% D 0.0% Not Rated 2.4%
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition
(% of Portfolio)
Education Revenue 4.4% Electric Revenue 7.4% Escrowed/Pre-refunded 10.5% General Obligation 16.2% Health Care 16.6% Higher Education 4.3% Housing Finance 11.1% Miscellaneous Municipals 17.2% Special Tax Revenue 6.3% Water & Sewer 6.0%
Top 10 States
(% of Portfolio)
Texas 12.7% Illinois 10.2% New York 9.7% California 8.6% Colorado 5.3% Washington 4.0% Michigan 3.4% Minnesota 3.1% Florida 3.0% Pennsylvania 2.5%
These holdings represent 62.5% of the Fund's total investment portfolio.
Footnotes read:
Quoted Fund performance is for Class A shares and does not reflect a sales charge.
The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
Quoted Moody's Bond Quality Ratings Distributions, Portfolio Composition and Top 10 States are subject to change.
Outlook
Our outlook is for continued improvement in U.S. economy. We are prepared for higher rates, which we think will come over the next six to twelve months as the economy strengthens and Federal Reserve decides it needs to tighten the money supply. We do not expect that tightening will happen until we see healthy improvement in the labor market and a closing of the "output gap", which could lead to higher inflation.
We have been adding risk to the Fund where we feel it is appropriate in order to take advantage of the improving economic environment. Specifically, we have been purchasing bonds in the A and Baa rating categories when we like the issue and think that we are being paid well for the risk we are taking. Currently the duration of the Fund is somewhere close to neutral compared to our Lipper peer group and our intention is to be neutral or short given the increasing threat of rising interest rates. As an ongoing effort, we are trying to increase our average position size to make research efforts most productive.
If rates do rise, we anticipate a slowing of municipal new issue supply. A lower supply of municipal bonds in 2004 combined with higher rates would be good scenario for municipals to outperform U.S. Treasuries.
Portfolio Facts As of October 31, 2003 A Share B Share Institutional Share -------------- -------------- ------------------- Ticker AAMBX N/A N/A Transfer Agent ID 015 065 045 Net Assets $645,232,185 $12,968,864 $3,480,675 NAV $11.42 $11.42 $11.42 NAV -- High* 6/13/2003 -- $11.90 6/13/2003 -- $11.89 6/13/2003 -- $11.90 NAV -- Low* 8/14/2003 -- $11.19 8/14/2003 -- $11.18 8/14/2003 -- $11.19 Number of Holdings: 297 * For the six months ended October 31, 2003
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Value of a $10,000 Investment
Class A Shares**/1/
Lehman Brothers The AAL Municipal Consumer Municipal Bond Price Date Bond Fund Index*** Index**** - ------------------------------------------------------------------------ October 31, 1993 9,550 10,000 10,000 1993 9,447 9,912 10,007 1994 9,637 10,121 10,007 1994 9,743 10,237 10,034 1994 9,508 9,972 10,069 1994 9,126 9,565 10,103 1994 9,119 9,647 10,117 1994 9,175 9,730 10,124 1994 9,144 9,671 10,158 1994 9,302 9,848 10,185 1994 9,333 9,882 10,226 1994 9,178 9,737 10,254 1994 9,030 9,564 10,261 1994 8,856 9,391 10,275 1995 9,085 9,598 10,275 1995 9,305 9,872 10,316 1995 9,615 10,159 10,357 1995 9,701 10,276 10,391 1995 9,758 10,288 10,426 1995 10,038 10,617 10,446 1995 9,958 10,524 10,467 1995 10,015 10,623 10,467 1995 10,109 10,758 10,494 1995 10,166 10,826 10,515 1995 10,356 10,984 10,549 1995 10,593 11,166 10,542 1996 10,745 11,273 10,535 1996 10,790 11,358 10,597 1996 10,736 11,282 10,631 1996 10,574 11,137 10,686 1996 10,513 11,106 10,728 1996 10,525 11,102 10,748 1996 10,631 11,223 10,755 1996 10,733 11,324 10,776 1996 10,706 11,322 10,796 1996 10,916 11,480 10,830 1996 11,047 11,610 10,865 1996 11,306 11,822 10,885 1997 11,217 11,772 10,885 1997 11,200 11,795 10,920 1997 11,316 11,903 10,954 1997 11,116 11,744 10,981 1997 11,211 11,843 10,995 1997 11,397 12,021 10,988 1997 11,537 12,149 11,002 1997 11,964 12,485 11,016 1997 11,767 12,368 11,036 1997 11,962 12,515 11,064 1997 12,038 12,596 11,091 1997 12,122 12,670 11,084 1998 12,376 12,854 11,071 1998 12,517 12,987 11,091 1998 12,488 12,991 11,112 1998 12,471 13,003 11,132 1998 12,388 12,944 11,153 1998 12,639 13,149 11,174 1998 12,689 13,201 11,187 1998 12,693 13,234 11,201 1998 12,928 13,438 11,215 1998 13,130 13,606 11,229 1998 13,044 13,605 11,256 1998 13,094 13,653 11,256 1999 13,117 13,688 11,249 1999 13,286 13,850 11,277 1999 13,175 13,790 11,290 1999 13,204 13,809 11,325 1999 13,230 13,843 11,407 1999 13,113 13,763 11,407 1999 12,879 13,565 11,407 1999 12,880 13,614 11,441 1999 12,652 13,505 11,469 1999 12,621 13,511 11,524 1999 12,376 13,364 11,544 1999 12,541 13,507 11,551 2000 12,377 13,406 11,551 2000 12,275 13,348 11,579 2000 12,458 13,503 11,647 2000 12,802 13,798 11,743 2000 12,685 13,716 11,750 2000 12,575 13,645 11,757 2000 12,946 14,006 11,826 2000 13,124 14,201 11,846 2000 13,339 14,420 11,860 2000 13,271 14,345 11,922 2000 13,428 14,502 11,942 2000 13,548 14,611 11,949 2001 13,864 14,972 11,942 2001 13,974 15,121 12,018 2001 14,020 15,169 12,066 2001 14,152 15,305 12,093 2001 13,996 15,139 12,141 2001 14,157 15,302 12,196 2001 14,278 15,404 12,217 2001 14,519 15,633 12,183 2001 14,824 15,890 12,183 2001 14,762 15,837 12,238 2001 14,956 16,025 12,196 2001 14,818 15,890 12,176 2002 14,640 15,740 12,128 2002 14,883 16,013 12,155 2002 15,073 16,206 12,203 2002 14,765 15,888 12,272 2002 15,014 16,199 12,340 2002 15,096 16,297 12,340 2002 15,256 16,470 12,347 2002 15,450 16,681 12,361 2002 15,613 16,882 12,402 2002 15,944 17,252 12,423 2002 15,606 16,966 12,454 2002 15,553 16,895 12,454 2003 15,876 17,252 12,426 2003 15,810 17,208 12,481 2003 16,062 17,449 12,577 2003 16,036 17,460 12,653 2003 16,122 17,575 12,626 2003 16,541 17,986 12,605 2003 16,459 17,910 12,619 2003 15,853 17,283 12,632 2003 15,963 17,412 12,681 2003 16,393 17,924 12,722 October 31, 2003 $16,322 $17,834 $12,708
Average Annual Total Returns/1/
As of October 31, 2003
Class A/2/ 1-Year 5-Year 10-Year - ---------------------------------------------------------------- without sales charge 4.59% 4.59% 5.51% with sales charge (0.14)% 3.63% 5.03% From Inception Class B/2/ 1-Year 5-Year 1/8/1997 - ---------------------------------------------------------------- without sales charge 3.74% 3.74% 5.09% with sales charge (0.26)% 3.74% 5.09% From Inception Institutional Class/3/ 1-Year 5-Year 12/29/1997 - ---------------------------------------------------------------- Net Asset Value 4.89% 4.91% 5.17%
Footnotes read:
* Investors may be subject to state taxes and federal alternative minimum tax.
** As you compare performance, please note that the Fund's performance reflects the maximum 4.5% sales charge, while the Lehman Brothers Municipal Bond Index and the Consumer Price Index do not reflect any such charges. If you were to purchase any of the above individual stocks or funds represented in these Indexes, any charges you would pay would reduce your total return as well.
*** The Lehman Brothers Municipal Bond Index is a market value-weighted index of investment grade municipal bonds with maturities of one year or more. It is not possible to invest directly in the Index. The performance of the Index does not reflect deductions for fees, expenses or taxes.
**** The Consumer Price Index is an inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation. It is not possible to invest directly in the Index.
/1/ Past performance is not an indication of future results. Annualized total returns represent past performance and reflect changes in share prices, the reinvestment of all dividends and capital gains, and the effects of compounding. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. At various times, the Fund's adviser waived its management fee and/or reimbursed Fund expenses. Had the adviser not done so, the Fund's total returns would have been lower. The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions. For additional information, refer to your prospectus which can be obtained from your registered representative or by calling (800) Thrivent. Please read your prospectus carefully.
/2/ Class A performance has been restated to reflect the maximum sales charge of 4.5%. Class B performance reflects the maximum contingent deferred sales charge (CDSC) of 5%, declining 1% each year during the first five years and then converting to Class A shares after the fifth year.
/3/ Institutional Class shares have no sales load and are for institutional shareholders only.
The AAL Money Market Fund
[PHOTO OMITTED: WILLIAM D. STOUTEN]
William D. Stouten, Portfolio Manager
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.*
Money market yields declined along with overall short-term market interest rates for the six-month period ending October 31, 2003. The AAL Money Market Fund provided investors with a total return of 0.18%, while the Fund's Lipper, Inc., peer group earned a median total return of 0.20%.
Federal Reserve Policy
With thirteen cuts in the Federal Funds target rate since the beginning of 2001, the overnight Federal Funds target rate of 1% is now at the lowest level in over 40 years. The Federal Open Market Committee (FOMC) lowered its target for the Federal Funds target rate again in June due to fears of a falling price environment and lackluster economic reports. The money market industry is now operating in an environment that has never been experienced since the first money market fund was introduced in 1971.
The average length of portfolio holdings was shorter than the peer group through most of the period, reflecting our anticipation of better economic news that would steepen the yield curve and allow us to take advantage of higher yields. Fortunately, strong payroll numbers combined with higher Gross Domestic Product growth rates in the third calendar quarter provided market optimism, and allowed us to take advantage of a steeper yield curve by lengthening our portfolio to a level more in line with our Lipper peer group. This strategy contributed to our performance over the period.
The Fund's underperformance compared to its Lipper peer group can be partially explained by the Fund's focus on the highest quality money market instruments. Maintaining a portfolio of only the highest quality assets contributes to a slightly lower yield than our peer group, but remains a core part of our conservative investment strategy which is designed to meet our investors' primary objectives of safety and liquidity. In addition, the Fund's underperformance can also be attributed to a higher fee structure that allows for lower minimum balances, generous checkwriting privileges, and other beneficial features.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition
(% of Portfolio)
Variable Rate Notes 4.4% Certificates of Deposit 6.8% Commercial Paper 88.8%
Footnotes read:
Quoted Fund performance is for Class A shares.
The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
Quoted Portfolio Composition is subject to change.
Outlook
We expect that the FOMC will raise the overnight Federal Funds target rate in the coming months when it becomes convinced that the risks to higher than desired growth and a rise in inflation outweigh the risks of a fall in inflation and unsustained growth in the economy. As in any interest rate environment, our strategy remains the same. We continue to focus our efforts on conservative investments that maximize safety and liquidity for our clients. We are confident that as in any investing cycle, yields and returns historically provided by money markets funds will return.
Portfolio Facts As of October 31, 2003 A Share B Share Institutional Share -------------- -------------- ------------------- Ticker AMMXX N/A AALXX Transfer Agent ID 018 068 048 Net Assets $301,766,074 $2,278,123 $112,412,495 NAV $1.00 $1.00 $1.00 NAV -- High* 5/1/2003 -- $1.00 5/1/2003 -- $1.00 5/1/2003 -- $1.00 NAV -- Low* 5/1/2003 -- $1.00 5/1/2003 -- $1.00 5/1/2003 -- $1.00 Number of Holdings: 54 * For the six months ended October 31, 2003
The AAL Money Market Fund
April 30, 2003**
Class A Class B Institutional - ---------------------------------------------------------------- 7-Day Yield 0.63% 0.67% 0.83% 7-Day Effective Yield 0.63% 0.67% 0.83%
Average Annual Total Returns/1/
As of October 31, 2003
Class A/2/ 1-Year 5-Year 10-Year - ---------------------------------------------------------------- Net Asset Value 0.54% 3.23% 3.87% From Inception Class B/2/ 1-Year 5-Year 1/8/1997 - ---------------------------------------------------------------- without sales charge 0.24% 2.40% 2.99% with sales charge (3.76)% 2.40% 2.99% From Inception Institutional Class/3/ 1-Year 5-Year 12/29/1997 - ---------------------------------------------------------------- Net Asset Value 0.79% 3.54% 3.77%
Footnotes read:
* To the extent practicable, the Fund intends to maintain a stable net asset value of $1.00 per share. An investment in The AAL Money Market Fund is not insured or guaranteed by the FDIC or any other government agency. Although the Fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Fund.
** Seven-day yields of The AAL Money Market Fund refer to the income generated by an investment in the Fund over a specified seven-day period. Effective yields reflect the reinvestment of income. Yields are subject to daily fluctuation and should not be considered an indication of future results.
/1/ Past performance is not an indication of future results. Annualized total returns represent past performance and reflect changes in share prices, the reinvestment of all dividends and capital gains, and the effects of compounding. At various times, the Fund's adviser waived its management fee and/or reimbursed Fund expenses. Had the adviser not done so, the Fund's total returns would have been lower. The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions. For additional information, refer to your prospectus which can be obtained from your registered representative or by calling (800) Thrivent. Please read your prospectus carefully.
/2/ Class B performance reflects the maximum contingent deferred sales charge (CDSC) of 5%, declining 1% each year during the first five years and then converting to Class A shares after the fifth year.
/3/ Institutional Class shares have no sales load and are for institutional shareholders only.
Management's Discussion for Existing AAL Funds
from
Annual Report dated
April 30, 2003
The AAL Aggressive Growth Fund
[PHOTO OMITTED: SCOTT A. VERGIN]
Scott A. Vergin is a Chartered Financial Analyst and portfolio manager for The AAL Aggressive Growth Fund. He has managed the Fund since September 2002. He has managed securities for Thrivent Investment Management Inc., since 1984.
The 12-month period ended April 30, 2003 was characterized by fear and trepidation over corporate deceit, a struggling economy and the steady march to war with Iraq. In late March and April, as investor anxiety over geopolitical conflict ebbed, large-company growth stock shares moved up rapidly and recovered some of their earlier losses. In this topsy-turvy environment, The AAL Aggressive Growth Fund posted a - -17.22% total return for the period. The Fund's Lipper, Inc. peer group of similar large-company growth funds had a -16.09% median total return while the Fund's previous unmanaged benchmark, the S&P 500 Index, ended the one-year period with a -13.31% total return. The Fund's current benchmark, the unmanaged Russell 1000 Growth Index, returned a -14.35% for the period. Because the Russell 1000 Growth Index is a more accurate reflection of the companies in which the Fund invests, it will be used to compare performance of the Fund, rather than the S&P 500 Index.
War Fears Abate
The first half of the reporting period was marked by investor unease over the possibility of a double-dip recession, corporate scandals headlined by the high profile meltdowns of Enron and WorldCom and the possibility of war with Iraq. Stocks registered cyclical lows in July, which were subsequently retested in early October. When, late in 2002, the U.S. economy witnessed a spike in the jobless rate and the much-anticipated pickup in capital spending failed to materialize, investors shunned stocks in favor of safer investment options. January saw a brief leap in growth stock prices, which quickly withered in the glare of very weak seasonal retail spending reports. Fear of a drop-off in consumer spending, one of the few bright spots for a troubled economy the past couple of years, again sent stocks lower where they remained amid nearly constant war chatter. Negativity blossomed into optimism as it became clear that the U.S. would lead an invasion of Iraq. Stocks further regained appeal upon the swift and skillful conclusion to the war.
The Fund struggled throughout much of 2002 as a result of its more aggressive stance, which was built in anticipation of a stronger economic recovery than ultimately materialized. Holdings in the health-care services and HMO businesses, in particular, subtracted from performance when Medicare reimbursement practices were questioned by regulators. A severe sell-off ensued as earnings growth figures appeared to be inflated. In mid-March, the Fund's fortunes changed abruptly in the face of a resounding military victory in Iraq and a string of encouraging corporate earnings reports. Our overweighted position in beaten-down technology companies was quickly rewarded as the NASDAQ Composite Index posted substantial gains. The Fund's aggressive investment in cable and biotechnology companies translated into gains, as did the Fund's very low cash position.
[GRAPHIC OMITTED: TOP INDUSTRIES]
Top Industries
Information Technology 23.6% Health Care 20.9% Consumer Discretionary 17.7% Financials 14.0% Industrials 9.7% Consumer Staples 5.6% Energy 3.8% Telecommunication Services 1.1% Materials 0.2%
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition
(% of Portfolio)
Short Term Investments 3.1% Common Stocks 96.9%
Footnotes read:
Quoted Fund performance is for Class A shares and does not reflect a sales charge.
The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
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.
A Share B Share Institutional Share - ------------------------ ------------------------ ------------------------ Ticker AAAGX Ticker BBAGX Ticker N/A Net Assets $30,238,165 Net Assets $3,310,945 Net Assets $2,822,360 NAV $3.75 NAV $3.63 NAV $3.88
Outlook
The worst of the bear market looks to be over and we are looking to capitalize on a stronger economic recovery by continuing to emphasize more economically-sensitive sectors, such as technology, media and cable. Many of these companies have seen dramatic dips in stock prices and appear poised for strong gains as capital spending increases. In the health-care sector, the Fund will look to the biotechnology industry as it should benefit from streamlined regulatory approval processes. Enterprise software providers in the technology space will also be expected to bask in a cyclical economic rebound.
We believe strongly that large company growth stocks will continue to regain investor appeal. Corporate earnings -- the key driver for stock gains -- have improved markedly and the current low interest rate environment should aid in increasing capital spending. As always, we will keep the Fund invested across a wide array of industries, while seeking firms with outstanding growth potential for our investors.
[GRAPHIC WORM CHART OMITTED: VALUE OF A $10,000 INVESTMENT]
Value of a $10,000 Investment
Class A Shares*
The AAL Russell 1000 Consumer Aggressive S&P 500 Growth Price Date Growth Fund Index*** Index**** Index** - ----------------------------------------------------------------------------- July 1, 2000 10,000 10,000 10,000 10,000 2000 9,063 9,743 9,541 10,017 2000 9,582 10,348 10,405 10,029 2000 9,072 9,802 9,421 10,081 2000 8,666 9,761 8,975 10,099 2000 7,324 8,991 7,652 10,104 2000 7,295 9,035 7,410 10,099 2001 7,626 9,356 7,922 10,163 2001 6,199 8,503 6,577 10,203 2001 5,557 7,964 5,861 10,226 2001 6,331 8,583 6,603 10,267 2001 6,152 8,640 6,506 10,313 2001 5,906 8,430 6,355 10,331 2001 5,604 8,347 6,196 10,302 2001 5,018 7,825 5,689 10,302 2001 4,508 7,193 5,121 10,348 2001 4,564 7,330 5,390 10,313 2001 4,857 7,892 5,908 10,296 2001 4,933 7,961 5,897 10,255 2002 4,772 7,845 5,793 10,279 2002 4,460 7,694 5,552 10,319 2002 4,659 7,983 5,744 10,377 2002 4,281 7,499 5,275 10,435 2002 4,196 7,444 5,148 10,435 2002 3,752 6,914 4,672 10,441 2002 3,430 6,375 4,415 10,453 2002 3,449 6,417 4,428 10,488 2002 3,194 5,720 3,969 10,505 2002 3,459 6,223 4,333 10,531 2002 3,638 6,589 4,568 10,531 2002 3,345 6,202 4,253 10,508 2003 3,270 6,040 4,149 10,554 2003 3,241 5,949 4,130 10,636 2003 3,298 6,007 4,207 10,700 April 30, 2003 $ 3,544 $ 6,501 $ 4,518 $10,676
Average Annual Total Returns/1/
April 30, 2003
From Inception Class A/2/ 1-Year 7/1/2000 - ---------------------------------------------------------------- without sales charge (17.22)% (29.34)% with sales charge (21.71)% (30.73)% From Inception Class B/2/ 1-Year 7/1/2000 - ---------------------------------------------------------------- without sales charge (18.24)% (30.15)% with sales charge (21.51)% (30.89)% From Inception Institutional Class/3/ 1-Year 7/1/2000 - ---------------------------------------------------------------- Net Asset Value (16.02)% (28.48)%
Footnotes read:
* As you compare performance, please note that the Fund's performance reflects the maximum 5.5% sales charge, while the Consumer Price Index and the S&P 500 index do not reflect any such charges. If you were to purchase any of the above individual stocks or funds represented in these Indexes, any charges you would pay would reduce your total return as well.
** The Consumer Price Index is an inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation.
*** An unmanaged index comprised of 500 stocks representative of the stock market as a whole. "S&P 500[Registered Trademark] " is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for use by Thrivent Financial for Lutherans. The product is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's make no representation regarding the advisability of investing in the product. It is not possible to invest directly in the Index.
**** The Russell 1000 Growth Index is an unmanaged Index comprised of those Russell 1000 companies with higher than average price-to-book ratios and higher forecasted growth values. The Russell 1000 companies are the 1000 largest companies in the Russell 3000 Index. The Russell 3000 Index is comprised of the 3000 largest U.S. companies based on total market capitalization and is designed to represent the performance of about 98% of the U.S. equity market. It is not possible to invest directly in the Index.
/1/ Past performance is not an indication of future results. Annualized total returns represent past performance and reflect changes in share prices, the reinvestment of all dividends and capital gains, and the effects of compounding. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. At various times, the Fund's adviser waived its management fee and/or reimbursed Fund expenses. Had the adviser not done so, the Fund's total returns would have been lower. The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
/2/ Class A performance reflects the maximum sales charge of 5.5%. Class B performance reflects the maximum contingent deferred sales charge (CDSC) of 5%, declining 1% each year during the first five years and then converting to Class A shares after the fifth year.
/3/ Institutional Class shares have no sales load and are for institutional shareholders only.
The AAL International Fund
[PHOTO OMITTED: KATHLEEN HARRIS]
Oechsle International Advisors, LLC, the subadviser to The AAL International Fund, utilizes a team approach to managing the Fund. Kathleen Harris is the portfolio manager primarily responsible for managing The AAL International Fund. She is employed by Oechsle International Advisors, LLC. She received an MBA in finance from the University of Chicago Graduate School of Business and she is a Chartered Financial Analyst.
The long, slow march to war in Iraq took its toll on international equity markets in the 12-month period ending April 30, 2003. The combination of rising oil prices, fears of slowing economic activity, strained diplomatic relations between long-time allies and dithering rather than decisiveness sapped investor confidence, causing a broad-based decline in the markets. And if geopolitical issues were not enough for battered investors, a serious infectious disease in the form of SARS began to have a serious impact on commerce and travel in Asia. In this fragile environment, The AAL International Fund recorded a - -22.17% total return while the Fund's Lipper, Inc. peer group of similar international stock funds posted a -18.26% total return. The MSCI EAFE Index, the Fund's unmanaged index benchmark, finished the reporting period with a -16.27% total return.
Europe and Asia Weak
The European Financial sector fell victim to market panics during the period, being hit particularly hard in the second and third quarters of 2002. Concerns raised when regulators forced banks and insurance companies to sell equities to raise capital burgeoned into repeated rumors of the demise of the European financial system and drove stocks of the major competitors down precipitously. A handful of Fund holdings were caught in the crossfire which detracted from performance. Importantly, though, these stocks were strong performers late in March when markets began to behave better and continued to advance in the more constructive environment of April. While these stocks did not make an auspicious debut in the Fund, they have begun to fulfill our expectations for them when we introduced them to your Fund and we expect them to add significant value over the long term.
Your Fund's investments in Asia also reflect the short-term difficulties of investing amid the geopolitical turmoil of the moment. Emerging markets generally added to performance compared to developed markets, but most of the Fund's emerging market exposure is in South Korea. As long-term investors, we are very comfortable with this stance. We believe that the economic and market advances in South Korea make it a likely candidate for inclusion in developed market indices in the next year to eighteen months. During the period, the coalition war with Iraq and the U.S. rhetorical battle with North Korea spooked international investors and the Fund's holdings in the region suffered accordingly. We are confident, however, that this underperformance stems from short-term nervousness over a political issue that will be resolved peacefully. We also note that some of the world's best global competitors, such as Samsung Electronics, call South Korea home and sell at single-digit price/earnings ratios. This is an extraordinary combination of quality and value. We are equally confident that this diplomatic dance does nothing to undermine the long-term value of these investments.
[GRAPHIC OMITTED: TOP COUNTRIES]
Top Countries
United Kingdom 26.9% Japan 15.7% France 14.9% Italy 11.2% Netherlands 7.5% South Korea 3.5% Spain 3.4% Sweden 2.7% Hong Kong 2.3% Switzerland 2.2%
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition
(% of Portfolio)
Short Term Investments 2.0% Common Stocks 98.0%
Footnotes read:
Quoted Fund performance is for Class A shares and does not reflect a sales charge.
The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
The AAL International Fund seeks long-term capital growth by investing primarily in a diversified portfolio of foreign stocks.
A Share B Share Institutional Share - ------------------------ ------------------------ ------------------------ Ticker AAITX Ticker BBITX Ticker N/A Net Assets $126,478,545 Net Assets $6,381,082 Net Assets $2,836,541 NAV $6.68 NAV $6.52 NAV $6.73
Outlook
We have believed for some time that the markets were ignoring fundamental evidence that economies and earnings prospects were improving. This was perhaps logical in light of the political, military and medical challenges that the global community has had to face. Our job, however, is to continue to focus on earnings potential a year or two down the road and anticipate what investors will reward when they return their gaze to the more fundamental earnings picture. This market will be no exception because in the long run it is earnings that drive equity prices. And on that front, we believe that macroeconomic and corporate fundamentals are improving. We believe that markets will focus on those fundamentals and respond with growing enthusiasm as the future begins to look both clearer and brighter. And we are convinced that when markets examine fundamental earnings prospects, investors will find particular appeal in the stocks that we have assembled in the Fund.
[GRAPHIC WORM CHART OMITTED: VALUE OF A $10,000 INVESTMENT]
Value of a $10,000 Investment
Class A Shares*
The AAL Consumer International MSCI EAFE Price Date Fund Index*** Index** - ------------------------------------------------------------------------ August 1, 1995 10,000 10,000 10,000 1995 9,469 9,619 10,026 1995 9,431 9,806 10,046 1995 9,412 9,543 10,079 1995 9,412 9,808 10,072 1995 9,586 10,203 10,066 1996 9,994 10,245 10,125 1996 9,956 10,280 10,157 1996 10,107 10,498 10,210 1996 10,496 10,804 10,249 1996 10,439 10,605 10,269 1996 10,486 10,664 10,275 1996 10,136 10,353 10,295 1996 10,164 10,375 10,315 1996 10,354 10,651 10,348 1996 10,448 10,542 10,380 1996 10,818 10,961 10,400 1996 10,757 10,820 10,400 1997 10,953 10,442 10,433 1997 11,198 10,613 10,466 1997 11,179 10,651 10,492 1997 11,159 10,708 10,505 1997 11,669 11,404 10,498 1997 12,023 12,033 10,511 1997 12,101 12,228 10,525 1997 11,709 11,315 10,544 1997 11,875 11,949 10,571 1997 11,198 11,030 10,597 1997 11,012 10,918 10,590 1997 10,861 11,013 10,577 1998 11,151 11,517 10,597 1998 11,549 12,255 10,616 1998 11,903 12,633 10,636 1998 11,978 12,733 10,656 1998 12,097 12,671 10,675 1998 11,946 12,767 10,689 1998 11,828 12,896 10,702 1998 10,807 11,299 10,715 1998 10,453 10,952 10,728 1998 11,001 12,094 10,754 1998 11,592 12,714 10,754 1998 12,063 13,215 10,748 1999 12,570 13,176 10,774 1999 12,142 12,862 10,787 1999 12,333 13,399 10,820 1999 12,795 13,942 10,898 1999 12,356 13,224 10,898 1999 12,717 13,739 10,898 1999 13,066 14,148 10,931 1999 13,438 14,199 10,957 1999 13,652 14,342 11,010 1999 14,160 14,880 11,030 1999 14,937 15,397 11,036 1999 16,847 16,778 11,036 2000 16,215 15,712 11,062 2000 17,388 16,135 11,128 2000 17,332 16,761 11,220 2000 15,854 15,879 11,226 2000 15,325 15,491 11,233 2000 16,057 16,097 11,298 2000 15,415 15,422 11,318 2000 15,708 15,556 11,331 2000 14,772 14,798 11,390 2000 14,219 14,449 11,410 2000 13,475 13,907 11,416 2000 13,793 14,401 11,410 2001 13,935 14,394 11,482 2001 12,687 13,315 11,528 2001 11,722 12,427 11,554 2001 12,428 13,291 11,600 2001 11,887 12,822 11,652 2001 11,392 12,297 11,672 2001 11,110 12,074 11,639 2001 10,569 11,768 11,639 2001 9,380 10,576 11,692 2001 9,604 10,847 11,652 2001 10,086 11,246 11,633 2001 10,163 11,313 11,587 2002 9,638 10,712 11,613 2002 9,853 10,787 11,659 2002 10,306 11,371 11,725 2002 10,282 11,446 11,790 2002 10,259 11,602 11,790 2002 9,841 11,121 11,797 2002 8,803 12,227 11,810 2002 8,684 12,169 11,849 2002 7,777 10,845 11,869 2002 8,243 11,429 11,899 2002 8,493 11,948 11,899 2002 8,135 11,546 11,872 2003 7,727 11,064 11,925 2003 7,548 10,810 12,017 2003 7,284 10,598 12,089 April 30, 2003 $ 8,003 $11,636 $12,063
Average Annual Total Returns/1/
April 30, 2003
From Inception Class A/2/ 1-Year 5-Year 8/1/1995 - ---------------------------------------------------------------- without sales charge (22.17)% (7.75)% (2.12)% with sales charge (26.44)% (8.79)% (2.83)% From Inception Class B/2/ 1-Year 5-Year 1/8/1997 - ---------------------------------------------------------------- without sales charge (23.29)% (8.80)% (5.41)% with sales charge (26.36)% (8.80)% (5.41)% From Inception Institutional Class/3/ 1-Year 5-Year 12/29/1997 - ---------------------------------------------------------------- Net Asset Value (21.45)% (7.09)% (5.48)%
Footnotes read:
* As you compare performance, please note that the Fund's performance reflects the maximum 5.5% sales charge, while the Consumer Price Index and the MSCI EAFE Index do not reflect any such charges. If you were to purchase any of the above individual stocks or funds represented in these Indexes, any charges you would pay would reduce your total return as well.
** The Consumer Price Index is an inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation.
*** The MSCI EAFE Index[Registered Trademark] is an unmanaged market capitalization-weighted equity index composed of a sample of companies representative of the market structure in 20 countries. Constituent stocks are selected on the basis of industry representation, liquidity and sufficient float. It is not possible to invest directly in the Index.
/1/ Past performance is not an indication of future results. Annualized total returns represent past performance and reflect changes in share prices, the reinvestment of all dividends and capital gains, and the effects of compounding. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. At various times, the Fund's adviser waived its management fee and/or reimbursed Fund expenses. Had the adviser not done so, the Fund's total returns would have been lower. The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
/2/ Class A performance has been restated to reflect the maximum sales charge of 5.5%. Class B performance reflects the maximum contingent deferred sales charge (CDSC) of 5%, declining 1% each year during the first five years and then converting to Class A shares after the fifth year.
/3/ Institutional Class shares have no sales load and are for institutional shareholders only.
The AAL Capital Growth Fund
[PHOTO OMITTED: FREDERICK L. PLAUTZ]
Frederick L. Plautz is the portfolio manager for The AAL Capital Growth Fund. He is also co-manager of The AAL Balanced Fund. Mr. Plautz has 21 years of investment industry experience, and is a graduate of the University of Wisconsin, where he earned his master's degree in finance.
Large-company growth stocks delivered weak performance during the 12 months ended April 30, 2003, hampered by war-related jitters and sluggish economic growth. The AAL Capital Growth Fund ended the reporting period with a -14.66% total return, while its Lipper, Inc., peer group of large-capitalization core funds posted a -14.99% total return. The Fund's market benchmark, the large-company S&P 500 Index, returned -13.31% over this time.
Media Stocks Outperform
Large-capitalization stocks traded lower early in the period, with utility and energy issues sustaining particularly heavy losses in May and June. Both growth and value issues came under pressure during the third quarter, owing to corporate governance concerns and diminished earnings expectations. Within the technology sector, shares of computer equipment and semiconductor manufacturers remained weak, while firms less dependent on capital spending saw modest gains.
During the first half of the period, we were able to shore up the Fund's relative performance by underweighting the worst-performing energy and utility issues, while keeping the Fund broadly diversified. Although a number of health-care and financial holdings disappointed through the third quarter, we were able to maintain the Fund's competitive position by focusing on larger-capitalization names, which generally outpaced their smaller counterparts.
During the second half of the reporting period, the Fund's media and cable holdings were star performers, led by industry giants Comcast, Cox Communications and Liberty Media. At the same time, energy stocks performed respectably, with valuations spiking in February. War concerns weighed down equity returns through the first quarter of 2003, before renewed optimism sparked a rally in April.
[GRAPHIC OMITTED: TOP INDUSTRIES]
Top Industries
Consumer Discretionary 20.9% Financials 19.2% Health Care 13.4% Information Technology 12.7% Energy 11.8% Consumer Staples 10.0% Industrials 8.1% Telecommunication Services 1.8% Utilities 0.7%
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition
(% of Portfolio)
Short Term Investments 1.4% Common Stocks 98.6%
Footnotes read:
Quoted Fund performance is for Class A shares and does not reflect a sales charge.
The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
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.
A Share B Share Institutional Share - ------------------------- ------------------------ ------------------------ Ticker AALGX Ticker BBLGX Ticker IILGX Net Assets $2,598,205,110 Net Assets $81,186,872 Net Assets $68,179,098 NAV $25.39 NAV $24.19 NAV $25.46
Outlook
Over the coming months, we expect to see the economy grow at a moderate pace and profits to improve at the margin, providing a constructive backdrop for large-company stocks. With interest rates low and $350 billion in tax cuts on the way, it would appear that the major policy levers have been pulled. As such, we expect little in the way of additional stimulus initiatives in the next year. Nonetheless, a number of impediments to economic growth remain, including a lack of pricing power and excess industrial capacity.
Going forward, we will continue to overweight energy stocks, with a particular emphasis on natural gas providers, which are in a unique position given low inventories and strong demand. In addition, we believe our media and cable holdings will provide added value, due to the superior pricing power of the major players in this industry. We expect to remain market-neutral in most other respects, but will continue to make structural adjustments as conditions warrant.
[GRAPHIC WORM CHART OMITTED: VALUE OF A $10,000 INVESTMENT]
Value of a $10,000 Investment
Class A Shares*
The AAL Consumer Capital S&P 500 Price Date Growth Fund Index** Index*** - ------------------------------------------------------------------------ April 30, 1993 10,000 10,000 10,000 1993 9,597 10,268 10,014 1993 9,565 10,298 10,028 1993 9,483 10,256 10,028 1993 9,753 10,645 10,056 1993 9,643 10,564 10,076 1993 9,882 10,782 10,118 1993 9,791 10,679 10,125 1993 9,867 10,809 10,125 1994 9,939 11,176 10,153 1994 9,684 10,873 10,188 1994 9,319 10,399 10,222 1994 9,450 10,532 10,236 1994 9,463 10,705 10,243 1994 9,256 10,442 10,278 1994 9,480 10,785 10,306 1994 9,751 11,228 10,347 1994 9,619 10,953 10,375 1994 9,856 11,199 10,382 1994 9,559 10,791 10,396 1994 9,731 10,951 10,396 1995 9,974 11,235 10,438 1995 10,301 11,673 10,479 1995 10,481 12,018 10,514 1995 10,808 12,372 10,549 1995 11,183 12,866 10,569 1995 11,327 13,165 10,590 1995 11,711 13,601 10,590 1995 11,662 13,636 10,618 1995 12,215 14,211 10,639 1995 12,152 14,160 10,674 1995 12,607 14,782 10,667 1995 12,747 15,067 10,660 1996 13,276 15,580 10,722 1996 13,298 15,724 10,757 1996 13,276 15,875 10,813 1996 13,602 16,109 10,854 1996 13,898 16,525 10,875 1996 13,887 16,588 10,882 1996 13,262 15,855 10,903 1996 13,538 16,189 10,924 1996 14,506 17,100 10,958 1996 14,680 17,572 10,993 1996 15,843 18,900 11,014 1996 15,558 18,526 11,014 1997 16,565 19,683 11,049 1997 16,397 19,838 11,083 1997 15,612 19,023 11,111 1997 16,397 20,158 11,125 1997 17,495 21,386 11,118 1997 18,286 22,344 11,132 1997 19,609 24,121 11,146 1997 18,646 22,770 11,167 1997 19,456 24,017 11,194 1997 19,242 23,215 11,222 1997 20,121 24,290 11,215 1997 20,781 24,707 11,201 1998 20,837 24,980 11,222 1998 22,483 26,782 11,243 1998 23,419 28,153 11,264 1998 23,690 28,436 11,285 1998 22,995 27,948 11,306 1998 24,450 29,083 11,319 1998 24,130 28,773 11,333 1998 20,465 24,613 11,347 1998 21,849 26,190 11,361 1998 23,562 28,320 11,389 1998 24,883 30,036 11,389 1998 26,639 31,767 11,382 1999 27,941 33,096 11,410 1999 27,363 32,067 11,424 1999 28,340 33,350 11,458 1999 29,186 34,642 11,542 1999 28,657 33,824 11,542 1999 30,178 35,701 11,542 1999 29,421 34,586 11,576 1999 28,696 34,415 11,604 1999 28,395 33,472 11,660 1999 30,341 35,590 11,681 1999 31,033 36,314 11,688 1999 32,662 38,452 11,688 2000 30,996 36,521 11,715 2000 29,982 35,829 11,785 2000 32,811 39,334 11,882 2000 31,895 38,151 11,889 2000 31,936 37,368 11,896 2000 32,864 38,289 11,965 2000 32,269 37,691 11,986 2000 33,665 40,032 12,000 2000 32,368 37,918 12,063 2000 32,954 37,758 12,083 2000 31,492 34,781 12,090 2000 32,306 34,951 12,083 2000 32,069 36,191 12,160 2001 30,472 32,891 12,208 2001 28,962 30,808 12,236 2001 30,559 33,202 12,285 2001 30,305 33,424 12,340 2001 29,236 32,611 12,361 2001 28,654 32,290 12,326 2001 26,847 30,268 12,326 2001 25,014 27,824 12,382 2001 25,737 28,355 12,340 2001 27,376 30,530 12,319 2001 27,798 30,797 12,271 2002 27,375 30,348 12,299 2002 26,846 29,763 12,347 2002 27,851 30,882 12,417 2002 26,325 29,010 12,486 2002 26,175 28,796 12,486 2002 24,175 26,745 12,493 2002 22,295 24,660 12,507 2002 22,383 24,823 12,549 2002 19,893 22,127 12,569 2002 21,738 24,073 12,601 2002 22,648 25,489 12,601 2002 21,474 23,992 12,573 2003 21,058 23,365 12,629 2000 20,828 23,014 12,726 2003 21,005 23,237 12,802 April 30, 2003 $22,465 $25,150 $12,775
Average Annual Total Returns/1/
April 30, 2003
Class A/2/ 1-Year 5-Year 10-Year - ---------------------------------------------------------------- without sales charge (14.66)% (1.06)% 9.05% with sales charge (19.36)% (2.17)% 8.43% From Inception Class B/2/ 1-Year 5-Year 1/8/1997 - ---------------------------------------------------------------- without sales charge (15.63)% (2.08)% 4.96% with sales charge (19.00)% (2.08)% 4.96% From Inception Institutional Class/3/ 1-Year 5-Year 12/29/1997 - ---------------------------------------------------------------- Net Asset Value (14.24)% (0.67)% 2.26%
Footnotes read:
* As you compare performance, please note that the Fund's performance reflects the maximum 5.5% sales charge, while the Consumer Price Index and the S&P 500 Index do not reflect any such charges. If you were to purchase any of the above individual stocks or funds represented in these Indexes, any charges you would pay would reduce your total return as well.
** An unmanaged index comprised of 500 stocks representative of the stock market as a whole. "S&P 500[Registered Trademark]" is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for use by Thrivent Financial for Lutherans. The product is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's make no representation regarding the advisability of investing in the product. It is not possible to invest directly in the Index.
*** The Consumer Price Index is an inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation.
/1/ Past performance is not an indication of future results. Annualized total returns represent past performance and reflect changes in share prices, the reinvestment of all dividends and capital gains, and the effects of compounding. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. At various times, the Fund's adviser waived its management fee and/or reimbursed Fund expenses. Had the adviser not done so, the Fund's total returns would have been lower. The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
/2/ Class A performance has been restated to reflect the maximum sales charge of 5.5%. Class B performance reflects the maximum contingent deferred sales charge (CDSC) of 5%, declining 1% each year during the first five years and then converting to Class A shares after the fifth year.
/3/ Institutional Class shares have no sales load and are for institutional shareholders only.
The AAL Equity Income Fund
[PHOTO OMITTED: LEWIS A. BOHANNON]
Lewis A. Bohannon is the portfolio manager for The AAL Equity Income Fund. He has more than 22 years of experience in equity research. He holds a bachelor's degree in social psychology from Harvard University and master's degrees in special education and finance from Northeastern University and the University of Virginia, respectively. He is a Chartered Financial Analyst.
The market for large-company stocks remained volatile during the 12-month period ended April 30, 2003, with both growth and value stocks coming under selling pressure. Hurt by disappointing returns from a number of key holdings in October, The AAL Equity Income Fund returned - -20.19% during the 12-month reporting period, while its Lipper, Inc., peer group of equity income funds returned -14.25%. The Fund's market benchmark, the S&P 500/Barra Value Index, posted a -14.62% return during this time.
Market Sentiment Shifts
The reporting period began on a positive note for equity income investors, with value stocks outperforming growth issues by a significant margin. Despite a challenging trading environment, the Fund's financial, retail and information technology picks held up well in May and June, boosting relative performance.
Market conditions deteriorated quickly in July, however, and equities sold off sharply through September. As volatility escalated, we assumed a defensive posture, steering clear of beleaguered telecommunications providers, while investing in higher-quality names. This approach, coupled with the strong performance of the Fund's consumer discretionary and financial holdings, led to competitive returns through the third quarter.
October proved to be an especially problematic month and accounted for a majority of the Fund's underperformance for the period. Much of the difficulty stemmed from a small number of defensive stocks and REITs, which sustained enough losses to pull the Fund's cumulative 12-month returns sharply lower.
The war in Iraq exercised considerable influence over the equity markets through the first quarter of 2003, with investors running on emotion rather than considering company fundamentals such as corporate profitability. During this time, we increased our position in economically cyclical stocks, while reducing our exposure to consumer staples and health-care issues. This strategy proved advantageous through mid-March, when investor sentiment underwent a rapid improvement in light of the quick resolution of the war. In late March and April, the Fund was negatively impacted by a market tilt toward lower-quality stocks.
[GRAPHIC OMITTED: TOP INDUSTRIES]
Top Industries
Financials 29.0% Energy 10.6% Industrials 10.5% Consumer Discretionary 10.3% Information Technology 8.0% Health Care 7.7% Consumer Staples 6.6% Materials 5.9% Telecommunication Services 5.4% Utilities 4.1%
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition
(% of Portfolio)
Short Term Investments 1.9% Common Stocks 98.1%
Footnotes read:
Quoted Fund performance is for Class A shares and does not reflect a sales charge.
The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
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.
A Share B Share Institutional Share - ------------------------ ------------------------ ------------------------ Ticker AAUTX Ticker BBEIX Ticker N/A Net Assets $206,743,705 Net Assets $8,102,333 Net Assets $9,794,148 NAV $10.18 NAV $10.16 NAV $10.20
Outlook
Despite the turbulence of the past 12 months, conditions are not altogether unfavorable for equity income investors. Value stocks typically flourish against a backdrop of slow and measured economic growth-the very pace at which the economy is currently expanding. Given low prevailing interest rates, recently enacted fiscal stimulus initiatives and a successful resolution to the war in Iraq, we believe there is reason for optimism.
With an eye toward minimizing risk, we have recently increased the number of names in the Fund by just under 50%. If the economy gains significant momentum, we may also enhance the economic sensitivity of the Fund by increasing our exposure to industrial and consumer discretionary stocks. Given the foreseeable conditions, however, we expect to remain primarily sector-neutral. As before, we plan to maintain our focus on larger-company names within consolidating industries, particularly those best-suited to benefit from an expanding economy.
[GRAPHIC WORM CHART OMITTED: VALUE OF A $10,000 INVESTMENT]
Value of a $10,000 Investment
Class A Shares*
The AAL S&P Consumer Equity 500/Barra Price Date Income Fund Value Index** Index*** - ------------------------------------------------------------------------ March 18, 1994 10,000 10,000 10,000 1994 9,374 9,444 10,034 1994 9,403 9,643 10,048 1994 9,195 9,803 10,055 1994 8,977 9,532 10,089 1994 9,235 9,854 10,116 1994 9,244 10,133 10,157 1994 8,987 9,776 10,184 1994 9,083 9,989 10,191 1994 8,949 9,584 10,205 1994 8,776 9,702 10,205 1995 9,144 9,964 10,245 1995 9,134 10,351 10,286 1995 9,066 10,637 10,320 1995 9,262 10,987 10,354 1995 9,732 11,475 10,375 1995 9,800 11,563 10,395 1995 9,908 11,961 10,395 1995 9,948 12,063 10,423 1995 10,530 12,483 10,443 1995 10,669 12,288 10,477 1995 10,818 12,932 10,470 1995 11,335 13,291 10,464 1996 11,556 13,689 10,525 1996 11,285 13,817 10,559 1996 11,185 14,141 10,613 1996 11,013 14,285 10,654 1996 11,043 14,500 10,675 1996 11,417 14,430 10,682 1996 10,877 13,821 10,702 1996 10,867 14,203 10,723 1996 10,898 14,811 10,757 1996 11,320 15,313 10,791 1996 11,742 16,484 10,811 1996 11,880 16,215 10,811 1997 12,005 16,963 10,845 1997 12,077 17,086 10,879 1997 11,714 16,501 10,907 1997 11,881 17,119 10,920 1997 12,531 18,193 10,913 1997 12,913 18,888 10,927 1997 13,156 20,399 10,941 1997 12,639 19,478 10,961 1997 13,304 20,620 10,988 1997 13,166 19,862 11,016 1997 13,888 20,619 11,009 1997 14,538 21,077 10,995 1998 14,416 20,817 11,016 1998 15,113 22,378 11,036 1998 15,861 23,512 11,057 1998 15,872 23,790 11,077 1998 15,628 23,455 11,097 1998 15,968 23,633 11,111 1998 15,667 23,120 11,125 1998 13,475 19,402 11,138 1998 14,316 20,581 11,152 1998 15,210 22,193 11,179 1998 15,779 23,349 11,179 1998 16,470 24,169 11,172 1999 16,553 24,658 11,200 1999 16,303 24,127 11,213 1999 16,509 24,858 11,247 1999 17,473 27,001 11,329 1999 17,259 26,524 11,329 1999 17,791 27,543 11,329 1999 17,278 26,696 11,363 1999 16,765 26,020 11,391 1999 16,398 25,001 11,445 1999 16,829 26,413 11,466 1999 16,805 26,258 11,472 1999 17,143 27,245 11,472 2000 16,615 26,378 11,500 2000 16,399 24,730 11,568 2000 17,634 27,308 11,663 2000 17,333 27,125 11,670 2000 17,658 27,210 11,677 2000 17,065 26,135 11,745 2000 17,137 26,658 11,766 2000 18,152 28,446 11,779 2000 18,287 28,439 11,841 2000 18,311 28,970 11,861 2000 17,645 27,487 11,868 2000 18,773 28,902 11,861 2001 18,888 30,122 11,936 2001 18,478 28,126 11,984 2001 17,773 27,015 12,011 2001 18,764 28,848 12,059 2001 18,932 29,150 12,113 2001 17,870 28,206 12,134 2001 17,715 27,718 12,100 2001 16,990 26,116 12,100 2001 15,782 23,635 12,154 2001 16,029 23,635 12,113 2001 16,926 25,135 12,093 2001 17,245 25,517 12,045 2002 16,855 24,817 12,072 2002 16,607 24,595 12,120 2002 17,386 25,855 12,188 2002 16,838 24,560 12,256 2002 16,812 24,658 12,256 2002 15,691 23,104 12,263 2002 14,369 20,606 12,277 2002 14,435 20,748 12,318 2002 12,943 18,380 12,338 2002 13,127 19,905 12,369 2002 13,731 21,301 12,369 2002 13,091 20,195 12,342 2003 12,775 19,644 12,396 2003 12,485 19,108 12,492 2003 12,487 19,083 12,567 April 30, 2003 $13,438 $20,969 $12,540
Average Annual Total Returns/1/
April 30, 2003
From Inception Class A/2/ 1-Year 5-Year 3/18/1994 - ---------------------------------------------------------------- without sales charge (20.19)% (3.28)% 3.93% with sales charge (24.58)% (4.36)% 3.29% From Inception Class B/2/ 1-Year 5-Year 1/8/1997 - ---------------------------------------------------------------- without sales charge (21.01)% (4.25)% 1.22% with sales charge (24.17)% (4.25)% 1.22% From Inception Institutional Class/3/ 1-Year 5-Year 12/29/1997 - ---------------------------------------------------------------- Net Asset Value (19.70)% (2.80)% (0.86)%
Footnotes read:
* As you compare performance, please note that the Fund's performance reflects the maximum 5.5% sales charge, while the Consumer Price Index and the S&P 500/Barra Value Index do not reflect any such charges. If you were to purchase any of the above individual stocks or funds represented in these Indexes, any charges you would pay would reduce your total return as well.
** An unmanaged capitalization weighted index composed of the lowest price-to-book securities in the S&P 500 Index. The S&P 500/Barra Index is designed so that approximately one-half of the S&P 500 market capitalization is characterized as "value" and the other half as "growth." It is not possible to invest directly in either Index. The composition of the S&P 500/Barra Value Index serves as a better reflection of the Fund's current investment strategy than does the S&P 500.
*** The Consumer Price Index is an inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation.
/1/ Past performance is not an indication of future results. Annualized total returns represent past performance and reflect changes in share prices, the reinvestment of all dividends and capital gains, and the effects of compounding. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. At various times, the Fund's adviser waived its management fee and/or reimbursed Fund expenses. Had the adviser not done so, the Fund's total returns would have been lower. The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
/2/ Class A performance has been restated to reflect the maximum sales charge of 5.5%. Class B performance reflects the maximum contingent deferred sales charge (CDSC) of 5%, declining 1% each year during the first five years and then converting to Class A shares after the fifth year.
/3/ Institutional Class shares have no sales load and are for institutional shareholders only.
The AAL Municipal Bond Fund
[PHOTO OMITTED: JANET I. GRANGAARD]
Janet I. Grangaard is the portfolio manager of The AAL Municipal Bond Fund. She joined Thrivent Investment Management Inc., in 1984 as an internal auditor and subsequently served as a securities analyst and senior securities analyst. She holds a bachelor's degree in economics from Stanford University and a master's degree in management from the J.L. Kellogg Graduate School of Management at Northwestern University.
The municipal bond market experienced strong gains in the 12-month period ended April 30, 2003. Against a backdrop of record supply highs in 2002 and the first quarter of 2003, The AAL Municipal Bond Fund performed largely in line with its peers, returning 7.38%. Its Lipper, Inc., peer group of funds returned 7.62% during the same period, while the Fund's unmanaged benchmark, the Lehman Brother's Municipal Bond Index, returned 8.50%.
Municipal Bond Values Reaffirmed
It's difficult to discern how dramatically the buildup to the war in Iraq slowed an economy that was already mired in weak growth. Its effect on the markets, however, was obvious: Paralyzed by uncertainty, consumers and businesses postponed much spending. During this period, President Bush also introduced an initial tax policy proposal with potentially far-reaching ramifications for bonds. The proposal's call for dividend tax exemptions left many to speculate that demand for municipal bonds would wane in favor of more attractive tax-exempt equities. As a result, municipal bonds were attractive in relation to Treasury securities for much of the six-month period.
The Fund's performance, consistent with that of its peer groups, can be attributed to its neutral duration and the performance of key sectors, most notably the hospital sector which drew a strong return. At the same time, the Fund was underweighted in housing bonds making it nearly immune from the adverse affects of mortgage prepayments brought on by the country's refinancing craze. Being a high-quality fund, with only a modest level of credit risk, the fact that interest rates have remained within a relatively stable range has had a somewhat negative effect on performance.
[GRAPHIC OMITTED: RATINGS DISTRIBUTIONS]
Moody's Bond Quality Ratings Distributions
Aaa 52.4% Aa 15.7% A 16.1% Baa 15.8% Ba 0.0% B 0.0% Caa 0.0% Ca 0.0% C 0.0% D 0.0% Not Rated 0.0%
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition
(% of Portfolio)
Short Term Investments 5.0% Long Term Fixed Income 95.0%
Footnotes read:
Quoted Fund performance is for Class A shares and does not reflect a sales charge.
The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
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.
A Share B Share Institutional Share - ------------------------ ------------------------ ------------------------ Ticker AAMBX Ticker N/A Ticker N/A Net Assets $671,624,636 Net Assets $12,346,247 Net Assets $3,416,888 NAV $11.52 NAV $11.52 NAV $11.52
Outlook
The tax plan that eventually emerged from Congress lowered the tax rates on dividends but did not exempt them completely. Demand for municipal bonds, therefore, should remain strong. Supply should also keep pace as rates remain low and municipalities are faced with widespread budget deficits. The record-breaking supply of municipal bonds which began in 2002 also carried over into the first quarter of 2003.
The Fund will continue to look for opportunities within a relative value framework and to be tax conscious with regard to capital gains. It will also not waiver from its insistence on high portfolio liquidity. While we do not know the day they will arrive, we are preparing for higher interest rates. There appear to be enough stimuli in the economy to initiate a recovery. How fast and how soon that recovery happens is clearly the question.
Nonetheless, investors' confidence should be buoyed by the fact that the Fund has maintained pace with the market during this period of remarkably low interest rates. Outperforming when interest rates are low can be an indicator that the Fund has taken on too much risk -- trying to flip the switch at the precise moment necessary to avoid a significant decline. As a high-quality investment, The AAL Municipal Bond Fund takes on only modest risk, yet is structured -- and poised -- to remain quite competitive as interest rates rise.
[GRAPHIC WORM CHART OMITTED: VALUE OF A $10,000 INVESTMENT]
Value of a $10,000 Investment
Class A Shares*
Lehman The AAL Municipal Consumer Municipal Bond Price Date Bond Fund Index** Index*** - ------------------------------------------------------------------------ April 30, 1993 10,000 10,000 10,000 1993 9,550 10,056 10,014 1993 9,775 10,224 10,028 1993 9,749 10,237 10,028 1993 9,889 10,451 10,056 1993 10,097 10,570 10,076 1993 10,106 10,590 10,118 1993 9,955 10,497 10,125 1993 10,235 10,718 10,125 1994 10,307 10,841 10,153 1994 10,018 10,560 10,188 1994 9,696 10,130 10,222 1994 9,650 10,216 10,236 1994 9,668 10,304 10,243 1994 9,716 10,241 10,278 1994 9,845 10,429 10,306 1994 9,836 10,465 10,347 1994 9,753 10,312 10,375 1994 9,556 10,128 10,382 1994 9,331 9,945 10,396 1994 9,653 10,164 10,396 1995 9,844 10,455 10,438 1995 10,130 10,759 10,479 1995 10,305 10,882 10,514 1995 10,324 10,895 10,549 1995 10,575 11,243 10,569 1995 10,577 11,145 10,590 1995 10,638 11,250 10,590 1995 10,738 11,393 10,618 1995 10,798 11,465 10,639 1995 11,001 11,632 10,674 1995 11,252 11,825 10,667 1995 11,414 11,938 10,660 1996 11,461 12,028 10,722 1996 11,404 11,947 10,757 1996 11,232 11,795 10,813 1996 11,166 11,761 10,854 1996 11,180 11,757 10,875 1996 11,292 11,885 10,882 1996 11,401 11,992 10,903 1996 11,372 11,990 10,924 1996 11,595 12,157 10,958 1996 11,734 12,295 10,993 1996 12,010 12,520 11,014 1996 11,914 12,467 11,014 1997 11,897 12,491 11,049 1997 12,019 12,605 11,083 1997 11,807 12,437 11,111 1997 11,908 12,541 11,125 1997 12,106 12,730 11,118 1997 12,254 12,866 11,132 1997 12,708 13,222 11,146 1997 12,499 13,098 11,167 1997 12,706 13,254 11,194 1997 12,787 13,339 11,222 1997 12,876 13,417 11,215 1997 13,146 13,613 11,201 1998 13,295 13,753 11,222 1998 13,265 13,758 11,243 1998 13,247 13,770 11,264 1998 13,158 13,708 11,285 1998 13,425 13,925 11,306 1998 13,478 13,980 11,319 1998 13,482 14,015 11,333 1998 13,732 14,231 11,347 1998 13,947 14,408 11,361 1998 13,855 14,408 11,389 1998 13,908 14,459 11,389 1998 13,932 14,495 11,382 1999 14,113 14,667 11,410 1999 13,994 14,603 11,424 1999 14,025 14,624 11,458 1999 14,053 14,660 11,542 1999 13,929 14,575 11,542 1999 13,680 14,365 11,542 1999 13,681 14,418 11,576 1999 13,439 14,302 11,604 1999 13,406 14,308 11,660 1999 13,146 14,153 11,681 1999 13,321 14,304 11,688 1999 13,147 14,197 11,688 2000 13,038 14,135 11,715 2000 13,233 14,299 11,785 2000 13,598 14,612 11,882 2000 13,474 14,526 11,889 2000 13,357 14,450 11,896 2000 13,751 14,833 11,965 2000 13,940 15,039 11,986 2000 14,169 15,271 12,000 2000 14,096 15,192 12,063 2000 14,263 15,357 12,083 2000 14,390 15,474 12,090 2000 14,726 15,856 12,083 2001 14,843 16,013 12,160 2001 14,892 16,064 12,208 2001 15,032 16,208 12,236 2001 14,867 16,032 12,285 2001 15,037 16,205 12,340 2001 15,166 16,313 12,361 2001 15,422 16,555 12,326 2001 15,746 16,828 12,326 2001 15,680 16,771 12,382 2001 15,886 16,971 12,340 2001 15,739 16,828 12,319 2001 15,551 16,669 12,271 2002 15,809 16,958 12,299 2002 16,010 17,162 12,347 2002 15,684 16,826 12,417 2002 15,948 17,155 12,486 2002 16,035 17,259 12,486 2002 16,204 17,441 12,493 2002 16,411 17,666 12,507 2002 16,584 17,878 12,549 2002 16,935 18,270 12,569 2002 16,577 17,967 12,601 2002 16,520 17,892 12,601 2002 16,863 18,270 12,573 2003 16,793 18,224 12,629 2003 17,061 18,479 12,726 2003 17,033 18,490 12,802 April 30, 2003 $17,051 $18,612 $12,775
Average Annual Total Returns/1/
April 30, 2003
Class A/2/ 1-Year 5-Year 10-Year - ---------------------------------------------------------------- without sales charge 7.38% 5.41% 5.97% with sales charge 2.53% 4.44% 5.48% From Inception Class B/2/ 1-Year 5-Year 1/8/1997 - ---------------------------------------------------------------- without sales charge 6.65% 4.56% 5.31% with sales charge 2.65% 4.56% 5.31% From Inception Institutional Class/3/ 1-Year 5-Year 12/29/1997 - ---------------------------------------------------------------- Net Asset Value 7.81% 5.73% 5.39%
* As you compare performance, please note that the Fund's performance reflects the maximum 4.5% sales charge, while the Consumer Price Index and the Lehman Municipal Bond Index do not reflect any such charges. If you were to purchase any of the above individual stocks or funds represented in these Indexes, any charges you would pay would reduce your total return as well.
** An unmanaged broad-based index that provides a performance indicator of the overall municipal bond market. It is not possible to invest directly in the Index.
*** The Consumer Price Index is an inflationary indicator that measures the change in the cost of a fixed basket of products and services, including housing, electricity, food and transportation.
/1/ Past performance is not an indication of future results. Annualized total returns represent past performance and reflect changes in share prices, the reinvestment of all dividends and capital gains, and the effects of compounding. Investment return and principal value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost. At various times, the Fund's adviser waived its management fee and/or reimbursed Fund expenses. Had the adviser not done so, the Fund's total returns would have been lower. The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
/2/ Class A performance has been restated to reflect the maximum sales charge of 4.5%. Class B performance reflects the maximum contingent deferred sales charge (CDSC) of 5%, declining 1% each year during the first five years and then converting to Class A shares after the fifth year.
/3/ Institutional Class shares have no sales load and are for institutional shareholders only.
The AAL Money Market Fund
[PHOTO OMITTED: GAIL R. ONAN]
Gail R. Onan is the portfolio manager of The AAL Money Market Fund. She began her career with Thrivent Investment Management Inc., in 1969 as a trader and securities analyst. In 1986, Gail became a mutual funds trader and later an equity trader. In 1988, she began working with money market funds. She started managing The AAL Money Market Fund in May, 2002. She received her undergraduate education at the University of Minnesota.
Money market yields marched lower along with overall short-term market interest rates for the 12-month period ending April 30, 2003. The AAL Money Market Fund provided investors with a total return of 0.88%, while the Fund's Lipper, Inc., peer group earned a median total return of 0.90%.
Federal Reserve Policy
Economic data over the period indicated soft economic performance in addition to heightened geopolitical risks that concluded in a war with Iraq, corporate accounting scandals, and executive suite malfeasance. This uncertainty inhibited spending, production, and employment over the period. In response to these lackluster economic reports, the Federal Open Market Committee (FOMC), the monetary policy setting arm of the U.S. Federal Reserve, continued to try to stimulate the economy by cutting its target for the federal funds rate significantly in November. The federal funds rate is the overnight interest rate at which depository institutions can borrow from the Federal Reserve. Changes in the federal funds rate affect interest rates, and ultimately, the economy, including employment, production, and prices of goods and services. With investors anticipating an end to lower interest rates in October, we saw an opportunity to lock in higher yields by extending the Fund's duration. By investing in longer-dated securities during this period, we were able to keep the Fund's overall yield levels constant for future months.
Supply of Commercial Paper Limited
Beginning in the fourth quarter of 2001, the operating environment for money market participants changed significantly. Investors shunned issuers burdened with high levels of short-term debt following the bankruptcy of Enron Corp. and WorldCom. In response, many companies cut back on short-term financing which significantly decreased the supply of commercial paper. While the supply of commercial paper is less than desirable, we were pleased to be able to keep the Fund fully invested in only the highest-quality money market instruments.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO COMPOSITION (% OF PORTFOLIO)]
Portfolio Composition
(% of Portfolio)
Short Term Investments 100.0%
Footnotes read:
Quoted Fund performance is for Class A shares.
The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
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.*
A Share B Share Institutional Share - ------------------------ ------------------------ ------------------------ Ticker AMMXX Ticker N/A Ticker AALXX Net Assets $349,643,140 Net Assets $2,833,759 Net Assets $91,386,244 NAV $1.00 NAV $1.00 NAV $1.00
Outlook
Currently, money market funds are reinvesting maturing securities at very low yield levels, and we expect this to continue until the domestic economy shows sign of strength, which is beginning to happen already this year. It is likely that the FOMC will not lower rates any further and may begin to raise rates as the economy picks up steam. Once the economy improves, interest rates will edge up and money market yields will rise. We have already seen some investors shifting from the safety of money market funds back into the equities and corporate bond markets. We are maximizing liquidity this year to prepare for this eventual shift out of money market funds.
The AAL Money Market Fund
April 30, 2003**
Class A Class B Institutional - ---------------------------------------------------------------- 7-Day Yield 0.63% 0.67% 0.83% 7-Day Effective Yield 0.63% 0.67% 0.83%
Average Annual Total Returns/1/
April 30, 2003
Class A/2/ 1-Year 5-Year 10-Year - ---------------------------------------------------------------- Net Asset Value 0.88% 3.69% 3.95% From Inception Class B/2/ 1-Year 5-Year 1/8/1997 - ---------------------------------------------------------------- without sales charge 0.42% 2.79% 3.21% with sales charge (3.58)% 2.79% 3.21% From Inception Institutional Class/3/ 1-Year 5-Year 12/29/1997 - ---------------------------------------------------------------- Net Asset Value 1.17% 4.00% 4.07%
Footnotes read:
* To the extent practicable, the underlying Fund intends to maintain a stable net asset value of $1.00 per share. Although the fund seeks to preserve the value of you investment at $1.00 per share, it is possible to lose money by investing in the fund. Investments in the underlying fund are neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency.
** Seven-day yields of The AAL Money Market Fund refer to the income generated by an investment in the Fund over a specified seven-day period. Effective yields reflect the reinvestment of income. Yields are subject to daily fluctuation and should not be considered an indication of future results.
/1/ Past performance is not an indication of future results. Annualized total returns represent past performance and reflect changes in share prices, the reinvestment of all dividends and capital gains, and the effects of compounding. At various times, the Fund's adviser waived its management fee and/or reimbursed Fund expenses. Had the adviser not done so, the Fund's total returns and yields would have been lower. The returns shown do not reflect taxes a shareholder would pay on distributions or redemptions.
/2/ Class B performance reflects the maximum contingent deferred sales charge (CDSC) of 5%, declining 1% each year during the first five years and then converting to Class A shares after the fifth year.
/3/ Institutional Class shares have no sales load and are for institutional shareholders only.
ADDITIONAL INFORMATION ABOUT THE LB FUNDS AND THE THRIVENT/AAL FUNDS Additional information about the LB Funds and the Thrivent/AAL Funds, including information about their investment objectives, policies and restrictions and financial histories, may be found in the current prospectus, Statement of Additional Information and annual reports of the LB Trust and Thrivent Trust, the semi-annual report of the Thrivent Trust, and in the Statement of Additional Information relating to this proxy statement and prospectus. You may obtain copies of these documents free of charge by calling 1-800-847-4836. The LB Funds and the Thrivent/AAL Funds are subject to the informational requirements of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended and the 1940 Act. Therefore, the LB Funds and the Thrivent/AAL Funds file proxy materials, reports and other information with the SEC, which can be inspected and copied at the SEC's public reference room located at 450 5th Street NW, Room 1200, Washington, D.C. 20549. You may call the SEC at 1-202-942-8090 for information about the operation of the public reference rooms. You may also access such information about the LB Funds and the Thrivent/AAL Funds on the SEC's Internet site at http://www.sec.gov. For a prescribed fee, you may obtain copies of this information by sending an email request to publicinfo@sec.gov or writing to: Public Reference Room, U.S. Securities and Exchange Commission, 450 5th Street, NW, Room 1300, Washington, D.C. 20549. You may need to refer to the following file numbers: File No. 811-1467 The Lutheran Brotherhood Family of Funds File No. 811-5075 The AAL Mutual Funds A discussion about the performance of the Existing AAL Funds from the Thrivent Trust's most recent annual and semi-annual reports are included in this proxy statement and prospectus under "Management's Discussion for Existing AAL Funds". VOTING INFORMATION This proxy statement and prospectus is furnished in connection with the solicitation of proxies by the Board of Trustees of The Lutheran Brotherhood Family of Funds for use at the Special Meeting of each of the LB Funds to be held on June 16, 2004, at 8:30 a.m., Central Time at 625 Fourth Avenue South, Minneapolis, Minnesota, and at any adjournments thereof. Thrivent Investment Mgt. will cast your votes according to your voting instructions. If you sign and date your proxy card, but do not specify instructions, shares of any LB Fund to which the form relates will be voted IN FAVOR of the Reorganization Agreement relating to that LB Fund. You may vote by mail, telephone or the Internet. Your vote must be received by 6:00 a.m., Central Time, on June 16, 2004. Vote by: o Internet--Follow the directions on the enclosed proxy card. o Telephone -- Follow the directions on the enclosed proxy card. If this feature is used, you are giving authorization for another person to execute your proxy and there is no need to mail the proxy card. o Mail -- Date and sign the enclosed proxy card and return it in the enclosed postage-paid envelope. Quorum and Voting Each share of an LB Fund is entitled to one vote. You may revoke your voting instructions at any time prior to their use by: o giving written notice of revocation to an officer of the LB Trust, o returning to an officer of the LB Trust a properly executed, later dated proxy card, o voting later by telephone or Internet, or o attending the Special Meeting, requesting return of any previously delivered voting instructions and voting in person. Attendance and voting at the Special Meeting will not by itself constitute a revocation of voting instructions. Signed voting instructions received by the Board of Trustees in time for voting that are not revoked will be voted in accordance with the instructions noted on the proxy card. Unless instructions to the contrary are marked on the proxy card, the shares represented by the form will be voted FOR all the proposals. The proxy card grants discretion to the persons named thereon to take action as they determine appropriate in connection with any other matter that may properly come before the Special Meeting or any adjournments. The Board of Trustees does not currently know of any matter to be considered at the Special Meeting other than the matters set forth in the Notice of Special Meeting of Shareholders. Thirty percent (30%) of the shares of the Fund entitled to vote at the Special Meeting represented in person or by proxy constitutes a quorum. The shareholders of each LB Fund will vote separately on its reorganization into a corresponding Thrivent/AAL Fund. There must be a quorum for each shareholder meeting to proceed. This means that 30% of that LB Fund's shares must be represented at the meeting, either in person or by proxy. Abstentions will be counted as present for purposes of determining a quorum, but will not be counted as votes cast with respect to the proposal. Approval of each Reorganization Agreement requires the affirmative vote of "a majority of the outstanding voting securities" of the relevant LB Fund, as defined under the 1940 Act. For that purpose, a vote of the holders of a "majority of the outstanding voting securities" of the Fund means the lesser of: o The vote of 67% or more of the shares of the LB Fund represented at the Special Meeting at which the holders of more than 50% or more of the outstanding shares of the Fund are present or represented by proxy, or o The vote of the holders of more than 50% of the outstanding shares of the LB Fund. The votes of shareholders of the Thrivent/AAL Funds are not being solicited since their approval is not required to effect the Reorganizations. Outstanding Shares and Voting Requirements The Board of Trustees of the LB Trust has designated the close of business on March 19, 2004, as the record date for the determination of shareholders of the LB Funds entitled to notice of and to vote at the Special Meeting and any adjournments thereof. Each share of an LB Fund is entitled to one vote and fractional shares have proportionate voting rights. Only shareholders of record as of the record date are entitled to vote on the proposal. As of the record date, each of the LB Funds had the number of shares issued and outstanding listed below: Fund Number of Shares - ------------------------------------------------------------------- Lutheran Brotherhood World Growth Fund Class A 7,159,570.965 Class B 1,287,726.262 Institutional 1,068,752.710 Lutheran Brotherhood Growth Fund Class A 2,935,977.927 Class B 1,115,625.834 Institutional 642,250.884 Lutheran Brotherhood Fund Class A 40,237,512.505 Class B 3,438,122.961 Institutional 1,553,128.292 Lutheran Brotherhood Value Fund Class A 2,432,997.415 Class B 809,579.981 Institutional 229,249.865 Lutheran Brotherhood Municipal Bond Fund Class A 70,407,962.394 Class B 2,612,641.009 Institutional 290,846.051 Lutheran Brotherhood Money Market Fund Class A 471,024,210.221 Class B 839,098.633 Institutional 15,350,869.400 Lutheran Brotherhood Opportunity Growth Fund Class A Class B 14,953,002.889 Institutional 1,272,994.097 53,747.301 Lutheran Brotherhood Mid Cap Growth Fund Class A 9,388,573.858 Class B 3,076,567.399 Institutional 699,334.289 Lutheran Brotherhood High Yield Fund Class A 114,756,575.651 Class B 6,859,146.421 Institutional 2,018,753.966 Lutheran Brotherhood Income Fund Class A 67,650,379.924 Class B 3,205,702.602 Institutional 3,088,964.359 Lutheran Brotherhood Limited Maturity Bond Fund Class A 7,819,654.621 Class B 475,665.062 Institutional 1,142,455.457 On the record date, the trustees and officers of the LB Trust as a group owned beneficially (meaning they had the power to vote or direct the voting of) less than 1% of the outstanding shares of each LB Fund. To the best knowledge of each LB Fund, as of the record date, no person, except as described under the heading "Share Ownership Information", owned beneficially or of record 5% or more of the outstanding shares of the LB Fund. On the record date, no person owned beneficially or of record any shares of the New Thrivent Funds, which were organized for the purpose of continuing the business of their corresponding LB Fund. On the record date, the Trustees and officers of the Thrivent Trust as a group owned beneficially (meaning they had the power to vote or direct the voting of) less than 1% of the outstanding shares of each Existing AAL Fund. To the best knowledge of each Thrivent/AAL Fund, as of the record date, no person, except as described under the heading "Share Ownership Information", owned beneficially or of record 5% or more of the outstanding shares of an Existing AAL Fund. Other Matters Management of the LB Funds knows of no other matters that may properly be, or which are likely to be, brought before the Special Meeting. However, if any other business shall properly come before the Special Meeting, the persons named in the proxy intend to vote in accordance with their best judgment. Board Recommendation After considering the issues involved, the Board of Trustees of the LB Trust has unanimously concluded that the proposed Reorganizations are in the best interests of the shareholders of each of the LB Funds. The Board recommends that you vote FOR each Reorganization Agreement relating to an LB Fund in which you hold shares. Whether or not you expect to attend the Special Meeting, we urge you to promptly sign, fill in and return the enclosed proxy card or vote by toll-free telephone or the Internet. APPENDIX A FORMS OF AGREEMENTS AND PLANS OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this 12th day of November, 2003, by and between The Lutheran Brotherhood Family of Funds ("LB Trust"), a series of separate mutual fund portfolios within a single Delaware Statutory Trust acting on behalf of each fund listed on Schedule A attached hereto (each an "Acquired Fund") with its principal place of business at 625 Fourth Avenue South, Minneapolis, MN 55415, and The AAL Mutual Funds ("AAL Trust"), a series of separate mutual fund portfolios within a single Massachusetts Business Trust acting on behalf of each fund listed on Schedule A attached hereto (each an "Acquiring Fund") with its principal place of business at 625 Fourth Avenue South, Minneapolis, MN 55415. This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of the Treasury Regulations under Section 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code"), with the Acquiring Fund and the Acquired Fund each being a "party to a reorganization" within the meaning of Section 368(b) of the Code. The reorganization (the "Reorganization") will consist of (a) the transfer of all of the assets of the Acquired Fund in exchange for shares of the corresponding Acquiring Fund (the "Acquiring Fund Shares") and the assumption by the Acquiring Fund of all of the liabilities of the corresponding Acquired Fund, and (b) the distribution, after the Closing Date herein referred to, of Acquiring Fund Shares to the shareholders of the corresponding Acquired Fund in liquidation of the Acquired Fund and the subsequent dissolution of such Acquired Fund, all upon the terms and conditions hereinafter set forth in this Agreement. WHEREAS, the Acquiring Fund and the Acquired Fund are series of registered investment companies of the management type and the Acquired Fund owns securities that generally are assets of the character in which the Acquiring Fund is permitted to invest; WHEREAS, the Acquiring Fund is authorized to issue shares of common stock in multiple classes; WHEREAS, the Board of Trustees of the Acquired Fund has determined that the exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquired Fund and its shareholders and that the shares of the existing shareholders of the Acquired Fund would not be diluted as a result of this transaction; WHEREAS, the Board of Trustees of the Acquiring Fund has determined that the exchange of all the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquiring Fund and its shareholders; NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND 1.1 The Acquired Fund will transfer all of its assets (consisting, without limitation, of portfolio securities and instruments, dividends and interest receivables, cash and other assets), as set forth in the statement of assets and liabilities referred to in Paragraph 7.2 hereof (the "Statement of Assets and Liabilities"), to the Acquiring Fund free and clear of all liens and encumbrances, except as otherwise provided herein, in exchange for (i) the assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund, which liabilities shall be assigned and transferred to the Acquiring Fund by the Acquired Fund (the "Assumed Liabilities") and assumed by the Acquiring Fund, and (ii) delivery by the Acquiring Fund to the Acquired Fund, for distribution pro rata by the Acquired Fund to its shareholders in proportion to their respective ownership of shares of beneficial interest in the Acquired Fund, as of the close of business on July 16, 2004 (the "Closing Date"), of a number of the corresponding class of Acquiring Fund Shares having an aggregate net asset value equal to the value of the assets, less such liabilities (herein referred to as the "net value of the assets") assumed, assigned and delivered, all determined as provided in Paragraph 2.1 hereof and as of a date and time as specified therein. Such transactions shall take place at the closing provided for in Paragraph 3.1 hereof (the "Closing"). All computations shall be provided by Thrivent Investment Management Inc. (the "Pricing Agent") for the Acquiring Fund and the Acquired Fund. 1.2 (a) The assets of the Acquired Fund to be acquired by the Acquiring Fund shall consist of all property, including, without limitation, all cash, securities and dividends or interest receivables which are owned by the Acquired Fund and any deferred or prepaid expenses shown as an asset on the books of the Acquired Fund on the Closing Date; and (b) The Acquired Fund has provided the Acquiring Fund with a list of the Acquired Fund's assets as of the date of execution of this Agreement. The Acquired Fund reserves the right to sell any securities but will not, without the prior approval of the Acquiring Fund, acquire any additional securities other than securities of the type in which the Acquiring Fund is permitted to invest. The Acquiring Fund will, within a reasonable time prior to the Closing Date, furnish the Acquired Fund with a statement of the Acquiring Fund's investment objectives, policies and restrictions and a list of the securities, if any, on the Acquired Fund's list referred to in the first sentence of this paragraph which do not conform to the Acquiring Fund's investment objectives, policies and restrictions. In the event that the Acquired Fund holds any investments which the Acquiring Fund may not hold, the Acquired Fund will dispose of such securities prior to the Closing Date. In addition, if it is determined that the portfolios of the Acquired Fund and the Acquiring Fund, when aggregated, would contain investments exceeding certain percentage limitations imposed upon the Acquiring Fund with respect to such investments, the Acquired Fund, if requested by the Acquiring Fund, will dispose of and/or reinvest a sufficient amount of such investments as may be necessary to avoid violating such limitations as of the Closing Date. 1.3 The Acquired Fund will endeavor to discharge all the Acquired Fund's known liabilities and obligations prior to the Closing Date. 1.4 The Acquiring Fund shall assume the right to assert all legal claims against third parties as would have been available to the Acquired Fund as of the Valuation Date (as defined in Section 2.1). 1.5 As provided in paragraph 3.3, either on or as soon after the Closing Date as is conveniently practicable (the "Liquidation Date"), the Acquired Fund will liquidate by distributing pro rata to the Acquired Fund's shareholders of record determined as of the close of business on the Closing Date (the "Acquired Fund Shareholders"), the corresponding classes of Acquiring Fund Shares it receives pursuant to paragraph 1.1. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the name of the Acquired Fund Shareholders and representing the respective pro rata number of the Acquiring Fund Shares due such shareholders. All issued and outstanding shares of the Acquired Fund will simultaneously be canceled on the books of the Acquired Fund. 1.6 The Acquired Fund shareholders holding physical certificates representing their ownership of shares of beneficial interest of the Acquired Fund shall surrender such certificates or deliver an affidavit with respect to lost certificates in such form and accompanied by such surety bonds as the Acquired Fund may require (collectively, an "Affidavit"), to Thrivent Financial for Lutherans prior to the Closing Date. Any Acquired Fund share certificate which remains outstanding on the Closing Date shall be deemed to be canceled, shall no longer evidence ownership of shares of beneficial interest of the Acquired Fund and shall evidence ownership of Acquiring Fund Shares. Unless and until any such certificate shall be so surrendered or an Affidavit relating thereto shall be delivered, dividends and other distributions payable by the Acquiring Fund subsequent to the Liquidation Date with respect to Acquiring Fund Shares shall be paid to the holder of such certificate(s), but the Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares unless the Acquired Fund share certificates are first surrendered to the Acquiring Fund or an Affidavit relating thereto shall be delivered. 1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a name other than the registered holder of the Acquired Fund Shares on the books of the Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.8 Any reporting responsibility of the Acquired Fund is and shall remain the responsibility of the Acquired Fund up to and including the Closing Date and such later date on which the Acquired Fund is terminated. 1.9 The Acquired Fund shall, following the Closing Date and the making of all distributions pursuant to paragraph 1.4, be dissolved under the laws of the State of Maryland and in accordance with its governing documents. 2. VALUATION 2.1 The net asset values of the corresponding classes of Acquiring Fund Shares and the net values of the assets and liabilities of the Acquired Fund to be transferred shall, in each case, be determined as of the close of business (4:00 p.m. Eastern time) on the Closing Date. The net asset values of the Acquiring Fund Shares shall be computed by the Pricing Agent in the manner set forth in the Acquiring Fund's Declaration of Trust (the "Trust"), or By-Laws and the Acquiring Fund's then-current prospectus and statement of additional information and shall be computed in each case to not fewer than two decimal places. The net values of the assets of the Acquired Fund to be transferred shall be computed by the Pricing Agent by calculating the value of the assets transferred by the Acquired Fund and by subtracting therefrom the amount of the liabilities assigned and transferred to and assumed by the Acquiring Fund on the Closing Date, said assets and liabilities to be valued in the manner set forth in the Acquired Fund's then current prospectus and statement of additional information and shall be computed in each case to not fewer than two decimal places. 2.2 The number of Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's assets shall be determined by dividing the value of the Acquired Fund's assets less the liabilities assumed by the Acquiring Fund, by the Acquiring Fund's net asset value per share, all as determined in accordance with Paragraph 2.1 hereof. 2.3 All computations of value shall be made by the Pricing Agent, in accordance with its regular practice as pricing agent for the Acquired Fund and the Acquiring Fund, respectively. 3. CLOSING 3.1 The Closing Date shall be July 16, 2004, or such later date as the parties may agree to in writing. All acts taking place at the Closing shall be deemed to take place simultaneously as of the close of business on the Closing Date unless otherwise provided. The Closing shall be held as of 5:00 p.m. (Central time) at the offices of Thrivent Financial for Lutherans, 625 Fourth Avenue South, Minneapolis, Minnesota, or at such other time and/or place as the parties may agree. 3.2 In the event that on the Valuation Date (a) the New York Stock Exchange ("NYSE") or another primary trading market for portfolio securities of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading thereon shall be restricted or (b) trading or the reporting of trading on the NYSE or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 3.3 Portfolio securities that are not held in book-entry form in the name of State Street Bank (the "Custodian") as record holder for the Acquired Fund shall be presented by the Acquired Fund to the Custodian for examination no later than three business days preceding the Closing Date. Portfolio securities which are not held in book-entry form shall be delivered by the Acquired Fund to the Custodian for the account of the Acquiring Fund on the Closing Date, duly endorsed in proper form for transfer, in such condition as to constitute good delivery thereof in accordance with the custom of brokers, and shall be accompanied by all necessary federal and state stock transfer stamps or a check for the appropriate purchase price thereof. Portfolio securities held of record by the Custodian in book-entry form on behalf of the Acquired Fund shall be delivered to the Acquiring Fund by the Custodian by recording the transfer of beneficial ownership thereof on its records. The cash delivered shall be in the form of currency or by the Custodian crediting the Acquiring Fund's account maintained with the Custodian with immediately available funds. 3.4 The Acquired Fund shall deliver at the Closing a list of the names, addresses, federal taxpayer identification numbers and backup withholding and nonresident alien withholding status of the corresponding classes of Acquired Fund shareholders and the number of outstanding shares of beneficial interest of the Acquired Fund owned by each such shareholder, all as of the close of business on the Closing Date, certified by its Treasurer, Secretary or other authorized officer (the "Shareholder List"). The Acquiring Fund shall issue and deliver to the Acquired Fund a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, stock certificates, receipts or other documents as such other party or its counsel may reasonably request. 4. REPRESENTATIONS AND WARRANTIES 4.1 The LB Trust and Acquired Fund represent and warrant to the AAL Trust and Acquiring Fund as follows: (a) The Acquired Fund is a series of the LB Trust, a statutory trust which is duly organized, validly existing and in good standing under the laws of the State of Delaware. The LB Trust is a registered investment company classified as a management company of the open-end type, and its registration with the Securities and Exchange Commission (the "Commission") as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), is in full force and effect; (b) The LB Trust, on behalf of the Acquired Fund, has the power and all necessary federal, state and local qualifications and authorizations to own all its assets, to carry on its business as now being conducted, to enter into and carry out this Agreement, and to consummate the transactions contemplated herein; (c) The execution, delivery and performance of this Agreement will not result in a material violation of the Trust or Bylaws of the LB Trust or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquired Fund is a party or by which the LB Trust or the Acquired Fund is a party or by which it is bound; (d) Except as disclosed in writing in the Registration Statement on Form 4-14 of the LB Trust ("Registration Statement") the Acquired Fund has no material contracts or other commitments (other than this Agreement) which will be terminated with liability to the Acquired Fund prior to the Closing Date; (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or to the Acquired Fund's knowledge threatened against the Acquired Fund or any of the Acquired Fund's properties or assets (other than that previously disclosed to the other party to the Agreement) which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings and is not party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquired Fund's business or the ability of the Acquired Fund to consummate the transactions herein contemplated; (f) The Statements of Assets and Liabilities of the Acquired Fund for each of the fiscal years in the five year period ended October 31, 2003, have been audited by PricewaterhouseCoopers LLP, independent auditors, and are in accordance with generally accepted accounting principles consistently applied, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Acquired Fund as of such dates, and there are no known contingent liabilities of the Acquired Fund as of such dates not disclosed therein; (g)At the Closing Date, all federal and other tax returns and reports of the Acquired Fund required by law then to have been filed prior to the Closing Date shall have been filed, and all federal and other taxes due shall have been paid so far as due, or provision shall have been made for the payment thereof and, to the best of the Acquired Fund's knowledge, no such return is currently under audit and no assessment has been asserted with respect to such returns; (h) For each taxable year of its operation and for the taxable year that will end on the Closing Date the Acquired Fund has met and will have met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company, has elected to be treated as such and has computed (or will compute) its federal income tax under Section 882 of the Code; (i) All issued and outstanding shares of beneficial interest of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and nonassessable by the LB Trust. All of the issued and outstanding shares of beneficial interest of the Acquired Fund will, at the time of Closing, be held by the persons and in the amounts set forth in the Shareholder List submitted to the Acquiring Fund pursuant to Paragraph 3.4 hereof. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of its shares of beneficial interest, nor is there outstanding any security convertible into any of its shares of beneficial interest; (j) At the Closing Date, the Acquired Fund will have good and marketable title to its assets to be transferred to the Acquiring Fund pursuant to paragraph 1.2 and full right, power and authority to sell, assign, transfer and deliver such assets hereunder and, upon delivery and payment for such assets, the Acquiring Fund will acquire good and marketable title thereto, subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the Securities Act of 1933, as amended (the "1933 Act"), other than as disclosed to the Acquiring Fund; (k) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Acquired Fund's Board of Trustees, and subject to the approval of the Acquired Fund's shareholders, this Agreement, assuming due authorization, execution and delivery by the Acquiring Fund, will constitute a valid and binding obligation of the Acquired Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights and to general equity principles; (l) The information to be furnished by the Acquired Fund for use in no-action letters, applications for exemptive orders, registration statements, proxy materials and other documents which may be necessary in connection with the transactions contemplated hereby shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations thereunder applicable thereto; (m) The proxy statement of the Acquired Fund (the "Proxy Statement") to be included in the Registration Statement referred to in paragraph 5.7 (other than information therein that relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements are made, not misleading; (n) Since October 31, 2003, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities, or business other than changes occurring in the ordinary course of business (including declines in the net asset value of the Acquired Fund and/or its shares of common stock), or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to the Acquiring Fund; (o) The Acquired Fund has qualified as a regulated investment company for each taxable year of its operation and the Acquired Fund will qualify as such as of the Closing Date with respect to its taxable year ending on the Closing Date; (p) All of the issued and outstanding shares of beneficial interest of the Acquired Fund have been offered for sale and sold in conformity with all applicable federal and state securities laws; (q) The prospectus of the Acquired Fund, dated December 30, 2003, (the "Acquired Fund Prospectus"), furnished to the Acquiring Fund, does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; (r) The Acquired Fund Tax Representation Certificate to be delivered by the Acquired Fund to the Acquiring Fund at Closing pursuant to Section 7.5 (the "Acquired Fund Tax Representation Certificate") will not on the Closing Date contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading; and (s) The books and records of the Acquired Fund made available to the Acquiring Fund and/or its counsel are substantially true and correct and contain no material misstatements or omissions with respect to the operations of the Acquired Fund. 4.2 The AAL Trust and the Acquiring Fund represent and warrant to the LB Trust and Acquired Fund as follows: (a) The Acquiring Fund is a series of the AAL Trust, a Business Trust organized and validly existing under the laws of the Commonwealth of Massachusetts. The AAL Trust is a registered investment company classified as a management company of the open-end type and its registration with the Commission as an investment company under the 1940 Act is in full force and effect; (b) The AAL Trust, on behalf of the Acquiring Fund has the power and all necessary federal, state and local qualifications and authorizations to own all its assets, to carry on its business as now being conducted, to enter into and carry out this Agreement, and to consummate the transactions contemplated herein; (c) The then current prospectus (the "Acquiring Fund Prospectus") and statement of additional information of the Acquiring Fund, and any amendments or supplements thereto on or prior to the Closing Date, and the Registration Statement on Form N-14 filed in connection with this Agreement (other than written information furnished by the Acquired Fund for inclusion therein, as covered by the Acquired Fund's warranty in Paragraph 4.1(m) hereof) will conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder. The Acquiring Fund Prospectus does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and the Registration Statement will not include any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (d) At the Closing Date, the Acquiring Fund will have good and marketable title to the Acquiring Fund's assets; (e) The execution, delivery and performance of this Agreement will not result, in a material violation of the Declaration of Trust or Bylaws of the AAL Trust or of any agreement, indenture, instrument, contract, lease or other undertaking to which the AAL Trust or the Acquiring Fund is a party or by which it is bound; (f) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened against the Acquiring Fund or any of the Acquiring Fund's properties or assets. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings and the Acquiring Fund is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquiring Fund's business or ability to consummate the transactions contemplated herein; (g) The Statement of Assets and Liabilities of the Acquiring Fund for the fiscal year ended April 30, 2003, have been audited by PricewaterhouseCoopers LLP, independent auditors, and are in accordance with generally accepted accounting principles consistently applied, and such statements (copies of which have been furnished to the Acquired Fund) fairly reflect the financial condition of the Acquiring Fund as of such dates, and there are no known contingent liabilities of the Acquiring Fund as of such dates not disclosed therein; (h) Since October 31, 2003, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence of the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed to and accepted by the Acquired Fund; (i) The Acquiring Fund has qualified as a regulated investment company for each taxable year of its operation and the Acquiring Fund will qualify as such as of the Closing Date; (j) At the Closing Date, all federal and other tax returns and reports of the Acquiring Fund required by law then to have been filed by such date shall have been filed, and all federal and other taxes due shall have been paid so far as due, or provision shall have been made for the payment thereof and, to the best of the Acquiring Fund's knowledge, no such return is currently under audit and no assessment has been asserted with respect to such returns; (k) For each taxable year of its operation, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company the Acquiring Fund will qualify as such on the Closing Date and the Acquiring Fund intends to so qualify in the future. The Acquiring Fund has elected to be treated as a regulated investment company and has computed and will continue to compute its federal income tax under Section 882 of the Code; (l) At the date hereof, all issued and outstanding shares of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any shares of the Acquiring Fund, nor is there outstanding any security convertible into shares of the Acquiring Fund; (m) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action, if any, on the part of the Acquiring Fund's Board of Trustees, and this Agreement, assuming due authorization, execution and delivery by the Acquired Fund, constitutes a valid and binding obligation of the Acquiring Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights and to general equity principles; (n) The Acquiring Fund Shares of corresponding classes to be issued and delivered to the Acquired Fund, for the accounts of the Acquired Fund Shareholders, pursuant to the terms of this Agreement, will at the Closing Date have been duly authorized and, when so issued and delivered, will be duly and validly issued Acquiring Fund Shares, and will be fully paid and non-assessable with no personal liability attaching to the ownership thereof; (o) The information to be furnished by the Acquiring Fund for use in no-action letters, applications for exemptive orders, registration statements, proxy materials and other documents which may be necessary in connection with the transactions contemplated hereby shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations applicable thereto; (p) The Proxy Statement to be included in the Registration Statement (only insofar as it relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading; (q) The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue the Acquiring Fund's operations after the Closing Date; (r) The Acquiring Fund Tax Representation Certificate to be delivered by the Acquiring Fund to the Acquired Fund at Closing pursuant to Section 6.3 (the "Acquiring Fund Tax Representation Certificate") will not on the Closing Date contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading; and (s) All of the issued and outstanding shares of beneficial interest of the Acquired Fund have been offered for sale and sold in conformity with all applicable federal and state securities laws. 5. COVENANTS OF THE ACQUIRED FUND AND THE ACQUIRING FUND 5.l The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date. It is understood that such ordinary course of business will include the declaration and payment of customary dividends and distributions and any other dividends and distributions deemed advisable, in each case payable either in cash or in additional shares. 5.2 As soon as practicable after the effective date of the Registration Statement, the Acquired Fund shall hold a shareholder meeting to consider and approve this Agreement and such other matters as the Board of Trustees of the LB Trust may determine. Such approval by the shareholders of the Acquired Fund shall, to the extent necessary to permit the consummation of the transactions contemplated herein without violating any investment objective, policy or restriction of the Acquired fund, be deemed to constitute approval by the shareholders of a temporary amendment of any investment objective, policy or restriction that would otherwise be inconsistent with or violate upon the consummation of such transactions solely for the purpose of consummating such transactions. 5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued hereunder are not being acquired for the purpose of making any distribution thereof other than in accordance with the terms of this Agreement. 5.4. The Acquired Fund will assist the Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of the Acquired Fund's shares. 5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund each will take, or cause to be taken, all actions, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. 5.6 The Acquired Fund shall furnish to the Acquiring Fund on the Closing Date the Statement of Assets and Liabilities of the Acquired Fund as of the Closing Date, which statement shall be prepared in accordance with generally accepted accounting principles consistently applied and shall be certified by the Acquired Fund's Treasurer or Assistant Treasurer. As promptly as practicable but in any case within 60 days after the Closing Date, the Acquired Fund shall furnish to the Acquiring Fund, in such form as is reasonably satisfactory to the AAL Trust, a statement of the earnings and profits of the Acquired Fund for federal income tax purposes and of any capital loss carryovers and other items that will be carried over to the Acquiring Fund as a result of Section 381 of the Code, and which statement will be certified by the President of the Acquired Fund. 5.7 The AAL Trust shall promptly prepare and file the Registration Statement with the SEC, and the AAL Trust and the LB Trust shall each make any other required or appropriate filings with respect to the actions contemplated hereby. 5.8 The Acquired Fund will provide the Acquiring Fund with information reasonably necessary for the preparation of a prospectus (the "Prospectus") which will include the Proxy Statement, referred to in paragraph 4.1(m), all to be included in a Registration Statement, in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940 Act in connection with the meeting of the Acquired Fund's shareholders to consider approval of this Agreement and the transactions contemplated herein. 5.9 Neither the Acquired Fund nor the Acquiring Fund shall take any action that would prevent the reorganization from qualifying as a "reorganization" under Section 368(a) of the Code. 5.10 The Acquired Fund will pay or cause to be paid to the Acquiring Fund any interest or proceeds it receives on or after the Closing Date with respect to its assets. 5.11 The Acquiring Fund agrees, as soon as practicable after the Valuation Date, to open shareholder accounts on its share ledger records for the shareholders of the Acquired Fund in connection with the distribution of shares by the Acquired Fund to such shareholders in accordance with Section 1.5. 5.12 Each party hereto covenants and agrees to provide the other party hereto and its agents and counsel with any and all documentation, information, assistance and cooperation that may become necessary from time to time with respect to the transactions contemplated by this Agreement. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND The obligations of the Acquired Fund to consummate the transactions provided for herein shall be subject, at its election, to the performance by the Acquiring Fund of all of the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following further conditions: 6.1 All representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 6.2 The Acquiring Fund shall have delivered to the Acquired Fund a certificate executed in its name by its Chairman of the Board, President or Vice President and its Treasurer or Assistant Treasurer, in a form reasonably satisfactory to the Acquired Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct in all material respects at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement. 6.3 The Acquiring Fund shall have delivered to Goodwin Procter LLP, in form and substance reasonably satisfactory to it, an Acquiring Fund Tax Representation Certificate for purpose of the opinion described in Section 8.6. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Acquired Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 7.2 The Acquired Fund shall have delivered to the Acquiring Fund a statement of the Acquired Fund's assets and liabilities, together with a list of the Acquired Fund's portfolio securities showing the tax basis of such securities by lot and the holding periods of such securities, as of the Closing Date, certified by the Treasurer or Assistant Treasurer of the Acquired Fund. 7.3 The Acquired Fund shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in its name by its Chairman of the Board, President or Vice President and its Treasurer or Assistant Treasurer, in form and substance satisfactory to the Acquiring Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Acquired Fund made in this Agreement are true and correct in all material respects at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement. 7.4 At or prior to the Closing Date, the Acquired Fund's investment adviser, or an affiliate thereof, shall have made all payments, or applied all credits, to the Acquired Fund required by any applicable contractual expense limitation. 7.5 The Acquired Fund shall have delivered to the Acquiring Fund an Acquired Fund Tax Representation Certificate substantially in the form attached to this Agreement as Annex B concerning certain tax-related matters with respect to the Acquired Fund. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND AND THE ACQUIRING FUND The obligations hereunder of the AAL Trust on behalf of the Acquired Fund and the LB Trust on behalf of the Acquiring Fund are each subject to the further conditions that on or before the Closing Date. 8.1 This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Fund in accordance with the provisions of the Declaration of Trust and Bylaws of the LB Trust and certified copies of the votes evidencing such approval shall have been delivered to the Acquiring Fund. Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the conditions set forth in this Paragraph 8.1. 8.2 On the Closing Date, no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. 8.3 All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities (including those of the Commission and of state Blue Sky and securities authorities, including "no-action" positions of and exemptive orders from such federal and state authorities) (and including the filing of Articles of Transfer with the Delaware State Department of Assessments and Taxation) deemed necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may for itself waive any of such conditions. 8.4 The Registration Statement shall have become effective under the 1933 Act and the 1940 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act or the 1940 Act. 8.5 The Acquired Fund shall have distributed to its shareholders, in a distribution or distributions qualifying for the deduction for dividends paid under Section 561 of the Code, all of its investment company taxable income (as defined in Section 852(b)(2) of the Code determined without regard to Section 852(b)(2)(D) of the Code) for its taxable year ending on the Closing Date, all of the excess of (i) its interest income excludable from gross income under Section 103(a) of the Code over (ii) its deductions disallowed under Sections 265 and 171(a)(2) of the Code for its taxable year ending on the Closing Date, and all of its net capital gain (as such term is used in Sections 852(b)(3)(A) and (C) of the Code), after reduction by any available capital loss carryforward, for its taxable year ending on the Closing Date. 8.6 The parties shall have received a favorable opinion of Goodwin Procter LLP, addressed to the Acquiring Fund and the Acquired Fund and satisfactory to Brett L. Agnew and John C. Bjork, as Secretary of the LB Trust and AAL Trust, respectively, substantially to the effect that for federal income tax purposes: (a) The transfer of all of the Acquired Fund's assets in exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of all of the outstanding Liabilities of the Acquired Fund will constitute a "reorganization" within the meaning of Section 368(a)(1)(F) of the Code, and the Acquiring Fund and the Acquired Fund are each a "party to a reorganization" within the meaning of Section 368(b) of the Code; (b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of all of the outstanding liabilities of the Acquired Fund; (c) No gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund's assets to the Acquiring Fund in exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of all of the outstanding liabilities of the Acquired Fund or upon the distribution (whether actual or constructive) of Acquiring Fund Shares to Acquired Fund's shareholders; (d) No gain or loss will be recognized by shareholders of the Acquired Fund upon the exchange of their Acquired Fund shares for the Acquiring Fund Shares; (e) The aggregate tax basis for the Acquiring Fund Shares received by each of the Acquired Fund's shareholders pursuant to the Reorganization will be the same as the aggregate tax basis of the Acquired Fund shares held by such shareholder immediately prior to the Reorganization, and the holding period of Acquiring Fund Shares to be received by each Acquired Fund shareholder will include the period during which the Acquired Fund shares exchanged therefor were held by such shareholder (provided that such Acquired Fund shares were held as capital assets on the date of the Reorganization); and (f) The tax basis to the Acquiring Fund of the Acquired Fund's assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the Reorganization, and the holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund. Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the conditions set forth in this paragraph 8.6. 9. BROKERAGE FEES AND EXPENSES 9.1 The Acquiring Fund represents and warrants to the Acquired Fund, and the Acquired Fund represents and warrants to the Acquiring Fund, that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. 9.2 (a) Except as may be otherwise provided herein, the Acquired Fund shall be liable for the expenses (Thrivent Financial for Lutherans and/or one or more of its affiliates has agreed to assume said expenses by separate agreement) incurred in connection with entering into and carrying out the provisions of this Agreement, including the expenses of: (i) counsel and independent accountants associated with the Reorganization; (ii) printing and mailing the Prospectus/Proxy Statement and soliciting proxies in connection with the meeting of shareholders of the Acquired Fund referred to in paragraph 5.2 hereof, (iii) any special pricing fees associated with the valuation of the Acquired Fund's or the Acquiring Fund's portfolio on the Closing Date; (iv) expenses associated with preparing this Agreement and preparing and filing the Registration Statement under the 1933 Act covering the Acquiring Fund Shares to be issued in the Reorganization; and (v) registration or qualification fees and expenses of preparing and filing such forms, if any, necessary under applicable state securities laws to qualify the Acquiring Fund Shares to be issued in connection with the Reorganization. The Acquiring Fund and the Acquired Fund shall each be liable solely for its own expenses incurred in connection with entering into and carrying out the provisions of this Agreement whether or not the transactions contemplated hereby are consummated. (b) Consistent with the provisions of paragraph 1.1, the Acquired Fund, prior to the Closing, shall pay for or include in the Statement of Assets and Liabilities prepared pursuant to paragraph 4.1(f) all of its known and reasonably estimated expenses associated with the transactions contemplated by this Agreement. 10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES 10.1 The parties hereto agree that no party has made any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties. 11. TERMINATION 11.1 This Agreement may be terminated by the mutual agreement of the LB Trust on behalf of the Acquiring Fund and the AAL Trust on behalf of the Acquired Fund. In addition, either party may at its option terminate this Agreement at or prior to the Closing Date: (a) because of a condition herein expressed to be precedent to the obligations of the terminating party which has not been met and which reasonably appears will not or cannot be met; (b) by resolution of the LB Trust's Board of Trustees if circumstances should develop that, in the good faith opinion of such Board, make proceeding with the Agreement not in the best interests of the Acquired Fund's shareholders; or (c) by resolution of the AAL Trust's Board of Trustees if circumstances should develop that, in the good faith opinion of such Board, make proceeding with the Agreement not in the best interests of the Acquiring Fund's shareholders. 11.2 In the event of any such termination, there shall be no liability for damages on the part of either the Acquired Fund or the Acquiring Fund or the respective Trustees or officers of the LB Trust or the AAL Trust to the other party, but each shall bear the expenses incurred by it incidental to the preparation and carrying out of this Agreement as provided in paragraph 9. 12. AMENDMENTS; WAIVERS 12.1 This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the authorized officers of the Acquired Fund and the Acquiring Fund; provided, however, that following the meeting of the Acquired Fund shareholders called by the Acquired Fund pursuant to paragraph 5.2 of this Agreement, no such amendment may have the effect of changing the provisions for determining the number of Acquiring Fund Shares to be issued to the Acquired Fund's shareholders under this Agreement to the detriment of such shareholders without their further approval. 12.2 At any time prior to the Closing Date either party hereto may by written instrument signed by it (i) waive any inaccuracies in the representations and warranties made to it contained herein and (ii) waive compliance with any of the covenants or conditions (other than those contained in any of paragraph 8.1, paragraph 8.4 or paragraph 8.6 of this Agreement) made for its benefit contained herein. 13. NOTICES Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by hand delivery, fax, or certified mail addressed to the The AAL Mutual Funds 625 Fourth Avenue South, Minneapolis, MN 55415, Attention: Brett L. Agnew; or to The Lutheran Brotherhood Family of Funds, 625 Fourth Avenue South, Minneapolis, MN 55415, Attention: John C. Bjork. 14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT 14.l The article and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 14.3 This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota. 14.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm, corporation or other entity, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its President and attested by its Secretary. Attest: _______________________________ _______________________________ Brett L. Agnew, Secretary Pamela J. Moret, President The AAL Mutual Funds The AAL Mutual Funds Attest: _______________________________ _______________________________ John C. Bjork, Secretary Pamela J. Moret, President The Lutheran Brotherhood Family of Funds The Lutheran Brotherhood Family of Funds SCHEDULE A Acquired Fund Acquiring Fund Lutheran Brotherhood World Growth Fund Thrivent Partner International Stock Fund Lutheran Brotherhood Growth Fund Thrivent Large Cap Growth Fund Lutheran Brotherhood Fund Thrivent Large Cap Stock Fund Lutheran Brotherhood Value Fund Thrivent Large Cap Value Fund Lutheran Brotherhood Municipal Bond Fund Thrivent Municipal Bond Fund Lutheran Brotherhood Money Market Fund Thrivent Money Market Fund AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this 12th day of November, 2003, by and between The Lutheran Brotherhood Family of Funds ("LB Trust"), a series of separate mutual fund portfolios within a single Delaware Statutory Trust acting on behalf of each fund listed on Schedule A attached hereto (each an "Acquired Fund") with its principal place of business at 625 Fourth Avenue South, Minneapolis, MN 55415, and The AAL Mutual Funds ("AAL Trust"), a series of separate mutual fund portfolios within a single Massachusetts Business Trust acting on behalf of each fund listed on Schedule A attached hereto (each an "Acquiring Fund") with its principal place of business at 625 Fourth Avenue South, Minneapolis, MN 55415. This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of the Treasury Regulations under Section 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code"), with the Acquiring Fund and the Acquired Fund each being a "party to a reorganization" within the meaning of Section 368(b) of the Code. The reorganization (the "Reorganization") will consist of (a) the transfer of all of the assets of the Acquired Fund in exchange for shares of the corresponding Acquiring Fund (the "Acquiring Fund Shares") and the assumption by the Acquiring Fund of all of the liabilities of the corresponding Acquired Fund, and (b) the distribution, after the Closing Date herein referred to, of Acquiring Fund Shares to the shareholders of the corresponding Acquired Fund in liquidation of the Acquired Fund and the subsequent dissolution of such Acquired Fund, all upon the terms and conditions hereinafter set forth in this Agreement. WHEREAS, the Acquiring Fund and the Acquired Funds are each series of registered investment companies of the management type; WHEREAS, the Acquiring Fund is authorized to issue shares of common stock in multiple classes; WHEREAS, the Board of Trustees of the Acquired Funds has determined that the exchange of all of the assets of the Acquired Funds for the corresponding class of Acquiring Fund Shares is in the best interests of each of the Acquired Funds and their respective shareholders; WHEREAS, the Board of Trustees of the Acquiring Fund has determined that the exchange of all the assets of the Acquired Fund for the corresponding class of Acquiring Fund Shares is in the best interests of the Acquiring Fund and its shareholders and that the shares of the existing shareholders of the Acquiring Fund would not be diluted as a result of this transaction; NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND 1.1 Each of the Acquired Fund will transfer all of their assets (consisting, without limitation, of portfolio securities and instruments, dividends and interest receivables, cash and other assets), as set forth in the statement of assets and liabilities referred to in Paragraph 7.2 hereof (the "Statement of Assets and Liabilities"), to the Acquiring Fund free and clear of all liens and encumbrances, except as otherwise provided herein, in exchange for (i) the assumption by the Acquiring Fund of all of the liabilities of each Acquired Fund, which liabilities, shall be assigned and transferred to the Acquiring Fund by the Acquired Funds (the "Assumed Liabilities") and assumed by the Acquiring Fund, and (ii) delivery by the Acquiring Fund to each of the Acquired Funds, for distribution pro rata by each Acquired Fund to its shareholders in proportion to their respective ownership of shares of beneficial interest in the Acquired Funds, as of the close of business on July 16, 2004 (the "Closing Date"), of a number of the corresponding class of Acquiring Fund Shares having an aggregate net asset value equal to the value of the assets, less such liabilities (herein referred to as the "net value of the assets") assumed, assigned and delivered, all determined as provided in Paragraph 2.1 hereof and as of a date and time as specified therein. Such transactions shall take place at the closing provided for in Paragraph 3.1 hereof (the "Closing"). All computations shall be provided by Thrivent Investment Management Inc. (the "Pricing Agent") for the Acquiring Fund and the Acquired Fund. 1.2 (a) The assets of each Acquired Fund to be acquired by the Acquiring Fund shall consist of all property, including, without limitation, all cash, securities and dividends or interest receivables which are owned by such Acquired Fund and any deferred or prepaid expenses shown as an asset on the books of such Acquired Fund on the Closing Date; and (b) Each Acquired Fund has provided the Acquiring Fund with a list of the Acquired Fund's assets as of the date of execution of this Agreement. Each Acquired Fund reserves the right to sell any securities but will not, without the prior approval of the Acquiring Fund, acquire any additional securities other than securities of the type in which the Acquiring Fund is permitted to invest. The Acquiring Fund will, within a reasonable time prior to the Closing Date, furnish the Acquired Fund with a statement of the Acquiring Fund's investment objectives, policies and restrictions and a list of the securities, if any, on the Acquired Fund's list referred to in the first sentence of this paragraph which do not conform to the Acquiring Fund's investment objectives, policies and restrictions. In the event that an Acquired Fund holds any investments which the Acquiring Fund may not hold, such Acquired Fund will dispose of such securities prior to the Closing Date. In addition, if it is determined that the portfolios of the Acquired Funds and the Acquiring Fund, when aggregated, would contain investments exceeding certain percentage limitations imposed upon the Acquiring Fund with respect to such investments, the Acquired Funds, if requested by the Acquiring Fund, will dispose of and/or reinvest a sufficient amount of such investments as may be necessary to avoid violating such limitations as of the Closing Date. 1.3 Each Acquired Fund will endeavor to discharge all of such Acquired Fund's known liabilities and obligations prior to the Closing Date. 1.4 The Acquiring Fund shall assume the right to assert all legal claims against third parties as would have been available to the Acquired Funds as of the Valuation Date (as defined in Section 2.1). 1.5 As provided in paragraph 3.3, either on or as soon after the Closing Date as is conveniently practicable (the "Liquidation Date"), each Acquired Fund will liquidate by distributing pro rata to such Acquired Fund's shareholders of record determined as of the close of business on the Closing Date (the "Acquired Fund Shareholders"), the corresponding classes of Acquiring Fund Shares it receives pursuant to paragraph 1.1. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of each Acquired Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the name of the Acquired Fund Shareholders and representing the respective pro rata number of the Acquiring Fund Shares due such shareholders. All issued and outstanding shares of each Acquired Fund will simultaneously be canceled on the books of such Acquired Fund. 1.6 The Acquired Fund shareholders holding physical certificates representing their ownership of shares of beneficial interest of each Acquired Fund shall surrender such certificates or deliver an affidavit with respect to lost certificates in such form and accompanied by such surety bonds as the Acquired Funds may require (collectively, an "Affidavit"), to Thrivent Financial for Lutherans prior to the Closing Date. Any Acquired Fund share certificate which remains outstanding on the Closing Date shall be deemed to be canceled, shall no longer evidence ownership of shares of beneficial interest of such Acquired Fund and shall evidence ownership of Acquiring Fund Shares. Unless and until any such certificate shall be so surrendered or an Affidavit relating thereto shall be delivered, dividends and other distributions payable by the Acquiring Fund subsequent to the Liquidation Date with respect to Acquiring Fund Shares shall be paid to the holder of such certificate(s), but the Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares unless the Acquired Fund share certificates are first surrendered to each Acquiring Fund or an Affidavit relating thereto shall be delivered. 1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a name other than the registered holder of the Acquired Fund Shares on the books of each Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.8 Any reporting responsibility of each Acquired Fund is and shall remain the responsibility of such Acquired Fund up to and including the Closing Date and such later date on which such Acquired Fund is terminated. 1.9 Such Acquired Funds shall, following the Closing Date and the making of all distributions pursuant to paragraph 1.4, be dissolved under the laws of the State of Maryland and in accordance with their respective governing documents. 2. VALUATION 2.1 The net asset values of the corresponding classes of Acquiring Fund Shares and the net values of the assets and liabilities of the Acquired Funds to be transferred shall, in each case, be determined as of the close of business (4:00 p.m. Eastern time) on the Closing Date. The net asset values of the Acquiring Fund Shares shall be computed by the Pricing Agent in the manner set forth in the Acquiring Fund's Declaration of Trust (the "Trust"), or By-Laws and the Acquiring Fund's then-current prospectus and statement of additional information and shall be computed in each case to not fewer than two decimal places. The net values of the assets of the Acquired Funds to be transferred shall be computed by the Pricing Agent by calculating the value of the assets transferred by the Acquired Funds and by subtracting therefrom the amount of the liabilities assigned and transferred to and assumed by the Acquiring Funds on the Closing Date, said assets and liabilities to be valued in the manner set forth in the Acquired Funds' then current respective prospectuses and statements of additional information and shall be computed in each case to not fewer than two decimal places. 2.2 The number of Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for each Acquired Fund's assets shall be determined by dividing the value of such Acquired Fund's assets less the liabilities assumed by the Acquiring Fund, by the Acquiring Fund's net asset value per share, all as determined in accordance with Paragraph 2.1 hereof. 2.3 All computations of value shall be made by the Pricing Agent, in accordance with its regular practice as pricing agent for the Acquired Fund and the Acquiring Funds, respectively. 3. CLOSING 3.1 The Closing Date shall be July 16, 2004, or such later date as the parties may agree to in writing. All acts taking place at the Closing shall be deemed to take place simultaneously as of the close of business on the Closing Date unless otherwise provided. The Closing shall be held as of 5:00 p.m. (Central time) at the offices of Thrivent Financial for Lutherans, 625 Fourth Avenue South, Minneapolis, Minnesota, or at such other time and/or place as the parties may agree. 3.2 In the event that on the Valuation Date (a) the New York Stock Exchange ("NYSE") or another primary trading market for portfolio securities of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading thereon shall be restricted or (b) trading or the reporting of trading on the NYSE or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 3.3 Portfolio securities that are not held in book-entry form in the name of State Street Bank (the "Custodian") as record holder for the Acquired Fund shall be presented by the Acquired Fund to the Custodian for examination no later than three business days preceding the Closing Date. Portfolio securities which are not held in book-entry form shall be delivered by the Acquired Fund to the Custodian for the account of the Acquiring Fund on the Closing Date, duly endorsed in proper form for transfer, in such condition as to constitute good delivery thereof in accordance with the custom of brokers, and shall be accompanied by all necessary federal and state stock transfer stamps or a check for the appropriate purchase price thereof. Portfolio securities held of record by the Custodian in book-entry form on behalf of the Acquired Fund shall be delivered to the Acquiring Fund by the Custodian by recording the transfer of beneficial ownership thereof on its records. The cash delivered shall be in the form of currency or by the Custodian crediting the Acquiring Fund's account maintained with the Custodian with immediately available funds. 3.4 The Acquired Fund shall deliver at the Closing a list of the names, addresses, federal taxpayer identification numbers and backup withholding and nonresident alien withholding status of the Acquired Fund shareholders and the number of outstanding shares of beneficial interest of the corresponding classes of the Acquired Fund owned by each such shareholder, all as of the close of business on the Closing Date, certified by its Treasurer, Secretary or other authorized officer (the "Shareholder List"). The Acquiring Fund shall issue and deliver to the Acquired Fund a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, stock certificates, receipts or other documents as such other party or its counsel may reasonably request. 4. REPRESENTATIONS AND WARRANTIES 4.1 The LB Trust and each Acquired Fund represent and warrant to the AAL Trust and Acquiring Fund as follows: (a) The Acquired Fund is a series of the LB Trust, a statutory trust which is duly organized, validly existing and in good standing under the laws of the State of Delaware. The LB Trust is a registered investment company classified as a management company of the open-end type, and its registration with the Securities and Exchange Commission (the "Commission") as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), is in full force and effect; (b) The LB Trust, on behalf of the Acquired Fund, has the power and all necessary federal, state and local qualifications and authorizations to own all its assets, to carry on its business as now being conducted, to enter into and carry out this Agreement, and to consummate the transactions contemplated herein; (c) The execution, delivery and performance of this Agreement will not result in a material violation of the Declaration of Trust or Bylaws of the LB Trust or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquired Fund is a party or by which the LB Trust or the Acquired Fund is a party or by which it is bound; (d) Except as disclosed in writing in the Registration Statement on Form N-14 of the LB Trust ("Registration Statement") the Acquired Fund has no material contracts or other commitments (other than this Agreement) which will be terminated with liability to the Acquired Fund prior to the Closing Date; (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or to the Acquired Fund's knowledge threatened against the Acquired Fund or any of the Acquired Fund's properties or assets (other than that previously disclosed to the other party to the Agreement) which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings and is not party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquired Fund's business or the ability of the Acquired Fund to consummate the transactions herein contemplated; (f) The Statements of Assets and Liabilities of the Acquired Fund for each of the fiscal years in the five year period ended October 31, 2003, have been audited by PricewaterhouseCoopers LLP, independent auditors, and are in accordance with generally accepted accounting principles consistently applied, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Acquired Fund as of such dates, and there are no known contingent liabilities of the Acquired Fund as of such dates not disclosed therein; (g) The Acquired Fund will file its final federal and other tax returns for the period ending on the Closing Date in accordance with the Code. At the Closing Date, all federal and other tax returns and reports of the Acquired Fund required by law then to have been filed prior to the Closing Date shall have been filed, and all federal and other taxes due shall have been paid so far as due, or provision shall have been made for the payment thereof and, to the best of the Acquired Fund's knowledge, no such return is currently under audit and no assessment has been asserted with respect to such returns; (h) For each taxable year of its operation and for the taxable year that will end on the Closing Date the Acquired Fund has met and will have met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company, has elected to be treated as such and has computed (or will compute) its federal income taxes under Section 882 of the Code; (i) All issued and outstanding shares of beneficial interest of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and nonassessable by the LB Trust. All of the issued and outstanding shares of beneficial interest of the Acquired Fund will, at the time of Closing, be held by the persons and in the amounts set forth in the Shareholder List submitted to the Acquiring Fund pursuant to Paragraph 3.4 hereof. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of its shares of beneficial interest, nor is there outstanding any security convertible into any of its shares of beneficial interest; (j) At the Closing Date, the Acquired Fund will have good and marketable title to its assets to be transferred to the Acquiring Fund pursuant to paragraph 1.2 and full right, power and authority to sell, assign, transfer and deliver such assets hereunder and, upon delivery and payment for such assets, the Acquiring Fund will acquire good and marketable title thereto, subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the Securities Act of 1933, as amended (the "1933 Act"), other than as disclosed to the Acquiring Fund; (k) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Acquired Fund's Board of Trustees, and subject to the approval of the Acquired Fund's shareholders, this Agreement, assuming due authorization, execution and delivery by the Acquiring Fund, will constitute a valid and binding obligation of the Acquired Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights and to general equity principles; (l) The information to be furnished by the Acquired Fund for use in no-action letters, applications for exemptive orders, registration statements, proxy materials and other documents which may be necessary in connection with the transactions contemplated hereby shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations thereunder applicable thereto; (m) The proxy statement of the Acquired Fund (the "Proxy Statement") to be included in the Registration Statement referred to in paragraph 5.7 (other than information therein that relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements are made, not misleading; (n) Since October 31, 2003, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities, or business other than changes occurring in the ordinary course of business (including declines in the net asset value of the Acquired Fund and/or its shares of common stock), or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to the Acquiring Fund; (o) The Acquired Fund has qualified as a regulated investment company for each taxable year of its operation and the Acquired Fund will qualify as such as of the Closing Date with respect to its taxable year ending on the Closing Date; (p) All of the issued and outstanding shares of beneficial interest of the Acquired Fund have been offered for sale and sold in conformity with all applicable federal and state securities laws; (q) The prospectus of the Acquired Fund, dated March 31, 2003, (the "Acquired Fund Prospectus"), furnished to the Acquiring Fund, does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; (r) The Acquired Fund Tax Representation Certificate to be delivered by the Acquired Fund to the Acquiring Fund at Closing pursuant to Section 7.5 (the "Acquired Fund Tax Representation Certificate") will not on the Closing Date contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading; and (s) The books and records of the Acquired Fund made available to the Acquiring Fund and/or its counsel are substantially true and correct and contain no material misstatements or omissions with respect to the operations of the Acquired Fund. 4.2 The AAL Trust and the Acquiring Fund represent and warrant to the LB Trust and Acquired Fund as follows: (a) The Acquiring Fund is a series of the AAL Trust, a statutory trust validly existing under the laws of the Commonwealth of Massachusetts. The AAL Trust is a registered investment company classified as a management company of the open-end type and its registration with the Commission as an investment company under the 1940 Act is in full force and effect; (b) The AAL Trust, on behalf of the Acquiring Fund has the power and all necessary federal, state and local qualifications and authorizations to own all its assets, to carry on its business as now being conducted, to enter into and carry out this Agreement, and to consummate the transactions contemplated herein; (c) The current prospectus (the "Acquiring Fund Prospectus") and statement of additional information of the Acquiring Fund, and any amendments or supplements thereto on or prior to the Closing Date, and the Registration Statement filed in connection with this Agreement (other than written information furnished by the Acquired Fund for inclusion therein, as covered by the Acquired Fund's warranty in Paragraph 4.1(m) hereof) will conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder. The Acquiring Fund Prospectus does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and the Registration Statement will not include any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (d) At the Closing Date, the Acquiring Fund will have good and marketable title to the Acquiring Fund's assets; (e) The execution, delivery and performance of this Agreement will not result, in a material violation of the Deduction of Trust or Bylaws of the AAL Trust or of any agreement, indenture, instrument, contract, lease or other undertaking to which the AAL Trust or the Acquiring Fund is a party or by which it is bound; (f) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened against the Acquiring Fund or any of the Acquiring Fund's properties or assets. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings and the Acquiring Fund is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquiring Fund's business or ability to consummate the transactions contemplated herein; (g) At the Closing Date, all federal and other tax returns and reports of the Acquiring Fund required by law then to have been filed by such date shall have been filed, and all federal and other taxes due shall have been paid so far as due, or provision shall have been made for the payment thereof and, to the best of the Acquiring Fund's knowledge, no such return is currently under audit and no assessment has been asserted with respect to such returns; (h) The Acquiring Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company, the Acquiring Fund will qualify as such on the Closing Date and the Acquiring Fund intends to so qualify in the future. The Acquiring Fund has elected to be treated as a regulated investment company and has computed and will continue to compute its federal income tax under Section 882 of the Code; (i) At the date hereof, all issued and outstanding shares of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any shares of the Acquiring Fund, nor is there outstanding any security convertible into shares of the Acquiring Fund; (j) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action, if any, on the part of the Acquiring Fund's Board of Trustees, and this Agreement, assuming due authorization, execution and delivery by the Acquired Fund, constitutes a valid and binding obligation of the Acquiring Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights and to general equity principles; (k) The Acquiring Fund Shares of corresponding classes to be issued and delivered to the Acquired Fund, for the accounts of the Acquired Fund Shareholders, pursuant to the terms of this Agreement, will at the Closing Date have been duly authorized and, when so issued and delivered, will be duly and validly issued Acquiring Fund Shares, and will be fully paid and non-assessable with no personal liability attaching to the ownership thereof; (l) The information to be furnished by the Acquiring Fund for use in no-action letters, applications for exemptive orders, registration statements, proxy materials and other documents which may be necessary in connection with the transactions contemplated hereby shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations applicable thereto; (m) The Proxy Statement to be included in the Registration Statement (only insofar as it relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading; (n) The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue the Acquiring Fund's operations after the Closing Date; (o) The Acquiring Fund Tax Representation Certificate to be delivered by the Acquiring Fund to the Acquired Fund at Closing pursuant to Section 6.3 (the "Acquiring Fund Tax Representation Certificate") will not on the Closing Date contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading; and (p) All of the issued and outstanding shares of beneficial interest of the Acquired Fund have been offered for sale and sold in conformity with all applicable federal and state securities laws. 5. COVENANTS OF EACH ACQUIRED FUND AND THE ACQUIRING FUND 5.l The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date. It is understood that such ordinary course of business will include the declaration and payment of customary dividends and distributions and any other dividends and distributions deemed advisable, in each case payable either in cash or in additional shares. 5.2 As soon as practicable after the effective date of the Registration Statement, the Acquired Fund shall hold a shareholder meeting to consider and approve this Agreement and such other matters as the Board of Trustees of the Trust may determine. Such approval by the shareholders of the Acquired Fund shall, to the extent necessary to permit the consummation of the transactions contemplated herein without violating any investment objective, policy or restriction of the Acquired fund, be deemed to constitute approval by the shareholders of a temporary amendment of any investment objective, policy or restriction that would otherwise be inconsistent with or violate upon the consummation of such transactions solely for the purpose of consummating such transactions. 5.3 In addition to the conditions contained in Section 5.2 herein, the Reorgainzation shall be consummated if, and only if shareholders of each Acquired Fund approve this Agreement. 5.4 The Acquired Fund covenants that the Acquiring Fund Shares to be issued hereunder are not being acquired for the purpose of making any distribution thereof other than in accordance with the terms of this Agreement. 5.5 The Acquired Fund will assist the Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of the Acquired Fund's shares. 5.6 Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund each will take, or cause to be taken, all actions, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. 5.7 The Acquired Fund shall furnish to the Acquiring Fund on the Closing Date the Statement of Assets and Liabilities of the Acquired Fund as of the Closing Date, which statement shall be prepared in accordance with generally accepted accounting principles consistently applied and shall be certified by the Acquired Fund's Treasurer or Assistant Treasurer. As promptly as practicable but in any case within 60 days after the Closing Date, the Acquired Fund shall furnish to the Acquiring Fund, in such form as is reasonably satisfactory to the AAL Trust, a statement of the earnings and profits of the Acquired Fund for federal income tax purposes and of any capital loss carryovers and other items that will be carried over to the Acquiring Fund as a result of Section 381 of the Code, and which statement will be certified by the President of the Acquired Fund. 5.8 The AAL Trust shall promptly prepare and file the Registration Statement with the SEC, and the AAL Trust and the LB Trust shall each make any other required or appropriate filings with respect to the actions contemplated hereby. 5.9 The Acquired Fund will provide the Acquiring Fund with information reasonably necessary for the preparation of a prospectus (the "Prospectus") which will include the Proxy Statement, referred to in paragraph 4.1(m), all to be included in a Registration Statement, in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940 Act in connection with the meeting of the Acquired Fund's shareholders to consider approval of this Agreement and the transactions contemplated herein. 5.10 Neither the Acquired Fund nor the Acquiring Fund shall take any action that would prevent the reorganization from qualifying as one or more "reorganizations" under Section 368(a) of the Code. 5.11 The Acquired Fund will pay or cause to be paid to the Acquiring Fund any interest or proceeds it receives on or after the Closing Date with respect to its assets. 5.12 The Acquiring Fund agrees, as soon as practicable after the Valuation Date, to open shareholder accounts on its share ledger records for the shareholders of the Acquired Fund in connection with the distribution of shares by the Acquired Fund to such shareholders in accordance with Section 1.5. 5.13 Each party hereto covenants and agrees to provide the other party hereto and its agents and counsel with any and all documentation, information, assistance and cooperation that may become necessary from time to time with respect to the transactions contemplated by this Agreement. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND The obligations of each Acquired Fund to consummate the transactions provided for herein shall be subject, at its election, to the performance by such Acquiring Fund and the other Acquiring Fund of all of the obligations to be performed by them hereunder on or before the Closing Date and, in addition thereto, the following further conditions: 6.1 All representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 6.2 The Acquiring Fund shall have delivered to the Acquired Fund a certificate executed in its name by its Chairman of the Board, President or Vice President and its Treasurer or Assistant Treasurer, in a form reasonably satisfactory to the Acquired Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct in all material respects at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement. 6.3 The Acquiring Fund shall have delivered to Goodwin Procter LLP, in form and substance reasonably satisfactory to it, an Acquiring Fund Tax Representation Certificate for purposes of the opinion described in Section 8.5. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Acquired Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 7.2 The Acquired Fund shall have delivered to the Acquiring Fund a statement of the Acquired Fund's assets and liabilities, together with a list of the Acquired Fund's portfolio securities showing the tax basis of such securities by lot and the holding periods of such securities, as of the Closing Date, certified by the Treasurer or Assistant Treasurer of the Acquired Fund. 7.3 The Acquired Fund shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in its name by its Chairman of the Board, President or Vice President and its Treasurer or Assistant Treasurer, in form and substance satisfactory to the Acquiring Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Acquired Fund made in this Agreement are true and correct in all material respects at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement. 7.4 At or prior to the Closing Date, the Acquired Fund's investment adviser, or an affiliate thereof, shall have made all payments, or applied all credits, to the Acquired Fund required by any applicable contractual expense limitation. 7.5 The Acquired Fund shall have delivered to Goodwin Procter LLP, in form and substance reasonably satisfactory to it, an Acquired Fund Tax Representation Certificate for purposes of the opinion described in Section 8.7. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND AND THE ACQUIRING FUND The obligations hereunder of the AAL Trust on behalf of the Acquired Fund and the LB Trust on behalf of the Acquiring Fund are each subject to the further conditions that on or before the Closing Date. 8.1 This Agreement and the transactions contemplated hereunder shall have been approved by the requisite vote of the holders of the outstanding shares of each Acquired Fund in accordance with the provisions of the Declaration of Trust and Bylaws of the LB Trust and certified copies of the votes evidencing such approval shall have been delivered to the Acquiring Fund. Notwithstanding anything herein to the contrary, none of the Acquiring Funds nor the Acquired Fund may waive the conditions set forth in this Paragraph 8.1. 8.2 On the Closing Date, no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. 8.3 All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities (including those of the Commission and of state Blue Sky and securities authorities, including "no-action" positions of and exemptive orders from such federal and state authorities) (and including the filing of Articles of Transfer with the Delaware State Department of Assessments and Taxation) deemed necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may for itself waive any of such conditions. 8.4 The Registration Statement shall have become effective under the 1933 Act and the 1940 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act or the 1940 Act. 8.5 The parties shall have received a favorable opinion of Goodwin Procter LLP, addressed to the Acquiring Fund and the Acquired Fund and satisfactory to Brett L. Agnew and John C. Bjork, as Secretary of the LB Trust and AAL Trust, respectively, substantially to the effect that for federal income tax purposes: (a) The transfer of all of each Acquired Fund's assets in exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of the Assumed Liabilities of the Acquired Fund will constitute one or more "reorganizations" within the meaning of Section 368(a) of the Code, and the Acquiring Fund and each Acquired Fund are each a "party to a reorganization" within the meaning of Section 368(b) of the Code; (b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of each Acquired Fund in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of all of the Assumed Liabilities of each Acquired Fund; (c) No gain or loss will be recognized by the Acquired Fund upon the transfer of each Acquired Fund's assets to the Acquiring Fund in exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of all of the Assumed Liabilities of each Acquired Fund or upon the distribution (whether actual or constructive) of Acquiring Fund Shares to each Acquired Fund's shareholders; (d) No gain or loss will be recognized by shareholders of each Acquired Fund upon the exchange of their Acquired Fund shares for the Acquiring Fund Shares; (e) The aggregate tax basis for the Acquiring Fund Shares received by each of the Acquired Fund's shareholders pursuant to the Reorganization will be the same as the aggregate tax basis of the Acquired Fund shares held by such shareholder immediately prior to the Reorganization, and the holding period of Acquiring Fund Shares to be received by each Acquired Fund shareholder will include the period during which the Acquired Fund shares exchanged therefor were held by such shareholder (provided that such Acquired Fund shares were held as capital assets on the date of the Reorganization); and (f) The tax basis to the Acquiring Fund of the Acquired Fund's assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the Reorganization, and the holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund. (g) For purposes of Section 381 of the Code, the Acquiring Fund will be treated as the Acquired Fund would have been had there been no Reorganization. Accordingly the taxable year of the Acquired Fund will not end on the effective date of the Reorganization and the tax attributes of the Acquired Fund will be taken into account by the Acquiring Fund as if there had been no Reorganization. The Acquiring Fund may continue to use the same taxpayer identification number previously used by the Acquired Fund. Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the conditions set forth in this Paragraph 8.5. 9. BROKERAGE FEES AND EXPENSES 9.1 The Acquiring Fund represents and warrants to the Acquired Fund, and the Acquired Fund represents and warrants to the Acquiring Fund, that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. 9.3 (a) Except as may be otherwise provided herein, the Acquired Fund shall be liable for the expenses (Thrivent Financial for Lutherans and/or one or more of its affiliates has agreed to assume said expenses by separate agreement) incurred in connection with entering into and carrying out the provisions of this Agreement, including the expenses of: (i) counsel and independent accountants associated with the Reorganization; (ii) printing and mailing the Prospectus/Proxy Statement and soliciting proxies in connection with the meeting of shareholders of the Acquired Fund referred to in paragraph 5.2 hereof, (iii) any special pricing fees associated with the valuation of the Acquired Fund's or the Acquiring Fund's portfolio on the Closing Date; (iv) expenses associated with preparing this Agreement and preparing and filing the Registration Statement under the 1933 Act covering the Acquiring Fund Shares to be issued in the Reorganization; and (v) registration or qualification fees and expenses of preparing and filing such forms, if any, necessary under applicable state securities laws to qualify the Acquiring Fund Shares to be issued in connection with the Reorganization. The Acquiring Fund and the Acquired Fund shall each be liable solely for its own expenses incurred in connection with entering into and carrying out the provisions of this Agreement whether or not the transactions contemplated hereby are consummated.* (b) Consistent with the provisions of paragraph 1.1, the Acquired Fund, prior to the Closing, shall pay for or include in the Statement of Assets and Liabilities prepared pursuant to paragraph 4.1(f) all of its known and reasonably estimated expenses associated with the transactions contemplated by this Agreement. 10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES 10.1 The parties hereto agree that no party has made any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties. 11. TERMINATION 11.1 This Agreement may be terminated by the mutual agreement of the LB Trust on behalf of the Acquiring Fund and the AAL Trust on behalf of the Acquired Fund. In addition, either party may at its option terminate this Agreement at or prior to the Closing Date: (a) because of a condition herein expressed to be precedent to the obligations of the terminating party which has not been met and which reasonably appears will not or cannot be met; (b) by resolution of the LB Trust's Board of Trustees if circumstances should develop that, in the good faith opinion of such Board, make proceeding with the Agreement not in the best interests of the Acquired Fund's shareholders; or (c) by resolution of the AAL Trust's Board of Trustees if circumstances should develop that, in the good faith opinion of such Board, make proceeding with the Agreement not in the best interests of the Acquiring Fund's shareholders. 11.2 In the event of any such termination, there shall be no liability for damages on the part of either the Acquired Fund or the Acquiring Fund or the respective Trustees or officers of the LB Trust or the AAL Trust to the other party, but each shall bear the expenses incurred by it incidental to the preparation and carrying out of this Agreement as provided in paragraph 9. 12. AMENDMENTS; WAIVERS 12.1 This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the authorized officers of the Acquired Fund and the Acquiring Fund; provided, however, that following the meeting of the Acquired Fund shareholders called by the Acquired Fund pursuant to paragraph 5.2 of this Agreement, no such amendment may have the effect of changing the provisions for determining the number of Acquiring Fund Shares to be issued to the Acquired Fund's shareholders under this Agreement to the detriment of such shareholders without their further approval. 12.2 At any time prior to the Closing Date either party hereto may by written instrument signed by it (i) waive any inaccuracies in the representations and warranties made to it contained herein and (ii) waive compliance with any of the covenants or conditions (other than those contained in any of paragraph 8.1, paragraph 8.4 or paragraph 8.5 of this Agreement) made for its benefit contained herein. 13. NOTICES Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by hand delivery, fax, or certified mail addressed to the The AAL Mutual Funds 625 Fourth Avenue South, Minneapolis, MN 55415, Attention: Brett L. Agnew; or to The Lutheran Brotherhood Family of Funds, 625 Fourth Avenue South, Minneapolis, MN 55415, Attention: John C. Bjork. 14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT 14.l The article and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 14.3 This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota. 14.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm, corporation or other entity, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its President and attested by its Secretary. Attest: _______________________________ _______________________________ Brett L. Agnew, Secretary Pamela J. Moret, President The AAL Mutual Funds The AAL Mutual Funds Attest: _______________________________ _______________________________ John C. Bjork, Secretary Pamela J. Moret, President The Lutheran Brotherhood Family of Funds The Lutheran Brotherhood Family of Funds SCHEDULE A Acquired Fund Acquiring Fund Lutheran Brotherhood Opportunity Growth Fund Thrivent Mid Cap Growth Fund Lutheran Brotherhood Mid Cap Growth Fund Thrivent Mid Cap Growth Fund AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this 12th day of November, 2003, by and between The Lutheran Brotherhood Family of Funds ("LB Trust"), a series of separate mutual fund portfolios within a single Delaware Statutory Trust acting on behalf of each fund listed on Schedule A attached hereto (each an "Acquired Fund") with its principal place of business at 625 Fourth Avenue South, Minneapolis, MN 55415, and The AAL Mutual Funds ("AAL Trust"), a series of separate mutual fund portfolios within a single Massachusetts Business Trust acting on behalf of each fund listed on Schedule A attached hereto (each an "Acquiring Fund") with its principal place of business at 625 Fourth Avenue South, Minneapolis, MN 55415. This Agreement is intended to be and is adopted as a plan of reorganization and liquidation within the meaning of the Treasury Regulations under Section 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code"), with the Acquiring Fund and the Acquired Fund each being a "party to a reorganization" within the meaning of Section 368(b) of the Code. The reorganization (the "Reorganization") will consist of (a) the transfer of all of the assets of the Acquired Fund in exchange for shares of the corresponding Acquiring Fund (the "Acquiring Fund Shares") and the assumption by the Acquiring Fund of all of the liabilities of the corresponding Acquired Fund, and (b) the distribution, after the Closing Date herein referred to, of Acquiring Fund Shares to the shareholders of the corresponding Acquired Fund in liquidation of the Acquired Fund and the subsequent dissolution of such Acquired Fund, all upon the terms and conditions hereinafter set forth in this Agreement. WHEREAS, the Acquiring Fund and the Acquired Fund are series of registered investment companies of the management type and the Acquired Fund owns securities that generally are assets of the character in which the Acquiring Fund is permitted to invest; WHEREAS, the Acquiring Fund is authorized to issue shares of common stock; WHEREAS, the Board of Trustees of the Acquired Fund has determined that the exchange of all of the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquired Fund and its shareholders and that the shares of the existing shareholders of the Acquired Fund would not be diluted as a result of this transaction; WHEREAS, the Board of Trustees of the Acquiring Fund has determined that the exchange of all the assets of the Acquired Fund for Acquiring Fund Shares is in the best interests of the Acquiring Fund and its shareholders and that the shares of the existing shareholders of the Acquiring Fund would not be diluted as a result of this transaction; NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND 1.1 The Acquired Fund will transfer all of its assets (consisting, without limitation, of portfolio securities and instruments, dividends and interest receivables, cash and other assets), as set forth in the statement of assets and liabilities referred to in Paragraph 7.2 hereof (the "Statement of Assets and Liabilities"), to the Acquiring Fund free and clear of all liens and encumbrances, except as otherwise provided herein, in exchange for (i) the assumption by the Acquiring Fund of only those accrued and unpaid liabilities of the Acquired Fund which are reflected in the Statement of Assets and Liabilities, which liabilities (and no others) shall be assigned and transferred to the Acquiring Fund by the Acquired Fund (the "Assumed Liabilities") and assumed by the Acquiring Fund, and (ii) delivery by the Acquiring Fund to the Acquired Fund, for distribution pro rata by the Acquired Fund to its shareholders in proportion to their respective ownership of shares of common stock of the Acquired Fund, as of the close of business on July 16, 2004 (the "Closing Date"), of a number of the Acquiring Fund Shares having an aggregate net asset value equal to the value of the assets, less such liabilities (herein referred to as the "net value of the assets") assumed, assigned and delivered, all determined as provided in Paragraph 2.1 hereof and as of a date and time as specified therein. Such transactions shall take place at the closing provided for in Paragraph 3.1 hereof (the "Closing"). All computations shall be provided by Thrivent Investment Management Inc. (the "Pricing Agent") for the Acquiring Fund and the Acquired Fund. 1.2 (a) The assets of the Acquired Fund to be acquired by the Acquiring Fund shall consist of all property, including, without limitation, all cash, securities and dividends or interest receivables which are owned by the Acquired Fund and any deferred or prepaid expenses shown as an asset on the books of the Acquired Fund on the Closing Date; and (b) The Acquired Fund has provided the Acquiring Fund with a list of the Acquired Fund's assets as of the date of execution of this Agreement. The Acquired Fund reserves the right to sell any securities but will not, without the prior approval of the Acquiring Fund, acquire any additional securities other than securities of the type in which the Acquiring Fund is permitted to invest. The Acquiring Fund will, within a reasonable time prior to the Closing Date, furnish the Acquired Fund with a statement of the Acquiring Fund's investment objectives, policies and restrictions and a list of the securities, if any, on the Acquired Fund's list referred to in the first sentence of this paragraph which do not conform to the Acquiring Fund's investment objectives, policies and restrictions. In the event that the Acquired Fund holds any investments which the Acquiring Fund may not hold, the Acquired Fund will dispose of such securities prior to the Closing Date. In addition, if it is determined that the portfolios of the Acquired Fund and the Acquiring Fund, when aggregated, would contain investments exceeding certain percentage limitations imposed upon the Acquiring Fund with respect to such investments, the Acquired Fund, if requested by the Acquiring Fund, will dispose of and/or reinvest a sufficient amount of such investments as may be necessary to avoid violating such limitations as of the Closing Date. 1.3 The Acquired Fund will endeavor to discharge all the Acquired Fund's known liabilities and obligations prior to the Closing Date. The Acquiring Fund shall assume only the Assumed Liabilities, and shall not assume any other debts, liabilities or obligations of the Acquired Fund. 1.4 The Acquiring Fund shall assume the right to assert all legal claims against third parties as would have been available to the Acquired Fund as of the Valuation Date (as defined in Section 2.1). 1.5 As provided in paragraph 3.3, either on or as soon after the Closing Date as is conveniently practicable (the "Liquidation Date"), the Acquired Fund will liquidate by distributing pro rata to the Acquired Fund's shareholders of record determined as of the close of business on the Closing Date (the "Acquired Fund Shareholders"), the Acquiring Fund Shares it receives pursuant to paragraph 1.1. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the name of the Acquired Fund Shareholders and representing the respective pro rata number of the Acquiring Fund Shares due such shareholders. All issued and outstanding shares of the Acquired Fund will simultaneously be canceled on the books of the Acquired Fund. 1.6 The Acquired Fund shareholders holding physical certificates representing their ownership of shares of beneficial interest of the Acquired Fund shall surrender such certificates or deliver an affidavit with respect to lost certificates in such form and accompanied by such surety bonds as the Acquired Fund may require (collectively, an "Affidavit"), to Thrivent Financial for Lutherans prior to the Closing Date. Any Acquired Fund share certificate which remains outstanding on the Closing Date shall be deemed to be canceled, shall no longer evidence ownership of shares of beneficial interest of the Acquired Fund and shall evidence ownership of Acquiring Fund Shares. Unless and until any such certificate shall be so surrendered or an Affidavit relating thereto shall be delivered, dividends and other distributions payable by the Acquiring Fund subsequent to the Liquidation Date with respect to Acquiring Fund Shares shall be paid to the holder of such certificate(s), but the Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares unless the Acquired Fund share certificates are first surrendered to the Acquiring Fund or an Affidavit relating thereto shall be delivered. 1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares in a name other than the registered holder of the Acquired Fund Shares on the books of the Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.8 Any reporting responsibility of the Acquired Fund is and shall remain the responsibility of the Acquired Fund up to and including the Closing Date and such later date on which the Acquired Fund is terminated. 1.9 The Acquired Fund shall, following the Closing Date and the making of all distributions pursuant to paragraph 1.4, be dissolved under the laws of the State of Delaware and in accordance with its governing documents. 2. VALUATION 2.1 The net asset values of the Acquiring Fund Shares and the net values of the assets and liabilities of the Acquired Fund to be transferred shall, in each case, be determined as of the close of business (4:00 p.m. Eastern time) on the Closing Date. The net asset values of the Acquiring Fund Shares shall be computed by the Pricing Agent in the manner set forth in the Acquiring Fund's Declaration of Trust (the "Trust"), or By-Laws and the Acquiring Fund's then-current prospectus and statement of additional information and shall be computed in each case to not fewer than two decimal places. The net values of the assets of the Acquired Fund to be transferred shall be computed by the Pricing Agent by calculating the value of the assets transferred by the Acquired Fund and by subtracting therefrom the amount of the liabilities assigned and transferred to and assumed by the Acquiring Fund on the Closing Date, said assets and liabilities to be valued in the manner set forth in the Acquired Fund's then current prospectus and statement of additional information and shall be computed in each case to not fewer than two decimal places. 2.2 The number of Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's assets shall be determined by dividing the value of the Acquired Fund's assets less the liabilities assumed by the Acquiring Fund, by the Acquiring Fund's net asset value per share, all as determined in accordance with Paragraph 2.1 hereof. 2.3 All computations of value shall be made by the Pricing Agent, in accordance with its regular practice as pricing agent for the Acquired Fund and the Acquiring Fund, respectively. 3. CLOSING 3.1 The Closing Date shall be July 16, 2004, or such later date as the parties may agree to in writing. All acts taking place at the Closing shall be deemed to take place simultaneously as of the close of business on the Closing Date unless otherwise provided. The Closing shall be held as of 5:00 p.m. (Central time) at the offices of Thrivent Financial for Lutherans, 625 Fourth Avenue South, Minneapolis, Minnesota, or at such other time and/or place as the parties may agree. 3.2 In the event that on the Valuation Date (a) the New York Stock Exchange ("NYSE") or another primary trading market for portfolio securities of the Acquiring Fund or the Acquired Fund shall be closed to trading or trading thereon shall be restricted or (b) trading or the reporting of trading on the NYSE or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 3.3 Portfolio securities that are not held in book-entry form in the name of State Street Bank (the "Custodian") as record holder for the Acquired Fund shall be presented by the Acquired Fund to the Custodian for examination no later than three business days preceding the Closing Date. Portfolio securities which are not held in book-entry form shall be delivered by the Acquired Fund to the Custodian for the account of the Acquiring Fund on the Closing Date, duly endorsed in proper form for transfer, in such condition as to constitute good delivery thereof in accordance with the custom of brokers, and shall be accompanied by all necessary federal and state stock transfer stamps or a check for the appropriate purchase price thereof. Portfolio securities held of record by the Custodian in book-entry form on behalf of the Acquired Fund shall be delivered to the Acquiring Fund by the Custodian by recording the transfer of beneficial ownership thereof on its records. The cash delivered shall be in the form of currency or by the Custodian crediting the Acquiring Fund's account maintained with the Custodian with immediately available funds. 3.4 The Acquired Fund shall deliver at the Closing a list of the names, addresses, federal taxpayer identification numbers and backup withholding and nonresident alien withholding status of the Acquired Fund shareholders and the number of outstanding shares of beneficial interest of the Acquired Fund owned by each such shareholder, all as of the close of business on the Closing Date, certified by its Treasurer, Secretary or other authorized officer (the "Shareholder List"). The Acquiring Fund shall issue and deliver to the Acquired Fund a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, stock certificates, receipts or other documents as such other party or its counsel may reasonably request. 4. REPRESENTATIONS AND WARRANTIES 4.1 The LB Trust and Acquired Fund represent and warrant to the AAL Trust and Acquiring Fund as follows: (a) The Acquired Fund is a series of the LB Trust, a corporation which is duly organized, validly existing and in good standing under the laws of the State of Delaware. The LB Trust is a registered investment company classified as a management company of the open-end type, and its registration with the Securities and Exchange Commission (the "Commission") as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), is in full force and effect; (b) The LB Trust, on behalf of the Acquired Fund, has the power and all necessary federal, state and local qualifications and authorizations to own all its assets, to carry on its business as now being conducted, to enter into and carry out this Agreement, and to consummate the transactions contemplated herein; (c) The execution, delivery and performance of this Agreement will not result in a material violation of the Declaration of Trust or Bylaws of the LB Trust or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquired Fund is a party or by which the LB Trust or the Acquired Fund is a party or by which it is bound; (d) Except as disclosed in writing to the N-14 Registration Statement ("Registration Statement") the Acquired Fund has no material contracts or other commitments (other than this Agreement) which will be terminated with liability to the Acquired Fund prior to the Closing Date; (e) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or to the Acquired Fund's knowledge threatened against the Acquired Fund or any of the Acquired Fund's properties or assets (other than that previously disclosed to the other party to the Agreement) which, if adversely determined, would materially and adversely affect its financial condition or the conduct of its business. The Acquired Fund knows of no facts which might form the basis for the institution of such proceedings and is not party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquired Fund's business or the ability of the Acquired Fund to consummate the transactions herein contemplated; (f) The Statements of Assets and Liabilities of the Acquired Fund for each of the fiscal years in the five year period ended October 31, 2003, have been audited by PricewaterhouseCoopers LLP, independent auditors, and are in accordance with generally accepted accounting principles consistently applied, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Acquired Fund as of such dates, and there are no known contingent liabilities of the Acquired Fund as of such dates not disclosed therein; (g) The Acquired Fund will file its final federal and other tax returns for the period ending on the Closing Date in accordance with the Code. At the Closing Date, all federal and other tax returns and reports of the Acquired Fund required by law then to have been filed prior to the Closing Date shall have been filed, and all federal and other taxes shown as due on such returns shall have been paid so far as due, or provision shall have been made for the payment thereof and, to the best of the Acquired Fund's knowledge, no such return is currently under audit and no assessment has been asserted with respect to such returns; (h) For the most recent taxable year of its operation and for the taxable year that will end on the Closing Date the Acquired Fund will have met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company; (i) All issued and outstanding shares of beneficial interest of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and nonassessable by the LB Trust. All of the issued and outstanding shares of beneficial interest of the Acquired Fund will, at the time of Closing, be held by the persons and in the amounts set forth in the Shareholder List submitted to the Acquiring Fund pursuant to Paragraph 3.4 hereof. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of its shares of beneficial interest, nor is there outstanding any security convertible into any of its shares of beneficial interest; (j) At the Closing Date, the Acquired Fund will have good and marketable title to its assets to be transferred to the Acquiring Fund pursuant to paragraph 1.2 and full right, power and authority to sell, assign, transfer and deliver such assets hereunder and, upon delivery and payment for such assets, the Acquiring Fund will acquire good and marketable title thereto, subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the Securities Act of 1933, as amended (the "1933 Act"), other than as disclosed to the Acquiring Fund; (k) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Acquired Fund's Board of Trustees, and subject to the approval of the Acquired Fund's shareholders, this Agreement, assuming due authorization, execution and delivery by the Acquiring Fund, will constitute a valid and binding obligation of the Acquired Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights and to general equity principles; (l) The information to be furnished by the Acquired Fund for use in no-action letters, applications for exemptive orders, registration statements, proxy materials and other documents which may be necessary in connection with the transactions contemplated hereby shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations thereunder applicable thereto; (m) The proxy statement of the Acquired Fund (the "Proxy Statement") to be included in the Registration Statement referred to in paragraph 5.7 (other than information therein that relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements are made, not misleading; (n) Since October 31, 2003, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities, or business other than changes occurring in the ordinary course of business (including declines in the net asset value of the Acquired Fund and/or its shares of common stock), or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to the Acquiring Fund; (o) The Acquired Fund has qualified as a regulated investment company for each taxable year of its operation and the Acquired Fund will qualify as such as of the Closing Date with respect to its taxable year ending on the Closing Date; (p) All of the issued and outstanding shares of beneficial interest of the Acquired Fund have been offered for sale and sold in conformity with all applicable federal and state securities laws; (q) The prospectus of the Acquired Fund, dated March 1, 2003, (the "Acquired Fund Prospectus"), furnished to the Acquiring Fund, does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; (r) The Acquired Fund Tax Representation Certificate to be delivered by the Acquired Fund to the Acquiring Fund at Closing pursuant to Section 7.5 (the "Acquired Fund Tax Representation Certificate") will not on the Closing Date contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading; and (s) The books and records of the Acquired Fund made available to the Acquiring Fund and/or its counsel are substantially true and correct and contain no material misstatements or omissions with respect to the operations of the Acquired Fund. 4.2 The AAL Trust and Acquiring Fund represent and warrant to the LB Trust and Acquired Fund as follows: (a) The Acquiring Fund is a series of the AAL Trust, a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts. The AAL Trust is a registered investment company classified as a management company of the open-end type and its registration with the Commission as an investment company under the 1940 Act is in full force and effect; (b) The AAL Trust, on behalf of the Acquiring Fund has the power and all necessary federal, state and local qualifications and authorizations to own all its assets, to carry on its business as now being conducted, to enter into and carry out this Agreement, and to consummate the transactions contemplated herein; (c) The then current prospectus (the "Acquiring Fund Prospectus") and statement of additional information of the Acquiring Fund, and any amendments or supplements thereto on or prior to the Closing Date, and the Registration Statement on Form N-14 filed in connection with this Agreement (other than written information furnished by the Acquired Fund for inclusion therein, as covered by the Acquired Fund's warranty in Paragraph 4.1(m) hereof) will conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder. The Acquiring Fund Prospectus does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and the Registration Statement will not include any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (d) At the Closing Date, the Acquiring Fund will have good and marketable title to the Acquiring Fund's assets; (e) The execution, delivery and performance of this Agreement will not result, in a material violation of the Trust or Bylaws of the AAL Trust or of any agreement, indenture, instrument, contract, lease or other undertaking to which the AAL Trust or the Acquiring Fund is a party or by which it is bound; (f) No litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened against the Acquiring Fund or any of the Acquiring Fund's properties or assets. The Acquiring Fund knows of no facts which might form the basis for the institution of such proceedings and the Acquiring Fund is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquiring Fund's business or ability to consummate the transactions contemplated herein; (g) At the Closing Date, all federal and other tax returns and reports of the Acquiring Fund required by law then to have been filed by such date shall have been filed, and all federal and other taxes shown as due on said returns and reports shall have been paid so far as due, or provision shall have been made for the payment thereof and, to the best of the Acquiring Fund's knowledge, no such return is currently under audit and no assessment has been asserted with respect to such returns; (h) At the date hereof, all issued and outstanding shares of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any shares of the Acquiring Fund, nor is there outstanding any security convertible into shares of the Acquiring Fund; (i) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action, if any, on the part of the Acquiring Fund's Board of Trustees, and this Agreement, assuming due authorization, execution and delivery by the Acquired Fund, constitutes a valid and binding obligation of the Acquiring Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights and to general equity principles; (j) The Acquiring Fund Shares to be issued and delivered to the Acquired Fund, for the accounts of the Acquired Fund Shareholders, pursuant to the terms of this Agreement, will at the Closing Date have been duly authorized and, when so issued and delivered, will be duly and validly issued Acquiring Fund Shares, and will be fully paid and non-assessable with no personal liability attaching to the ownership thereof; (k) The information to be furnished by the Acquiring Fund for use in no-action letters, applications for exemptive orders, registration statements, proxy materials and other documents which may be necessary in connection with the transactions contemplated hereby shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations applicable thereto; (l) The Proxy Statement to be included in the Registration Statement (only insofar as it relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading; (m) The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue the Acquiring Fund's operations after the Closing Date; (n) The Acquiring Fund Tax Representation Certificate to be delivered by the Acquiring Fund to the Acquired Fund at Closing pursuant to Section 6.3 (the "Acquiring Fund Tax Representation Certificate") will not on the Closing Date contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading; and (o) All of the issued and outstanding shares of beneficial interest of the Acquired Fund have been offered for sale and sold in conformity with all applicable federal and state securities laws. 5. COVENANTS OF THE ACQUIRED FUND AND THE ACQUIRING FUND 5.l The Acquiring Fund and the Acquired Fund each will operate its business in the ordinary course between the date hereof and the Closing Date. It is understood that such ordinary course of business will include the declaration and payment of customary dividends and distributions and any other dividends and distributions deemed advisable, in each case payable either in cash or in additional shares. 5.2 As soon as practicable after the effective date of the Registration Statement, the Acquired Fund shall hold a shareholder meeting to consider and approve this Agreement and such other matters as the Board of Trustees of the LB Trust may determine. Such approval by the shareholders of the Acquired Fund shall, to the extent necessary to permit the consummation of the transactions contemplated herein without violating any investment objective, policy or restriction of the Acquired fund, be deemed to constitute approval by the shareholders of a temporary amendment of any investment objective, policy or restriction that would otherwise be inconsistent with or violate upon the consummation of such transactions solely for the purpose of consummating such transactions. 5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued hereunder are not being acquired for the purpose of making any distribution thereof other than in accordance with the terms of this Agreement. 5.4. The Acquired Fund will assist the Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of the Acquired Fund's shares. 5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund each will take, or cause to be taken, all actions, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. 5.6 The Acquired Fund shall furnish to the Acquiring Fund on the Closing Date the Statement of Assets and Liabilities of the Acquired Fund as of the Closing Date, which statement shall be prepared in accordance with generally accepted accounting principles consistently applied and shall be certified by the Acquired Fund's Treasurer or Assistant Treasurer. As promptly as practicable but in any case within 60 days after the Closing Date, the Acquired Fund shall furnish to the Acquiring Fund, in such form as is reasonably satisfactory to the AAL Trust, a statement of the earnings and profits of the Acquired Fund for federal income tax purposes and of any capital loss carryovers and other items that will be carried over to the Acquiring Fund as a result of Section 381 of the Code, and which statement will be certified by the President of the Acquired Fund. 5.7 The AAL Trust shall promptly prepare and file the Registration Statement with the SEC, and the AAL Trust and the LB Trust shall each make any other required or appropriate filings with respect to the actions contemplated hereby. 5.8 The Acquired Fund will provide the Acquiring Fund with information reasonably necessary for the preparation of a prospectus (the "Prospectus") which will include the Proxy Statement, referred to in paragraph 4.1(m), all to be included in a Registration Statement, in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1940 Act in connection with the meeting of the Acquired Fund's shareholders to consider approval of this Agreement and the transactions contemplated herein. 5.9 Neither the Acquired Fund nor the Acquiring Fund shall take any action that would prevent the reorganization from qualifying as a "reorganization" under Section 368(a) of the Code. 5.10 The Acquired Fund will pay or cause to be paid to the Acquiring Fund any interest or proceeds it receives on or after the Closing Date with respect to its assets. 5.11 The Acquiring Fund agrees, as soon as practicable after the Valuation Date, to open shareholder accounts on its share ledger records for the shareholders of the Acquired Fund in connection with the distribution of shares by the Acquired Fund to such shareholders in accordance with Paragraph 1.5. 5.12 Each party hereto covenants and agrees to provide the other party hereto and its agents and counsel with any and all documentation, information, assistance and cooperation that may become necessary from time to time with respect to the transactions contemplated by this Agreement. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND The obligations of the Acquired Fund to consummate the transactions provided for herein shall be subject, at its election, to the performance by the Acquiring Fund of all of the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following further conditions: 6.1 All representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 6.2 The Acquiring Fund shall have delivered to the Acquired Fund a certificate executed in its name by its Chairman of the Board, President or Vice President and its Treasurer or Assistant Treasurer, in a form reasonably satisfactory to the Acquired Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Acquiring Fund made in this Agreement are true and correct in all material respects at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement. 6.3 The Acquiring Fund shall have delivered to Goodwin Procter LLP, in form and substance reasonably satisfactory to it, an Acquiring Fund Tax Representation Certificate for purpose of the opinion described in Section 8.5. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND The obligations of the Acquiring Fund to complete the transactions provided for herein shall be subject, at its election, to the performance by the Acquired Fund of all the obligations to be performed by it hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Acquired Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date. 7.2 The Acquired Fund shall have delivered to the Acquiring Fund a statement of the Acquired Fund's assets and liabilities, together with a list of the Acquired Fund's portfolio securities showing the tax basis of such securities by lot and the holding periods of such securities, as of the Closing Date, certified by the Treasurer or Assistant Treasurer of the Acquired Fund. 7.3 The Acquired Fund shall have delivered to the Acquiring Fund on the Closing Date a certificate executed in its name by its Chairman of the Board, President or Vice President and its Treasurer or Assistant Treasurer, in form and substance satisfactory to the Acquiring Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Acquired Fund made in this Agreement are true and correct in all material respects at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement. 7.4 At or prior to the Closing Date, the Acquired Fund's investment adviser, or an affiliate thereof, shall have made all payments, or applied all credits, to the Acquired Fund required by any applicable contractual expense limitation. 7.5 The Acquired Fund shall have delivered to the Acquiring Fund an Acquired Fund Tax Representation Certificate substantially in the form attached to this Agreement as Annex B concerning certain tax-related matters with respect to the Acquired Fund. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND AND THE ACQUIRING FUND The obligations hereunder of the AAL Trust on behalf of the Acquired Fund and the LB Trust on behalf of the Acquiring Fund are each subject to the further conditions that on or before the Closing Date. 8.1 This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Acquired Fund in accordance with the provisions of the Declaration of Trust and Bylaws of the LB Trust and certified copies of the votes evidencing such approval shall have been delivered to the Acquiring Fund. Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the conditions set forth in this Paragraph 8.1. 8.2 On the Closing Date, no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. 8.3 All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities (including those of the Commission and of state Blue Sky and securities authorities, including "no-action" positions of and exemptive orders from such federal and state authorities) (and including the filing of Articles of Transfer with the Delaware State Department of Assessments and Taxation) deemed necessary by the Acquiring Fund or the Acquired Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may for itself waive any of such conditions. 8.4 The Registration Statement shall have become effective under the 1933 Act and the 1940 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act or the 1940 Act. 8.5 The parties shall have received a favorable opinion of Goodwin Procter LLP, addressed to the Acquiring Fund and the Acquired Fund and satisfactory to Brett L. Agnew and John C. Bjork, as Secretary of the LB Trust and AAL Trust, respectively, substantially to the effect that for federal income tax purposes: (a) The transfer of all of the Acquired Fund's assets in exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of the Assumed Liabilities of the Acquired Fund will constitute a "reorganization" within the meaning of Section 368(a)(1) of the Code, and the Acquiring Fund and the Acquired Fund are each a "party to a reorganization" within the meaning of Section 368(b) of the Code; (b) No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the Acquired Fund in exchange for the Acquiring Fund Shares and the assumption by the Acquiring Fund of all of the outstanding liabilities of the Acquired Fund; (c) No gain or loss will be recognized by the Acquired Fund upon the transfer of the Acquired Fund's assets to the Acquiring Fund in exchange for Acquiring Fund Shares and the assumption by the Acquiring Fund of all of the Assumed liabilities of the Acquired Fund or upon the distribution (whether actual or constructive) of Acquiring Fund Shares to Acquired Fund's shareholders; (d) No gain or loss will be recognized by shareholders of the Acquired Fund upon the exchange of their Acquired Fund shares for the Acquiring Fund Shares; (e) The aggregate tax basis for the Acquiring Fund Shares received by each of the Acquired Fund's shareholders pursuant to the Reorganization will be the same as the aggregate tax basis of the Acquired Fund shares held by such shareholder immediately prior to the Reorganization, and the holding period of Acquiring Fund Shares to be received by each Acquired Fund shareholder will include the period during which the Acquired Fund shares exchanged therefor were held by such shareholder (provided that such Acquired Fund shares were held as capital assets on the date of the Reorganization); and (f) The tax basis to the Acquiring Fund of the Acquired Fund's assets acquired by the Acquiring Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the Reorganization, and the holding period of the assets of the Acquired Fund in the hands of the Acquiring Fund will include the period during which those assets were held by the Acquired Fund. (g) The Acquiring Fund will succeed to and take into account as of the date of the Reorganization the items of the Acquired Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 181(b) and (c), 382, 383 and 384 of the Code. Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive the conditions set forth in this paragraph 8.6. 9. BROKERAGE FEES AND EXPENSES 9.1 The Acquiring Fund represents and warrants to the Acquired Fund, and the Acquired Fund represents and warrants to the Acquiring Fund, that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. 9.2 (a) Except as may be otherwise provided herein, the Acquired Fund shall be liable for the expenses (Thrivent Financial for Lutherans and/or one or more of its affiliates has agreed to assume said expenses by separate agreement) incurred in connection with entering into and carrying out the provisions of this Agreement, including the expenses of: (i) counsel and independent accountants associated with the Reorganization; (ii) printing and mailing the Prospectus/Proxy Statement and soliciting proxies in connection with the meeting of shareholders of the Acquired Fund referred to in paragraph 5.2 hereof, (iii) any special pricing fees associated with the valuation of the Acquired Fund's or the Acquiring Fund's portfolio on the Closing Date; (iv) expenses associated with preparing this Agreement and preparing and filing the Registration Statement under the 1933 Act covering the Acquiring Fund Shares to be issued in the Reorganization; and (v) registration or qualification fees and expenses of preparing and filing such forms, if any, necessary under applicable state securities laws to qualify the Acquiring Fund Shares to be issued in connection with the Reorganization. The Acquiring Fund and the Acquired Fund shall each be liable solely for its own expenses incurred in connection with entering into and carrying out the provisions of this Agreement whether or not the transactions contemplated hereby are consummated. (b) Consistent with the provisions of paragraph 1.1, the Acquired Fund, prior to the Closing, shall pay for or include in the Statement of Assets and Liabilities prepared pursuant to paragraph 4.1(f) all of its known and reasonably estimated expenses associated with the transactions contemplated by this Agreement. 10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES 10.1 The parties hereto agree that no party has made any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties. 11. TERMINATION 11.1 This Agreement may be terminated by the mutual agreement of the LB Trust on behalf of the Acquiring Fund and the AAL Trust on behalf of the Acquired Fund. In addition, either party may at its option terminate this Agreement at or prior to the Closing Date: (a) because of a condition herein expressed to be precedent to the obligations of the terminating party which has not been met and which reasonably appears will not or cannot be met; (b) by resolution of the LB Trust's Board of Trustees if circumstances should develop that, in the good faith opinion of such Board, make proceeding with the Agreement not in the best interests of the Acquired Fund's shareholders; or (c) by resolution of the AAL Trust's Board of Trustees if circumstances should develop that, in the good faith opinion of such Board, make proceeding with the Agreement not in the best interests of the Acquiring Fund's shareholders. 11.2 In the event of any such termination, there shall be no liability for damages on the part of either the Acquired Fund or the Acquiring Fund or the respective Trustees or officers of the LB Trust or the AAL Trust to the other party, but each shall bear the expenses incurred by it incidental to the preparation and carrying out of this Agreement as provided in paragraph 9. 12. AMENDMENTS; WAIVERS 12.1 This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the authorized officers of the Acquired Fund and the Acquiring Fund; provided, however, that following the meeting of the Acquired Fund shareholders called by the Acquired Fund pursuant to paragraph 5.2 of this Agreement, no such amendment may have the effect of changing the provisions for determining the number of Acquiring Fund Shares to be issued to the Acquired Fund's shareholders under this Agreement to the detriment of such shareholders without their further approval. 12.2 At any time prior to the Closing Date either party hereto may by written instrument signed by it (i) waive any inaccuracies in the representations and warranties made to it contained herein and (ii) waive compliance with any of the covenants or conditions (other than those contained in any of paragraph 8.1, paragraph 8.4 or paragraph 8.6 of this Agreement) made for its benefit contained herein. 13. NOTICES Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by hand delivery, fax, or certified mail addressed to the The AAL Mutual Funds 625 Fourth Avenue South, Minneapolis, MN 55415, Attention: Brett L. Agnew; or to The Lutheran Brotherhood Family of Funds, 625 Fourth Avenue South, Minneapolis, MN 55415, Attention: John C. Bjork. 14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT 14.l The article and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 14.3 This Agreement shall be governed by and construed in accordance with the laws of the State of Minnesota. 14.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm, corporation or other entity, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its President and attested by its Secretary. Attest: _______________________________ _______________________________ Brett L. Agnew, Secretary Pamela J. Moret, President The AAL Mutual Funds The AAL Mutual Funds Attest: _______________________________ _______________________________ John C. Bjork, Secretary Pamela J. Moret, President The Lutheran Brotherhood Family of Funds The Lutheran Brotherhood Family of Funds SCHEDULE A Acquired Fund Acquiring Fund Lutheran Brotherhood Income Fund Thrivent Income Fund Lutheran Brotherhood High Yield Fund Thrivent High Yield Fund Lutheran Brotherhood Limited Maturity Bond Fund Thrivent Limited Maturity Bond Fund APPENDIX B THE AAL MUTUAL FUNDS Prospectus Class A and B Shares June 27, 2003 The AAL Aggressive Growth Fund The AAL International Fund The AAL Capital Growth Fund The AAL Equity Income Fund The AAL Municipal Bond Fund The AAL Money Market Fund 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 The AAL Aggressive Growth Fund........................................ B-3 The AAL International Fund............................................ B-5 The AAL Capital Growth Fund........................................... B-7 The AAL Equity Income Fund............................................ B-9 The AAL Municipal Bond Fund........................................... B-11 The AAL Money Market Fund............................................. B-13 Management, Organization and Capital Structure........................ B-15 Investment Adviser................................................ B-15 Advisory Fees..................................................... B-15 Portfolio Management.............................................. B-15 Personal Securities Investments................................... B-16 Standard & Poor's Trademarks...................................... B-16 Shareholder Information............................................... B-17 Pricing Funds' Shares............................................. B-17 Choosing a Class of Shares........................................ B-18 Class A Shares.................................................... B-18 Class B Shares.................................................... B-19 Buying Shares..................................................... B-20 Redeeming Shares.................................................. B-22 Exchanging Shares Between Funds................................... B-24 Accounts With Low Balances........................................ B-24 Distributions......................................................... B-25 Dividends......................................................... B-25 Capital Gains..................................................... B-25 Distribution Options.............................................. B-25 Taxes................................................................. B-26 General........................................................... B-26 The AAL Municipal Bond Fund....................................... B-26 The AAL International Fund........................................ B-26 Other Securities and Investment Practices............................. B-27 Financial Highlights.................................................. B-29 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. Investment Strategies Under normal circumstances, the Fund invests at least 65% of total assets in common stocks of growth companies with large market capitalizations. Thrivent Investment Management Inc. ("Thrivent Investment Mgt." or the "investment advsier") uses fundamental and technical investment research techniques to identify stocks of companies that it believes have demonstrated and will sustain above-average earnings growth over time, or which are expected to develop rapid sales and earnings growth in the future when compared to the economy and stock market as a whole. The investment adviser defines large market capitalization according to the market capitalization classifications published by Lipper, Inc. Although market capitalizations are constantly changing, based on Lipper's guidelines as of April 30, 2003, companies with large market capitalizations are those with market capitalizations of at least $8.8 billion. The Fund may sell securities for a variety of reasons, such as to secure gains, limit losses, or reposition assets into more promising opportunities. Investment Risks The AAL Aggressive Growth Fund is subject to the following primary investment risks. Market Risk. Over time stock markets generally tend to move in cycles with periods when stock prices rise and periods when stock prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. They also may decline because of factors that affect a particular industry. Financial Risk. Financial risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include: demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Growth style investing includes the risk of investing in securities whose prices historically have been more volatile than other securities, especially over the short term. Growth stock prices reflect projection of future earnings or revenues, and if a company' earning or revenues fall short of expectations, its stock price may fall dramatically. In addition, the prices of larger company stocks may not rise as quickly or as significantly as prices of stocks of well managed smaller companies when stocks of larger companies are out of favor. Loss of Principal. The success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Shares of the Fund will rise and fall in value and there is a risk that you could lose money by investing in the Fund. The Fund cannot be certain that it will achieve its goal. Volatility and Performance The bar chart and table provide an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for a one-year period and since inception compared to a broad-based securities market index. The bar chart includes the effects of Fund expenses, but not sales charges. If sales charges were included, returns would be lower than those shown.The table includes the effects of Fund expenses and maximum sales charges for each class, and assumes that you sold your shares at the end of the period. The after-tax returns for Class A shares of the Fund are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only Class A shares of the Fund, and after-tax returns for Class B shares will vary. The Fund commenced operations on July 1, 2000. How a Fund has performed in the past (before and after taxes) is not necessarily an indication of how it will perform in the future. [CHART] YEAR-BY-YEAR TOTAL RETURN (CLASS A) 2001 2002 - ------- ------- - -32.38% -32.18% The Fund's year-to-date return as of March 31, 2003 was -1.41%. Best Quarter: Q4 '01 +9.43% Worst Quarter: Q1 '01 -23.83% AVERAGE ANNUAL TOTAL RETURNS (PERIODS ENDING DECEMBER 31, 2002) Since Inception of Fund 1 Year (07/01/00) The AAL Aggressive Growth Fund Class A (before taxes) -35.87% -35.51% Class A (after taxes on distributions) -35.87% -35.51% Class A (after taxes on distributions and redemptions) -22.02% -26.25% - ---------------------------------------------------------------- Class B -35.44% -35.51% - ---------------------------------------------------------------- S&P 500 Index/1/ -22.10% -17.38% - ---------------------------------------------------------------- Russell 1000 Growth/2,3/ -27.88% -28.95% - ---------------------------------------------------------------- /1/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 performance of the Index does not reflect deductions for fees, expenses or taxes. /2/The Russell 1000 Growth Index is an unmanaged Index comprised of those Russell 1000 companies with higher than average price-to-book ratios and higher forecasted growth values. The Russell 1000 companies are the 1000 largest companies in the Russell 3000 Index. The Russell 3000 Index is comprised of the 3000 largest U.S. companies based on total market capitalization and is designed to represent the performance of about 98% of the U.S. equity market. /3/Because the Russell 1000 Growth Index is a more accurate reflection of the companies in which the Fund invests, it will be used to compare performance of the Fund rather than the S&P 500 Index. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of the Aggressive Growth Fund./1/ SHAREHOLDER FEES (fees paid directly from CLASS A CLASS B your investment) SHARES SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% None - ------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of net asset value at time of purchase or redemption, whichever is lower) 1.00%/2/ 5.00% - ------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted CLASS A CLASS B from Fund assets) SHARES SHARES Management Fees 0.80% 0.80% - ------------------------------------------------------- Distribution (12b-1) Fees 0.25% 1.00% - ------------------------------------------------------- Other Expenses 1.60% 1.94% - ------------------------------------------------------- Total Annual Fund Operating Expenses 2.65% 3.74% - ------------------------------------------------------- /1/The maximum sales charges for the Fund depends upon the amount of your investment and whether you buy Class A shares or Class B shares. For a complete description of the sales charges, see "Choosing a Class of Shares." In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. See "Accounts with Low Balances." The Funds also may charge a fee of up to $30 for a redemption by wire. See "Shareholder Information--Redeeming Shares." /2/When you invest $1,000,000 or more, a contingent deferred sales charge of 1% will apply to shares redeemed within one year. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, and that the Fund's operating expenses remain the same. For Class B shares, it also assumes the automatic conversion to Class A shares after five years. Although your actual cost may be higher or lower, based on these assumptions your cost would be: 1 3 5 10 Year Years Years Years - ---------------------------------------- Class A shares $803 $1,328 $1,878 $3,369 - ---------------------------------------- Class B shares $876 $1,443 $2,030 $3,422 - ---------------------------------------- You would pay the following expenses if you did not redeem your shares: 1 3 5 10 Year Years Years Years - ---------------------------------------- Class A shares $803 $1,328 $1,878 $3,369 - ---------------------------------------- Class B shares $376 $1,143 $1,930 $3,422 - ---------------------------------------- The AAL International Fund - -------------------------------------------------------------------------------- Investment Objective The AAL International Fund seeks long-term capital growth by investing primarily in a diversified portfolio of foreign stocks. Investment Strategies Under normal circumstances, the Fund invests at least 65% of total assets in foreign stocks and convertible foreign securities of at least three different countries. The Fund may invest in equity securities, and securities convertible into equity securities, of issuers organized under the laws of, headquartered in, whose principal operations are located in, or whose common equity securities are principally traded in developed and emerging market countries. For all purposes, the Fund's investment subadviser, Oechsle International Advisors, LLC ("Oeschsle"), may base its view on the location of an issuer on any one, or a combination, of the following factors: (1) the location of the market in which the issuer's securities principally trade; (2) the location of the issuer's corporate headquarters; (3) the location of the issuer's legal domicile; (4) the location of the majority of the issuer's operations; (5) the location where the majority of the issuer's revenues are generated; or (6) the relevant index categorization of the issuer. The Fund may invest in both mature and emerging markets. A country in the beginning stages of developing its economy is an emerging market. Developing countries have less diverse economic structures and less stable political systems than those of developed countries. Consequently, markets of developing countries may be more volatile than the markets of more mature economies. Oechsle focuses 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 (for example, Indonesia and Argentina). Oechsle does not have any limits on the extent to which the Fund can invest in either mature or emerging markets. The Fund may invest up to 100% of total assets in emerging markets. Oechsle uses a bottom-up approach to investing. Using this approach, Oechsle identifies an individual company it believes is an attractive investment opportunity, consistent with the Fund's investment policy. The Fund may sell a security when a company no longer demonstrates its ability to perform according to Oechsle's expectations and Oechsle believes there are better, alternative investments. This investment strategy may result in short-term gains or losses for the Fund. Investment Risks The AAL International Fund is subject to the following primary investment risks. Market Risk. Over time stock markets generally tend to move in cycles with periods when stock prices rise and periods when stock prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Financial Risk. Financial risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include: demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Growth style investing includes the risk of investing in securities whose prices historically have been more volatile than other securities, especially over the short term. Growth stock prices reflect projections of future earnings or revenues, and if a company's earnings or revenues fall short of expectations, its stock price may fall dramatically. Liquidity Risk. Liquidity risk is the ability to sell a security relatively quickly for a price that most closely reflects the actual value of the security. Foreign securities generally have a less liquid resale market. As a result, the Fund may have difficulty selling or disposing of securities quickly in certain markets or market environments. Foreign Securities Risk. Foreign securities risk exists when the Fund invests in foreign securities, which are generally riskier than U.S. securities. Political, social and economic events as well as natural disasters may all impact a country's economy and cause investments in issuers located in that country to decline in value. Developing countries are much more sensitive to any such event. Additionally, foreign securities are often paid for in currencies of foreign countries, thereby subjecting the Fund to currency exchange rate fluctuations. This means that the value of securities could increase or decrease due to variations in the relative value or buying power of U.S. and foreign currencies. Emerging Markets Risk. Emerging market countries have historically experienced, and may continue to experience, certain economic problems. These may include high rates of inflation, high interest rates, exchange rate fluctuations, large amounts of debt, balance of payments and trade difficulties, and extreme poverty and unemployment. Loss of Principal. The success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Shares of the Fund will rise and fall in value and there is a risk that you could lose money by investing in the Fund. The Fund cannot be certain that it will achieve its goal. Volatility And Performance The bar chart and table provide an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for one- and five-year periods and since inception compared to a broad-based securities market index. The bar chart includes the effects of Fund expenses, but not sales charges. If sales charges were included, returns would be lower than those shown. The table includes the effects of Fund expenses and maximum sales charges for each class, and assumes that you sold your shares at the end of the period. The after-tax returns for Class A shares of the Fund are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only Class A shares of the Fund, and after-tax returns for Class B shares will vary. The Fund commenced operations on August 1, 1995, and the bar chart includes performance from before the creation of share classes on January 8, 1997. Prior to January 8, 1997, the shares of the Fund had no specific class designation. As of that date, all of the outstanding shares were redesignated as Class A shares. The table includes performance of Class B shares since the creation of share classes and reflects the automatic conversion to Class A shares after five years. How a Fund has performed in the past (before and after taxes) is not necessarily an indication of how it will perform in the future. [CHART] YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1996 1997 1998 1999 2000 2001 2002 - ------ ----- ------ ------ ------- ------- ------- 12.21% 0.97% 11.06% 39.66% -18.12% -26.32% -19.96% The Fund's year-to-date return as of March 31, 2003 was -10.46%. Best Quarter Q4 '99 +23.40% Worst Quarter Q3 '02 -20.97% AVERAGE ANNUAL TOTAL RETURNS (PERIODS ENDING DECEMBER 31, 2002) Since Since Inception Inception of Fund of Class B 1 Year 5 Years (08/01/95) (01/08/97) The AAL International Fund Class A (before taxes) -24.40% -6.68% -2.74% N/A Class A (after taxes on distributions) -24.41% -7.26% -3.68% N/A Class A (after taxes on distributions and redemptions) -14.87% -5.22% -2.30% N/A - ---------------------------------------------------------------------- Class B -23.95% -6.68% N/A -5.44% - ---------------------------------------------------------------------- MSCI EAFE Index/1/ -15.94% -2.89% N/A N/A - ---------------------------------------------------------------------- /1/The Morgan Stanley Capital International, Europe, Australasia, Far East Index (EAFE Index) is a stock index designed to measure the investment returns of the developed countries outside North America. The EAFE Index currently includes stocks from 21 countries. The performance of the Index does not reflect deductions for fees, expenses or taxes. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of The AAL International Fund./1/ SHAREHOLDER FEES (fees paid directly from CLASS A CLASS B your investment) SHARES SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% None - ------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of net asset value at time of purchase or redemption, whichever is lower) 1.00%/2/ 5.00% - ------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted CLASS A CLASS B from Fund assets) SHARES SHARES Management Fees 0.62% 0.62% - ------------------------------------------------------- Distribution (12b-1) Fees 0.25% 1.00% - ------------------------------------------------------- Other Expenses 0.84% 1.56% - ------------------------------------------------------- Total Annual Fund Operating Expenses 1.71% 3.18% - ------------------------------------------------------- /1/The maximum sales charges for the Fund depends upon the amount of your investment and whether you buy Class A shares or Class B shares. For a complete description of the sales charges, see "Choosing a Class of Shares." In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. See "Accounts with Low Balances." The Funds also may charge a fee of up to $30 for a redemption by wire. See "Shareholder Information--Redeeming Shares." /2/When you invest $1,000,000 or more, a contingent deferred sales charge of 1% will apply to shares redeemed within one year. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, and that the Fund's operating expenses remain the same. For Class B shares, it also assumes the automatic conversion to Class A shares after five years. Although your actual cost may be higher or lower, based on these assumptions your cost would be: 1 3 5 10 Year Years Years Years - ---------------------------------------- Class A shares $714 $1,059 $1,427 $2,458 - ---------------------------------------- Class B shares $821 $1,280 $1,764 $2,668 - ---------------------------------------- You would pay the following expenses if you did not redeem your shares: 1 3 5 10 Year Years Years Years - ---------------------------------------- Class A shares $714 $1,059 $1,427 $2,458 - ---------------------------------------- Class B shares $321 $980 $1,664 $2,668 - ---------------------------------------- The AAL Capital Growth Fund - -------------------------------------------------------------------------------- Investment Objective The AAL Capital Growth Fund seeks long-term capital growth by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks. Investment Strategies Under normal circumstances, the Fund invests at least 65% of total assets in common stocks, not including convertible securities. Generally, the investment adviser focuses on dividend-paying stocks of companies with earnings growth per share that are higher than stocks included in the S&P 500 Index. The investment adviser looks for good corporate fundamentals by examining a company's quality, operating growth predictability and financial strength. The Fund focuses on larger companies, although it may invest across all market capitalizations and across all industries and sectors. The Fund does not invest in bonds for capital growth or for long time periods. The investment adviser uses a bottom-up approach to investing. Using this approach, the investment adviser identifies an individual company it believes is an attractive investment opportunity, consistent with the Fund's investment policy. The Fund may sell a security when a company no longer demonstrates its ability to perform according to the investment advisers expectations and the investment adviser believes there are better, alternative investments. This investment strategy may result in short-term gains or losses for the Fund. Investment Risks The AAL Capital Growth Fund is subject to the following primary investment risks. Market Risk. Over time stock markets generally tend to move in cycles with periods when stock prices rise and periods when stock prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Financial Risk. Financial risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include: demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Growth style investing includes the risk of investing in securities whose prices historically have been more volatile than other securities, especially over the short term. Growth stock prices reflect projections of future earnings or revenues, and if a company's earnings or revenues fall short of expectations, its stock price may fall dramatically. In addition, the prices of larger company stocks may not rise as quickly or as significantly as prices of stocks of well-managed smaller companies. Loss of Principal. The success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Shares of the Fund will rise and fall in value and there is a risk that you could lose money by investing in the Fund. The Fund cannot be certain that it will achieve its goal. Volatility and Performance The bar chart and table provide an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for one-, five- and ten-year periods and since inception compared to a broad-based securities market index. The bar chart includes the effects of Fund expenses, but not sales charges. If sales charges were included, returns would be lower than those shown. The table includes the effects of Fund expenses and maximum sales charges for each class, and assumes that you sold your shares at the end of the period. The after-tax returns for Class A shares of the Fund are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only Class A shares of the Fund, and after-tax returns for Class B shares will vary. The Fund commenced operations on July 16, 1987, and the bar chart includes performance from before the creation of share classes on January 8, 1997. Prior to January 8, 1997, share of the Fund had no specific class designation. As of that date, all of the outstanding shares were redesignated as Class A shares. The table includes performance of Class B shares since the creation of share classes and reflects the automatic conversion to Class A shares after five years. How a Fund has performed in the past (before and after taxes) is not necessarily an indication of how it will perform in the future. [CHART] YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 - ----- ------ ------ ------ ------ ------ ------ ------ ------- ------- 6.06% -1.38% 31.00% 22.05% 33.57% 28.19% 22.61% -1.09% -13.95% -22.75% The Fund's year-to-date return as of March 31, 2003 was -2.18%. Best Quarter Q4 '98 +21.92% Worst Quarter Q3 '02 -17.71% AVERAGE ANNUAL TOTAL RETURNS (PERIODS ENDING DECEMBER 31, 2002) Since Inception of Class B 1-Year 5-Years 10-Years (01/08/97) The AAL Capital Growth Fund Class A (before taxes) -26.99% -0.47% 8.11% N/A Class A (after taxes on distributions) -27.07% -0.93% 7.14% N/A Class A (after taxes on distributions and redemptions) -16.57% -0.32% 6.52% N/A - ------------------------------------------------------------------- Class B -26.63% -0.36% N/A 4.45% - ------------------------------------------------------------------- S&P 500 Index/1/ -22.10% -0.59% 9.35% 4.23% - ------------------------------------------------------------------- /1/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 performance of the Index does not reflect deductions for fees, expenses or taxes. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of The AAL Capital Growth Fund./1/ SHAREHOLDER FEES (fees paid directly from CLASS A CLASS B your investment) SHARES SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% None - ------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of net asset value at time of purchase or redemption, whichever is lower) 1.00%/2/ 5.00% - ------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted CLASS A CLASS B from Fund assets) SHARES SHARES Management Fees 0.54% 0.54% - --------------------------------------------- Distribution (12b-1) Fees 0.25% 1.00% - --------------------------------------------- Other Expenses 0.23% 0.62% - --------------------------------------------- Total Annual Fund Operating Expenses 1.02% 2.16% - --------------------------------------------- /1/The maximum sales charges for the Fund depends upon the amount of your investment and whether you buy Class A shares or Class B shares. For a complete description of the sales charges, see "Choosing a Class of Shares." In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. See "Accounts with Low Balances." The Funds also may charge a fee of up to $30 for a redemption by wire. See "Shareholder Information--Redeeming Shares." /2/When you invest $1,000,000 or more, a contingent deferred sales charge of 1% will apply to shares redeemed within one year. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, and that the Fund's operating expenses remain the same. For Class B shares, it also assumes the automatic conversion to Class A shares after five years. Although your actual cost may be higher or lower, based on these assumptions your cost would be: 1 3 5 10 Year Years Years Years - --------------------------------------- Class A shares $648 $857 $1,082 $1,729 - --------------------------------------- Class B shares $719 $976 $1,259 $1,805 - --------------------------------------- You would pay the following expenses if you did not redeem your shares: 1 3 5 10 Year Years Years Years - --------------------------------------- Class A shares $648 $857 $1,082 $1,729 - --------------------------------------- Class B shares $219 $676 $1,159 $1,805 - --------------------------------------- The AAL Equity Income Fund - -------------------------------------------------------------------------------- Investment Objective The AAL Equity Income Fund seeks current income, long-term income growth and capital growth by investing primarily in a diversified portfolio of income-producing equity securities. Investment Strategies Under normal circumstances, the Fund invests at least 80% of total assets in income-producing equity securities. The investment adviser focuses on equity securities including securities convertible into equity securities that offer higher-than-average dividend yields compared to stocks comprising the S&P 500 Index. Should the investment adviser determine that the Fund would benefit from reducing the percentage of invested assets from 80% to a lesser amount, you will be notified at least 60 days' prior to such a change. The Fund seeks capital growth by attempting to select income-producing equity securities of large companies that the investment adviser believes are under-priced relative to the securities of companies with comparable fundamentals. The investment adviser uses a bottom-up approach to investing. Using this approach, the investment adviser identifies an individual company it believes is an attractive investment opportunity, consistent with the Fund's investment policy. The Fund may sell a security when a company no longer demonstrates its ability to perform according to the investment adviser's expectations and the investment adviser believes there are better, alternative investments. This investment strategy may result in short-term gains or losses for the Fund. Investment Risks The AAL Equity Income Fund is subject to the following primary investment risk. Market Risk. Over time stock markets generally tend to move in cycles with periods when stock prices rise and periods when stock prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Financial Risk. Financial risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include: demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Stocks of undervalued companies may not rise as quickly as anticipated if the market doesn't recognize their intrinsic value or if value stocks are out of favor. In addition, prices of larger company stocks may not rise as quickly or as significantly as prices of stocks of well-managed smaller companies. Loss of Principal. The success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Shares of the Fund will rise and fall in value and there is a risk that you could lose money by investing in the Fund. The Fund cannot be certain that it will achieve its goal. Volatility and Performance The bar chart and table provide an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for one-and five-year periods and since inception compared to a broad-based securities market index. The bar chart includes the effects of Fund expenses, but not sales charges. If sales charges were included, returns would be lower than those shown. The table includes the effects of Fund expenses and maximum sales charges for each class, and assumes that you sold your shares at the end of the period. The after-tax returns for Class A shares of the Fund are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only Class A shares of the Fund, and after-tax returns for Class B shares will vary. The Fund commenced operations on March 18, 1994, and the bar chart includes performance from before the creation of share classes on January 8, 1997. Prior to January 8, 1997, the shares of the Fund had no specific class designation. As of that date, all of the outstanding shares were redesignated as Class A shares. The tables includes performance of Class B shares since the creation of share classes and reflects the automatic conversion to Class A shares after five years. How a Fund has performed in the past (before and after taxes) is not necessarily an indication of how it will perform in the future. [CHART] YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1995 1996 1997 1998 1999 2000 2001 2002 - ------ ----- ------ ------ ----- ----- ------ ------- 29.17% 4.81% 22.37% 13.29% 4.09% 9.51% -8.14% -24.09% The Fund's year-to-date return as of March 31, 2003 was -4.61%. Best Quarter Q4 '98 +15.04% Worst Quarter Q3 '02 -17.51% AVERAGE ANNUAL TOTAL RETURNS (PERIODS ENDING DECEMBER 31, 2002) Since Since Inception Inception of Class B 1 Year 5 Years (03/18/94) (01/08/97) The AAL Equity Income Fund Class A (before taxes) -28.26% -3.18% 3.11% N/A Class A (after taxes on distributions) -28.57% -4.10% 1.91% N/A Class A (after taxes on distributions and redemptions) -17.33% -2.63% 2.16% N/A - ------------------------------------------------------------------- Class B -27.85% -3.05% N/A 0.85% - ------------------------------------------------------------------- S&P 500/Barra Value Index/1/ -20.86% -0.85% 8.32% 3.59% - ------------------------------------------------------------------- /1/The S&P 500/Barra Value Index is an unmanaged capitalization weighted index composed of the lowest price-to-book securities in the S&P 500 Index. This Index is designed so that approximately one-half of the S&P 500 Index market capitalization is characterized as "value" and the other half as "growth." The performance of the Index does not reflect deductions for fees, expenses or taxes. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of The AAL Equity Income Fund./1/ SHAREHOLDER FEES (fees paid directly from CLASS A CLASS B your investment) SHARES SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.50% None - -------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of net asset value at time of purchase or redemption, whichever is lower) 1.00%/2/ 5.00% - -------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted CLASS A CLASS B from Fund assets) SHARES SHARES Management Fees 0.45% 0.45% - --------------------------------------------------- Distribution (12b-1) Fees 0.25% 1.00% - --------------------------------------------------- Other Expenses (including a 0.25% shareholder servicing fee) 0.37% 0.72% - --------------------------------------------------- Total Annual Fund Operating Expenses 1.07% 2.17% - --------------------------------------------------- /1/The maximum sales charges for the Fund depends upon the amount of your investment and whether you buy Class A shares or Class B shares. For a complete description of the sales charges, see "Choosing a Class of Shares." In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. See "Accounts with Low Balances." The Funds also may charge a fee of up to $30 for a redemption by wire. See "Shareholder Information--Redeeming Shares." /2/When you invest $1,000,000 or more, a contingent deferred sales charge of 1% will apply to shares redeemed within one year. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. For Class B shares, it also assumes the automatic conversion to Class A shares after five years. Although your actual cost may be higher or lower, based on these assumptions your cost would be: 1 3 5 10 Year Years Years Years - --------------------------------------- Class A shares $653 $872 $1,108 $1,784 - --------------------------------------- Class B shares $720 $979 $1,264 $1,841 - --------------------------------------- You would pay the following expenses if you did not redeem your shares: 1 3 5 10 Year Years Years Years - --------------------------------------- Class A shares $653 $872 $1,108 $1,784 - --------------------------------------- Class B shares $220 $679 $1,164 $1,841 - --------------------------------------- The AAL Municipal Bond Fund - -------------------------------------------------------------------------------- Investment Objective The AAL Municipal Bond Fund seeks a high level of current income exempt from federal income taxes, consistent with capital preservation by investing primarily in a diversified portfolio of municipal bonds. Investment Strategies Under normal circumstances, the Fund invests as least 80% of net assets (plus the amount of any borrowing for investment purposes) in municipal bonds, the income of which is exempt from federal income tax. However, the Fund may invest in certain bonds that are subject to the alternative minimum tax as discussed below. Of the 80% invested in municipal bonds, at least 75% is invested in bonds rated within the three highest rating categories assigned by at least one Nationally Recognized Statistical Rating Organization (NRSRO) at the time of purchase. State and local governments and municipalities issue municipal bonds to raise money for a variety of public purposes, including general financing for state and local governments or financing for specific projects or public facilities. A municipality may issue municipal bonds in anticipation of future revenues from a specific municipal project (revenue bonds), or backed by the full taxing power of a municipality (general obligation bonds), or from the revenues of a specific project on the credit of a private organization (industrial development bonds). Federal law generally exempts the interest paid on municipal bonds from federal income taxes. The Fund may invest 25% or more of 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. The Fund 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). The investment adviser limits the Fund's purchases of AMT paper to 25% of the Fund's total assets. Investment Risks The AAL Municipal Bond Fund is subject to the following primary investment risks. Market Risk. Over time stock markets generally tend to move in cycles with periods when stock prices rise and periods when stock prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Financial Risk. Financial risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include: demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. The Fund's performance may be affected by political and economic conditions at the state, regional or federal level. These may include budgetary problems, decline in the tax base and other factors that may cause rating agencies to downgrade the credit ratings on certain issues. Bonds may also exhibit price fluctuations due to changes in interest rate or bond yield levels. As a result, the value of the Fund's shares may fluctuate significantly in the short term. Credit Risk. Credit risk is the risk that an issuer of a bond held by the Fund may no longer be able to pay its debt. As a result of such an event, the bond may decline in price thereby effecting the value of the Fund. Interest Rate Risk. Interest rate risk is the risk that bond prices decline in value when interest rates rise for bonds that pay a fixed rate of interest. This effect may cause the value of the Fund to decline and reduce the overall return of the Fund. Derivative Risk. Derivative risk exists when the Fund uses derivative instruments such as futures, options and swaps to hedge or protect the Fund from adverse movements in securities prices and interest rates. 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 securities in the Fund. Loss of Principal. The success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Shares of the Fund will rise and fall in value and there is a risk that you could lose money by investing in the Fund. The Fund cannot be certain that it will achieve its goal. Volatility and Performance The bar chart and table provide an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for one-, five- and ten-year periods and since inception compared to a broad-based securities market index. The bar chart includes the effects of Fund expenses, but not sales charges. If sales charges were included, returns would be lower than those shown. The table includes the effects of Fund expenses and maximum sales charges for each class, and assumes that you sold your shares at the end of the period. The after-tax returns for Class A shares of the Fund are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only Class A shares of the Fund, and after-tax returns for Class B shares will vary. The Fund commenced operations on July 16, 1987, and the bar chart includes performance from before the creation of share classes on January 8, 1997. Prior to January 8, 1997, the shares of the Fund had no specific class designation. As of that date, all of the outstanding shares were redesignated as Class A shares. The table includes performance of Class B shares since the creation of share classes and reflects the automatic conversion to Class A shares after five years. How a Fund has performed in the past (before and after taxes) is not necessarily an indication of how it will perform in the future. [CHART] YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 - ------ ------ ------ ----- ------ ----- ------ ------ ----- ----- 11.28% -5.68% 18.24% 4.39% 10.34% 5.98% -5.64% 12.01% 5.60% 8.44% The Fund's year-to-date return as of March 31, 2003 was 1.01%. Best Quarter Q1 '95 +6.75% Worst Quarter Q1 '94 -5.27% AVERAGE ANNUAL TOTAL RETURNS (PERIODS ENDING DECEMBER 31, 2002) Since Inception of Class B 1 Year 5 Years 10 Years (01/08/97) The AAL Municipal Bond Fund Class A (before taxes) 3.59% 4.15% 5.76% N/A Class A (after taxes on distributions) 3.56% 4.01% 5.53% N/A Class A (after taxes on distributions and redemptions) 3.90% 4.15% 5.47% N/A - ------------------------------------------------------------------ Class B 3.62% 4.22% N/A 5.33% - ------------------------------------------------------------------ Lehman Municipal Bond Index/1/ 9.60% 6.06% 6.71% N/A - ------------------------------------------------------------------ /1/The Lehman Municipal Bond Index is a market value-weighted index of investment-grade municipal bonds with maturities of one year or more. The performance of the Index does not reflect deductions for fees, expenses or taxes. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of The AAL Municipal Bond Fund./1/ SHAREHOLDER FEES (fees paid directly from your CLASS A CLASS B investment) SHARES SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.50% None - ------------------------------------------------------- Maximum Deferred Sales Charge (Load) (as a percentage of net asset value at time of purchase or redemption, whichever is lower) 1.00%/2/ 5.00% - ------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from CLASS A CLASS B Fund assets) SHARES SHARES Management Fees 0.45% 0.45% - ------------------------------------------------------- Distribution (12b-1) Fees 0.25% 1.00% - ------------------------------------------------------- Other Expenses 0.09% 0.11% - ------------------------------------------------------- Total Annual Fund Operating Expenses 0.79% 1.56% - ------------------------------------------------------- /1/The maximum sales charges for the Fund depends upon the amount of your investment and whether you buy Class A shares or Class B shares. For a complete description of the sales charges, see "Choosing a Class of Shares." In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. See "Accounts with Low Balances." The Funds also may charge a fee of up to $30 for a redemption by wire. See "Shareholder Information--Redeeming Shares." /2/When you invest $1,000,000 or more, a contingent deferred sales charge of 1% will apply to shares redeemed within one year. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, and that the Fund's operating expenses remain the same. For Class B shares, it also assumes the automatic conversion to Class A shares after five years. Although your actual cost may be higher or lower, based on these assumptions your cost would be: 1 3 5 10 Year Years Years Years - -------------------------------------- Class A Shares $527 $691 $869 $1,384 - -------------------------------------- Class B Shares $659 $793 $950 $1,372 - -------------------------------------- You would pay the following expenses if you did not redeem your shares: 1 3 5 10 Year Years Years Years - -------------------------------------- Class A shares $527 $691 $869 $1,384 - -------------------------------------- Class B shares $159 $493 $850 $1,372 - -------------------------------------- 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. Investment Strategies The Fund invests in high-quality, dollar-denominated, short-term debt securities. The investment adviser tries to maintain a $1 share price for the Fund. The Fund invests in securities maturing in 397 days or less and maintain a dollar-weighted average portfolio maturity of 90 days or less. Portfolio turnover will be high for the Fund due to the short duration of securities, which require replacement by new issues. Investment Risks The AAL Money Market Fund is subject to the following primary investment risks. Market Risk. Over time stocks markets generally tend to move in cycles with periods when stock prices rise and periods when stock prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Financial Risk. Financial risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include: demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Some factors that could affect the yield of the Fund's shares include a weak economy, strong equity markets and changes by the Federal Reserve in its monetary policy. Credit Risk. Credit risk is the risk that an issuer of a bond held by the Fund may no longer be able to pay its debt. As a result of such an event, the bond may decline in price thereby affecting the value of the Fund. Interest Rate Risk. Interest rate risk is the risk that bond prices decline in value when interest rates rise for bonds that pay a fixed rate of interest. This effect may cause the value of the Fund to decline and reduce the overall return of the Fund. Loss of Principal. The success of the Fund's investment strategy depends significantly on Thrivent Investment Mgt.'s skill in assessing the potential of the securities in which the Fund invests. An investment in The AAL Money Market Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. Volatility and Performance The bar chart and table provide an indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for one-, five- and ten-year periods compared to a broad-based securities market index. The bar chart and table include the effects of Fund expenses and assume that you sold your shares at the end of the period. The Fund commenced operations on March 10, 1988, and the bar chart includes performance from before the creation of share classes on January 8, 1997. Prior to January 8, 1997, the shares of the Fund had no specific class designation. As of that date, all of the outstanding shares were redesignated as Class A shares. The table includes performance of Class B shares since the creation of share classes and reflects the automatic conversion to Class A shares after five years. How a Fund has performed in the past is not necessarily an indication of how it will perform in the future. [CHART] YEAR-BY-YEAR TOTAL RETURN (CLASS A) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 - ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 2.03% 2.93% 4.90% 5.20% 5.19% 4.88% 4.60% 5.82% 3.59% 1.04% The Fund's year-to-date return as of March 31, 2003 was 0.15%. Best Quarter Q3 '00 +1.49% Worst Quarter Q4 '02 +0.25% The 7-day yield for the period ended December 31, 2002 for The AAL Money Market Fund Class A shares was 0.78%. AVERAGE ANNUAL TOTAL RETURNS (PERIODS ENDING DECEMBER 31, 2002) Since Inception of Class B 1 Year 5 Years 10 years (01/08/97) The AAL Money Market Fund Class A 1.04% 3.97% 4.01% N/A - ------------------------------------------------------------- Class B -3.60% 3.02% N/A 3.35% - ------------------------------------------------------------- The Fund attempts to maintain a stable net asset value per share of $1.00. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of The AAL Money Market Fund./1/ SHAREHOLDER FEES (fees paid directly from CLASS A CLASS B your investment) SHARES SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None - ------------------------------------------------------ Maximum Deferred Sales Charge (Load) (as a percentage of net asset value at time of purchase or redemption, whichever is lower) None 5.00% - ------------------------------------------------------ ANNUAL FUND OPERATING EXPENSES (expenses that are deducted CLASS A CLASS B from Fund assets) SHARES SHARES Management Fees 0.50% 0.50% - ------------------------------------------------------ Distribution (12b-1) Fees 0.125% 0.875% - ------------------------------------------------------ Other Expenses 0.295% 0.245% - ------------------------------------------------------ Total Annual Fund Operating Expenses 0.92% 1.62% - ------------------------------------------------------ Expense Reimbursement/2/ 0.10% 0.40% - ------------------------------------------------------ Net Expenses 0.82% 1.22% - ------------------------------------------------------ /1/The maximum sales charges for the Fund depends upon the amount of your investment and whether you buy Class A shares or Class B shares. For a complete description of the sales charges, see "Choosing a Class of Shares." In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. See "Accounts with Low Balances." The Funds also may charge a fee of up to $30 for a redemption by wire. See "Shareholder Information--Redeeming Shares." /2/Thrivent Investment Mgt. has agreed, through at least December 31, 2003, to reimburse certain expenses associated with operating AAL Money Market Fund equal in the aggregate 0.10% of the average daily net assets of the Class A shares of the Fund and 0.40% of the average daily net assets of the Class B shares of the Fund. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, and that the Fund's operating expenses remain the same. For Class B shares, it also assumes the automatic conversion to Class A shares after five years. Although your actual cost may be higher or lower, based on these assumptions your cost would be: 1 3 5 10 Year Years Years Years - -------------------------------------- Class A shares $94 $293 $509 $1,131 - -------------------------------------- Class B shares $665 $811 $981 $1,485 - -------------------------------------- You would pay the following expenses if you did not redeem your shares: 1 3 5 10 Year Years Years Years* - -------------------------------------- Class A shares $94 $293 $509 $1,131 - -------------------------------------- Class B shares $165 $511 $881 $1,485 - -------------------------------------- Management, Organization and Capital Structure - -------------------------------------------------------------------------------- Investment Adviser Thrivent Investment Management Inc. ("Thrivent Investment Mgt."), 625 Fourth Avenue South, Minneapolis, Minnesota 55415, serves as investment adviser for each of the Funds of The AAL Mutual Funds (the "Trust"). Thrivent Investment Mgt. and its affiliates have been in the investment advisory business since 1970 and managed approximately $57.3 billion in assets as of March 31, 2003, including approximately $10.1 billion in mutual fund assets. Thrivent Investment Mgt. Provides investment research and supervision of the Funds' investments. Thrivent Investment Mgt. provides investment research and supervision of the assets for each of the Funds, except The AAL International Fund. For The AAL International Fund, Thrivent Investment Mgt. establishes the overall investment strategy and evaluates, selects and recommends, subject to the approval of the Board of Trustees of the Fund, one or more subadvisers to manage the investments of The AAL International Fund. Thrivent Investment Mgt. also allocates assets to the subadvisers, monitors the performance, security holdings and investment strategies for the subadvisers and, when appropriate, researches any potential new subadvisers for the Fund. Thrivent Investment Mgt. has ultimate responsibility to oversee the subadvisers and recommend their hiring, termination and replacement. Thrivent Investment Mgt. and the Trust have received an exemptive order from the Securities and Exchange Commission ("SEC") that permits Thrivent Investment Mgt. and the Trust, with the approval of the Trust's Board of Trustees, to retain a subadviser for the Funds, or subsequently change the subadviser, without submitting the investment subadvisory agreement or material amendments to the agreement to a vote of the shareholders of the Funds. Thrivent Investment Mgt. will notify shareholders in the event that it adds a subadviser or changes the identity of the subadviser of a Fund. Advisory Fees Each Fund pays an annual investment advisory fee to Thrivent Investment Mgt. During the fiscal year ended April 30th, 2003, Thrivent Investment Mgt. received the following advisory fees, expressed as a percentage of the Fund's net assets.* FUND ADVISORY FEE The AAL Aggressive Growth Fund..... 0.80% The AAL International Fund......... 0.62% The AAL Capital Growth Fund........ 0.54% The AAL Equity Income Fund......... 0.45% The AAL Municipal Bond Fund........ 0.45% The AAL Money Market Fund.......... 0.50% * The Funds may invest cash in The AAL Money Market Fund, subject to certain conditions. In order to avoid duplicate investment advisory fees, Thrivent Investment Mgt. reimburses the Fund the amount of investment advisory fees attributable to the Fund's investment in The AAL Money Market Fund. This table does not reflect the effects of any reimbursements. Portfolio Management The AAL Aggressive Growth Fund Scott A. Vergin has served as portfolio manager of The AAL Aggressive Growth Fund since 2002. Mr. Vergin also has served as portfolio manager of the following series of affiliated mutual fund groups: the Lutheran Brotherhood Growth Fund since 2002 and the LB Growth Portfolio since 1994. Mr. Vergin has been with Thrivent Investment Mgt. since 1984. The AAL International Fund Thrivent Investment Mgt. has engaged Oechsle International Advisors, LLC ("Oechsle"), located at One International Place, Boston, Massachusetts 02110. Oechsle was founded in 1986. The firm specializes in international and global investments for institutional clients from its offices located in Boston, London, Frankfurt and Tokyo. As of March 31, 2003, the firm managed over $10.5 billion in assets. Oechsle utilizes a team approach to manage the Fund. All of Oechsle's portfolio managers and research analysts are members of the investment team. The investment team develops a broad investment strategy, establishes a framework for country allocations and contributes individual stock selections. The portfolio manager primarily responsible for overseeing Oechsle's management of the Portfolio since it commenced operation on March 2, 1998 is Kathleen Harris. Ms. Harris joined Oechsle as a portfolio manager in January 1995 and has been a principal since January 1997. The AAL Capital Growth Fund Frederick L. Plautz has managed the day-to-day Fund investments since November 1, 1995. Mr. Plautz has also served as a portfolio manager of The AAL Balanced Fund since 1997, and he has served as portfolio manager of the following series of affiliated mutual fund groups: Lutheran Brotherhood Fund since 2002 and Capital Growth Portfolio since 2001. Mr. Plautz has been with Thrivent Investment Mgt. since 1995. The AAL Equity Income Fund The AAL Equity Income Fund is managed by a team of investment professionals from Thrivent Investment Mgt The AAL Municipal Bond Fund Janet I. Grangaard, CFA, has served as portfolio manager of the Fund since April 1, 2002. Ms. Grangaard has also served as portfolio manager of The Lutheran Brotherhood Municipal Bond Fund, a series of an affiliated mutual fund group, since 2002. Ms. Grangaard has been a portfolio manager with Thrivent Investment Mgt. since 1994. The AAL Money Market Fund William D. Stouten has served as the portfolio manager of The AAL Money Market Fund since October 10, 2003. Mr. Stouten has been with Thrivent Investment Mgt. since 2001, and he has served as a research analyst/trader for the money market funds at Thrivent Financial from 2001 to 2003. Prior to joining Thrivent Investment Mgt., Mr. Stouten served as a senior research analyst for Voyageur Asset Management from 1998 to 2001. Personal Securities Investments Personnel of Thrivent Investment Mgt. and Oechsle may invest in securities for their own account pursuant to codes of ethics that establish procedures for personal investing and restrict certain transactions. Transactions in securities that may be held by the Funds are permitted, subject to compliance with applicable provisions under the codes of ethics. Standard & Poor's Trademarks "Standard & Poor's(R)," "S&P(R)," "Standard & Poor's 500," "S&P 500(R)," "500," "Standard & Poor's MidCap 400 Index," "S&P MidCap 400 Index," "Standard &Poor's SmallCap 600 Index" and "S&P SmallCap 600 Index" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Thrivent Financial. The product is not sponsored, endorsed, 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 - -------------------------------------------------------------------------------- How to Contact Us By Telephone: 1-800-847-4836 press 1 to speak with a customer service representative or press 2 to use the Automated Service Line By Internet: www.thrivent.com By Mail (New Applications): The AAL Mutual Funds P.O. Box 219347 Kansas City, MO 64121-9347 By Mail (Additional Investments): The AAL Mutual Funds P.O. Box 219334 Kansas City, MO 64121-9334 By Mail (Redemptions, Exchanges or Other Requests): The AAL Mutual Funds P.O. Box 219348 Kansas City, MO 64121-9348 By Express Mail: Thrivent Investment Management Inc. 210 West 10th Street, 8th Floor Kansas City, MO 64105 Pricing Funds' Shares The price of a Fund's shares is based on the Fund's net asset value ("NAV"). Each Fund determines the NAV for a particular class once daily at the close of trading on the New York Stock Exchange ("NYSE"), which is normally 4:00 p.m. Eastern time. The Funds do not determine NAV on holidays observed by the NYSE or on any other day when the NYSE is closed. The NYSE is regularly closed on Saturdays and Sundays, New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. The price at which you purchase or redeem shares of the Funds is based on the NAV next calculated after the Fund receives your payment or redemption request. The AAL Money Market Fund seeks to maintain a stable $1.00 NAV pursuant to procedures established by the Board of Trustees for the Funds, which utilize the amortized cost method. Valuing securities held by The AAL Money Market Fund on the basis of amortized cost involves a constant amortization of premium or accretion of discount to maturity, regardless of the impact of fluctuating interest rates on the market value of the security. This method is explained further in the . Each other Fund determines the NAV for a particular class by dividing the total Fund assets attributable to that class, less all liabilities attributable to such class, by the total number of outstanding shares of that class. To determine the NAV, the other Funds generally value their securities at current market value using readily available market prices. If market prices are not available or do not accurately reflect fair value for a security, the fair value of that security may be determined under policies approved by the Board of Trustees. Some of the Funds hold securities that trade on foreign exchanges. These exchanges may trade on weekends or other days when the Funds do not price their shares. As a result, the value of a Fund's shares may change at a time when those shares may not be purchased or redeemed. The Board of Trustees of The AAL Mutual Funds has authorized Thrivent Financial and certain other third parties to receive orders for the purchase and redemption of shares of the Funds. Choosing a Class of Shares This Prospectus offers two classes of shares, each with its own sales charges and fees. You should choose the class of shares that you believe is the most appropriate for you, given the amount of your purchase, the length of time you anticipate holding the shares, and other factors. CLASS A SHARES CLASS B SHARES Sales Charges Initial sales charge at time of investment Contingent Deferred Sales Charge of up to 5.5% for equity funds and 4.5% ("CDSC") of 5% to 1%, depending on for fixed income funds depending on how long you hold your shares before amount of investment you redeem them. There is no CDSC after five years - ---------------------------------------------------------------------------------------------------------- Rule 12b-1 None 0.75%. Class B shares convert Distribution Fee automatically to Class A shares after five years - ---------------------------------------------------------------------------------------------------------- Rule 12b-1 0.25% each year of average daily net 0.25% each year of average daily net Shareholder assets (0.125% for AAL Money Market assets (0.125% for The AAL Money Servicing Fee Fund) Market Fund) Class B shares have an annual Rule 12b-1 fee, based on the SEC rule that permits this type of fee. Under its 12b-1 plan, the Funds pay Thrivent Investment Mgt. shareholder servicing fees for Class A and Class B shares, and distribution fees for the sale and distribution of Class B shares. Those fees are paid out of a Fund's assets attributable to the Class B shares on an ongoing basis, and as a result, these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. Class A Shares The table below shows the sales charges you will pay if you purchase Class A shares of The AAL Aggressive Growth Fund, The AAL International Fund, The AAL Capital Growth Fund and The AAL Equity Income Fund. WHEN YOU INVEST THIS % IS DEDUCTED WHICH EQUALS THIS % THIS AMOUNT FOR SALES CHARGES OF YOUR INVESTMENT Less than $50,000 5.5% 5.82% $50,000 and above but less than $100,000 4.5% 4.71% $100,000 and above but less than $250,000 3.5% 3.63% $250,000 and above but less than $500,000 2.5% 2.56% $500,000 and above but less than $1,000,000 2.0% 2.04% $1,000,000 or more 0%* 0%* - -------------------------------------------------------------------------------------- *A contingent deferred sales charge of 1% will apply to shares redeemed within one year. The table below shows the sales charges you will pay if you purchase Class A shares of The AAL Municipal Bond Fund. WHEN YOU INVEST THIS % IS DEDUCTED WHICH EQUALS THIS % THIS AMOUNT FOR SALES CHARGES OF YOUR INVESTMENT Less than $50,000 4.5% 4.71% $50,000 and above but less than $100,000 4.0% 4.17% $100,000 and above but less than $250,000 3.5% 3.63% $250,000 and above but less than $500,000 2.5% 2.56% $500,000 and above but less than $1,000,000 2.0% 2.04% $1,000,000 or more 0%* 0%* - -------------------------------------------------------------------------------------- *A contingent deferred sales charge of 1% will apply to shares redeemed within one year. Ways to Eliminate or Reduce the Initial Sales Charges o Rights of Accumulation: You can combine the value of all shares of any class of the Funds (except The AAL Money Market Fund) that you or members of your family, who live with you own, to the amount of your next Class A purchase for the purpose of calculating the sales charge. The value of all shares in an employer sponsored retirement plan (except shares of The AAL Money Market Fund) will be accumulated for the purpose of determining the sales charge for shares purchased through that retirement plan. Rights of accumulation do not apply to shares which you own in The Lutheran Brotherhood Family of Funds or shares which you purchase by exchanging shares of The Lutheran Brotherhood Family of Funds. o Automatic Reinvestments: Class A shares that you purchase by automatically reinvesting dividends or capital gains distributions from Class A shares of the Funds, except The AAL Money Market Fund, will not be subject to any initial sales charge. o Thirteen-month Letter of Intent: If you intend to accumulate $50,000 or more, including the value of purchases made during the previous 90 days, in Class A or Class B shares of one or more of the Funds (except The AAL Money Market Fund) within the next 13 months, you may sign a Letter of Intent and receive a reduced sales charge on purchases of any Class A shares. The Letter of Intent does not apply to shares which you own in The Lutheran Brotherhood Family of Funds or shares which you purchase by exchanging shares of The Lutheran Brotherhood Family of Funds. o Reinvestment upon Redemption: Except for certain Qualified Retirement Plans, if you redeem any or all of your Class A shares of any Fund other than The AAL Money Market Fund, or if you redeem any or all of your Class B shares of any Fund, or receive cash dividends from one of these Funds, you may reinvest any amount of your redemption in Class A shares of any of the Funds without paying a sales charge on the purchase of Class A shares. You must make your reinvestment within 90 days after redeeming your Class A shares or Class B shares and inform the Fund that you qualify for this discount. Your redemption may be a taxable event even if the shares are later reinvested. o Surrender or Dividend Withdrawal: If you request a surrender or dividend withdrawal from a life insurance or annuity contract issued by Thrivent Financial for Lutherans ("Thrivent Financial") or Thrivent Life Insurance Company and direct that the money should be used to purchase Class A shares of a Fund, the sales charge will be waived. o Amount Invested From Close-out of Small Class B Account: If you redeem a Class B Account which is below $500 and instruct that the proceeds should be used to purchase additional shares of an existing Class A Account in order to meet the required minimum amount for the Fund, the proceeds from the redemption of your Class B Account will not be subject to a sales charge. o Investment Advisory Program: Class A shares purchased in connection with a fee-based investment advisory program offered by Thrivent Investment Mgt. will not be subject to any sales charge. o Purchases by Tax-exempt Organizations: Class A shares of any Fund are available at one-half of the regular sales charge, if any, if purchased by organizations qualifying for tax-exemption under Sections 501(c)(3) and 501(c)(13) of the Internal Revenue Code. Class B Shares If you buy Class B shares, you will not be charged an initial sales charge. The entire purchase amount is immediately invested, but a CDSC of up to 5% will apply to shares redeemed within five years of purchase. This % of net asset value at the time of purchase When you sell shares in this (or of sale, if lower) is year after you bought them deducted from your proceeds 1st Year........................................ 5% 2nd Year........................................ 4% 3rd Year........................................ 3% 4th Year........................................ 2% 5th Year........................................ 1% In order to ensure that you pay the lowest CDSC possible, the Fund will first redeem Class B shares that are not subject to the CDSC and then Class B shares held for the longest period of time. There is no CDSC on exchanges into Class B shares of the other Funds. The date of your initial investment will continue to be used as the basis for CDSC calculations when you exchange. However, if you exchange Class A shares of The AAL Money Market Fund for Class B shares of any other Fund, the date of the exchange will be used for purposes of calculating the CDSC. The amount of any CDSC will be paid to Thrivent Investment Mgt., the broker-dealer for the Funds. Initial investments in Class B shares of $100,000 or more per purchase will not be accepted. Because of the reduced sales charges available on such purchases, Class A shares (or Institutional Class shares if the investor is eligible) must be purchased instead. Contingent Deferred Sales Charge Waivers No CDSC will apply to the following: o Increases in the net asset value of Class B shares above the purchase price; o Class B shares purchased through reinvestment of dividends and capital gains distributions; o Class B shares purchased more than five years prior to redemption; o Class B shares redeemed due to the death or disability of a sole individual shareholder (but not for shares held in joint accounts or "family," "living" or other trusts) and for mandatory retirement distributions from an IRA or a tax-sheltered custodial account (403(b) plan); o Class B share redemptions from certain retirement plans which are taken in substantially equal payments; or o Redemption of a Class B Share account which is below $500 with instructions to purchase additional shares of an existing Class A Share account in order to meet the required minimum amount for the Fund. Conversion of Class B Shares to Class A Shares Your Class B shares will automatically convert into Class A shares of the same Fund after five years and consequently will no longer be subject to the higher expenses borne by Class B shares. Buying Shares Opening an Account You must open an account for each Fund that you want to purchase. Your Thrivent Investment Mgt. representative is ready to help you open a new account. If you do not know the name of your representative, please call our Investment Interaction Center ("Interaction Center") at (800) THRIVENT (847-4836). How you register your account with the Funds can affect your legal interests as well as the rights and interests of your family and beneficiaries. You should always consult with your legal and/or tax adviser to determine the account registration that best meets your needs. You must clearly identify the type of account you want on your application. If shares are held in the name of a corporation, trust, estate, custodianship, guardianship, partnership or pension and profit sharing plan, additional documentation may be necessary. Required Minimum Investments FIRST ADDITIONAL REGULAR ACCOUNT PURCHASE PURCHASES -------------------------------------------------- All Funds except The AAL Money Market Fund $1,000 $ 50 -------------------------------------------------- The AAL Money Market Fund $1,500 $100 -------------------------------------------------- IRA OR TAX-DEFERRED PLAN -------------------------------------------------- All Funds except The AAL Money Market Fund $ 500 $ 50 -------------------------------------------------- The AAL Money Market Fund $ 500 $100 -------------------------------------------------- MINIMUM MONTHLY AMOUNT PER AUTOMATIC INVESTMENT PLAN ACCOUNT ----------------------------------------------------- All Funds except The AAL Money Market Fund $ 50 ----------------------------------------------------- The AAL Money Market Fund $100 ----------------------------------------------------- Shares of the Funds are issued on days on which the NYSE is open, which generally are weekdays other than national holidays. Your order will be considered received when your check or other payment is received in good order. Orders that are received before the close of regular trading on the NYSE (generally 4:00 p.m. Eastern time) will be processed at the net asset value calculated that day. Orders received after the close of regular trading on the NYSE will be processed at the net asset value calculated on the following business day. The Funds reserve the right to reject any purchase request. Initial Purchases You may purchase initial shares through your Registered Representative or in any of the following ways: o By mail; or o By wire transfer. Initial Purchases by Mail To buy shares of the Funds by mail: o Complete and mail your new account application for each different account registration. If you do not complete the application properly, your purchase may be delayed or rejected. o Make your check payable to the Fund you are buying. If more than one Fund, make your check payable to "The AAL Mutual Funds." Initial Purchases by Wire Transfer In order to buy shares of the Funds by wire transfer, your bank must be a member of, or have a corresponding relationship with a member of the Federal Reserve System. Step 1: Call our Interaction Center at (800) THRIVENT (847-4836) and provide the following information: o Your account registration; o The name of the Fund(s) in which you want to invest; o The Class of shares you wish to buy; 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. Step 2: Instruct your bank to use the following instructions when wiring funds: Wire transfer to: State Street Corp. 225 Franklin Street Boston, MA 02101 ABA #011000028 Account #4195-538-6 Credit: Thrivent Financial Investor Services as Agent for the benefit of The AAL Mutual Funds Further Credit: [Name of the Fund] [Shareholder Account Number] [Shareholder Registration/Name] Please call (800) THRIVENT (847-4836) prior to the wire transfer in order to obtain a confirmation number and to ensure prompt and accurate handling of funds. Step 3: Mail your application. The Fund and its transfer agent are not responsible for the consequences of delays resulting from the banking or Federal Reserve wire transfer system, or from incomplete wiring instructions. Additional Purchases You may purchase additional shares through your Registered Representative or in any of the following ways: o By mail; o By telephone; o By the Internet; o By wire transfer; or o Through the Automatic Investment Plan. Additional Purchases By Mail To make additional purchases by mail, make your check payable to the specific Fund in which you are investing. Please indicate your Fund account number on the face of your check. If you have more than one account, always verify that you are investing in the proper account. This will help ensure the proper handling of the transaction. Additional Purchases By Telephone Before you can buy additional shares by telephone, you must have selected the Request for Telephone Purchase option on the application. Once you have selected this option, you can call our Interaction Center at (800) THRIVENT (847-4836) and the Fund will withdraw money from your bank checking or savings account to make your investment. You pay the next price computed after the Funds have received your investment from your bank, which is usually three business days after you authorize the transfer. If you need to invest sooner, you should consider making a wire transfer purchase. The Fund has implemented procedures designed to reasonably ensure that telephone instructions are genuine. These procedures include recording telephone conversations, requesting verification of certain personal information, restricting transmittal of redemption proceeds to pre-authorized account owners and addresses and supplying transaction verification information. Please note, however, that the Fund will not be liable for losses suffered by a shareholder that result from following telephone instructions reasonably believed to be authentic after verification pursuant to these procedures. If an account has multiple owners, the Fund may rely on the instructions of any one account owner. This privilege may not be available on all retirement plan accounts. Additional Purchases By the Internet You may purchase additional shares within your Fund accounts over the Internet (pre-authorized bank information is required prior to purchase). The Fund requires a Personal Identification Number (PIN) prior to authorizing transactions on your Fund accounts. This privilege may not be available on all retirement plan accounts. Additional Purchases By Wire Transfer You may make additional purchases in an existing Fund account by wire transfer. In order to buy shares of the Funds by wire transfer, your bank must be a member of, or have a corresponding relationship with a member of the Federal Reserve System. Instruct your bank to use the following instructions when wiring funds: Wire transfer to: State Street Corp. 225 Franklin Street Boston, MA 02101 ABA #011000028 Account #4195-538-6 Credit: Thrivent Financial Investor Services as Agent for the benefit of The AAL Mutual Funds Further Credit: [Name of the Fund] [Shareholder Account Number] [Shareholder Registration/Name] The Fund and its transfer agent are not responsible for the consequences of delays resulting from the banking or Federal Reserve wire transfer system, or from incomplete wiring instructions. Automatic Investment Plans The Funds offer several automatic investment plans to make periodic investing more convenient. Using the Funds' automatic investment plans, you may implement a strategy called dollar cost averaging. Dollar cost averaging involves investing a fixed amount of money at regular intervals. When you dollar cost average, you purchase more shares when the price is low and fewer shares when the price is high. Dollar cost averaging does not ensure a profit or protect against a loss during declining markets. Because such a program involves a continuous investment regardless of changing share prices, you should consider your ability to continue the program through times when the share prices are high. Please note that it takes up to 10 business days from the time you invest for the transfer agent to validate any electronic transfer. This will cause some delay in your ability to redeem or transfer from your account. For further information regarding any of the following automatic investment plans, contact your Thrivent Investment Mgt. representative or our Interaction Center at (800) THRIVENT (847-4836). Automatic Bank Withdrawal Plan Investors who wish to make regular additional investments in an existing Fund account may do so through the Funds' Automatic Bank Withdrawal Plan. Under this plan, the Funds will draft an investor's bank checking or savings account in the amount specified--which may not be less than $50 per account for all Funds except The AAL Money Market Fund and $100 per account for The AAL Money Market Fund on specified dates. The proceeds will be invested in shares of the specified Fund at the applicable offering price determined on the date of the draft. To use this plan you must authorize the plan on your application form, or subsequently in writing, and submit additional documents. The Automatic Exchange Plan The automatic exchange plan allows investors to make regular automatic investments in an existing Fund account by redemption of the same class of shares from The AAL Money Market Fund account. The automatic exchange plan allows investors to select the transaction date. All such investments must be at least $50 for all Funds and will be subject to the applicable sales charge. To start, stop or change the plan, you must notify the Funds at least 24 hours prior to the transaction date. Automatic Payroll Deduction Savings and Investment Plan The payroll deduction savings and investment plan allows employees of Thrivent Financial, employees of Lutheran-affiliated institutions, Social Security recipients, federal employees and military personnel to invest in the Funds through direct deduction from their paychecks or commission checks. Retirement Plans Individual and employer-sponsored retirement plans may be established with assets invested in The AAL Mutual Funds. These accounts may offer you tax advantages. You should consult with your attorney and/or tax advisor before you establish a retirement plan. Additional fees may apply to some retirement accounts. Please review plan documents for more information. Your registered representative can provide you with the materials, documents and forms you need for establishing your retirement plan. Purchase Policies Your payment must be in U.S. dollars drawn on a U.S. Bank. The Fund does not accept cash. If you purchase shares by check, electronic funds transfer (other than bank wire), or automatic investment plan and you elect to redeem those shares soon after their purchase, the Fund may postpone paying the redemption proceeds until your payment has cleared or up to 10 days from the date of purchase. The Fund reserves the right to suspend the offering of shares for a period of time and the right to reject any specific purchase of shares. Confirmation Thrivent Investment Mgt. generally mails written confirmation of your purchases, except for additional purchases in The AAL Money Market Fund, within five business days following the date of your purchase. It mails confirmation of additional purchases in The AAL Money Market Fund monthly and confirmation of your automatic investment plan transactions at least quarterly. For information about your shares, please contact the Thrivent Investment Mgt. Interaction Center at (800) THRIVENT (847-4836). Redeeming Shares You can sell your shares on any business day Thrivent Investment Mgt. prices the Funds' shares. Once the Fund receives your request for redemption, the Fund will redeem your shares at the next NAV on any day on which the NYSE is open for business. The Funds may postpone payment or suspend the right of redemption in unusual circumstances, as permitted by the U.S. Securities and Exchange Commission. When you purchase shares by check, the Funds may delay payment for redemption requests for the shares purchased for up to 10 business days or until your payment has cleared. If shares are held in the name of a corporation, trust, estate, custodianship, guardianship, partnership or pension and profit sharing plan, or if you have requested and received share certificates, additional documentation may be necessary. You may redeem shares in any of the following ways: o By mail; o By telephone; o By the Internet; o By wire transfer; or o Through the Systematic Withdrawal Plan. Redemptions by Mail Step 1: Prepare a written request including the following information: o Name(s) of the account owner(s); o Your account number; o The name of the Fund(s) whose shares are being redeemed; and o Dollar or share amount you wish to redeem. If an account has multiple owners, the Fund may rely on the instructions of any one account owner. You must have a Medallion Signature Guarantee if you want to do any of the following: o Sell shares with a value of more than $100,000; o Send the proceeds to an address other than the one listed for your account; or o Make the check payable to someone other than the account owners(s). A Medallion Signature Guarantee is a stamp provided by a financial institution that verifies your signature. You endorse the certificate on the back and have the signature(s) guaranteed by an eligible guarantor institution such as a commercial bank, trust company, security broker or dealer, credit union, or a savings association participating in the Medallion Signature Guarantee Program. A Medallion Signature Guarantee may be obtained at any national bank or brokerage firm. Step 2: Mail your redemption request. Please note, an additional fee may be assessed for a redemption delivered by overnight mail or Saturday delivery. The Funds will mail payment proceeds within seven days following receipt of all required documents. However, mailing may be delayed if the Fund is waiting for your means of purchase to clear. Redemptions by Telephone The privilege to redeem shares by telephone is automatically extended to all accounts except certain retirement plan accounts, unless the option is specifically declined on your application. If you do not want the telephone redemption option, please call our Interaction Center at (800) THRIVENT (847-4836). By accepting this privilege, you assume some risks for unauthorized transactions. The following conditions apply: o Telephone redemption checks will be issued to the same payee(s) as the account registration and sent only to the address of record; o There has been no change of address in the preceding 30 days; o The request is for $100,000 or less; o Shares to be redeemed cannot be in certificate form; and o If an account has multiple owners, the Fund may rely on the instructions of any one account owner. The Funds will mail payment proceeds within seven days following receipt of all required documents. Redemptions by the Internet You may redeem shares within your Fund accounts over the Internet. The Fund requires a Personal Identification Number (PIN) prior to authorizing transactions on your Fund accounts. This privilege may not be available on retirement plan accounts. Redemptions by Wire Transfer When redeeming shares by wire transfer, the following conditions apply: o A fee of up to $30 may be assessed for redemptions by wire. o If an account has multiple owners, the Fund may rely on the instructions of any one account owner. o This privilege may not be available on all retirement plan accounts. Systematic Withdrawal Plan (Usually Appropriate for Class A Shares Only) You can have money automatically withdrawn from your Fund account(s) on a regular basis by using our systematic withdrawal plan. The plan allows you to receive funds or direct payments at regular intervals. The following rules and/or guidelines apply: o You need a minimum of $5,000 in your account to start the plan. o You can select the date(s) on which the money is withdrawn. o To start the plan or change the payee(s), you must notify the Fund in writing and you must have all account owner(s) sign the appropriate form, which is available from the Thrivent Investment Mgt. Interaction Center. o Money can be sent by check or electronic funds transfer. o To stop or change your plan, you must notify Thrivent Investment Mgt. prior to the next withdrawal. o Because of sales charges, you must consider carefully the costs of frequent investments in and withdrawals from your account. Please note, for minimum required distributions from certain retirement plan accounts, the Fund will waive the contingent deferred sales charge on Class B shares. The AAL Money Market Fund Checks (Class A Shares Only) You can write checks on The AAL Money Market Fund account, except for Class B shares, if you complete a check writing signature card and agreement. You can request checks on your Funds application or in writing. We do not charge a fee for supplying your checks. The following rules and/or guidelines apply: o 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, may not be available.) o Our transfer agent may impose reasonable fees for each check that is returned. o Unless you purchased shares by wire, you must wait up to 10 business days after you purchase The AAL Money Market Fund shares to write checks against that purchase. o Unless you redeem via the Internet, you need a written request--not a check--to close The AAL Money Market Fund account. Your written request will require a Medallion Signature Guarantee to close accounts over $100,000 or to send the proceeds to a special payee or address. Exchanging Shares Between Funds You may exchange some or all of your shares of one Fund for shares of the same class of any of the other Funds. In addition, you may exchange Class A shares of your Funds for Class A shares of the Lutheran Brotherhood Family of Funds. If you exchange Class A shares of a Fund for which you have previously paid an initial sales charge for Class A shares of another Fund, you will not be charged an initial sales charge for the exchange. If you exchange Class B shares of one Fund for Class B shares of another Fund, you will not be charged a CDSC at the time of the exchange. If you own Class A shares of The AAL Money Market Fund which you did not obtain through an exchange, you may exchange any or all of those shares for Class B shares of another Fund. The Class B shares which you acquire from the exchange will be subject to a CDSC from the date of the exchange. Shareholders who are eligible to purchase Institutional Class shares may exchange some or all of their Class A shares for Institutional Class shares of any of the Funds or Institutional Class shares of The Lutheran Brotherhood Family of Funds. All exchanges will be based on the NAV of the shares you are exchanging and acquiring and will be subject to the minimum investment requirements. Except as described above, shares of one class may not be exchanged for shares of another class. An excessive number of exchanges may be disadvantageous to the Funds. Therefore, the Funds reserve the right to terminate the exchange privilege of any shareholder who makes more than 12 exchanges in a year. Further, the Funds reserve the right to modify or terminate the exchange privilege at any time with respect to any Fund, if the Funds' Trustees determine that continuing the privilege may be detrimental to shareholders. If the exchange policies are materially modified or terminated, the Fund will give you at least 60 days prior notice. You may obtain an exchange form or receive more information about making exchanges between Funds by contacting your Thrivent Investment Mgt. registered representative. You may exchange funds in any of the following ways: o By mail; o By telephone; or o By the Internet. Exchanges by Mail Prepare and mail a written request including the following information: o Name(s) of the account owner(s); o Your Fund(s) and account number(s); o Dollar or share amount you wish to exchange; o The name of the Fund(s) and account number(s) you are exchanging into; and o Signatures of all account owners. Exchanges by Telephone The privilege to exchange shares by telephone is automatically extended to all accounts, unless the option is specifically declined on your application. If you do not want the telephone exchange option, please call our Interaction Center at (800) THRIVENT (847-4836). By accepting this privilege, you assume some risks for unauthorized transactions. You may exchange shares for which certificates have not been issued by calling our Interaction Center at (800) THRIVENT (847-4836). Telephone exchange requests received prior to the close of the NYSE, usually 4:00 p.m. Eastern Time, will receive that day's price. During periods of extreme volume caused by dramatic economic or stock market changes, shareholders may have difficulty reaching our Interaction Center by phone, and a telephone exchange may be difficult to implement at those times. The Funds reserve the right to temporarily discontinue the telephone exchange privilege during such periods of extreme volume. Exchanges by the Internet You may exchange shares within your Fund accounts over the Internet. The Fund requires a Personal Identification Number (PIN) prior to authorizing transactions on your Fund accounts. This privilege may not be available on all retirement plan accounts. Accounts With Low Balances Due to the high cost of maintaining accounts with low balances, the Funds may charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below $1,000 and may redeem shares in any account if the value of shares in the account falls below $500. Before shares are redeemed to close an account or a small account fee is charged, you will be notified in writing and allowed 60 days to purchase additional shares. Distributions - -------------------------------------------------------------------------------- Dividends Dividends are declared and paid as follows: - --declared daily and paid monthly The AAL Municipal Bond Fund The AAL Money Market Fund - --declared and paid quarterly The AAL Equity Income Fund - --declared and paid semi- annually The AAL Capital Growth Fund - --declared and paid annually The AAL Aggressive Growth Fund The AAL International Fund Income dividends are derived from investment income, including dividends, interest, and certain foreign currency gains received by the Fund. Capital Gains Capital gains distributions, if any, usually will be declared in December for the prior fiscal year ending April 30. Distribution Options When completing your application, you must select one of the following options for dividends and capital gains distributions: o Full Reinvestment. Distributions from the Fund will be reinvested in additional shares of the same class of that Fund. This option will be selected automatically unless one of the other options is specified. o Full Reinvestment in a Different Fund. You may also choose to have your distributions reinvested into an existing account of the same class of another Fund within The AAL Mutual Funds. o All Cash. Distributions will be paid in cash. Your request to receive all or a portion of your distributions in cash must be received at least 10 days before the record date of the dividend or other distribution. Distributions paid in shares will be credited to your account at the next determined NAV per share. Taxes - -------------------------------------------------------------------------------- General In general, any net investment income and short-term capital gain distributions you receive from a Fund are taxable as ordinary income. To the extent a Fund receives and distributes qualified dividend income, you are eligible for a tax rate lower than that on other oridnary income distributions. Distributions of other net capital gains by the Fund are taxable as ordinary income. Distributions of other net capital gains by the Fund are generally taxable as capital gains-in most cases, at different rates from those that apply to ordinary income. We expect that distributions from The AAL Aggressive Growth Fund and The AAL International Fund will consist primarily of capital gains and that distributions from The AAL Capital Growth Fund, The AAL Equity Income Fund, The AAL Municipal Bond Fund, and The AAL Money Market Fund will consist primarily of ordinary income. The tax you pay on a given capital gains distribution generally depends on how long the Fund has held the portfolio securities it sold. It does not depend on how long you have owned your Fund shares or whether you reinvest your distributions or take them in cash. Every year, the Funds will send you information detailing the amount of qualified dividends, ordinary income and capital gains distributed to you for the previous year. The sale of shares in your account may produce a gain or loss, and is a taxable event. For tax purposes, an exchange between Funds is the same as a sale. You will not be required to pay federal income tax on (I) the automatic conversion of Class B shares to Class A shares, or (ii) exchanges of Class A or Class B shares of the Fund for Institutional Class shares of the same Fund. Your investment in the Funds could have additional tax consequences. Please consult your tax professional for assistance. By law, the Funds must withhold 28% of your distributions and proceeds if you have not provided complete, correct taxpayer information. The AAL Municipal Bond Fund Dividends derived from the interest earned on municipal securities constitute "exempt-interest dividends" and are generally not subject to federal income tax. Realized capital gains on municipal securities are subject to federal income tax. Thus, shareholders will be subject to taxation at ordinary rates on the dividends they receive that are derived from net short-term capital gains. Distributions of net long-term capital gains will be taxable as long-term capital gains regardless of the length of time a shareholder holds them. We may, for temporary defensive purposes, invest in short-term taxable securities for the Fund. Shareholders of this Fund are subject to federal income tax at ordinary rates on any income dividends they receive that are derived from interest on taxable securities. For shareholders 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. The AAL International Fund Foreign investments pose special tax issues for The AAL International Fund and its shareholders. For example, certain gains and losses from currency fluctuations may be taxable as ordinary income. Also, certain foreign countries withhold some interest and dividends that otherwise would be payable to The AAL International Fund. If the amount withheld is material, shareholders may be able to claim a foreign tax credit. Other Securities And Investment Practices - -------------------------------------------------------------------------------- The principal investment strategies and risk factors of each Fund are outlined beginning on page B-3. This section provides additional information about some of the securities and other practices in which certain Funds may engage, along with their associated risks. Repurchase agreements. Each of the Funds may buy securities with the understanding that the seller will buy them back with interest at a later date. If the seller is unable to honor its commitment to repurchase the securities, the Fund could lose money. When-issued securities. Each Fund may invest in securities prior to their date of issue. These securities could fall in value by the time they are actually issued, which may be any time from a few days to over a year. In addition, no income will be earned on these securities until they are actually delivered. Mortgage-backed and asset-backed securities. Each of the Funds may invest in mortgage-backed and asset-backed securities. Mortgage-backed securities are securities that are backed by pools of mortgages and which pay income based on the payments of principal and income they receive from the underlying mortgages. Asset-backed securities are similar but are backed by other assets, such as pools of consumer loans. Both are sensitive to interest rate changes as well as to changes in the redemption patterns of the underlying securities. If the principal payment on the underlying asset is repaid faster or slower than the holder of the mortgage-backed or asset-backed security anticipates, the price of the security may fall, especially if the holder must reinvest the repaid principal at lower rates or must continue to hold the securities when interest rates rise. Zero coupons. Each of the Funds may invest in zero coupon securities. A zero coupon security is a debt security that is purchased and traded at discount to its face value because it pays no interest for some or all of its life. Interest, however, is reported as income to the Fund that has purchased the security and the Fund is required to distribute to shareholders an amount equal to the amount reported. Those distributions may require the Fund to liquidate portfolio securities at a disadvantageous time. Foreign securities. Each of the Funds may invest in foreign securities. Foreign securities are generally more volatile than their domestic counterparts, in part because of higher political and economic risks, lack of reliable information and fluctuations in currency exchange rates. These risks are usually higher in less developed countries. Each of these Funds except The AAL Money Market Fund may use foreign currencies and related instruments to hedge its foreign investments. In addition, foreign securities may be more difficult to resell than comparable U.S. securities because the markets for foreign securities are less efficient. Even where a foreign security increases in price in its local currency, the appreciation may be diluted by the negative effect of exchange rates when the security's value is converted to U.S. dollars. Foreign withholding taxes also may apply and errors and delays may occur in the settlement process for foreign securities. International exposure. Each of the Funds may have some international exposure (including emerging markets) in their investments. Many U.S. companies in which these Funds may invest generate significant revenues and earnings from abroad. As a result, these companies and the prices of their securities may be affected by weaknesses in global and regional economies and the relative value of foreign currencies to the U.S. dollar. These factors, taken as a whole, could adversely affect the price of Fund shares. Restricted and illiquid securities. Each of the Funds may invest to a limited extent in restricted or illiquid securities. Any securities that are thinly traded or whose resale is restricted can be difficult to sell at a desired time and price. Some of these securities are new and complex, and trade only among institutions. The markets for these securities are still developing and may not function as efficiently as established markets. Owning a large percentage of restricted or illiquid securities could hamper a Fund's ability to raise cash to meet redemptions. Also, because there may not be an established market price for these securities, the Fund may have to estimate their value, which means that their valuation (and, to a much smaller extent, the valuation of the Fund) may have a subjective element. Securities lending. Each of the Funds except The AAL Money Market Fund may seek additional income by lending portfolio securities to qualified institutions. By reinvesting any cash collateral it receives in these transactions, a Fund could realize additional gains or losses. If the borrower fails to return the securities and the invested collateral has declined in value, the Fund could lose money. Derivatives. Each of the Funds except The AAL Money Market Fund may invest in derivatives. Derivatives, a category that includes options and futures, are financial instruments whose value derives from another security, an index or a currency. Each Fund may use derivatives for hedging (attempting to offset a potential loss in one position by establishing an interest in an opposite position). This includes the use of currency-based derivatives for hedging its positions in foreign securities. Each Fund may also use derivatives for speculation (investing for potential income or capital gain). While hedging can guard against potential risks, it adds to the fund's expenses and can eliminate some opportunities for gains. There is also a risk that a derivative intended as a hedge may not perform as expected. The main risk with derivatives is that some types can amplify a gain or loss, potentially earning or losing substantially more money than the actual cost of the derivative. With some derivatives, whether used for hedging or speculation, there is also the risk that the counterpart may fail to honor its contract terms, causing a loss for the Fund. In addition, suitable derivative investments for hedging or speculative purposes may not be available. High-yield bonds. Each of the Funds except The AAL Municipal Bond Fund and The AAL Money Market Fund may invest in high-yield bonds. High-yield bonds are debt securities rated below BBB by S&P or Baa by Moody's. To the extent that a Fund invests in high-yield bonds, it takes on the following risks: o The risk of a bond's issuer defaulting on principal or interest payments is greater than on higher quality bonds. o Issuers of high-yield bonds are less secure financially and are more likely to be hurt by interest rate increases and declines in the health of the issuer or the economy. Bonds. The value of any bonds held by a Fund is likely to decline when interest rates rise; this risk is greater for bonds with longer maturities. A less significant risk is that a bond issuer could default on principal or interest payments, possibly causing a loss for the Fund. Short-term trading. The investment strategy for each Fund at times may include short-term trading. While a Fund ordinarily does not trade securities for short-term profits, it will sell any security at any time it believes best, which may result in short-term trading. Short-term trading can increase a Fund's transaction costs and may increase your tax liability. During the fiscal year ending April 30, 2003, The AAL Aggressive Growth Fund had a portfolio turnover ratio of over 100%. Initial public offering. Each of the Funds may engage in initial public offerings (IPOs) of securities. IPOs issued by unseasoned companies with little or no operating history are risky and their prices are highly volatile, but they can result in very large gains in their initial trading. Thus, when the Fund's size is smaller, any gains form IPOs will have an exaggerated impact on the Fund's reported performance than when the Fund is larger. Attractive IPOs are often oversubscribed and may not be available to the Fund, or only in very limited quantities. There can be no assurance that a Fund will have favorable IPO investment opportunities. Securities ratings. When fixed-income securities are rated by one or more independent rating agencies, a Fund uses these ratings to determine bond quality. Investment grade bonds are those that are rated within or above the BBB major rating category by S&P or the Baa major rating category by Moody's, or unrated but considered of equivalent quality by the Fund's adviser. High-yield bonds are below investment grade bonds in terms of quality. In cases where a bond is rated in conflicting categories by different rating agencies, a Fund (other than The AAL Money Market Fund) may choose to follow the higher rating. If a bond is unrated, the Fund may assign it to a given category based on its own credit research. If a rating agency downgrades a security, the Fund will determine whether to hold or sell the security, depending on all of the facts and circumstances at that time. Defensive investing. In response to market, economic, political or other conditions, each Fund (except The AAL Money Market Fund) may invest without limitation in cash, preferred stocks, or investment-grade debt securities for temporary defensive purposes. If the Fund does this, different factors could affect the Fund's performance and it may not achieve its investment objective. Financial Highlights - -------------------------------------------------------------------------------- The financial highlights tables for each of the Funds are intended to help you understand the Funds' financial performance for the past five years or, if shorter, the period of the Funds' operations. The total returns in the tables represent the rate that an investor would have earned or lost on an investment in a Fund (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP, independent accountants, whose report, along with the Funds' financial statements, are included in the Annual Report to Shareholders for the fiscal year ended April 30, 2003, which is available upon request. The tables do not show the effect of a sales charge for any of the Funds. The AAL Aggressive Growth Fund Class A Shares - --------------------------------------------------------------------------------------------------------------------------------- Year Year Period Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001(e) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 4.53 $ 6.70 $ 10.00 Income From Investment Operations: Net investment income/(loss) (0.06) (0.06) (0.02) Net realized and unrealized loss on investments (b) (0.72) (2.11) (3.28) Total from investment operations (0.78) (2.17) (3.30) Net asset value, end of period $ 3.75 $ 4.53 $ 6.70 Total return (c) (17.22)% (32.39)% (33.00)% Net assets, end of period (in millions) $ 30.2 $ 34.9 $ 35.3 Ratio of expenses to average net assets (d) 2.64% 2.21% 2.12% Ratio of net investment income/(loss) to average net assets (d) (1.72)% (1.34)% (0.51)% Portfolio turnover rate 204% 94% 70% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 2.65% 2.21% 2.12% Ratio of net investment income/(loss) to average net assets (d) (1.73)% (1.34)% (0.51)% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. (e)Since Fund inception, July 1, 2000. The AAL Aggressive Growth Fund Class B Shares - --------------------------------------------------------------------------------------------------------------------------------- Year Year Period Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001(e) - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 4.44 $ 6.65 $ 10.00 Income From Investment Operations: Net investment income/(loss) (0.09) (0.10) (0.06) Net realized and unrealized loss on investments (b) (0.72) (2.11) (3.29) Total from investment operations (0.81) (2.21) (3.35) Net asset value, end of period $ 3.63 $ 4.44 $ 6.65 Total return (c) (18.24)% (33.23)% (33.50)% Net assets, end of period (in millions) $ 3.3 $ 3.4 $ 3.0 Ratio of expenses to average net assets (d) 3.73% 3.33% 3.32% Ratio of net investment income/(loss) to average net assets (d) (2.81)% (2.46)% (1.62)% Portfolio turnover rate 204% 94% 70% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 3.74% 3.33% 3.32% Ratio of net investment income/(loss) to average net assets (d) (2.82)% (2.46)% (1.62)% The AAL International Fund Class A Shares - ----------------------------------------------------------------------------------------------------------------------------- Year Year Year Year Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 8.62 $ 10.56 $ 14.06 $11.35 Income From Investment Operations: Net investment income/(loss) 0.03 0.01 0.25 - Net realized and unrealized gain/(loss) on investments (b) (1.92) (1.84) (3.24) 2.71 Total from investment operations (1.89) (1.83) (2.99) 2.71 Less Distributions from: Net investment income (0.05) (0.11) (0.24) - Net realized gain on investments - - (0.27) - Total Distributions (0.05) (0.11) (0.51) - Net asset value, end of period $ 6.68 $ 8.62 $ 10.56 $14.06 Total return (c) (22.17)% (17.27)% (21.61)% 23.91% Net assets, end of period (in millions) $ 126.5 $ 166.5 $ 190.6 $226.7 Ratio of expenses to average net assets (d) 1.71% 1.56% 1.38% 1.36% Ratio of net investment income/(loss) to average net assets (d) 0.20% 0.08% 2.06% (0.01)% Portfolio turnover rate 52% 63% 38% 44% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 1.71% 1.56% 1.38% 1.41% Ratio of net investment income/(loss) to average net assets (d) 0.20% 0.08% 2.06% (0.07)% The AAL International Fund - ------------------------------------------------------------------------------------------- Year Ended For a share outstanding throughout each period (a) 4/30/1999 - ------------------------------------------------------------------------------------------ Net asset value, beginning of period $11.15 Income From Investment Operations: Net investment income/(loss) 0.08 Net realized and unrealized gain/(loss) on investments (b) 0.65 Total from investment operations 0.73 Less Distributions from: Net investment income (0.44) Net realized gain on investments (0.09) Total Distributions (0.53) Net asset value, end of period $11.35 Total return (c) 6.82% Net assets, end of period (in millions) $146.9 Ratio of expenses to average net assets (d) 1.74% Ratio of net investment income/(loss) to average net assets (d) 0.64% Portfolio turnover rate 101% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 1.74% Ratio of net investment income/(loss) to average net assets (d) 0.64% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. The AAL International Fund Class B Shares - ----------------------------------------------------------------------------------------------------------------------------- Year Year Year Year Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 8.50 $ 10.39 $ 13.75 $11.23 Income From Investment Operations: Net investment income/(loss) (0.09) (0.09) 0.10 (0.13) Net realized and unrealized gain/(loss) on investments (b) (1.89) (1.79) (3.17) 2.65 Total from investment operations (1.98) (1.88) (3.07) 2.52 Less Distributions from: Net investment income - (0.01) (0.02) - Net realized gain on investments - - (0.27) - Total Distributions - (0.01) (0.29) - Net asset value, end of period $ 6.52 $ 8.50 $ 10.39 $13.75 Total return (c) (23.29)% (18.09)% (22.56)% 22.44% Net assets, end of period (in millions) $ 6.4 $ 10.3 $ 13.7 $ 15.6 Ratio of expenses to average net assets (d) 3.18% 2.57% 2.53% 2.53% Ratio of net investment income/(loss) to average net assets (d) (1.26)% (0.93)% 0.88% (1.19)% Portfolio turnover rate 52% 63% 38% 44% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 3.18% 2.57% 2.53% 2.59% Ratio of net investment income/(loss) to average net assets (d) (1.26)% (0.93)% 0.88% (1.25)% The AAL International Fund - ------------------------------------------------------------------------------------------- Year Ended For a share outstanding throughout each period (a) 4/30/1999 - ------------------------------------------------------------------------------------------ Net asset value, beginning of period $11.05 Income From Investment Operations: Net investment income/(loss) (0.03) Net realized and unrealized gain/(loss) on investments (b) 0.64 Total from investment operations 0.61 Less Distributions from: Net investment income (0.34) Net realized gain on investments (0.09) Total Distributions (0.43) Net asset value, end of period $11.23 Total return (c) 5.72% Net assets, end of period (in millions) $ 9.8 Ratio of expenses to average net assets (d) 2.85% Ratio of net investment income/(loss) to average net assets (d) (0.52)% Portfolio turnover rate 101% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 2.85% Ratio of net investment income/(loss) to average net assets (d) (0.52)% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. The AAL Capital Growth Fund Class A Shares - ------------------------------------------------------------------------------------------------------------------------------- Year Year Year Year Year Ended Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 4/30/1999 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 29.84 $ 34.82 $ 38.67 $ 35.87 $ 29.64 Income From Investment Operations: Net investment income/(loss) 0.10 0.05 0.19 0.13 0.09 Net realized and unrealized gain/(loss) on investments (b) (4.48) (4.86) (1.74) 3.19 6.69 Total from investment operations (4.38) (4.81) (1.55) 3.32 6.78 Less Distributions from: Net investment income (0.07) (0.09) (0.16) (0.09) (0.09) Net realized gain on investments - (0.08) (2.14) (0.43) (0.46) Total Distributions (0.07) (0.17) (2.30) (0.52) (0.55) Net asset value, end of period $ 25.39 $ 29.84 $ 34.82 $ 38.67 $ 35.87 Total return (c) (14.66)% (13.86)% (4.19)% 9.28% 23.20% Net assets, end of period (in millions) $2,598.2 $3,385.5 $3,912.5 $4,115.1 $3,594.5 Ratio of expenses to average net assets (d) 1.02% 0.95% 0.91% 0.90% 0.97% Ratio of net investment income/(loss) to average net assets (d) 0.38% 0.16% 0.52% 0.35% 0.30% Portfolio turnover rate 5% 3% 13% 8% 9% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 1.02% 0.95% 0.91% 0.92% 0.97% Ratio of net investment income/(loss) to average net assets (d) 0.38% 0.16% 0.52% 0.33% 0.30% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. The AAL Capital Growth Fund Class B Shares - ----------------------------------------------------------------------------------------------------------------------------- Year Year Year Year Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 28.67 $ 33.71 $ 37.71 $35.29 Income From Investment Operations: Net investment income/(loss) (0.28) (0.27) (0.15) (0.22) Net realized and unrealized gain/(loss) on investments (b) (4.20) (4.69) (1.71) 3.07 Total from investment operations (4.48) (4.96) (1.86) 2.85 Less Distributions from: Net investment income - - - - Net realized gain on investments - (0.08) (2.14) (0.43) Total Distributions - (0.08) (2.14) (0.43) Net asset value, end of period $ 24.19 $ 28.67 $ 33.71 $37.71 Total return (c) (15.63)% (14.73)% (5.14)% 8.09% Net assets, end of period (in millions) $ 81.2 $ 126.4 $ 154.1 $148.6 Ratio of expenses to average net assets (d) 2.16% 1.97% 1.88% 1.95% Ratio of net investment income/(loss) to average net assets (d) (0.75)% (0.86)% (0.44)% (0.69)% Portfolio turnover rate 5% 3% 13% 8% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 2.16% 1.97% 1.88% 1.96% Ratio of net investment income/(loss) to average net assets (d) (0.75)% (0.86)% (0.44)% (0.71)% The AAL Capital Growth Fund - ------------------------------------------------------------------------------------------- Year Ended For a share outstanding throughout each period (a) 4/30/1999 - ------------------------------------------------------------------------------------------ Net asset value, beginning of period $29.38 Income From Investment Operations: Net investment income/(loss) (0.19) Net realized and unrealized gain/(loss) on investments (b) 6.56 Total from investment operations 6.37 Less Distributions from: Net investment income - Net realized gain on investments (0.46) Total Distributions (0.46) Net asset value, end of period $35.29 Total return (c) 21.94% Net assets, end of period (in millions) $107.6 Ratio of expenses to average net assets (d) 1.99% Ratio of net investment income/(loss) to average net assets (d) (0.74)% Portfolio turnover rate 9% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 1.99% Ratio of net investment income/(loss) to average net assets (d) (0.74)% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. The AAL Equity Income Fund Class A Shares - -------------------------------------------------------------------------------------------------------------------------- Year Year Year Year Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 - --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.90 $ 14.57 $14.40 $14.68 Income From Investment Operations: Net investment income/(loss) 0.11 0.15 0.21 0.18 Net realized and unrealized gain/(loss) on investments (b) (2.71) (1.64) 0.94 (0.30) Total from investment operations (2.60) (1.49) 1.15 (0.12) Less Distributions from: Net investment income (0.11) (0.13) (0.21) (0.16) Net realized gain on investments - (0.05) (0.77) - Return of capital (0.01) - - - Total Distributions (0.12) (0.18) (0.98) (0.16) Net asset value, end of period $ 10.18 $ 12.90 $14.57 $14.40 Total return (c) (20.19)% (10.26)% 8.26% (0.80)% Net assets, end of period (in millions) $ 206.7 $ 292.7 $305.1 $277.6 Ratio of expenses to average net assets (d) 1.06% 0.97% 0.96% 0.92% Ratio of net investment income/(loss) to average net assets (d) 1.04% 1.14% 1.48% 1.24% Portfolio turnover rate 63% 34% 26% 27% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 1.07% 0.98% 0.96% 0.98% Ratio of net investment income/(loss) to average net assets (d) 1.03% 1.13% 1.47% 1.18% The AAL Equity Income Fund - ------------------------------------------------------------------------------------------- Year Ended For a share outstanding throughout each period (a) 4/30/1999 - ------------------------------------------------------------------------------------------ Net asset value, beginning of period $14.31 Income From Investment Operations: Net investment income/(loss) 0.16 Net realized and unrealized gain/(loss) on investments (b) 1.17 Total from investment operations 1.33 Less Distributions from: Net investment income (0.17) Net realized gain on investments (0.79) Return of capital - Total Distributions (0.96) Net asset value, end of period $14.68 Total return (c) 10.08% Net assets, end of period (in millions) $262.2 Ratio of expenses to average net assets (d) 1.05% Ratio of net investment income/(loss) to average net assets (d) 1.22% Portfolio turnover rate 13% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 1.05% Ratio of net investment income/(loss) to average net assets (d) 1.22% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. The AAL Equity Income Fund Class B Shares - -------------------------------------------------------------------------------------------------------------------------- Year Year Year Year Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 - --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.87 $ 14.54 $14.38 $14.66 Income From Investment Operations: Net investment income/(loss) (0.01) 0.03 0.06 0.02 Net realized and unrealized gain/(loss) on investments (b) (2.69) (1.64) 0.93 (0.28) Total from investment operations (2.70) (1.61) 0.99 (0.26) Less Distributions from: Net investment income (0.01) (0.01) (0.06) (0.02) Net realized gain on investments - (0.05) (0.77) - Return of capital - - - - Total Distributions (0.01) (0.06) (0.83) (0.02) Net asset value, end of period $ 10.16 $ 12.87 $14.54 $14.38 Total return (c) (21.01)% (11.11)% 7.12% (1.80)% Net assets, end of period (in millions) $ 8.1 $ 12.4 $ 13.4 $ 11.6 Ratio of expenses to average net assets (d) 2.16% 1.90% 1.98% 1.99% Ratio of net investment income/(loss) to average net assets (d) (0.06)% 0.21% 0.45% 0.17% Portfolio turnover rate 63% 34% 26% 27% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 2.17% 1.91% 1.98% 2.05% Ratio of net investment income/(loss) to average net assets (d) (0.07)% 0.20% 0.45% 0.11% The AAL Equity Income Fund - ------------------------------------------------------------------------------------------- Year Ended For a share outstanding throughout each period (a) 4/30/1999 - ------------------------------------------------------------------------------------------ Net asset value, beginning of period $14.31 Income From Investment Operations: Net investment income/(loss) 0.02 Net realized and unrealized gain/(loss) on investments (b) 1.17 Total from investment operations 1.19 Less Distributions from: Net investment income (0.05) Net realized gain on investments (0.79) Return of capital - Total Distributions (0.84) Net asset value, end of period $14.66 Total return (c) 8.97% Net assets, end of period (in millions) $ 9.6 Ratio of expenses to average net assets (d) 2.09% Ratio of net investment income/(loss) to average net assets (d) 0.16% Portfolio turnover rate 13% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 2.09% Ratio of net investment income/(loss) to average net assets (d) 0.16% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. The AAL Municipal Bond Fund Class A Shares - ------------------------------------------------------------------------------------------------------------------------ Year Year Year Year Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.21 $10.96 $10.45 $11.47 Income from Investment Operations: Net investment income 0.50 0.54 0.55 0.53 Net realized and unrealized gain/(loss) on investments (b) 0.31 0.25 0.51 (1.01) Total From investment operations 0.81 0.79 1.06 (0.48) Less Distributions from: Net investment income (0.50) (0.54) (0.55) (0.53) Net realized gain on investments - - - (0.01) Total Distributions (0.50) (0.54) (0.55) (0.54) Net asset value, end of period $11.52 $11.21 $10.96 $10.45 Total return (c) 7.38% 7.27% 10.34% (4.09)% Net assets, end of period (in millions) $671.6 $598.6 $503.7 $461.3 Ratio of expenses to average net assets (d) 0.79% 0.77% 0.73% 0.78% Ratio of net investment income to average net assets (d) 4.41% 4.77% 5.06% 4.98% Portfolio turnover rate 18% 65% 110% 210% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly the ratios would have been: Ratio of expenses to average net assets (d) 0.79% 0.82% 0.81% 0.84% Ratio of net investment income to average net assets (d) 4.41% 4.72% 4.98% 4.93% The AAL Municipal Bond Fund - ------------------------------------------------------------------------------------------- Year Ended For a share outstanding throughout each period (a) 4/30/1999 - ------------------------------------------------------------------------------------------ Net asset value, beginning of period $11.40 Income from Investment Operations: Net investment income 0.52 Net realized and unrealized gain/(loss) on investments (b) 0.25 Total From investment operations 0.77 Less Distributions from: Net investment income (0.52) Net realized gain on investments (0.18) Total Distributions (0.70) Net asset value, end of period $11.47 Total return (c) 6.80% Net assets, end of period (in millions) $523.1 Ratio of expenses to average net assets (d) 0.81% Ratio of net investment income to average net assets (d) 4.47% Portfolio turnover rate 95% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly the ratios would have been: Ratio of expenses to average net assets (d) 0.81% Ratio of net investment income to average net assets (d) 4.47% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. The AAL Municipal Bond Fund Class B Shares - ------------------------------------------------------------------------------------------------------------------------ Year Year Year Year Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 - ------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.20 $10.95 $10.44 $11.47 Income From Investment Operations: Net investment income 0.42 0.44 0.46 0.44 Net realized and unrealized gain/(loss) on investments (b) 0.32 0.25 0.51 (1.02) Total from investment operations 0.74 0.69 0.97 (0.58) Less Distributions from: Net investment income (0.42) (0.44) (0.46) (0.44) Net realized gain on investments - - - (0.01) Total Distributions (0.42) (0.44) (0.46) (0.45) Net asset value, end of period $11.52 $11.20 $10.95 $10.44 Total return (c) 6.65% 6.40% 9.39% (4.99)% Net assets, end of period (in millions) $ 12.3 $ 11.0 $ 8.5 7.3 Ratio of expenses to average net assets (d) 1.56% 1.57% 1.61% 1.59% Ratio of net investment income to average net assets (d) 3.64% 3.97% 4.18% 4.19% Portfolio turnover rate 18% 65% 110% 210% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly the ratios would have been: Ratio of expenses to average net assets (d) 1.56% 1.62% 1.69% 1.64% Ratio of net investment income to average net assets (d) 3.64% 3.92% 4.10% 4.14% The AAL Municipal Bond Fund - ------------------------------------------------------------------------------------------- Year Ended For a share outstanding throughout each period (a) 4/30/1999 - ------------------------------------------------------------------------------------------ Net asset value, beginning of period $11.40 Income From Investment Operations: Net investment income 0.42 Net realized and unrealized gain/(loss) on investments (b) 0.25 Total from investment operations 0.67 Less Distributions from: Net investment income (0.42) Net realized gain on investments (0.18) Total Distributions (0.60) Net asset value, end of period $11.47 Total return (c) 5.93% Net assets, end of period (in millions) $ 7.5 Ratio of expenses to average net assets (d) 1.64% Ratio of net investment income to average net assets (d) 3.65% Portfolio turnover rate 95% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly the ratios would have been: Ratio of expenses to average net assets (d) 1.64% Ratio of net investment income to average net assets (d) 3.65% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. The AAL Money Market Fund Class A Shares - --------------------------------------------------------------------------------------------------------------------------------- Year Year Year Year Year Ended Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 4/30/1999 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income From Investment Operations: Net investment income 0.01 0.02 0.05 0.05 0.05 Less Distributions from: Net investment income (0.01) (0.02) (0.05) (0.05) (0.05) Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total return (e) 0.88% 2.28% 5.70% 4.99% 4.68% Net assets, end of period (in millions) $349.6 $399.8 $423.9 $348.0 $288.1 Ratio of expenses to average net assets (d) 0.77% 0.72% 0.76% 0.66% 0.79% Ratio of net investment income to average net assets (d) 0.89% 2.19% 5.51% 4.90% 4.54% Portfolio turnover rate N/A N/A N/A N/A N/A If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly the ratios would have been: Ratio of expenses to average net assets (d) 0.92% 0.90% 0.99% 1.02% 1.12% Ratio of net investment income to average net assets (d) 0.74% 2.01% 5.28% 4.54% 4.22% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. (e)Total investment return assumes dividend reinvestment. The AAL Money Market Fund Class B Shares - --------------------------------------------------------------------------------------------------------------------------------- Year Year Year Year Year Ended Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 4/30/1999 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income From Investment Operations: Net investment income - 0.01 0.04 0.04 0.04 Less Distributions from: Net investment income - (0.01) (0.04) (0.04) (0.04) Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total return (e) 0.42% 1.34% 4.67% 3.94% 3.67% Net assets, end of period (in millions) $ 2.8 $ 2.8 $ 3.3 $ 2.4 $ 1.6 Ratio of expenses to average net assets (d) 1.38% 1.52% 1.81% 1.65% 2.79% Ratio of net investment income to average net assets (d) 0.27% 1.39% 4.45% 3.95% 2.54% Portfolio turnover rate N/A N/A N/A N/A N/A If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly the ratios would have been: Ratio of expenses to average net assets (d) 1.62% 1.70% 2.04% 2.00% 3.11% Ratio of net investment income to average net assets (d) 0.03% 1.21% 4.22% 3.59% 2.22% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. (e)Total investment return assumes dividend reinvestment. [Back cover page] THE AAL MUTUAL FUNDS By Telephone: 1-800-847-4836 press 1 to speak with a customer service representative or press 2 to use the Automated Service Line By Internet: www.thrivent.com By Mail (New Applications): The AAL Mutual Funds P.O. Box 219347 Kansas City, MO 64121-9347 By Mail (Additional Investments): The AAL Mutual Funds P.O. Box 219334 Kansas City, MO 64121-9334 By Mail (Redemptions, Exchanges or Other Requests): The AAL Mutual Funds P.O. Box 219348 Kansas City, MO 64121-9348 By Express Mail: Thrivent Investment Management Inc. 210 West 10th Street, 8th Floor Kansas City, MO 64105 The Statement of Additional Information, which is incorporated by reference into this Prospectus, contains additional information about the Funds. Additional information about the Funds' investments is available in the Funds' annual and semi- annual reports to shareholders. In the Funds' annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the performance of each of the Funds during their last fiscal year. You may request a free copy of the Statement of Additional Information, the annual report, or the semi-annual report, or you may make additional requests or inquiries by calling 1-800-847-4836. You also may review and copy information about the Funds (including the Statement of Additional Information) at the Public Reference Room of the Securities and Exchange Commission in Washington, DC. You may get more information about the Public Reference Room by calling 1-800-SEC-0330. You also may get information about the Funds on the EDGAR database at the SEC Website (www.sec.gov), and copies of the information may be obtained upon payment of a duplicating fee by writing the Public Reference Section of the SEC, Washington, DC 20549-6009, or by sending an email to: publicinfo@sec.gov. 1940 Act File No. 811-5075 THE AAL MUTUAL FUNDS Prospectus Institutional Shares June 27, 2003 The AAL Aggressive Growth Fund The AAL International Fund The AAL Capital Growth Fund The AAL Equity Income Fund The AAL Municipal Bond Fund The AAL Money Market Fund 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 The AAL Aggressive Growth Fund................ B-39 The AAL International Fund.................... B-41 The AAL Capital Growth Fund................... B-43 The AAL Equity Income Fund.................... B-45 The AAL Municipal Bond Fund................... B-47 The AAL Money Market Fund..................... B-49 Management, Organization and Capital Structure B-51 Investment Adviser........................ B-51 Advisory Fees............................. B-51 Portfolio Management...................... B-51 Personal Securities Investments........... B-52 Standard & Poor's Trademarks.............. B-52 Shareholder Information....................... B-53 Pricing Funds' Shares..................... B-53 Institutional Class Shares................ B-53 Buying Shares............................. B-53 Redeeming Shares.......................... B-56 Exchanging Shares Between Funds........... B-57 Accounts With Low Balances................ B-58 Distributions................................. B-59 Dividends................................. B-59 Capital Gains............................. B-59 Distribution Options...................... B-59 Taxes......................................... B-60 General................................... B-60 The AAL Municipal Bond Fund............... B-60 The AAL International Fund................ B-60 Other Securities and Investment Practices..... B-61 Financial Highlights.......................... B-63 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. Investment Strategies Under normal circumstances, the Fund invests at least 65% of total assets in common stocks of growth companies with large market capitalizations. Thrivent Investment Management Inc. ("Thrivent Investment Mgt." or the "investment adviser") uses fundamental and technical investment research techniques to identify stocks of companies that it believes have demonstrated and will sustain above-average earnings growth over time, or which are expected to develop rapid sales and earnings growth in the future when compared to the economy and stock market as a whole. The investment adviser defines large market capitalization according to the market capitalization classifications published by Lipper, Inc. Although market capitalizations are constantly changing, based on Lipper's guidelines as of April 30, 2003, companies with large market capitalizations are those with market capitalizations of at least $8.8 billion. The Fund may sell securities for a variety of reasons, such as to secure gains, limit losses, or reposition assets into more promising opportunities. Investment Risks The AAL Aggressive Growth Fund is subject to the following primary investment risks: Market Risk. Over time, stock markets generally tend to move in cycles with periods when stock prices rise and periods when stock prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Financial Risk. Financial risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include: demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Growth style investing includes the risk of investing in securities whose prices historically have been more volatile than other securities. Growth stock prices reflect projection of future earnings or revenues, and if a company's earnings or revenues fall short of expectations, its stock price may fall dramatically. In addition, the prices of larger company stocks may not rise as quickly or as significantly as prices of stocks of well- managed smaller companies when stocks of larger companies are out of favor. Loss of Principal. The success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Shares of the Fund will rise and fall in value and there is a risk that you could lose money by investing in the Fund. The Fund cannot be certain that it will achieve its goal. Volatility and Performance The bar chart and table provide an indication of the risks of investing in The AAL Aggressive Growth Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for one-year period and since inception of the Institutional Class shares compared to a broad-based securities market index. The bar chart and the table include the effects of Fund expenses and assume that you sold your shares at the end of the period. The after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The Fund commenced operations on July 1, 2000. How a Fund has performed in the past (before and after taxes) is not necessarily an indication of how it will perform in the future. [CHART] YEAR-BY-YEAR TOTAL RETURN 2001 2002 - ------- ------- - -31.70% -31.13% The Fund's year-to-date return as of March 31, 2003 was -1.10%. Best Quarter: Q4 '01 +9.73% Worst Quarter: Q1 '01 -23.58% AVERAGE ANNUAL TOTAL RETURNS (PERIODS ENDING DECEMBER 31, 2002) Since Inception 1 Year (07/01/00) Institutional Shares (before taxes) -31.13% -33.22% (after taxes on distributions) -31.13% -33.22% (after taxes on distributions and redemptions) -19.12% -24.74% - --------------------------------------------------------------------- S&P 500 Index/1/ -22.10% -17.38% - --------------------------------------------------------------------- Russell 1000 Growth Index/2,3/ -27.88% -28.95% - --------------------------------------------------------------------- /1/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 performance of the Index does not reflect deductions for fees, expenses or taxes. /2/The Russell 1000 Growth Index is an unmanaged Index comprised of those Russell 1000 companies with higher than average price-to-book ratios and higher forecasted growth values. The Russell 1000 companies are the 1000 largest companies in the Russell 3000 Index. The Russell 3000 Index is comprised of the 3000 largest U.S. companies based on total market capitalization and is designed to represent the performance of about 98% of the U.S. equity market. /3/Because the Russell 1000 Growth Index is a more accurate reflection of the companies in which the Fund invests, it will be used to compare performance of the Fund rather than the S&P 500 Index. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of The AAL Aggressive Growth Fund. The Institutional Class shares of the Fund have no sales charge (load) and no 12b-1 distribution fees. The Funds may charge a fee of up to $30 for redemption by wire. See "Shareholder Information--Redeeming Shares." SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge (Load) None - --------------------------------------------------- Maximum Deferred Sales Charge (Load) None - --------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees 0.80% - --------------------------------------------------- Distribution and Service (12b-1) Fees None - --------------------------------------------------- Other Expenses 0.31% - --------------------------------------------------- Total Annual Fund Operating Expenses 1.11% - --------------------------------------------------- EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, and that the Fund's operating expenses remain the same. You should use the expense example for comparison purposes only. The example does not represent the Fund's actual expenses and returns, either past or future. Although your actual cost may be higher or lower, based on these assumptions your cost would be: 1 3 5 10 Year Years Years Years ----------------------- $113 $353 $612 $1,352 ----------------------- You would pay the following expenses if you did not redeem your shares: 1 3 5 10 Year Years Years Years ----------------------- $113 $353 $612 $1,352 ----------------------- The AAL International Fund - -------------------------------------------------------------------------------- Investment Objective The AAL International Fund seeks long-term capital growth by investing primarily in a diversified portfolio of foreign stocks. Investment Strategies Under normal circumstances, the Fund invests at least 65% of total assets in foreign stocks and convertible foreign securities of at least three different countries. The Fund may invest in equity securities, and securities convertible into equity securities, of issuers organized under the laws of, headquartered in, whose principal operations are located in, or whose common equity securities are principally traded in developed and emerging market countries. For all purposes, the Fund's investment subadviser, Oechsle International Advisors, LLC ("Oechsle"), may base its view on the location of an issuer on any one, or a combination, of the following factors: (1) the location of the market in which the issuer's securities principally trade; (2) the location of the issuer's corporate headquarters; (3) the location of the issuer's legal domicile; (4) the location of the majority of the issuer's operations; (5) the location where the majority of the issuer's revenues are generated; or (6) the relevant index categorization of the issuer. The Fund may invest in both mature and emerging markets. A country in the beginning stages of developing its economy is an emerging market. Developing countries have less diverse economic structures and less stable political systems than those of developed countries. Consequently, markets of developing countries may be more volatile than the markets of more mature economies. Oechsle focuses 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 (for example, Indonesia and Argentina). Oechsle does not have any limits on the extent to which the Fund can invest in either mature or emerging markets. The Fund may invest up to 100% of total assets in emerging markets. Oechsle uses a bottom-up approach to investing. Using this approach, Oechsle identifies an individual company it believes is an attractive investment opportunity, consistent with the Fund's investment policy. The Fund may sell a security when a company no longer demonstrates its ability to perform according to Oechsle's expectations and Oechsle believes there are better, alternative investments. This investment strategy may result in short-term gains or losses for the Fund. Investment Risks The AAL International Fund is subject to the following primary investment risks: Market Risk. Over time, stock markets generally tend to move in cycles with periods when stock prices rise and periods when stock prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Financial Risk. Financial risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include: demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Growth style investing includes the risk of investing in securities whose prices historically have been more volatile than other securities. Growth stock prices reflect projections of future earnings or revenues, and if a company's earnings or revenues fall short of expectations, its stock price may fall dramatically. Liquidity Risk. Liquidity risk is the ability to sell a security relatively quickly for a price that most closely reflects the actual value of the security. Foreign securities generally have a less liquid resale market. As a result, the Fund may have difficulty selling or disposing of securities quickly in certain markets or market environments. Foreign Securities Risk. Foreign securities risk exists when the Fund invests in foreign securities, which are generally riskier than U.S. securities. Political, social and economic events as well as natural disasters may all impact a country's economy and cause investments in issuers located in that country to decline in value. Developing countries are much more sensitive to any such event. Additionally, foreign securities are often paid for in currencies of foreign countries, thereby subjecting the Fund to currency exchange rate fluctuations. This means that the value of securities could increase or decrease due to variations in the relative value or buying power of U.S. and foreign currencies. Emerging Markets Risk. Emerging market countries have historically experienced, and may continue to experience, certain economic problems. These may include high rates of inflation, high interest rates, exchange rate fluctuations, large amounts of debt, balance of payments and trade difficulties, and extreme poverty and unemployment. Loss of Principal. The success of the Fund's investment strategy depends significantly on the investment subadviser's skill in assessing the potential of the securities in which the Fund invests. Shares of the Fund will rise and fall in value and there is a risk that you could lose money by investing in the Fund. The Fund cannot be certain that it will achieve its goal. Volatility and Performance The bar chart and table provide an indication of the risks of investing in The AAL International Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for one- and five-year periods and since inception of the Institutional Class shares compared to a broad-based securities market index. The bar chart and the table include the effects of Fund expenses and assume that you sold your shares at the end of the period. The after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The Fund commenced operations on August 1, 1995. Prior to January 8, 1997, the shares of the Fund had no specific class designation. As of that date, all of the outstanding shares were redesignated as Class A shares and, on December 29, 1997, shares that qualified as Institutional Class shares were converted to Institutional Class shares. How a Fund has performed in the past (before and after taxes) is not necessarily an indication of how it will perform in the future. [CHART] YEAR-BY-YEAR TOTAL RETURN 1998 1999 2000 2001 2002 - ------ ------ ------- ------- ------- 11.76% 40.55% -17.59% -25.88% -19.19% The Fund's year-to-date return as of March 31, 2003 was -10.26%. Best Quarter Q4 '99 +23.58% Worst Quarter Q3 '02 -20.79% AVERAGE ANNUAL TOTAL RETURNS (PERIODS ENDING DECEMBER 31, 2002) Since Inception 1 Year 5 Years (12/29/97) Institutional Shares (before taxes) -19.19% -4.96% -5.58% (after taxes on distributions) -19.25% -5.59% -6.20% (after taxes on distributions and redemptions) -11.44% -3.81% -4.28% - ------------------------------------------------------------------ MSCI EAFE Index/1/ -15.94% -2.89% -2.89% - ------------------------------------------------------------------ /1/The Morgan Stanley Capital International, Europe, Australasia, Far East Index (EAFE Index) is a stock index designed to measure the investment returns of the developed countries outside North America. The EAFE Index currently includes stocks from 21 countries. The performance of the Index does not reflect deductions for fees, expenses or taxes. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of The AAL International Fund. The Institutional Class shares of the Fund have no sales charge (load) and no 12b-1 distribution fees. The Funds may charge a fee of up to $30 for redemption by wire. See "Shareholder Information--Redeeming Shares." SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge (Load) None - --------------------------------------------- Maximum Deferred Sales Charge (Load) None - --------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees 0.62% - --------------------------------------------- Distribution and Service (12b-1) Fees None - --------------------------------------------- Other Expenses 0.15% - --------------------------------------------- Total Annual Fund Operating Expenses 0.77% - --------------------------------------------- EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, and that the Fund's operating expenses remain the same. You should use the expense example for comparison purposes only. The example does not represent the Fund's actual expenses and returns, either past or future. Although your actual cost may be higher or lower, based on these assumptions your cost would be: 1 3 5 10 Year Years Years Years ---------------------- $79 $246 $428 $954 ---------------------- You would pay the following expenses if you did not redeem your shares: 1 3 5 10 Year Years Years Years ---------------------- $79 $246 $428 $954 ---------------------- The AAL Capital Growth Fund - -------------------------------------------------------------------------------- Investment Objective The AAL Capital Growth Fund seeks long-term capital growth by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks. Investment Strategies Under normal circumstances, the Fund invests at least 65% of total assets in common stocks, not including convertible securities. Generally, the investment adviser focuses on dividend-paying stocks of companies with earnings growth per share that are higher than stocks included in the S&P 500 Index. The investment adviser looks for good corporate fundamentals by examining a company's quality, operating growth predictability and financial strength. The Fund focuses on larger companies, although it may invest across all market capitalizations and across all industries and sectors. The Fund does not invest in bonds for capital growth or for long time periods. The investment adviser uses a bottom-up approach to investing. Using this approach, the investment adviser identifies an individual company it believes is an attractive investment opportunity, consistent with the Fund's investment policy. The Fund may sell a security when a company no longer demonstrates its ability to perform according to the investment adviser's expectations and the investment adviser believe there are better, alternative investments. This investment strategy may result in short-term gains or losses for the Fund. Investment Risks The AAL Capital Growth Fund is subject to the following primary investment risks. Market Risk. Over time, stock markets generally tend to move in cycles with periods when stock prices rise and periods when stock prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Financial Risk. Financial risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include: demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Growth style investing includes the risk of investing in securities whose prices historically have been more volatile than other securities. Growth stock prices reflect projections of future earnings or revenues, and if a company's earnings or revenues fall short of expectations, its stock price may fall dramatically. In addition, the prices of larger company stocks may not rise as quickly or as significantly as prices of stocks of well-managed smaller companies. Loss of Principal. The success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Shares of the Fund will rise and fall in value and there is a risk that you could lose money by investing in the Fund. The Fund cannot be certain that it will achieve its goal. Volatility and Performance The bar chart and table provide an indication of the risks of investing in The AAL Capital Growth Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for one- and five-year periods and since inception of the Institutional Class shares compared to a broad-based securities market index. The bar chart and the table include the effects of Fund expenses and assume that you sold your shares at the end of the period. The after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The Fund commenced operations on July 16, 1987. Prior to January 8, 1997, the shares of the Fund had no specific class designation. As of that date, all of the outstanding shares were redesignated as Class A shares and, on December 29, 1997, shares that qualified as Institutional Class shares were converted to Institutional Class shares. How a Fund has performed in the past (before and after taxes) is not necessarily an indication of how it will perform in the future. [CHART] YEAR-BY-YEAR TOTAL RETURN 1998 1999 2000 2001 2002 - ------ ------ ------ ------- ------- 28.61% 23.02% -0.73% -13.61% -22.44% The Fund's year-to-date return as of March 31, 2003 was -2.06%. Best Quarter Q4 '98 +22.07% Worst Quarter Q3 '02 -17.62% AVERAGE ANNUAL TOTAL RETURNS (PERIODS ENDING DECEMBER 31, 2002) Since Inception 1 Year 5 Years (12/29/97) Institutional Shares (before taxes) -22.44% 1.03% 1.45% (after taxes on distributions) -22.65% 0.42% 0.84% (after taxes on distributions and redemptions) -13.77% 0.83% 1.17% - ------------------------------------------------------------------ S&P 500 Index/1/ -22.10% -0.59% -0.23% - ------------------------------------------------------------------ /1/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 performance of the Index does not reflect deductions for fees, expenses or taxes. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of The AAL Capital Growth Fund. The Institutional Class shares of the Fund have no sales charge (load) and no 12b-1 distribution fees. The Funds may charge a fee of up to $30 for redemption by wire. See "Shareholder Information--Redeeming Shares." SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge (Load) None - --------------------------------------------------- Maximum Deferred Sales Charge (Load) None - --------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees 0.54% - --------------------------------------------------- Distribution and Service (12b-1) Fees None - --------------------------------------------------- Other Expenses 0.01% - --------------------------------------------------- Total Annual Fund Operating Expenses 0.55% - --------------------------------------------------- EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, and that the Fund's operating expenses remain the same. You should use the expense example for comparison purposes only. The example does not represent the Fund's actual expenses and returns, either past or future. Although your actual cost may be higher or lower, based on these assumptions your cost would be: 1 Year 3 Years 5 Years 10 Years - ---------------------------------------------------------------------- $56 $176 $307 $689 - ---------------------------------------------------------------------- You would pay the following expenses if you did not redeem your shares: 1 Year 3 Years 5 Years 10 Years - ---------------------------------------------------------------------- $56 $176 $307 $689 - ---------------------------------------------------------------------- The AAL Equity Income Fund - -------------------------------------------------------------------------------- Investment Objective The AAL Equity Income Fund seeks current income, long-term income growth and capital growth by investing primarily in a diversified portfolio of income-producing equity securities. Investment Strategies Under normal circumstances, the Fund invests at least 80% of total assets in income-producing equity securities. The investment adviser focuses on equity securities including securities convertible into equity securities that offer higher-than-average dividend yields compared to stocks comprising the S&P 500 Index. Should the investment adviser determine that the Fund would benefit from reducing the percentage of invested assets from 80% to a lesser amount, you will be notified at least 60 days prior to such a change. The Fund seeks capital growth by attempting to select income-producing equity securities of large companies that the investment adviser believes are under-priced relative to the securities of companies with comparable fundamentals. The investment adviser uses a bottom-up approach to investing. Using this approach, the investment adviser identifies an individual company it believes is an attractive investment opportunity, consistent with the Fund's investment policy. The Fund may sell a security when a company no longer demonstrates its ability to perform according to the investment adviser's expectations and the investment adviser believes there are better, alternative investments. This investment strategy may result in short-term gains or losses for the Fund. Investment Risks The AAL Equity Income Fund is subject to the following primary investment risks: Market Risk. Over time, stock markets generally tend to move in cycles with periods when stock prices rise and periods when stock prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Financial Risk. Financial risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include: demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Stocks of undervalued companies may not rise as quickly as anticipated if the market doesn't recognize their intrinsic value or if value stocks are out of favor. In addition, prices of larger company stocks may not rise as quickly or as significantly as prices of stocks of well-managed smaller companies. Loss of Principal. The success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Shares of the Fund will rise and fall in value and there is a risk that you could lose money by investing in the Fund. The Fund cannot be certain that it will achieve its goal. Volatility And Performance The bar chart and table provide an indication of the risks of investing in The AAL Equity Income Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for one- and five-year periods and since inception of the Institutional Class shares compared to a broad-based securities market index. The bar chart and the table include the effects of Fund expenses and assume that you sold your shares at the end of the period. The after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The Fund commenced operations on March 18, 1994. Prior to January 8, 1997, the shares of the Fund had no specific class designation. As of that date, all of the outstanding shares were redesignated as Class A shares and, on December 29, 1997, shares that qualified as Institutional Class shares were converted to Institutional Class shares. How a Fund has performed in the past (before and after taxes) is not necessarily an indication of how it will perform in the future. [CHART] YEAR-BY-YEAR TOTAL RETURN 1998 1999 2000 2001 2002 - ------ ----- ----- ------ ------- 13.80% 4.63% 9.96% -7.71% -23.72% The Fund's year-to-date return as of March 31, 2003 was -4.45%. Best Quarter Q4 '98 +15.15% Worst Quarter Q3 '02 -17.37% AVERAGE ANNUAL TOTAL RETURNS (PERIODS ENDING DECEMBER 31, 2002) Since Inception 1 Year 5 Years (12/29/97) Institutional Shares (before taxes) -23.72% -1.62% -1.48% (after taxes on distributions) -24.20% -2.72% -2.58% (after taxes on distributions and redemptions) -14.53% -1.48% -1.37% - ------------------------------------------------------------------ S&P 500/Barra Value Index/1/ -20.86% -0.85% -0.53% - ------------------------------------------------------------------ /1/The S&P 500/Barra Value Index is an unmanaged capitalization weighted index composed of the lowest price-to-book securities in the S&P 500 Index. This Index is designed so that approximately one-half of the S&P 500 Index market capitalization is characterized as "value" and the other half as "growth." The performance of the Index does not reflect deductions for fees, expenses or taxes. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of The AAL Equity Income Fund. The Institutional Class shares of the Fund have no sales charge (load) and no 12b-1 distribution fees. The Funds may charge a fee of up to $30 for redemption by wire. See "Shareholder Information--Redeeming Shares." SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge (Load) None - --------------------------------------------------- Maximum Deferred Sales Charge (Load) None - --------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees 0.45% - --------------------------------------------------- Distribution and Service (12b-1) Fees None - --------------------------------------------------- Other Expenses 0.07% - --------------------------------------------------- Total Annual Fund Operating Expenses 0.52% - --------------------------------------------------- EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, and that the Fund's operating expenses remain the same. You should use the expense example for comparison purposes only. The example does not represent the Fund's actual expenses and returns, either past or future. Although your actual cost may be higher or lower, based on these assumptions your cost would be: 1 Year 3 Years 5 Years 10 Years - -------------------------------------------------------------------- $53 $167 $291 $653 - -------------------------------------------------------------------- You would pay the following expenses if you did not redeem your shares: 1 Year 3 Years 5 Years 10 Years - -------------------------------------------------------------------- $53 $167 $291 $653 - -------------------------------------------------------------------- The AAL Municipal Bond Fund - -------------------------------------------------------------------------------- Investment Objective The AAL Municipal Bond Fund seeks a high level of current income exempt from federal income taxes, consistent with capital preservation by investing primarily in a diversified portfolio of municipal bonds. Investment Strategies Under normal circumstances, the Fund invests as least 80% of net assets (plus the amount of any borrowing for investment purposes) in municipal bonds, the income of which is exempt from federal income tax. However, the Fund may invest in certain bonds that are subject to the alternative minimum tax as discussed below. Of the 80% invested in municipal bonds, at least 75% is invested in bonds rated within the three highest rating categories assigned by at least one Nationally Recognized Statistical Rating Organization (NRSRO) at the time of purchase. State and local governments and municipalities issue municipal bonds to raise money for a variety of public purposes, including general financing for state and local governments or financing for specific projects or public facilities. A municipality may issue municipal bonds in anticipation of future revenues from a specific municipal project (revenue bonds), or backed by the full taxing power of a municipality (general obligation bonds), or from the revenues of a specific project on the credit of a private organization (industrial development bonds). Federal law generally exempts the interest paid on municipal bonds from federal income taxes. The Fund may invest 25% or more of its 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. The Fund 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). The investment adviser limits the Fund's purchases of AMT paper to 25% of the Fund's total assets. Investment Risks The AAL Municipal Bond Fund is subject to the following primary investment risks: Market Risk. Over time, bond markets generally tend to move in cycles with periods when bond prices rise and periods when bond prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Financial Risk. Financial risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include: demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. The Fund's performance may be affected by political and economic conditions at the state, regional or federal level. These may include budgetary problems, declines in the tax base and other factors that may cause rating agencies to downgrade the credit ratings on certain issues. Bonds may also exhibit price fluctuations due to changes in interest rate or bond yield levels. As a result, the value of the Fund's shares may fluctuate significantly in the short term. Credit Risk. Credit risk is the risk that an issuer of a bond held by the Fund may no longer be able to pay its debt. As a result of such an event, the bond may decline in price thereby effecting the value of the Fund. Interest Rate Risk. Interest rate risk is the risk that bond prices decline in value when interest rates rise for bonds that pay a fixed rate of interest. This effect may cause the value of the Fund to decline and reduce the overall return of the Fund. Derivative Risk. Derivative risk exists when the Fund uses derivative instruments such as futures, options and swaps to hedge or protect the Fund from adverse movements in securities prices and interest rates. 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 securities in the Fund. Loss of Principal. The success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Shares of the Fund will rise and fall in value and there is a risk that you could lose money by investing in the Fund. The Fund cannot be certain that it will achieve its goal. Volatility and Performance The bar chart and table provide an indication of the risks of investing in The AAL Municipal Bond Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for one- and five-year periods and since inception of the Institutional Class shares compared to a broad-based securities market index. The bar chart and the table include the effects of Fund expenses and assume that you sold your shares at the end of the period. The after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The Fund commenced operations on July 17, 1987. Prior to January 8, 1997, the shares of the Fund had no specific class designation. As of that date, all of the outstanding shares were redesignated as Class A shares and, on December 29, 1997, shares that qualified as Institutional Class shares were converted to Institutional Class shares. How a Fund has performed in the past (before and after taxes) is not necessarily an indication of how it will perform in the future. [CHART] YEAR-BY-YEAR TOTAL RETURN 1998 1999 2000 2001 2002 - ----- ------ ------ ----- ----- 6.24% -5.32% 12.32% 5.92% 8.81% The Fund's year-to-date return as of March 31, 2003 was 1.07%. Best Quarter Q3 '02 +4.60% Worst Quarter Q2 '99 -2.39% AVERAGE ANNUAL TOTAL RETURNS (PERIODS ENDING DECEMBER 31, 2002) Since Inception 1 Year 5 Years (12/29/97) Institutional Shares (before taxes) 8.81% 5.42% 5.41% (after taxes on distributions) 8.78% 5.28% 5.27% (after taxes on distributions and redemptions) 7.33% 5.26% 5.25% - ----------------------------------------------------------------- Lehman Municipal Bond Index/1/ 9.60% 6.06% 6.06% - ----------------------------------------------------------------- /1/The Lehman Municipal Bond Index is a market value-weighted index of investment-grade municipal bonds with maturities of one year or more. The performance of the Index does not reflect deductions for fees, expenses or taxes. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of The AAL Municipal Bond Fund. The Institutional Class shares of the Fund have no sales charge (load) and no 12b-1 distribution fees. The Funds may charge a fee of up to $30 for redemption by wire. See "Shareholder Information--Redeeming Shares." SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge (Load) None - --------------------------------------------------- Maximum Deferred Sales Charge (Load) None - --------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees 0.45% - --------------------------------------------------- Distribution and Service (12b-1) Fees None - --------------------------------------------------- Other Expenses 0.03% - --------------------------------------------------- Total Annual Fund Operating Expenses 0.48% - --------------------------------------------------- EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, and that the Fund's operating expenses remain the same. You should use the expense example for comparison purposes only. The example does not represent the Fund's actual expenses and returns, either past or future. Although your actual cost may be higher or lower, based on these assumptions your cost would be: 1 3 5 10 Year Years Years Years ---------------------- $49 $154 $269 $604 ---------------------- You would pay the following expenses if you did not redeem your shares: 1 3 5 10 Year Years Years Years ---------------------- $49 $154 $269 $604 ---------------------- 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. Investment Strategies The Fund invests in high-quality, dollar-denominated, short-term debt securities. The investment adviser tries to maintain a $1 share price for the Fund. The Fund invests in securities maturing in 397 days or less and maintain a dollar-weighted average portfolio maturity of 90 days or less. Portfolio turnover will be high for the Fund due to the short duration of securities, which require replacement by new issues. Investment Risks The AAL Money Market Fund is subject to the following primary investment risks: Market Risk. Over time, bond markets generally tend to move in cycles with periods when bond prices rise and periods when bond prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Financial Risk. Financial risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include: demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Some factors that could affect the yield of the Fund's shares include a weak economy, strong equity markets and changes by the Federal Reserve in its monetary policy. Credit Risk. Credit risk is the risk that an issuer of a bond held by the Fund may no longer be able to pay its debt. As a result of such an event, the bond may decline in price thereby affecting the value of the Fund. Interest Rate Risk. Interest rate risk is the risk that bond prices decline in value when interest rates rise for bonds that pay a fixed rate of interest. This effect may cause the value of the Fund to decline and reduce the overall return of the Fund. Loss of Principal. The success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. An investment in the AAL Money Market Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. Volatility and Performance The bar chart and table provide an indication of the risks of investing in The AAL Money Market Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for one- and five-year periods and since inception of the Institutional Class shares compared to a broad-based securities market index. The bar chart and the table include the effects of Fund expenses and assume that you sold your shares at the end of the period. The Fund commenced operations on March 10, 1988. Prior to January 8, 1997, the shares of the Fund had no specific class designation. As of that date, all of the outstanding shares were redesignated as Class A shares and, on December 29, 1997, shares that qualified as Institutional Class shares were converted to Institutional Class shares. How a Fund has performed in the past (before and after taxes) is not necessarily an indication of how it will perform in the future. [CHART] YEAR-BY-YEAR TOTAL RETURN 1998 1999 2000 2001 2002 - ----- ----- ----- ----- ----- 5.17% 4.96% 6.16% 3.85% 1.37% The Fund's year-to-date return as of March 31, 2003 was 0.21%. Best Quarter Q3 '00 +1.59% Worst Quarter Q4 '02 +0.30% The 7-day yield for the period ended December 31, 2002 for The AAL Money Market Fund was 1.01%. AVERAGE ANNUAL TOTAL RETURNS (PERIODS ENDING DECEMBER 31, 2002) Since Inception 1 Year 5 Years (12/29/97) Institutional Shares 1.37% 4.29% 4.28% - -------------------------------------------------- The Fund attempts to maintain a stable net asset value per share of $1.00. Fees and Expenses This table describes the fees and expenses that you may pay if you buy and hold shares of The AAL Money Market Fund. The Institutional Class shares of the Fund have no sales charge (load) and no 12b-1 distribution fees. The Funds may charge a fee of up to $30 for redemption by wire. See "Shareholder Information--Redeeming Shares." SHAREHOLDER FEES (fees paid directly from your investment) Maximum Sales Charge (Load) None - --------------------------------------------------- Maximum Deferred Sales Charge (Load) None - --------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees 0.50% - --------------------------------------------------- Distribution and Service(12b-1) Fees None - --------------------------------------------------- Other Expenses 0.03% - --------------------------------------------------- Total Annual Fund Operating Expenses 0.53% - --------------------------------------------------- EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, and that the Fund's operating expenses remain the same. You should use the expense example for comparison purposes only. The example does not represent the Fund's actual expenses and returns, either past or future. Although your actual cost may be higher or lower, based on these assumptions your cost would be: 1 3 5 10 Year Years Years Years ---------------------- $54 $170 $296 $665 ---------------------- You would pay the following expenses if you did not redeem your shares: 1 3 5 10 Year Years Years Years ---------------------- $54 $170 $296 $665 ---------------------- Management, Organization and Capital Structure - -------------------------------------------------------------------------------- Investment Adviser Thrivent Investment Management Inc. ("Thrivent Investment Mgt."), 625 Fourth Avenue South, Minneapolis, Minnesota 55415, serves as investment adviser for each of the Funds of The AAL Mutual Funds (the "Trust"). Thrivent Investment Mgt. and its affiliates have been in the investment advisory business since 1970 and managed approximately $57.3 billion in assets as of March 31, 2003, including approximately $10.1 billion in mutual fund assets. Thrivent Investment Mgt. provides investment research and supervision of the Funds' investments. Thrivent Investment Mgt. provides investment research and supervision of the assets for each of the Funds, except The AAL International Fund. For The AAL International Fund, Thrivent Investment Mgt. establishes the overall investment strategy and evaluates, selects and recommends, subject to the approval of the Board of Trustees of the Trust, one or more subadvisers to manage the investments of The AAL International Fund. Thrivent Investment Mgt. also allocates assets to the subadvisers, monitors the performance, security holdings and investment strategies of the subadvisers and, when appropriate, researches any potential new subadviser for the Fund. Thrivent Investment Mgt. has ultimate responsibility to oversee the subadvisers and recommend their hiring, termination and replacement. Thrivent Investment Mgt. and the Trust have received an exemptive order from the Securities and Exchange Commission ("SEC") that permits Thrivent Investment Mgt. and the Trust, with the approval of the Trust's Board of Trustees, to retain a subadviser for the Funds, or subsequently change the subadviser, without submitting the investment subadvisory agreement or material amendments to the agreement to a vote of the shareholders of the Funds. Thrivent Investment Mgt. will notify shareholders in the event that it adds a subadviser or changes the identity of the subadviser of a Fund. Advisory Fees Each Fund pays an annual investment advisory fee to Thrivent Investment Mgt. During the fiscal year ended April 30, 2003, Thrivent Investment Mgt. received the following advisory fees, expressed as a percentage of the Fund's net assets.* FUND ADVISORY FEE The AAL Aggressive Growth Fund................. 0.80% The AAL International Fund..................... 0.62% The AAL Capital Growth Fund.................... 0.54% The AAL Equity Income Fund..................... 0.45% The AAL Municipal Bond Fund.................... 0.45% The AAL Money Market Fund...................... 0.50% * The Funds may invest cash in The AAL Money Market Fund, subject to certain conditions. In order to avoid duplicate investment advisory fees, Thrivent Investment Mgt. reimburses the Fund the amount of investment advisory fees attributable to the Fund's investment in The AAL Money Market Fund. This table does not reflect the effects of any reimbursements. Portfolio Management The AAL Aggressive Growth Fund Scott A. Vergin has served as portfolio manager of The AAL Aggressive Growth Fund since 2002. Mr. Vergin also has served as portfolio manager of the following series of affiliated mutual fund groups: the Lutheran Brotherhood Growth Fund since 2002 and the Growth Portfolio since 1994. Mr. Vergin has been with Thrivent Investment Mgt. since 1984. The AAL International Fund Thrivent Investment Mgt. has engaged Oechsle International Advisors, LLC ("Oechsle"), located at One International Place, Boston, Massachusetts 02110. Oechsle was founded in 1986. The firm specializes in international and global investments for institutional clients from its offices located in Boston, London, Frankfurt and Tokyo. As of March 31, 2003, the firm managed over $10.5 billion in assets. Oechsle utilizes a team approach to manage the Fund. All of Oechsle's portfolio managers and research analysts are members of the investment team. The investment team develops a broad investment strategy, establishes a framework for country allocations and contributes individual stock selections. The portfolio manager primarily responsible for overseeing Oechsle's management of the Portfolio since it commenced operation on March 2, 1998 is Kathleen Harris. Ms. Harris joined Oechsle as a portfolio manager in January 1995 and has been a principal since January 1997. The AAL Capital Growth Fund Frederick L. Plautz has managed the day-to-day Fund investments since November 1, 1995. Mr. Plautz has also served as a portfolio manager of The AAL Balanced Fund since 1997, and he has served as portfolio manager of the following series of affiliated mutual fund groups: Lutheran Brotherhood Fund since 2002 and Capital Growth Portfolio since 2001. Mr. Plautz has been with Thrivent Investment Mgt. since 1995. The AAL Equity Income Fund The AAL Equity Fund is managed by a team of investment professionals from Thrivent Investment Mgt. The AAL Municipal Bond Fund Janet I. Grangaard, CFA, has served as portfolio manager of the Fund since April 1, 2002. Ms. Grangaard has also served as portfolio manager of The Lutheran Brotherhood Municipal Bond Fund, a series of an affiliated mutual fund group, since 2002. Ms. Grangaard has been a portfolio manager with Thrivent Investment Mgt. since 1994. The AAL Money Market Fund William D. Stouten has served as the portfolio manager of The AAL Money Market Fund since October 10, 2003. Mr. Stouten has been with Thrivent Investment Mgt. since 2001, and he has served as a research analyst/trader for the money market funds at Thrivent Financial from 2001 to 2003. Prior to joining Thrivent Investment Mgt., Mr. Stouten served as a senior research analyst for Voyageur Asset Management from 1998 to 2001. Personal Securities Investments Personnel of Thrivent Investment Mgt. and Oechsle may invest in securities for their own account pursuant to codes of ethics that establish procedures for personal investing and restrict certain transactions. Transactions in securities that may be held by the Funds are permitted, subject to compliance with applicable provisions under the codes of ethics. Standard & Poor's Trademarks "Standard & Poor's(R)," "S&P(R)," "Standard & Poor's 500," "S&P 500(R)," "500," "Standard & Poor's MidCap 400 Index," "S&P MidCap 400 Index," "Standard & Poor's SmallCap 600 Index" and "S&P SmallCap 600 Index" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Thrivent Financial for Lutherans. The product is not sponsored, endorsed, 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 - -------------------------------------------------------------------------------- How to Contact Us By Telephone: 1-800-847-4836 press 1 to speak with a customer service representative or press 2 to use the Automated Service Line By Internet: www.thrivent.com By Mail (New Applications): The AAL Mutual Funds P.O. Box 219347 Kansas City, MO 64121-9347 By Mail (Additional Investments): The AAL Mutual Funds P.O. Box 219334 Kansas City, MO 64121-9334 By Mail (Redemptions, Exchanges or Other Requests): The AAL Mutual Funds P.O. Box 219348 Kansas City, MO 64121-9348 By Express Mail: Thrivent Investment Management Inc. 210 West 10th Street, 8th Floor Kansas City, MO 64105 Pricing Funds' Shares The price of a Fund's shares is based on the Fund's net asset value ("NAV"). Each Fund determines the NAV for a particular class once daily at the close of trading on the New York Stock Exchange ("NYSE"), which is normally 4:00 p.m. Eastern time. The Funds do not determine NAV on holidays observed by the NYSE or on any other day when the NYSE is closed. The NYSE is regularly closed on Saturdays and Sundays, New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. The price at which you purchase or redeem shares of the Funds is based on the NAV next calculated after the Funds receive your payment or redemption request. The AAL Money Market Fund seeks to maintain a stable $1.00 NAV pursuant to procedures established by the Board of Trustees for the Funds, which utilize the amortized cost method. Valuing securities held by The AAL Money Market Fund on the basis of amortized cost involves a constant amortization of premium or accretion of discount to maturity, regardless of the impact of fluctuating interest rates on the market value of the security. This method is explained further in the Statement of Additional Information. Each other Fund determines the NAV for a particular class by dividing the total Fund assets attributable to that class, less all liabilities attributable to such class, by the total number of outstanding shares of that class. To determine the NAV, the other Funds generally value their securities at current market value using readily available market prices. If market prices are not available or do not accurately reflect fair value for a security, the fair value of that security may be determined under policies approved by the Board of Trustees. Some of the Funds hold securities that trade on foreign exchanges. These exchanges may trade on weekends or other days when the Funds do not price their shares. As a result, the value of a Fund's shares may change at a time when those shares may not be purchased or redeemed. The Board of Trustees of The AAL Mutual Funds has authorized Thrivent Financial for Lutherans ("Thrivent Financial") and certain other third parties to receive orders for the purchase and redemption of shares of the Funds. Institutional Class Shares The AAL Mutual Funds has adopted a system of multiple classes of shares for each of the Funds. There is no sales load imposed in connection with the purchase of Institutional Class shares and such shares are not subject to any Rule 12b-1 fee. Institutional Class shares are offered to institutions, church organizations, retirement plans sponsored by institutions and participants in various mutual fund, asset allocation, wrap account and private account programs offered by Thrivent Investment Mgt. Because the sales charges and expenses vary between the Class A shares, Class B shares and Institutional Class shares, performance will vary with respect to each class. A copy of the Class A and Class B prospectus may be obtained by writing to the Fund, calling toll free 1-800-847-4836, or downloading it from www.thrivent.com. Buying Shares Opening An Account You must open an account for each Fund that you want to purchase. Your Thrivent Investment Mgt. representative is ready to help you open a new account. If you do not know the name of your representative, please call the Investment Interaction Center ("Interaction Center") at (800) THRIVENT (847-4836). How you register your account with the Funds can affect your legal interests as well as the rights and interests of your family and beneficiaries. You should always consult with your legal and/or tax adviser to determine the account registration that best meets your needs. You must clearly identify the type of account you want on your application. If shares are held in the name of a corporation, trust, estate, custodianship, guardianship, partnership or pension and profit sharing plan, additional documentation may be necessary. Required Minimum Investments You may combine your purchases of Class A, Class B and Institutional Class shares of the Funds to meet the minimum investment requirements. As long as the initial minimum investment requirements are maintained, there are no subsequent minimum investment requirements. Please note that the following minimum investment requirements do not apply to shares purchased by participants in the mutual fund asset allocation, wrap account and private account programs. INITIAL PURCHASE INITIAL PURCHASE (AGGREGATE) (PER FUND) -------------------------------------------------------- Institutions $500,000 $50,000 -------------------------------------------------------- Lutheran Congregations $250,000 $25,000 -------------------------------------------------------- The mutual fund asset allocation, wrap account and private account programs are fee in lieu of commission and fee-based investment advisory services offered by Thrivent Investment Mgt. to persons who make certain initial investments from $25,000 and up. Qualifying participants in these programs may purchase shares of any Fund. Shares of the Funds are issued on days on which the New York Stock Exchange ("NYSE") is open, which generally are weekdays other than national holidays. Your order will be considered received when your check or other payment is received in good order. Orders that are received before the close of regular trading on the NYSE (generally 4:00 p.m. Eastern time) will be processed at the net asset value calculated that day. Orders received after the close of regular trading on the NYSE will be processed at the net asset value calculated on the following business day. The Funds reserve the right to reject any purchase request. Initial Purchases You may purchase initial shares through your Registered Representative or in any of the following ways: o By mail o By wire transfer Initial Purchases by Mail To buy shares of the Funds by mail: o Complete and mail your new account application for each different account registration. If you do not complete the application properly, your purchase may be delayed or rejected. o Make your check payable to the Fund you are buying. If more than one Fund, make your check payable to "The AAL Mutual Funds." Initial Purchases by Wire Transfer In order to buy shares of the Funds by wire transfer, your bank must be a member of, or have a corresponding relationship with a member of, the Federal Reserve System. Step 1: Call the Interaction Center at (800) THRIVENT (847-4836) and provide the following information: o Your account registration; o The name of the Fund(s) in which you want to invest; o The Class of shares you wish to buy; 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. Step 2: Instruct your bank to use the following instructions when wiring funds: Wire transfer to: State Street Corp. 225 Franklin Street Boston, MA 02101 ABA #011000028 Account #4195-538-6 Credit: Thrivent Financial Investor Services as Agent for the benefit of The AAL Mutual Funds Further Credit: [Name of the Fund] [Shareholder Account Number] [Shareholder Registration/Name] Please call (800) THRIVENT (847-4836) prior to the wire transfer in order to obtain a confirmation number and to ensure prompt and accurate handling of funds. Step 3: Mail your application. The Fund and its transfer agent are not responsible for the consequences of delays resulting from the banking or Federal Reserve wire transfer system, or from incomplete wiring instructions. Additional Purchases You may purchase additional shares through your Registered Representative or in any of the following ways: o By mail o By telephone o By the Internet o By wire transfer o Through the Automatic Investment Plan Additional Purchases By Mail To make additional purchases by mail, make your check payable to the specific Fund in which you are investing. Please indicate your Fund account number on the face of your check. If you have more than one account, always verify that you are investing in the proper account. This will help ensure the proper handling of the transaction. Additional Purchases By Telephone Before you can buy additional shares by telephone, you must have selected the Request for Telephone Purchase option on the application. Once you have selected this option, you can call the Interaction Center at (800) THRIVENT (847-4836) and the Fund will withdraw money from your bank checking or savings account to make your investment. You pay the next price computed after the Funds have received your investment from your bank, which is usually three business days after you authorize the transfer. If you need to invest sooner, you should consider making a wire transfer purchase. The Fund has implemented procedures designed to reasonably ensure that telephone instructions are genuine. These procedures include recording telephone conversations, requesting verification of certain personal information, restricting transmittal of redemption proceeds to pre-authorized account owners and addresses and supplying transaction verification information. Please note, however, that the Fund will not be liable for losses suffered by a shareholder that result from following telephone instructions reasonably believed to be authentic after verification pursuant to these procedures. If an account has multiple owners, the Fund may rely on the instructions of any one account owner. This privilege may not be available on all retirement plan accounts. Additional Purchases By the Internet You may purchase additional shares within your Fund accounts over the Internet (pre-authorized bank information is required prior to purchase). The Fund require a Personal Identification Number (PIN) prior to authorizing transactions on your Fund accounts. This privilege may not be available on all retirement plan accounts. Additional Purchases By Wire Transfer You may make additional purchases in an existing Fund account by wire transfer. In order to buy shares of the Funds by wire transfer, your bank must be a member of, or have a corresponding relationship with a member of the Federal Reserve System. Instruct your bank to use the following instructions when wiring funds: Wire transfer to: State Street Corp. 225 Franklin Street Boston, MA 02101 ABA #011000028 Account #4195-538-6 Credit: Thrivent Financial Investor Services as Agent for the benefit of The AAL Mutual Funds Further Credit: [Name of the Fund] [Shareholder Account Number] [Shareholder Registration/Name] The Fund and its transfer agent are not responsible for the consequences of delays resulting from the banking or Federal Reserve wire transfer system, or from incomplete wiring instructions. Automatic Investment Plans The Funds offer several automatic investment plans to make periodic investing more convenient. Using the Funds' automatic investment plans, you may implement a strategy called dollar cost averaging. Dollar cost averaging involves investing a fixed amount of money at regular intervals. When you dollar cost average, you purchase more shares when the price is low and fewer shares when the price is high. Dollar cost averaging does not ensure a profit or protect against a loss during declining markets. Because such a program involves a continuous investment regardless of changing share prices, you should consider your ability to continue the program through times when the share prices are high. Please note that it takes up to 10 business days from the time you invest for the transfer agent to validate any electronic transfer. This will cause some delay in your ability to redeem or transfer from your account. For further information regarding any of the following automatic investment plans, contact your Thrivent Investment Mgt. representative or the Interaction Center at (800) THRIVENT (847-4836). Automatic Bank Withdrawal Plan Investors who wish to make regular additional investments in an existing Fund account may do so through the Funds' bank draft plan. Under this plan, the Funds will draft an investor's bank checking or savings account in the amount specified on specified dates. The proceeds will be invested in shares of the specified Fund at the applicable offering price determined on the date of the draft. To use this plan you must authorize the plan on your application form, or subsequently in writing, and submit additional documents. The Automatic Exchange Plan The automatic exchange plan allows investors to make regular automatic investments in an existing Fund account by redemption of the same class of shares from The AAL Money Market Fund account. The automatic exchange plan allows investors to select the transaction date. To start, stop or change the plan, you must notify the Funds at least 24 hours prior to the transaction date. Retirement Plans Individual and employer-sponsored retirement plans may be established with assets invested in The AAL Mutual Funds. These accounts may offer you tax advantages. You should consult with your attorney and/or tax advisor before you establish a retirement plan. Additional fees may apply to some retirement accounts. Please review plan documents for more information. Your registered representative can provide you with the materials, documents and forms you need for establishing your retirement plan. Purchase Policies Your payment must be in U.S. dollars drawn on a U.S. bank. The Fund does not accept cash. If you purchase shares by check, electronic funds transfer (other than bank wire), or automatic investment plan and you elect to redeem those shares soon after their purchase, the Fund may postpone paying the redemption proceeds until your payment has cleared or up to 10 days from the date of purchase. The Fund reserves the right to suspend the offering of shares for a period of time and the right to reject any specific purchase of shares. Confirmation Thrivent Investment Mgt. will maintain a share account for you. Share certificates will not be issued. Thrivent Investment Mgt. will generally mail written confirmation of your purchases, except for additional purchases in The AAL Money Market Fund, within five business days following the date of your purchase. Thrivent Investment Mgt. will mail confirmation of additional purchases in The AAL Money Market Fund monthly. Thrivent Investment Mgt. will mail confirmation of your automatic investment plan transactions at least quarterly. For information about your shares, please contact the Interaction Center at (800) THRIVENT (847-4836). Redeeming Shares You can sell your shares on any business day Thrivent Investment Mgt. prices the Funds' shares. Once the Fund receives your request for redemption, it will redeem your shares at the next NAV on any day on which the NYSE is open for business. The Funds may postpone payment or suspend the right of redemption in unusual circumstances, as permitted by the U.S. Securities and Exchange Commission. When you purchase shares by check, the Funds may delay payment for redemption requests for the shares purchased for up to 10 business days or until your payment has cleared. If shares are held in the name of a corporation, trust, estate, custodianship, guardianship, partnership or pension and profit sharing plan, or if you have requested and received share certificates, additional documentation may be necessary. You may redeem shares in any of the following ways: o By mail o By telephone o By the Internet o By wire transfer o Through the Systematic Withdrawal Plan Redemptions by Mail Step 1: Prepare a written request including the following information: o Name(s) of the account owner(s); o Your account number; o The name of the Fund(s) whose shares are being redeemed; and o Dollar or share amount you wish to redeem. You must have a Medallion Signature Guarantee if you want to do any of the following: o Sell shares with a value of more than $100,000; o Send the proceeds to an address other than the one listed for your account; or o Make the check payable to someone other than the account owners(s). A Medallion Signature Guarantee is a stamp provided by a financial institution that verifies your signature. You endorse the certificate on the back and have the signature(s) guaranteed by an eligible guarantor institution such as a commercial bank, trust company, security broker or dealer, credit union, or a savings association participating in the Medallion Signature Guarantee Program. A Medallion Signature Guarantee may be obtained at any national bank or brokerage firm. Step 2: Mail your redemption request. Please note, an additional fee may be assessed for a redemption delivered by overnight mail or Saturday delivery. The Funds will mail payment proceeds within seven days following receipt of all required documents. However, mailing may be delayed if the Fund is waiting for Your means of purchase to clear. Redemptions by Telephone The privilege to redeem shares by telephone is automatically extended to all accounts except certain retirement plan accounts, unless the option is specifically declined on your application. If you do not want the telephone redemption option, please call the Interaction Center at (800) THRIVENT (847-4836). By accepting this privilege, you assume some risks for unauthorized transactions. The following conditions apply: o Telephone redemption checks will be issued to the same payee(s) as the account registration and sent only to the address of record. o There has been no change of address in the preceding 30 days. o The request is for $100,000 or less. However, requests to redeem more than $100,000 will be accepted if the account contains pre-established wire instructions. o Shares to be redeemed cannot be in certificate form. The Funds will mail payment proceeds within seven days following receipt of all required documents. Redemptions by the Internet You may redeem shares within your Fund accounts over the Internet. The Fund requires a Personal Identification Number (PIN) prior to authorizing transactions on your Fund accounts. This privilege may not be available on retirement plan accounts. Redemptions by Wire Transfer When redeeming shares by wire transfer, the following conditions apply: o A fee of up to $30 may be assessed for redemptions by wire. o This privilege may not be available on all retirement plan accounts. Systematic Withdrawal Plan You can have money automatically withdrawn from your Fund account(s) on a regular basis by using the Systematic Withdrawal Plan. The plan allows you to receive funds or direct payments at regular intervals. The following rules and/or guidelines apply: o You need a minimum of $50,000 in your account ($25,000 for Lutheran congregations) to start the plan. o You can select the date(s) on which the money is withdrawn. o To start the plan or change the payee(s), you must notify the Fund in writing and you must have all account owner(s) sign the appropriate form, which is available from the Interaction Center. o Money can be sent by check or electronic funds transfer. o To stop or change your plan, you must notify Thrivent Investment Mgt. prior to the next withdrawal. The AAL Money Market Fund Checks You can write checks on The 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. The Fund does not charge a fee for supplying your checks. The following rules and/or guidelines apply: o 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, may not be available.) o The transfer agent may impose reasonable fees for each check that is returned. o We do not return your canceled checks, although the transfer agent will send a copy of your check to you at your request. o Unless you purchased shares by wire, you must wait 10 business days after you purchase The AAL Money Market Fund shares to write checks against that purchase. o Unless you redeem via the Internet, you need a written request--not a check--to close The AAL Money Market Fund account. Your written request will require a signature guarantee to close accounts over $100,000. Exchanging Shares Between Funds You may exchange some or all of your shares of one Fund for shares of the same class of any of the other Funds. In addition, you may exchange Institutional Class shares of your Funds for Institutional Class shares of The Lutheran Brotherhood Family of Funds. If you are eligible to purchase Institutional Class shares, you may exchange some or all of your Class A shares for Institutional Class shares of any of the Funds or Institutional Class shares of The Lutheran Brotherhood Family of Funds. All exchanges will be based on the NAV of the shares you are exchanging and acquiring and will be subject to the minimum investment requirements. Except as described above, shares of one class may not be exchanged for shares of another class. An excessive number of exchanges may be disadvantageous to the Funds. Therefore, the Funds reserve the right to terminate the exchange privilege of any shareholder who makes more than 12 exchanges in a year. Further, the Funds reserve the right to modify or terminate the exchange privilege at any time with respect to any Fund if the Funds' Trustees determine that continuing the privilege may be detrimental to shareholders. If the exchange policies are materially modified or terminated, the Fund will give you at least 60 days prior notice. You may obtain an exchange form or receive more information about making exchanges between Funds by contacting your Thrivent Investment Mgt. registered representative. You may exchange funds in any of the following ways: o By mail o By telephone o By the Internet Exchanges by Mail Prepare and mail a written request including the following information: o Name(s) of the account owner(s); o Your Fund(s) and account number(s); o Dollar or share amount you wish to exchange; o The name of the Fund(s) and account number(s) you are exchanging into; and o Signatures of all account owners. Exchanges by Telephone The privilege to exchange shares by telephone is automatically extended to all accounts, unless the option is specifically declined on your application. If you do not want the telephone exchange option, please call the Interaction Center at (800) THRIVENT (847-4836). By accepting this privilege, you assume some risks for unauthorized transactions. You may exchange shares for which certificates have not been issued by calling the Interaction Center at (800) THRIVENT (847-4836). Telephone exchange requests received prior to the close of the NYSE, usually 4:00 p.m. Eastern Time, will receive that day's price. During periods of extreme volume caused by dramatic economic or stock market changes, shareholders may have difficulty reaching the Interaction Center by phone, and a telephone exchange may be difficult to implement at those times. The Funds reserve the right to temporarily discontinue the telephone exchange privilege during such periods of extreme volume. Exchanges by the Internet You may exchange shares within your Fund accounts over the Internet. The Fund requires a Personal Identification Number (PIN) prior to authorizing transactions on your Fund accounts. This privilege may not be available on all retirement plan accounts. Accounts With Low Balances Due to the high cost of maintaining accounts with low balances, the Funds may redeem shares in any account if the value of Institutional Class shares in the account falls below the required minimum amount for your type of account. Before shares are redeemed to close an account, you will be notified in writing and allowed 60 days to purchase additional shares. Shares will not be redeemed if the account's value drops below the minimum only because of market fluctuations. Distributions - -------------------------------------------------------------------------------- Dividends Dividends are declared and paid as follows: - --declared daily and paid monthly The AAL Municipal Bond Fund The AAL Money Market Fund - --declared and paid quarterly The AAL Equity Income Fund - --declared and paid semi- annually The AAL Capital Growth Fund - --declared and paid annually The AAL Aggressive Growth Fund The AAL International Fund Income dividends are derived from investment income, including dividends, interest, and certain foreign currency gains received by a Fund. Capital Gains Capital gains distributions, if any, usually will be declared in December for the prior fiscal year ending April 30. Distribution Options When completing your application, you must select one of the following options for dividends and capital gains distributions: o Full Reinvestment. Distributions from a Fund will be reinvested in additional shares of the same class of that Fund. This option will be selected automatically unless one of the other options is specified. o Full Reinvestment in a Different Fund. You may also choose to have your distributions reinvested into an existing account of the same class of another Fund within The AAL Mutual Funds. o All Cash. Distributions will be paid in cash. Your request to receive all or a portion of your distributions in cash must be received at least 10 days before the record date of the dividend or other distribution. Distributions paid in shares will be credited to your account at the next determined NAV per share. Taxes - -------------------------------------------------------------------------------- General In general, any net investment income and short-term capital gain distributions you receive from a Fund are taxable as ordinary income. To the extent a Fund receives and distributes qualified dividend income, you are eligible for a tax rate lower than that on other ordinary income distributions. Distributions of other net capital gains by a Fund are generally taxable as capital gains -- in most cases, at different rates from those that apply to ordinary income. We expect that distributions from The AAL Aggressive Growth Fund and The AAL International Fund will consist primarily of capital gains and that distributions from The AAL Capital Growth Fund, The AAL Equity Income Fund, The AAL Municipal Bond Fund and The AAL Money Market Fund will consist primarily of ordinary income. The tax you pay on a given capital gains distribution generally depends on how long a Fund has held the portfolio securities it sold. It does not depend on how long you have owned your Fund shares or whether you reinvest your distributions or take them in cash. Every year, the Funds will send you information detailing the amount of qualified dividends, ordinary income and capital gains distributed to you for the previous year. The sale of shares in your account may produce a gain or loss, and is a taxable event. For tax purposes, an exchange between Funds is the same as a sale. You will not be required to pay federal income tax on exchanges of Class A or Class B shares of a Fund for Institutional Class Shares of the same Fund. Your investment in the Funds could have additional tax consequences. Please consult your tax professional for assistance. By law, the Funds must withhold 28% of your distributions and proceeds if you have not provided complete, correct taxpayer information. The AAL Municipal Bond Fund Dividends derived from the interest earned on municipal securities constitute "exempt-interest dividends" and are generally not subject to federal income tax. Realized capital gains on municipal securities are subject to federal income tax. Thus, shareholders will be subject to taxation at ordinary rates on the dividends they receive that are derived from net short-term capital gains. Distributions of net long-term capital gains will be taxable as long-term capital gains regardless of the length of time a shareholder holds them. We may, for temporary defensive purposes, invest in short-term taxable securities for the Fund. Shareholders of this Fund are subject to federal income tax at ordinary rates on any income dividends they receive that are derived from interest on taxable securities. For shareholders 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. The AAL International Fund Foreign investments pose special tax issues for The AAL International Fund and its shareholders. For example, certain gains and losses from currency fluctuations may be taxable as ordinary income. Also, certain foreign countries withhold some interest and dividends that otherwise would be payable to The AAL International Fund. If the amount withheld is material, shareholders may be able to claim a foreign tax credit. Other Securities and Investment Practices - -------------------------------------------------------------------------------- The principal investment strategies and risk factors of each Fund are outlined beginning on page B-39. This section provides additional information about some of the securities and other practices in which certain Funds may engage, along with their associated risks. Repurchase agreements. Each of the Funds may buy securities with the understanding that the seller will buy them back with interest at a later date. If the seller is unable to honor its commitment to repurchase the securities, the Fund could lose money. When-issued securities. Each Fund may invest in securities prior to their date of issue. These securities could fall in value by the time they are actually issued, which may be any time from a few days to over a year. In addition, no income will be earned on these securities until they are actually delivered. Mortgage-backed and asset-backed securities. Each of the Funds may invest in mortgage-backed and asset-backed securities. Mortgage-backed securities are securities that are backed by pools of mortgages and which pay income based on the payments of principal and income they receive from the underlying mortgages. Asset-backed securities are similar but are backed by other assets, such as pools of consumer loans. Both are sensitive to interest rate changes as well as to changes in the redemption patterns of the underlying securities. If the principal payment on the underlying asset is repaid faster or slower than the holder of the mortgage-backed or asset-backed security anticipates, the price of the security may fall, especially if the holder must reinvest the repaid principal at lower rates or must continue to hold the securities when interest rates rise. Zero coupons. Each of the Funds may invest in zero coupon securities. A zero coupon security is a debt security that is purchased and traded at discount to its face value because it pays no interest for some or all of its life. Interest, however, is reported as income to the Fund that has purchased the security and the Fund is required to distribute to shareholders an amount equal to the amount reported. Those distributions may require the Fund to liquidate portfolio securities at a disadvantageous time. Foreign securities. Each of the Funds may invest in foreign securities. Foreign securities are generally more volatile than their domestic counterparts, in part because of higher political and economic risks, lack of reliable information and fluctuations in currency exchange rates. These risks are usually higher in less developed countries. Each of these Funds except The AAL Money Market Fund may use foreign currencies and related instruments to hedge its foreign investments. In addition, foreign securities may be more difficult to resell than comparable U.S. securities because the markets for foreign securities are less efficient. Even where a foreign security increases in price in its local currency, the appreciation may be diluted by the negative effect of exchange rates when the security's value is converted to U.S. dollars. Foreign withholding taxes also may apply and errors and delays may occur in the settlement process for foreign securities. International exposure. Each of the Funds may have some international exposure (including emerging markets) in their investments. Many U.S. companies in which these Funds may invest generate significant revenues and earnings from abroad. As a result, these companies and the prices of their securities may be affected by weaknesses in global and regional economies and the relative value of foreign currencies to the U.S. dollar. These factors, taken as a whole, could adversely affect the price of Fund shares. Restricted and illiquid securities. Each of the Funds may invest to a limited extent in restricted or illiquid securities. Any securities that are thinly traded or whose resale is restricted can be difficult to sell at a desired time and price. Some of these securities are new and complex, and trade only among institutions. The markets for these securities are still developing and may not function as efficiently as established markets. Owning a large percentage of restricted or illiquid securities could hamper a Fund's ability to raise cash to meet redemptions. Also, because there may not be an established market price for these securities, the Fund may have to estimate their value, which means that their valuation (and, to a much smaller extent, the valuation of the Fund) may have a subjective element. Securities lending. Each of the Funds except The AAL Money Market Fund may seek additional income by lending portfolio securities to qualified institutions. By reinvesting any cash collateral it receives in these transactions, a Fund could realize additional gains or losses. If the borrower fails to return the securities and the invested collateral has declined in value, the Fund could lose money. Derivatives. Each of the Funds except The AAL Money Market Fund may invest in derivatives. Derivatives, a category that includes options and futures, are financial instruments whose value derives from another security, an index or a currency. Each Fund may use derivatives for hedging (attempting to offset a potential loss in one position by establishing an interest in an opposite position). This includes the use of currency-based derivatives for hedging its positions in foreign securities. Each Fund may also use derivatives for speculation (investing for potential income or capital gain). While hedging can guard against potential risks, it adds to the fund's expenses and can eliminate some opportunities for gains. There is also a risk that a derivative intended as a hedge may not perform as expected. The main risk with derivatives is that some types can amplify a gain or loss, potentially earning or losing substantially more money than the actual cost of the derivative. With some derivatives, whether used for hedging or speculation, there is also the risk that the counterpart may fail to honor its contract terms, causing a loss for the Fund. In addition, suitable derivative investments for hedging or speculative purposes may not be available. High-yield bonds. Each of the Funds except The AAL Municipal Bond Fund and The AAL Money Market Fund may invest in high-yield bonds. High-yield bonds are debt securities rated below BBB by S&P or Baa by Moody's. To the extent that a Fund invests in high-yield bonds, it takes on the following risks: o The risk of a bond's issuer defaulting on principal or interest payments is greater than on higher quality bonds. o Issuers of high-yield bonds are less secure financially and are more likely to be hurt by interest rate increases and declines in the health of the issuer or the economy. Bonds. The value of any bonds held by a Fund is likely to decline when interest rates rise; this risk is greater for bonds with longer maturities. A less significant risk is that a bond issuer could default on principal or interest payments, possibly causing a loss for the Fund. Short-term trading. The investment strategy for each Fund at times may include short-term trading. While a Fund ordinarily does not trade securities for short-term profits, it will sell any security at any time it believes best, which may result in short-term trading. Short-term trading can increase a Fund's transaction costs and may increase your tax liability. During the fiscal year ending April 30, 2003, The AAL Aggressive Growth Fund had a portfolio turnover ratio of over 100%. Initial public offering. Each of the Funds may engage in initial public offerings (IPOs) of securities. IPOs issued by unseasoned companies with little or no operating history are risky and their prices are highly volatile, but they can result in very large gains in their initial trading. Thus, when the Fund's size is smaller, any gains form IPOs will have an exaggerated impact on the Fund's reported performance than when the Fund is larger. Attractive IPOs are often oversubscribed and may not be available to the Fund, or only in very limited quantities. There can be no assurance that a Fund will have favorable IPO investment opportunities. Securities ratings. When fixed-income securities are rated by one or more independent rating agencies, a Fund uses these ratings to determine bond quality. Investment grade bonds are those that are rated within or above the BBB major rating category by S&P or the Baa major rating category by Moody's, or unrated but considered of equivalent quality by the Fund's adviser. High-yield bonds are below investment grade bonds in terms of quality. In cases where a bond is rated in conflicting categories by different rating agencies, a Fund (other than The AAL Money Market Fund) may choose to follow the higher rating. If a bond is unrated, the Fund may assign it to a given category based on its own credit research. If a rating agency downgrades a security, the Fund will determine whether to hold or sell the security, depending on all of the facts and circumstances at that time. Defensive investing. In response to market, economic, political or other conditions, each Fund (except The AAL Money Market Fund) may invest without limitation in cash, preferred stocks, or investment-grade debt securities for temporary defensive purposes. If the Fund does this, different factors could affect the Fund's performance and it may not achieve its investment objective. Financial Highlights - -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the Funds' financial performance for the past five years or, if shorter, the period of the Funds' 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 a 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 Aggressive Growth Fund Institutional Class Shares ------------------------------------------------------------------ Year Year For a share outstanding Ended Ended Period Ended throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 (e) ------------------------------------------------------------------ Net asset value, beginning of period $ 4.62 $ 6.77 $ 10.00 Income From Investment Operations: Net investment income/(loss) 0.02 (0.01) 0.03 Net realized and unrealized loss on investments (b) (0.76) (2.14) (3.26) Total from investment operations (0.74) (2.15) (3.23) Net asset value, end of period $ 3.88 $ 4.62 $ 6.77 Total return (c) (16.02)% (31.76)% (32.30)% Net assets, end of period (in millions) $ 2.8 $ 6.7 $ 8.2 Ratio of expenses to average net assets (d) 1.10% 1.15% 1.17% Ratio of net investment income/(loss) to average net assets (d) (0.18)% (0.28)% 0.60% Portfolio turnover rate 204% 94% 70% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 1.11% 1.15% 1.17% Ratio of net investment income/(loss) to average net assets (d) (0.19)% (0.28)% 0.60% The AAL International Fund Institutional Class Shares - --------------------------------------------------------------------------------------------------------------------------- Year Year Year Year Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 8.68 $ 10.63 $ 14.15 $11.37 Income From Investment Operations: Net investment income/(loss) 0.08 0.03 0.26 0.08 Net realized and unrealized gain/(loss) on investments (b) (1.89) (1.80) (3.20) 2.73 Total from investment operations (1.81) (1.77) (2.94) 2.81 Less Distributions from: Net investment income (0.14) (0.18) (0.31) (0.03) Net realized gain on investments - - (0.27) - Total Distributions (0.14) (0.18) (0.58) (0.03) Net asset value, end of period $ 6.73 $ 8.68 $ 10.63 $14.15 Total return (c) (21.45)% (16.61)% (21.12)% 24.69% Net assets, end of period (in millions) $ 2.8 $ 3.0 $ 3.3 $ 2.8 Ratio of expenses to average net assets (d) 0.77% 0.78% 0.75% 0.73% Ratio of net investment income/(loss) to average net assets (d) 1.15% 0.86% 2.42% 0.61% Portfolio turnover rate 52% 63% 38% 44% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 0.77% 0.78% 0.75% 0.79% Ratio of net investment income/(loss) to average net assets (d) 1.15% 0.86% 2.42% 0.55% The AAL International Fund - ------------------------------------------------------------------------------------------- Year Ended For a share outstanding throughout each period (a) 4/30/1999 - ------------------------------------------------------------------------------------------ Net asset value, beginning of period $11.17 Income From Investment Operations: Net investment income/(loss) 0.15 Net realized and unrealized gain/(loss) on investments (b) 0.65 Total from investment operations 0.80 Less Distributions from: Net investment income (0.51) Net realized gain on investments (0.09) Total Distributions (0.60) Net asset value, end of period $11.37 Total return (c) 7.49% Net assets, end of period (in millions) $ 1.9 Ratio of expenses to average net assets (d) 1.09% Ratio of net investment income/(loss) to average net assets (d) 1.10% Portfolio turnover rate 101% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 1.09% Ratio of net investment income/(loss) to average net assets (d) 1.10% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. (e)Since Fund inception, July 1, 2000. The AAL Capital Growth Fund Institutional Class Shares - --------------------------------------------------------------------------------------------------------------------------- Year Year Year Year Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 29.90 $ 34.88 $ 38.72 $35.89 Income From Investment Operations: Net investment income/(loss) 0.21 0.18 0.33 0.27 Net realized and unrealized gain/(loss) on investments (b) (4.47) (4.88) (1.73) 3.20 Total from investment operations (4.26) (4.70) (1.40) 3.47 Less Distributions from: Net investment income (0.18) (0.20) (0.30) (0.21) Net realized gain on investments - (0.08) (2.14) (0.43) Total Distributions (0.18) (0.28) (2.44) (0.64) Net asset value, end of period $ 25.46 $ 29.90 $ 34.88 $38.72 Total return (c) (14.24)% (13.53)% (3.82)% 9.70% Net assets, end of period (in millions) $ 68.2 $ 65.9 $ 91.8 $ 82.8 Ratio of expenses to average net assets (d) 0.55% 0.55% 0.54% 0.52% Ratio of net investment income/(loss) to average net assets (d) 0.85% 0.56% 0.90% 0.73% Portfolio turnover rate 5% 3% 13% 8% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 0.55% 0.55% 0.54% 0.54% Ratio of net investment income/(loss) to average net assets (d) 0.85% 0.56% 0.90% 0.72% The AAL Capital Growth Fund - ------------------------------------------------------------------------------------------- Year Ended For a share outstanding throughout each period (a) 4/30/1999 - ------------------------------------------------------------------------------------------ Net asset value, beginning of period $29.67 Income From Investment Operations: Net investment income/(loss) 0.21 Net realized and unrealized gain/(loss) on investments (b) 6.67 Total from investment operations 6.88 Less Distributions from: Net investment income (0.20) Net realized gain on investments (0.46) Total Distributions (0.66) Net asset value, end of period $35.89 Total return (c) 23.55% Net assets, end of period (in millions) $ 46.9 Ratio of expenses to average net assets (d) 0.60% Ratio of net investment income/(loss) to average net assets (d) 0.62% Portfolio turnover rate 9% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 0.60% Ratio of net investment income/(loss) to average net assets (d) 0.62% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. The AAL Equity Income Fund Institutional Class Shares - --------------------------------------------------------------------------------------------------------------------------------- Year Year Year Year Year Ended Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 4/30/1999 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.92 $ 14.59 $ 14.43 $14.70 $14.32 Income From Investment Operations: Net investment income/(loss) 0.18 0.21 0.27 0.31 0.21 Net realized and unrealized gain/(loss) on investments (b) (2.73) (1.64) 0.93 (0.35) 1.19 Total from investment operations (2.55) (1.43) 1.20 (0.04) 1.40 Less Distributions from: Net investment income (0.15) (0.19) (0.27) (0.23) (0.23) Net realized gain on investments - (0.05) (0.77) - (0.79) Return of capital (0.02) - - - - Total Distributions (0.17) (0.24) (1.04) (0.23) (1.02) Net asset value, end of period $ 10.20 $ 12.92 $ 14.59 $14.43 $14.70 Total return (c) (19.70)% (9.83)% 8.64% (0.29)% 10.62% Net assets, end of period (in millions) $ 9.8 $ 9.1 $ 9.5 $ 6.2 $ 13.2 Ratio of expenses to average net assets (d) 0.51% 0.50% 0.51% 0.46% 0.60% Ratio of net investment income/(loss) to average net assets (d) 1.59% 1.61% 1.94% 1.71% 1.65% Portfolio turnover rate 63% 34% 26% 27% 13% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly or credits for directed brokerage transactions the ratios would have been: Ratio of expenses to average net assets (d) 0.52% 0.51% 0.51% 0.52% 0.60% Ratio of net investment income/(loss) to average net assets (d) 1.58% 1.60% 1.94% 1.65% 1.65% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. The AAL Municipal Bond Fund Institutional Class Shares - -------------------------------------------------------------------------------------------------------------------------- Year Year Year Year Year Ended Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 4/30/1999 - -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $11.20 $10.95 $10.45 $11.47 $11.40 Income From Investment Operations: Net investment income 0.54 0.57 0.58 0.57 0.55 Net realized and unrealized gain/(loss) on investments (b) 0.32 0.25 0.50 (1.01) 0.25 Total from investment operations 0.86 0.82 1.08 (0.44) 0.80 Less Distributions from: Net investment income (0.54) (0.57) (0.58) (0.57) (0.55) Net realized gain on investments - - - (0.01) (0.18) Total Distributions (0.54) (0.57) (0.58) (0.58) (0.73) Net asset value, end of period $11.52 $11.20 $10.95 $10.45 $11.47 Total return (c) 7.81% 7.61% 10.56% (3.78)% 7.09% Net assets, end of period (in millions) $ 3.4 $ 5.3 $ 2.5 $ 0.5 $ 0.6 Ratio of expenses to average net assets (d) 0.48% 0.46% 0.42% 0.47% 0.51% Ratio of net investment income to average net assets (d) 4.72% 5.08% 5.37% 5.32% 4.78% Portfolio turnover rate 18% 65% 110% 210% 95% If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly the ratios would have been: Ratio of expenses to average net assets (d) 0.48% 0.51% 0.50% 0.52% 0.51% Ratio of net investment income to average net assets (d) 4.72% 5.03% 5.29% 5.27% 4.78% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. The AAL Money Market Fund Institutional Class Shares - ------------------------------------------------------------------------------------------------------------------------------ Year Year Year Year Year Ended Ended Ended Ended Ended For a share outstanding throughout each period (a) 4/30/2003 4/30/2002 4/30/2001 4/30/2000 4/30/1999 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income From Investment Operations: Net investment income 0.01 0.03 0.06 0.05 0.05 Less Distributions from: Net investment income (0.01) (0.03) (0.06) (0.05) (0.05) Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total return (e) 1.17% 2.54% 6.07% 5.36% 4.99% Net assets, end of period (in millions) $ 91.4 $117.8 $ 25.3 $ 12.8 $ 17.9 Ratio of expenses to average net assets (c) 0.48% 0.46% 0.43% 0.31% 0.49% Ratio of net investment income to average net assets (c) 1.18% 2.45% 5.86% 5.18% 4.76% Portfolio turnover rate N/A N/A N/A N/A N/A If the adviser had not reimbursed expenses and the Fund had not received credits for fees paid indirectly the ratios would have been: Ratio of expenses to average net assets (d) 0.53% 0.54% 0.56% 0.57% 0.72% Ratio of net investment income to average net assets (d) 1.13% 2.37% 5.73% 4.92% 4.53% (a)All per share amounts have been rounded to the nearest cent. (b)The amount shown may not correlate with the change in aggregate gains and losses of portfolio securities due to the timing of sales and redemptions of fund shares. (c)Total investment return assumes dividend reinvestment and does not reflect any deduction for sales charges. Not annualized for periods less than one year. (d)Computed on an annualized basis for periods less than one year. (e)Total investment return assumes dividend reinvestment. [Back cover page] THE AAL MUTUAL FUNDS By Telephone: 1-800-847-4836 press 1 to speak with a customer service representative or press 2 to use the Automated Service Line By Internet: www.thrivent.com By Mail (New Applications): The AAL Mutual Funds P.O. Box 219347 Kansas City, MO 64121-9347 By Mail (Additional Investments): The AAL Mutual Funds P.O. Box 219334 Kansas City, MO 64121-9334 By Mail (Redemptions, Exchanges or Other Requests): The AAL Mutual Funds P.O. Box 219348 Kansas City, MO 64121-9348 By Express Mail: Thrivent Investment Management Inc. 210 West 10th Street, 8th Floor The Statement of Additional Information, which is incorporated by reference into this Prospectus, contains additional information about the Funds. Additional information about the Funds' investments is available in the Funds' annual and semi- annual reports to shareholders. In the Funds' annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the performance of each of the Funds during their last fiscal year. You may request a free copy of the Statement of Additional Information, the annual report, or the semi-annual report, or you may make additional requests or inquiries by calling 1-800-847-4836. You also may review and copy information about the Funds (including the Statement of Additional Information) at the Public Reference Room of the Securities and Exchange Commission in Washington, DC. You may get more information about the Public Reference Room by calling 1-800-SEC-0330. You also may get information about the Funds on the EDGAR database at the SEC Website (www.sec.gov), and copies of the information may be obtained upon payment of a duplicating fee by writing the Public Reference Section of the SEC, Washington, DC 20549-6009, or by sending an email to: publicinfo@sec.gov. 1940 Act File No. 811-5075 APPENDIX C THE AAL MUTUAL FUNDS PROSPECTUS As Supplemented February 12, 2004 Class A and B Shares February 1, 2004 Thrivent Mid Cap Growth Fund Thrivent High Yield Fund Thrivent Income Fund Thrivent Limited Maturity Bond Fund 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 Thrivent Mid Cap Growth Fund Thrivent High Yield Fund Thrivent Income Fund Thrivent Limited Maturity Bond Fund MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE Investment Adviser Advisory Fees Portfolio Management Personal Securities Investments SHAREHOLDER INFORMATION Pricing Funds' Shares Choosing a Class of Shares Class A Shares Class B Shares Buying Shares Redeeming Shares Exchanging Shares Between Funds Accounts with Low Balances DISTRIBUTIONS Dividends Capital Gains Distribution Options TAXES General NONPRINCIPAL INVESTMENT PRACTICES THRIVENT MID CAP GROWTH FUND INVESTMENT OBJECTIVE Thrivent Mid Cap Growth Fund seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES Thrivent Mid Cap Growth Fund tries to increase the long-term value of your investment by investing in common stocks of U.S. companies with medium market capitalizations. Under normal market conditions, Thrivent Mid Cap Growth Fund invests at least 80% of its net assets (plus the amount of any borrowing for investment purposes) in companies with market capitalizations similar to those companies included in widely known mid cap indices such as the Russell Mid Cap Growth Index and the S&P Mid Cap 400/Barra Growth Index at the time of the Fund's investment. Although market capitalizations are constantly changing, as of February 1, 2004, mid cap companies have market capitalization between $259 million and $13.2 billion (according to the S&P Mid Cap 400 Index). Should Thrivent Investment Mgt. the Fund's investment adviser determine that the Fund would benefit from reducing the percentage of invested assets from 80% to a lesser amount, you will be notified at least 60 days prior to such a change. Thrivent Investment Mgt. the Fund's investment adviser, uses fundamental, quantitative, and technical investment research techniques to determine what securities to buy and sell. Fundamental investment analysis generally involves assessing a company's or security's value based on factors such as sales, assets, markets, management, products and services, earnings, and financial structure. Quantitative analysis generally involves assessing a company's or security's value based on such factors as the cost of capital; the historical and projected patterns of sales, costs, and profitability in the money market and the securities markets. Technical analysis generally involves studying trends and movements in a security's price, trading volume, and other market-related factors in an attempt to discern patterns. Thrivent Investment Mgt. focuses on companies that have a strong record of earnings growth or show good prospects for growth in sales and earnings and also considers the trends in the market as a whole. Thrivent Mid Cap Growth Fund may sell securities for a variety of reasons, such as to secure gains, limit losses, or reposition assets into more promising opportunities. PRINCIPAL INVESTMENT RISKS Thrivent Mid Cap Growth Fund is subject to the following principal investment risks. Market Risk. Over time stock markets generally tend to move in cycles with periods when stock prices rise and periods when stock prices decline. The value of the Fund's investments may move with these cycles and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. They also may decline because of factors that affect a particular industry. Equity Investment Risk. To the extent the Fund invests in common stocks, it may be particularly subject to the risks of changing economic, stock market, industry and company conditions, currency exchange rates and the risks inherent in management's ability to anticipate such changes that can adversely affect the value of the Fund's holdings. In addition, the interests of equity holders are typically subordinated to the interests of other senior shareholders, such as preferred shareholders, as well as to the interests of general creditors of the issuer. Issuer Risk. Issuer risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Growth style investing includes the risk of investing in securities whose prices historically have been more volatile than other securities, especially over the short term. Growth stock prices reflect projection of future earnings or revenues, and if a company' earning or revenues fall short of expectations, its stock price may fall dramatically. Mid Cap Risk. Medium-sized companies often have greater price volatility, lower trading volume, and less liquidity than larger, more-established companies. These companies tend to have small revenues, narrower product lines, less management depth and experience, smaller shares of their product or service markets, fewer financial resources, and less competitive strength than larger companies. Liquidity Risk. Liquidity risk exists when particular investments are difficult to sell. A Fund's investments in illiquid securities may reduce the returns of the Fund because it may be unable to sell the illiquid securities at an advantageous time or price. Funds with principal investment strategies that involve foreign securities, derivatives or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk. Investment Adviser Risk. The Fund is actively managed, and success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Thrivent Investment Mgt. and each individual portfolio manager will apply investment techniques and risk analysis in making investment decisions for the Funds, but there can be no guarantee that these will produce the desired results. Growth Securities Risk. Each Fund may invest in equity securities of companies that its portfolio manager or portfolio management team believes will experience relatively rapid earnings growth. Growth securities typically trade at higher multiples of current earnings than other securities. Therefore, the values of growth securities may be more sensitive to changes in current or expected earnings than the values of other securities. Thrivent Mid Cap Growth Fund is newly-created so no bar chart or performance table is included. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of Thrivent Mid Cap Growth Fund./1/ - ----------------------------------------------- --------------------------------------------- ------------------------------ SHAREHOLDER FEES (fees paid directly from your investment) CLASS A SHARES CLASS B SHARES - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Maximum Sales Charge (Load) Imposed on 5.50% None Purchases (as a percentage of offering price) - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Maximum Deferred Sales Charge (Load) (as a 1.00%/2/ 5.00% percentage of net asset value at time of purchase or redemption, whichever is lower) - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A SHARES CLASS B SHARES - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Management Fees 0.44% 0.44% - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Distribution (12b-1) Fees 0.25% 1.00% - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Other Expenses/3/ 0.72% 1.60% - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Total Annual Fund Operating Expenses 1.41% 3.04% - ----------------------------------------------- --------------------------------------------- ------------------------------ /1/ The maximum sales charges for the Fund depends upon the amount of your investment and whether you buy Class A shares or Class B shares. For a complete description of the sales charges, see "Choosing a Class of Shares." In addition, the Fund may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. See "Accounts with Low Balances." The Funds also may charge a fee of up to $30 for a redemption by wire. See "Shareholder Information - Redeeming Shares." /2/ When you invest $1,000,000 or more, a contingent deferred sales charge of 1% will apply to shares redeemed within one year. /3/ Because Thrivent Mid Cap Growth Fund has been newly organized, the percentage expense levels shown in the table as "Other Expenses" are based on estimates for the current fiscal year. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, and that the Fund's operating expenses remain the same. Although your actual cost may be higher or lower, based on these assumptions your cost would be: - ----------------------------- -------------------------- --------------------------- 1 Year 3 Years - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class A shares $690 $992 - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class B shares $784 $1,196 - ----------------------------- -------------------------- --------------------------- You would pay the following expenses if you did not redeem your shares: - ----------------------------- -------------------------- --------------------------- 1 Year 3 Years - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class A shares $690 $992 - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class B shares $284 $896 - ----------------------------- -------------------------- --------------------------- THRIVENT HIGH YIELD FUND INVESTMENT OBJECTIVE Thrivent High Yield Fund seeks a high current income and, secondarily, growth of capital. PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 80% of its net assets (plus the amount of any borrowing for investment purposes) in high yield, high-risk bonds, notes, debentures and other debt obligations or preferred stocks (e.g. collateralized debt obligations, convertible bonds and convertible preferred stock). These securities are commonly know as "junk bonds." At the time of purchase these securities are rated within or below the BB major rating category by Standard & Poor's Corporation or the Ba major rating category by Moody's Investor Services, Inc. or are unrated but considered to be of comparable quality by Thrivent Investment Mgt., the Portfolio's investment adviser. The Fund invests in securities regardless of the securities' maturity average. Should Thrivent Investment Mgt. determine that the Fund would benefit from reducing the percentage of invested assets from 80% to a lesser amount, you will be notified at least 60 days prior to such a change. Thrivent Investment Mgt. uses fundamental, quantitative, and technical investment research techniques to determine what securities to buy and sell. Fundamental investment analysis generally involves assessing a company's or security's value based on factors such as sales, assets, markets, management, products and services, earnings, and financial structure. Quantitative analysis generally involves assessing a company's or security's value based on such factors as the cost of capital; the historical and projected patterns of sales, costs, and profitability in the money market and the securities markets. Technical analysis generally involves studying trends and movements in a security's price, trading volume, and other market-related factors in an attempt to discern patterns. Thrivent Investment Mgt. focuses on companies that it believes are financially sound and have strong cash flow, asset values and interest or dividend earnings. PRINCIPAL INVESTMENT RISKS Thrivent High Yield Fund is subject to the following principal investment risks. Market Risk. Over time, markets generally tend to move in cycles with periods when bond prices rise and periods when bond prices decline. The value of a Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. They also may decline because of factors that affect a particular industry. Issuer Risk. Issuer risk is the possibility that a company's performance will affect the market price of its security, and, consequently, the value of the Fund. Some factors affecting the performance of a company include demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. The price of the Fund's shares may be affected by weak equity markets when issuers of high-yield, high-risk bonds generally find it difficult to improve their financial condition by replacing debt with equity. Bonds may also exhibit price fluctuations due to changes in interest rate or bond yield levels. As a result, the value of the Fund's shares may fluctuate significantly in the short term. Credit Risk. Credit risk is the risk that an issuer of a bond held by the Fund may no longer be able to pay its debt. As a result of such an event, the bond may decline in price thereby affecting the value of the Fund. High-yield high-risk bonds are subject to greater credit risk than investment-grade bonds. To compensate for this risk, high-yield bonds have higher yields. Interest Rate Risk. Interest rate risk is the risk that bond prices decline in value when interest rates rise for bonds that pay a fixed rate of interest. This effect may cause the value of the Fund to decline and reduce the overall return of the Fund. Convertible Securities Risk. Convertible securities tend to be subordinate to other debt securities issued by the same company. Also, issuers of convertible securities are often not as strong financially as those issuing securities with higher credit ratings. These companies are more likely to encounter financial difficulties and are more vulnerable to changes in the economy, such as a recession or a sustained period of rising interest rates, that could affect their ability to make interest and principal payments. If an issuer stops making interest and/or principal payments, these securities may be worthless and the Fund could lose its entire investment. Liquidity Risk. Liquidity risk exists when particular investments are difficult to sell. A Fund's investments in illiquid securities may reduce the returns of the Fund because it may be unable to sell the illiquid securities at an advantageous time or price. Funds with principal investment strategies that involve foreign securities, derivatives or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk. High Yield Risk. Funds that invest in high yield securities and unrated securities of similar credit quality (commonly known as "junk bonds") may be subject to greater levels of interest rate, credit and liquidity risk than Funds that do not invest in such securities. These securities are considered predominately speculative with respect to the issuer's continuing ability to make principal and interest payments. An economic downturn or period of rising interest rates could adversely affect the market for these securities and reduce a Fund's ability to sell these securities (liquidity risk). If the issuer of a security is in default with respect to interest or principal payments, a Fund may lose its entire investment. Prepayment Risk. When interest rates decline, borrowers may pay off their principal amounts sooner than expected. This can reduce the returns of a Fund because the Fund will have to reinvest that money at the lower prevailing interest rates. Extension Risk. In some cases, a bond issuer may seek to extend the maturity of a bond issue rather than pay the principal amount due at the original maturity date. Even if interest continues to be paid on the bond, this will increase the Fund's risk by delaying an expected principal payment, and also force the Fund to either hold the security longer than anticipated or sell the security in the market at a price which may be unfavorable. If an extension happens during a time of rising interest rates, the Fund will be unable to reinvest its principal at the higher rates as expected. Investment Adviser Risk. The Fund is actively managed, and success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Thrivent Investment Mgt. and each individual portfolio manager will apply investment techniques and risk analysis in making investment decisions for the Funds, but there can be no guarantee that these will produce the desired results. Thrivent High Yield Fund is newly-created, so no bar chart or performance table is included. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of Thrivent High Yield Fund./1/ - ----------------------------------------------- --------------------------------------------- ------------------------------ SHAREHOLDER FEES (fees paid directly from your investment) CLASS A SHARES CLASS B SHARES - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.5% None - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Maximum Deferred Sales Charge (Load) (as a percentage of net asset value at time of purchase or redemption, whichever is lower) 1.00%/2/ 5.00% - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A SHARES CLASS B SHARES - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Management Fees 0.39% 0.39% - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Distribution (12b-1) Fees 0.25% 1.00% - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Other Expenses/3/ 0.27% 0.36% - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Total Annual Fund Operating Expenses 0.91% 1.75% - ----------------------------------------------- --------------------------------------------- ------------------------------ /1/ The maximum sales charges for the Fund depends upon the amount of your investment and whether you buy Class A shares or Class B shares. For a complete description of the sales charges, see "Choosing a Class of Shares." In addition, the Fund may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. See "Accounts with Low Balances." The Funds also may charge a fee of up to $30 for a redemption by wire. See "Shareholder Information - Redeeming Shares." /2/ When you invest $1,000,000 or more, a contingent deferred sales charge of 1% will apply to shares redeemed within one year. /3/ Because Thrivent High Yield Fund has been newly organized, the percentage expense levels shown in the table as "Other Expenses" are based on estimates for the current fiscal year. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual cost may be higher or lower, based on these assumptions your cost would be: - ----------------------------- -------------------------- --------------------------- 1 Year 3 Years - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class A shares $541 $736 - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class B shares $684 $879 - ----------------------------- -------------------------- --------------------------- You would pay the following expenses if you did not redeem your shares: - ----------------------------- -------------------------- --------------------------- 1 Year 3 Years - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class A shares $541 $736 - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class B shares $184 $579 - ----------------------------- -------------------------- --------------------------- THRIVENT INCOME FUND INVESTMENT OBJECTIVE Thrivent Income Fund seeks high current income while preserving principal. The Fund's secondary investment objective is to obtain long-term growth of capital in order to maintain investors' purchasing power. PRINCIPAL INVESTMENT STRATEGIES Thrivent Income Fund invests primarily in investment-grade corporate bonds, government bonds, and mortgage-backed securities. Under normal conditions, at least 65% of the Fund's assets will be invested in debt securities or preferred stock at least in the "Baa" major rating category by Moody's or at least in the "BBB" major rating category by S&P or unrated securities considered to be of comparable quality by Thrivent Investment Mgt., the Fund's investment adviser. The Fund may also invest in high-yield, high-risk bonds, notes, debentures and other debt obligations or preferred stock commonly known as "junk bonds." At the time of purchase these securities are rated within or below the "BB" major rating category by S&P or the "Ba" major rating category by Moody's or are unrated but considered to be of comparable quality by Thrivent Investment Mgt. Thrivent Investment Mgt. uses fundamental, quantitative and technical investment research techniques to determine what securities to buy and sell. Fundamental investment analysis generally involves assessing a company's or security's value based on factors such as sales, assets, markets, management, products and services, earnings, and financial structure. Quantitative analysis generally involves dealing with measurable factors such as the cost of capital; the historical and projected patterns of sales, costs, and profitability in the money market and the securities markets. Technical analysis generally involves studying trends and movements in a security's price, trading volume, and other market-related factors in an attempt to discern patterns. Thrivent Investment Mgt. focuses on companies which it believes are financially sound and have strong cash flow, asset values, and interest or dividend earnings. PRINCIPAL INVESTMENT RISKS Thrivent Income Fund is subject to the following principal investment risk. Market Risk. Over time securities markets generally tend to move in cycles with periods when securities prices rise and periods when securities prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Issuer Risk. Issuer risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include: demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Some factors that could affect the yield of the Fund's shares include a weak economy, strong equity markets and changes by the Federal Reserve in its monetary policy. Credit Risk. Credit risk is the risk that an issuer of a bond held by the Fund may no longer be able to pay its debt. As a result of such an event, the bond may decline in price thereby affecting the value of the Fund. High-yield high-risk bonds are subject to greater credit risk than investment-grade bonds. To compensate for this risk, high-yield bonds have higher yields. Interest Rate Risk. Interest rate risk is the risk that bond prices decline in value when interest rates rise for bonds that pay a fixed rate of interest. Bonds with longer durations tend to be more sensitive to changes in interest rates than bonds with shorter durations. In addition, both mortgage-backed and asset-backed securities are sensitive to changes in the redemption patterns of the underlying security. If the principal payment on the underlying asset is repaid faster or slower than the holder of the asset-backed or mortgage-backed security anticipates, the price of the security may fall, particularly if the holder must reinvest the repaid principal at lower rates or must continue to hold the security when interest rates rise. This effect may cause the value of the Fund to decline and reduce the overall return of the Fund. High Yield Risk. Funds that invest in high yield securities and unrated securities of similar credit quality (commonly known as "junk bonds") may be subject to greater levels of interest rate, credit and liquidity risk than Funds that do not invest in such securities. These securities are considered predominately speculative with respect to the issuer's continuing ability to make principal and interest payments. An economic downturn or period of rising interest rates could adversely affect the market for these securities and reduce a Fund's ability to sell these securities (liquidity risk). If the issuer of a security is in default with respect to interest or principal payments, a Fund may lose its entire investment. Investment Adviser Risk. The Fund is actively managed, and success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Thrivent Investment Mgt. and each individual portfolio manager will apply investment techniques and risk analysis in making investment decisions for the Funds, but there can be no guarantee that these will produce the desired results. Liquidity Risk. Liquidity risk exists when particular investments are difficult to sell. A Fund's investments in illiquid securities may reduce the returns of the Fund because it may be unable to sell the illiquid securities at an advantageous time or price. Funds with principal investment strategies that involve foreign securities, derivatives or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk. Prepayment Risk. When interest rates decline, borrowers may pay off their principal amounts sooner than expected. This can reduce the returns of a Fund because the Fund will have to reinvest that money at the lower prevailing interest rates. Extension Risk. In some cases, a bond issuer may seek to extend the maturity of a bond issue rather than pay the principal amount due at the original maturity date. Even if interest continues to be paid on the bond, this will increase the Fund's risk by delaying an expected principal payment, and also force the Fund to either hold the security longer than anticipated or sell the security in the market at a price which may be unfavorable. If an extension happens during a time of rising interest rates, the Fund will be unable to reinvest its principal at the higher rates as expected. Thrivent Income Fund is a newly-created, so no bar chart or performance table is included. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of Thrivent Income Fund./1/ - ----------------------------------------------- --------------------------------------------- ------------------------------ SHAREHOLDER FEES (fees paid directly from your investment) CLASS A SHARES CLASS B SHARES - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.50% None - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Maximum Deferred Sales Charge (Load) (as a percentage of net asset value at time of purchase or redemption, whichever is lower) 1.00%/2/ 5.00% - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A SHARES CLASS B SHARES - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Management Fees 0.34% 0.34% - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Distribution (12b-1) Fees 0.25% 1.00% - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Other Expenses/3/ 0.20% 0.32% - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Total Annual Fund Operating Expenses 0.79% 1.66% - ----------------------------------------------- --------------------------------------------- ------------------------------ /1/ The maximum sales charges for the Fund depends upon the amount of your investment and whether you buy Class A shares or Class B shares. For a complete description of the sales charges, see "Choosing a Class of Shares." In addition, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. See "Accounts with Low Balances." The Funds also may charge a fee of up to $30 for a redemption by wire. See "Shareholder Information - Redeeming Shares." /2/ When you invest $1,000,000 or more, a contingent deferred sales charge of 1% will apply to shares redeemed within one year. /3/ Because Thrivent Income Fund has been newly organized, the percentage expense levels shown in the Table "Other Expenses" are based on estimates for the current fiscal year. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual cost may be higher or lower, based on these assumptions your cost would be: - ----------------------------- -------------------------- --------------------------- 1 Year 3 Years - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class A shares $629 $798 - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class B shares $675 $851 - ----------------------------- -------------------------- --------------------------- You would pay the following expenses if you did not redeem your shares: - ----------------------------- -------------------------- --------------------------- 1 Year 3 Years - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class A shares $629 $798 - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class B shares $175 $551 - ----------------------------- -------------------------- --------------------------- THRIVENT LIMITED MATURITY BOND FUND INVESTMENT OBJECTIVE Thrivent Limited Maturity Bond Fund seeks a high level of current income consistent with stability of principal. PRINCIPAL INVESTMENT STRATEGIES Thrivent Limited Maturity Bond Fund invests primarily in investment-grade corporate bonds, government bonds, municipal bonds, asset-backed securities, and mortgage-backed securities. Under normal conditions, at least 80% of the Fund's net assets (plus the amount of any borrowing for investment purposes) in debt securities or preferred stock in at least the "Baa" major rating category by Moody's or at least in the "BBB" major rating category by Standard & Poor's Corporation or unrated securities considered to be of comparable quality by Thrivent Investment Mgt., the Fund's investment adviser. Should Thrivent Investment Mgt. determine that the Fund would benefit from reducing the percentage of invested assets from 80% to a lesser amount, you will be notified at least 60 days prior to such a change. The Fund may also invest in high-yield, high-risk bonds, notes, debentures and other debt obligations or preferred stock commonly known as "junk bonds." At the time of purchase these securities are rated within or below the "BB" major rating category by S&P or the "Ba" major rating category by Moody's or are unrated but considered to be of comparable quality by Thrivent Investment Mgt. Thrivent Investment Mgt. uses fundamental, quantitative, and technical investment research techniques to determine what securities to buy and sell. Fundamental investment analysis generally involves assessing a company's or security's value based on factors such as sales, assets, markets, management, products and services, earnings, and financial structure. Quantitative analysis generally involves dealing with measurable factors. Such as the cost of capital; the historical and projected patterns of sales, costs, and profitability in the money market and the securities markets. Technical analysis generally involves studying trends and movements in a security's price, trading volume, and other market-related factors in an attempt to discern patterns. Thrivent Investment Mgt. focuses on companies which it believes are financially sound and have strong cash flow, asset values, and interest or dividend earnings. PRINCIPAL INVESTMENT RISKS Thrivent Limited Maturity Bond Fund is subject to the following principal investment risk. Market Risk. Over time bond markets generally tend to move in cycles with periods when bond prices rise and periods when bond prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Issuer Risk. Issuer risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Some factors that could affect the yield of the Fund's shares include a weak economy, strong equity markets and changes by the Federal Reserve in its monetary policy. Credit Risk. Credit risk is the risk that an issuer of a bond held by the Fund may no longer be able to pay its debt. As a result of such an event, the bond may decline in price thereby affecting the value of the Fund. High-yield high-risk bonds are subject to greater credit risk than investment-grade bonds. To compensate for this risk, high-yield bonds have higher yields. Interest Rate Risk. Interest rate risk is the risk that bond prices decline in value when interest rates rise for bonds that pay a fixed rate of interest. In addition, both mortgage-backed and asset-backed securities are sensitive to changes in the redemption patterns of the underlying security. If the principal payment on the underlying asset is repaid faster or slower than the holder of the asset-backed or mortgage-backed security anticipates, the price of the security may fall, particularly if the holder must reinvest the repaid principal at lower rates or must continue to hold the security when interest rates rise. This effect may cause the value of the Fund to decline and reduce the overall return of the Fund. Prepayment Risk. When interest rates decline, borrowers may pay off their principal amounts sooner than expected. This can reduce the returns of a Fund because the Fund will have to reinvest that money at the lower prevailing interest rates. Extension Risk. In some cases, a bond issuer may seek to extend the maturity of a bond issue rather than pay the principal amount due at the original maturity date. Even if interest continues to be paid on the bond, this will increase the Fund's risk by delaying an expected principal payment, and also force the Fund to either hold the security longer than anticipated or sell the security in the market at a price which may be unfavorable. If an extension happens during a time of rising interest rates, the Fund will be unable to reinvest its principal at the higher rates as expected. Investment Adviser Risk. The Fund is actively managed, and success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Thrivent Investment Mgt. and each individual portfolio manager will apply investment techniques and risk analysis in making investment decisions for the Funds, but there can be no guarantee that these will produce the desired results. Thrivent Limited Maturity Bond Fund is newly-created, so no bar chart or performance table is included. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of Thrivent Limited Maturity Bond Fund./1/ - ----------------------------------------------- --------------------------------------------- ------------------------------ SHAREHOLDER FEES (fees paid directly from your investment) CLASS A SHARES CLASS B SHARES - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Maximum Deferred Sales Charge (Load) (as a percentage of net asset value at time of purchase or redemption, whichever is lower) None None1 - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A SHARES CLASS B SHARES - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Management Fees 0.30% 0.30% - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Distribution (12b-1) Fees 0.25% 0.25% - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Other Expenses /2/ 0.39% 0.22% - ----------------------------------------------- --------------------------------------------- ------------------------------ - ----------------------------------------------- --------------------------------------------- ------------------------------ Total Annual Fund Operating Expenses 0.94% 0.77% - ----------------------------------------------- --------------------------------------------- ------------------------------ /1/ Class B shares of the Thrivent Limited Maturity Bond Fund are offered solely in exchange for Class B shares of other Funds. Class B shareholders of the Thrivent Limited Maturity Bond Fund will be responsible for any Contingent Deferred Sales Charge that may be payable at the time of redemption as a result of an investment in another Fund. In addition, the Fund may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum. See "Accounts with Low Balances." The Fund also may charge a fee of up to $30 for a redemption by wire. See "Shareholder Information - Redeeming Shares." /2/ Because Thrivent Limited Maturity Bond Fund has been newly organized, the percentage expense levels shown in the table as "Other Expenses" are based on estimates. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. Although your actual cost may be higher or lower, based on these assumptions your cost would be: - ----------------------------- -------------------------- --------------------------- 1 Year 3 Years - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class A shares $544 $747 - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class B shares $81 $554 - ----------------------------- -------------------------- --------------------------- You would pay the following expenses if you did not redeem your shares: - ----------------------------- -------------------------- --------------------------- 1 Year 3 Years - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class A shares $544 $747 - ----------------------------- -------------------------- --------------------------- - ----------------------------- -------------------------- --------------------------- Class B shares $81 $254 - ----------------------------- -------------------------- --------------------------- MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE INVESTMENT ADVISER Thrivent Investment Management Inc. ("Thrivent Investment Mgt."), 625 Fourth Avenue South, Minneapolis, Minnesota 55415, for each of the Funds. Thrivent Investment Mgt. and its affiliates managed approximately $58 billion in assets as of September 30, 2003, including approximately $10.7 billion in mutual fund assets. Thrivent Investment Mgt. provides investment research and supervision of the Funds' investment. Thrivent Investment Mgt. provides investment research and supervision of the assets for each of the Funds. Thrivent Investment Management, Inc. and the Fund have received an exemptive order from the Securities and Exchange Commission ("SEC") that permits Thrivent Investment Management, Inc. and the Fund, with the approval of the Fund's Board of Directors, to retain a subadviser for a Portfolio, or subsequently change the subadviser, without submitting the respective investment subadvisory agreements, or material amendments to those agreements, to a vote of the shareholders of the applicable Portfolio. Thrivent Investment Management, Inc. will notify variable contract owners in the event that it adds a subadviser or changes the identity of the subadviser of a Portfolio ADVISORY FEES The adviser fee schedule for the four new Funds is set forth in the table below. The fee is a daily charge equal to the annual rate of a percentage of average daily net assets of each Fund. - --------------------------------------------------------------------------------------------------------------------------------- Average Daily Net Assets in Millions of Dollars - --------------------------------------------------------------------------------------------------------------------------------- - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- Fund $0 to $100 to $200 to $250 to $500 to $1,000 to $2,500 to Over $100 $200 $250 $500 $1,000 $2,500 $5,000 $5,000 - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- Thrivent Mid Cap Growth Fund 0.45% 0.40% 0.40% 0.35% 0.30% 0.25% 0.25% 0.25% - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- Thrivent High Yield Fund 0.40% 0.40% 0.40% 0.40% 0.35% 0.30% 0.30% 0.30% - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- Thrivent Income Fund 0.35% 0.35% 0.35% 0.35% 0.325% 0.30% 0.30% 0.30% - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- Thrivent Limited Maturity Bond Fund 0.30% 0.30% 0.30% 0.30% 0.275% 0.25% 0.25% 0.25% - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- PORTFOLIO MANAGEMENT Thrivent Mid Cap Growth Fund Andrea J. Thomas, CFA and Brian L. Torkelson will serve as the Portfolio co-managers of Thrivent Mid Cap Growth Fund. Andrea J. Thomas, CFA has served as portfolio manager of the LB Opportunity Growth Fund since 2002. She also has served as portfolio manager of the Opportunity Growth Portfolio, a series of an affiliated mutual fund group, since 2002. Ms. Thomas has been with Thrivent Investment Mgt. since 1993 and served as an associate portfolio manger from 1997 to 2002. Brian L. Thorkelson has served as the portfolio manger of the LB Mid Cap Growth Fund since its inception in 1998. He also has served as portfolio manger of the Mid Cap Growth Portfolio, a series of an affiliated mutual fund group, since 1997. Mr. Thorkelson has been with Thrivent Investment Mgt. since 1987. Thrivent High Yield Fund Paul J. Ocenasek and Mark L. Simenstad will serve as Portfolio co-managers of Thrivent High Yield Fund. Mr. Ocenasek has served as a portfolio manager of the LB High Yield Fund since 1997. He also has served as portfolio co-manager of the High Yield Portfolio, a series of an affiliated mutual fund group, since 2001. Mr. Ocenasek has been with Thrivent Investment Mgt. since 1987. Mr. Simenstad has served as a portfolio manager of the LB High Yield Fund since 2001, and he has been a portfolio manager with Thrivent Investment Mgt. since 1999. Mr. Simenstad served as chief investment officer for fixed-income investing at Voyageur Asset Management from 1996 until 1999. Thrivent Income Fund Michael G. Landreville and Alan D. Onstad will serve as Portfolio co-managers of Thrivent Income Fund. Mr. Landreville has served as a portfolio manager of the LB Income Fund since 1998. Mr. Landreville also serves as a portfolio manager of the following series of affiliated mutual fund groups: The AAL Bond Fund since 2002, Income Portfolio since 2001, Limited Maturity Bond Portfolio since 2001, and LB Limited Maturity Bond Fund since 1999. Mr. Landreville has been with Thrivent Investment Mgt. since 1983, and he served as associate portfolio manager from 1987 through 1997. Mr. Onstad has served as a portfolio manager of the LB Income Fund since 2002. Mr. Onstad also serves as a portfolio manager of the following series of affiliated mutual fund groups: Income Portfolio since 2002, The AAL Bond Fund since 1999, and Balanced Fund since 1999. Mr. Onstad has been a portfolio manager with Thrivent Investment Mgt. since 1995. Thrivent Limited Maturity Bond Fund Michael G. Landreville, CFA will serve as Portfolio manager of Thrivent Limited Maturity Bond Fund. Mr. Landreville has served as portfolio manager of the LB Limited Maturity Bond Fund since its inception in 1999. Mr. Landreville also serves as a portfolio manager of the following series of affiliated mutual fund groups: Bond Fund since 2002, Income Portfolio since 2001, Limited Maturity Bond Portfolio since 2001, and LB Income Fund since 1998. Mr. Landreville has been with Thrivent Investment Mgt. since 1983, and he served as associate portfolio manager from 1987 through 1997. PERSONAL SECURITIES INVESTMENTS Personnel of Thrivent Investment Mgt. may invest in securities for their own account pursuant to codes of ethics that establish procedures for personal investing and restrict certain transactions. Transactions in securities that may be held by the Funds are permitted, subject to compliance with applicable provisions under the codes of ethics. SHAREHOLDER INFORMATION HOW TO CONTACT US By Telephone: 1-800-847-4836 press 1 to speak with a customer service representative or press 2 to use the Automated Service Line By Internet: www.thrivent.com By Mail: The AAL Mutual Funds P.O. Box 219348 Kansas City, MO 64121-9348 By Express Mail: The AAL Mutual Funds 210 West 10th Street, 8th Floor Kansas City, MO 64105 Pricing Funds' Shares The price of a Fund's shares is based on the Fund's net asset value ("NAV"). Each Fund determines the NAV for a particular class once daily at the close of trading on the New York Stock Exchange ("NYSE"), which is normally 4:00 p.m. Eastern time. The Funds do not determine NAV on holidays observed by the NYSE or on any other day when the NYSE is closed. The NYSE is regularly closed on Saturdays and Sundays, New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. The price at which you purchase or redeem shares of the Funds is based on the NAV next calculated after the Fund receives your payment or redemption request. The Funds determine the NAV for a particular class by dividing the total Fund assets attributable to that class, less all liabilities attributable to such class, by the total number of outstanding shares of that class. To determine the NAV, the other Funds generally value their securities at current market value using readily available market prices. If market prices are not available or do not accurately reflect fair value for a security, the fair value of that security may be determined under policies approved by the Board of Trustees and delegated to Thrivent Investment Mgt. Some of the Funds hold securities that trade on foreign exchanges. These exchanges may trade on weekends or other days when the Funds do not price their shares. As a result, the value of a Fund's shares may change at a time when those shares may not be purchased or redeemed. The Board of Trustees of The AAL Mutual Funds has authorized Thrivent Financial and certain other third parties i.e., transfer agents and third party retirement plan administrators to receive orders for the purchase and redemption of shares of the Funds. Choosing A Class Of Shares This Prospectus offers two classes of shares, each with its own sales charges and fees. You should choose the class of shares that you believe is the most appropriate for you, given the amount of your purchase, the length of time you anticipate holding the shares, and other factors. Class A shares Class B shares - ------------------------------------------------------------------------------------------------------------------------------------ Sales Charges Initial sales charge at time of Contingent Deferred Sales Charge ("CDSC") up to 5.5% for equity funds and 4.5% of 5% to 1%, depending on how for fixed income funds depending on amount long you hold your shares before you of investment redeem them. There is no CDSC after five years - ----------------------------------------------------------------------------------------------------------------------------------- Rule 12b-1 Distribution Fee None 0.75%. Class B shares convert automatically to Class A shares after five years - ----------------------------------------------------------------------------------------------------------------------------------- Rule 12b-1 Shareholder 0.25% each year of average daily net 0.25% each year of average daily net Servicing Fee assets - ----------------------------------------------------------------------------------------------------------------------------------- Class A and Class B shares have an annual Rule 12b-1 fee, based on the SEC rule that permits this type of fee. Under its 12b-1 plan, the Funds pay Thrivent Investment Mgt. shareholder servicing fees for Class A and Class B shares and distribution fees for the sale and distribution of Class B shares (other than those of Thrivent Limited Maturity Bond Fund). Those fees are paid out of a Fund's assets attributable to the Class B shares on an ongoing basis, and as a result, these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. Class A Shares The table below shows the sales charges you will pay if you purchase Class A shares of Thrivent Mid Cap Growth Fund. WHEN YOU THIS % IS WHICH EQUALS THIS INVEST THIS DEDUCTED FOR % OF YOUR AMOUNT SALES CHARGES INVESTMENT - ----------------- ------------------------- ------------------------------ Less than $50,000 5.5% 5.82% $50,000 and above but less than $100,000 4.5% 4.71% $100,000 and above but less than $250,000 3.5% 3.63% $250,000 and above but less than $500,000 2.5% 2.56% $500,000 and above but less than $1,000,000 2.0% 2.04% $1,000,000 or more 0%* 0%* *A contingent deferred sales charge of 1% will apply to shares redeemed within one year. The table below shows the sales charges you will pay if you purchase Class A shares of Thrivent High Yield Fund and Thrivent Income Fund. WHEN YOU THIS % IS WHICH EQUALS THIS INVEST THIS DEDUCTED FOR % OF YOUR AMOUNT SALES CHARGES INVESTMENT - ----------------- ------------------------ ------------------------------ Less than $50,000 4.5% 4.71% $50,000 and above but less than $100,000 4.0% 4.17% $100,000 and above but less than $250,000 3.5% 3.63% $250,000 and above but less than $500,000 2.5% 2.56% $500,000 and above but less than $1,000,000 2.0% 2.04% $1,000,000 or more 0%* 0%* *A contingent deferred sales charge of 1% will apply to shares redeemed within one year. Ways To Eliminate Or Reduce The Initial Sales Charges Rights of Accumulation: You can combine the value of all shares of any class of the Funds (except shares of Thrivent Limited Maturity Bond Fund)that you or members of your family who live with you own to the amount of your next Class A purchase for the purpose of calculating the sales charge. The value of all shares in an employer sponsored retirement plan (except shares of Thrivent Limited Maturity Bond Fund) will be accumulated for the purpose of determining the sales charge for shares purchased through that retirement plan. Rights of accumulation apply to shares which you own in The Lutheran Brotherhood Family of Funds and shares which you purchase by exchanging shares of The Lutheran Brotherhood Family of Funds. Automatic Reinvestments: Class A shares that you purchase by automatically reinvesting dividends or capital gains distributions from Class A shares of the Funds (except Thrivent Limited Maturity Bond Fund) will not be subject to any initial sales charge. Thirteen-month Letter of Intent: If you intend to accumulate $50,000 or more, including the value of purchases made during the previous 90 days, in Class A or Class B shares of one or more of the Funds (except Thrivent Limited Maturity Bond Fund) within the next 13 months, you may sign a Letter of Intent and receive a reduced sales charge on purchases of any Class A shares. The Letter of Intent applies to shares which you own in The Lutheran Brotherhood Family of Funds and shares which you purchase by exchanging shares of The Lutheran Brotherhood Family of Funds. Reinvestment upon Redemption: Except for certain Qualified Retirement Plans, if you redeem any or all of your Class A shares of any Fund (except Thrivent Limited Maturity Bond Fund), or if you redeem any or all of your Class B shares of any Fund, or receive cash dividends from one of these Funds, you may reinvest any amount of your redemption in Class A shares of any of the Funds without paying a sales charge on the purchase of Class A shares. You must make your reinvestment within 90 days after redeeming your Class A shares or Class B shares and inform the Fund that you qualify for this discount. Your redemption may be a taxable event even if the shares are later reinvested. Surrender or Dividend Withdrawal: If you request a surrender or dividend withdrawal from a life insurance or annuity contract issued by Thrivent Financial for Lutherans ("Thrivent Financial") or Thrivent Life Insurance Company and direct that the money be used to purchase Class A shares of a Fund, the sales charge will be waived. Amount Invested From Close-out of Small Class B Account: If you redeem a Class B Account which is below $500 and instruct that the proceeds be used to purchase additional shares of an existing Class A Account in order to meet the required minimum amount for the Fund, the proceeds from the redemption of your Class B Account will not be subject to a sales charge. Investment Advisory Program: Class A shares purchased in connection with a fee-based investment advisory program offered by Thrivent Investment Mgt. will not be subject to any sales charge. Purchases by Tax-exempt Organizations: Class A shares of any Fund are available at one-half of the regular sales charge, if any, if purchased by organizations qualifying for tax-exemption under Section 501(c)(3) of the Internal Revenue Code. Class B Shares If you buy Class B shares, you will not be charged an initial sales charge. The entire purchase amount is immediately invested, but a CDSC of up to 5% will apply to shares redeemed within five years of purchase. This % of net asset value When you sell shares in at the time of purchase this year after you (or of sale, if lower) is bought them deducted from your proceeds - ------------------------ ----------------------------------- 1st Year . . . . . . . . . . . . . . . . . . . . . 5% 2nd Year . . . . . . . . . . . . . . . . . . . . . 4 3rd Year . . . . . . . . . . . . . . . . . . . . . 3 4th Year . . . . . . . . . . . . . . . . . . . . . 2 5th Year . . . . . . . . . . . . . . . . . . . . . 1 In order to ensure that you pay the lowest CDSC possible, the Fund will first redeem Class B shares that are not subject to the CDSC and then Class B shares held for the longest period of time. There is no CDSC on exchanges into Class B shares of the other Funds. The date of your initial investment will continue to be used as the basis for CDSC calculations when you exchange. However, if you exchange Class A shares of Thrivent Limited Maturity Bond Fund for Class B shares of any other Fund, the date of the exchange will be used for purposes of calculating the CDSC. If you exchange Class B shares of any other Fund for Class B shares of Thrivent Limited Maturity Bond Fund, the CDSC will stop declining during the period your investment is in Thrivent Limited Maturity Bond Fund. The amount of any CDSC will be paid to Thrivent Investment Mgt., the distributor for the Funds. Initial investments in Class B shares of $100,000 or more per purchase will not be accepted. Because of the reduced sales charges available on such purchases, Class A shares (or Institutional Class shares if the investor is eligible) must be purchased instead. Class B shares of Thrivent Limited Maturity Bond Fund are offered solely in exchange for Class B shares of another Fund. Contingent Deferred Sales Charge Waivers No CDSC will apply to the following: * Increases in the net asset value of Class B shares above the purchase price; * Class B shares purchased through reinvestment of dividends and capital gains distributions; * Class B shares purchased more than five years prior to redemption; * Class B shares redeemed due to the death or disability of a sole individual shareholder (but not for shares held in joint accounts or "family," "living" or other trusts) and for mandatory retirement distributions from an IRA or a tax-sheltered custodial account (403(b) plan); Class B share redemptions from certain retirement plans which are taken in substantially equal payments; or Redemption of a Class B Share account which is below $500 with instructions to purchase additional shares of an existing Class A Share account in order to meet the required minimum amount for the Fund. Conversion Of Class B Shares To Class A Shares Your Class B shares will automatically convert into Class A shares of the same Fund after five years and consequently will no longer be subject to the higher expenses borne by Class B shares. The Fund will not include the period that you held Class B shares of Thrivent Limited Maturity Bond Fund in calculating the five-year period. Buying Shares Opening An Account You must open an account for each Fund that you want to purchase. Your Thrivent Investment Mgt. representative is ready to help you open a new account. If you do not know the name of your representative, please call our Investment Interaction Center ("Interaction Center") at (800) THRIVENT (847-4836). How you register your account with the Funds can affect your legal interests as well as the rights and interests of your family and beneficiaries. You should always consult with your legal and/or tax adviser to determine the account registration that best meets your needs. You must clearly identify the type of account you want on your application. If shares are held in the name of a corporation, trust, estate, custodianship, guardianship, partnership or pension and profit sharing plan, additional documentation may be necessary. Required Minimum Investments First Additional Regular Account Purchase Purchases - ---------------------- ------------ ------------- All Funds except Thrivent Limited Maturity Bond Fund $1,000 $50 Thrivent Limited Maturity Bond Fund $2,500 $100 IRA or Tax-Deferred Plan - ---------------------------------- All Funds except Thrivent Limited Maturity Bond Fund $500 $50 Thrivent Limited Maturity Bond Fund $500 $100 Minimum Monthly Automatic Investment Plan Amount Per Account - ----------------------------------- -------------------------- All Funds except Thrivent Limited Maturity Bond Fund $50 Thrivent Limited Maturity Bond Fund $100 Shares of the Funds are issued on days on which the NYSE is open, which generally are weekdays other than national holidays. Your order will be considered received when your check or other payment is received in good order. Orders that are received before the close of regular trading on the NYSE (generally 4:00 p.m. Eastern time) will be processed at the net asset value calculated that day. Orders received after the close of regular trading on the NYSE will be processed at the net asset value calculated on the following business day. The Funds reserve the right to reject any purchase request. Initial Purchases You may purchase initial shares through your Registered Representative or in any of the following ways: * By mail; or * By wire transfer. Initial Purchases by Mail To buy shares of the Funds by mail: * Complete and mail your new account application for each different account registration. If you do not complete the application properly, your purchase may be delayed or rejected. * Make your check payable to the Fund you are buying. If more than one Fund, make your check payable to "The AAL Mutual Funds." Class B shares of Thrivent Limited Maturity Bond Fund are offered solely in exchange for Class B shares of other Funds. Initial Purchases by Wire Transfer In order to buy shares of the Funds by wire transfer, your bank must be a member of, or have a corresponding relationship with a member of the Federal Reserve System. Step 1: Call our Interaction Center at (800) THRIVENT (847-4836) and provide the following information: * Your account registration; * The name of the Fund(s) in which you want to invest; * The Class of shares you wish to buy; * Your address; * Your Social Security or tax identification number; * The dollar amount; * The name of the wiring bank; and * The name and telephone number of the person at your bank who the Funds can contact about your purchase. Step 2: Instruct your bank to use the following instructions when wiring funds: Wire transfer to: State Street Corp. 225 Franklin Street Boston, MA 02101 ABA #0110 00028 Credit: Thrivent Financial Investor Services as agent for the benefit of The AAL Mutual Funds Account #4195-538-6 Further Credit: [Name of the Fund] [Shareholder Account Number] [Shareholder Registration/Name] Step 3: Mail your application. The Fund and its transfer agent are not responsible for the consequences of delays resulting from the banking or Federal Reserve wire transfer system, or from incomplete wiring instructions. Additional Purchases You may purchase additional shares through your Registered Representative or in any of the following ways: * By mail; * By telephone; * By the Internet; * By wire transfer; or * Through the Automatic Investment Plan. Additional Purchases By Mail To make additional purchases by mail, make your check payable to the specific Fund in which you are investing. Please indicate your Fund account number on the face of your check. If you have more than one account, always verify that you are investing in the proper account. This will help ensure the proper handling of the transaction. Additional Purchases By Telephone Before you can buy additional shares by telephone, you must have selected the Request for Telephone Purchase option on the application. Once you have selected this option, you can call our Interaction Center at (800) THRIVENT (847-4836) and the Fund will withdraw money from your bank checking or savings account to make your investment. You pay the next price computed after the Funds have received your investment from your bank, which is usually three business days after you authorize the transfer. If you need to invest sooner, you should consider making a wire transfer purchase. The Fund has implemented procedures designed to reasonably ensure that telephone instructions are genuine. These procedures include recording telephone conversations, requesting verification of certain personal information, restricting transmittal of redemption proceeds to pre-authorized account owners and addresses and supplying transaction verification information. Please note, however, that the Fund will not be liable for losses suffered by a shareholder that result from following telephone instructions reasonably believed to be authentic after verification pursuant to these procedures. If an account has multiple owners, the Fund may rely on the instructions of any one account owner. This privilege may not be available on all retirement plan accounts. Additional Purchases By the Internet You may purchase additional shares within your Fund accounts over the Internet (pre-authorized bank information is required prior to purchase). The Fund requires a Personal Identification Number (PIN) prior to authorizing transactions on your Fund accounts. This privilege may not be available on all retirement plan accounts. Additional Purchases By Wire Transfer You may make additional purchases in an existing Fund account by wire transfer. In order to buy shares of the Funds by wire transfer, your bank must be a member of, or have a corresponding relationship with a member of the Federal Reserve System. Instruct your bank to use the following instructions when wiring funds: Wire transfer to: State Street Corp. 225 Franklin Street Boston, MA 02101 ABA #0110 00028 Credit: Thrivent Financial Investor Services as agent for the benefit of The AAL Mutual Funds Account #4195-538-6 Further Credit: [Name of the Fund] [Shareholder Account Number] [Shareholder Registration/Name] The Fund and its transfer agent are not responsible for the consequences of delays resulting from the banking or Federal Reserve wire transfer system, or from incomplete wiring instructions. Automatic Investment Plans The Funds offer several automatic investment plans to make periodic investing more convenient. Using the Funds' automatic investment plans, you may implement a strategy called dollar cost averaging. Dollar cost averaging involves investing a fixed amount of money at regular intervals. When you dollar cost average, you purchase more shares when the price is low and fewer shares when the price is high. Dollar cost averaging does not ensure a profit or protect against a loss during declining markets. Because such a program involves a continuous investment regardless of changing share prices, you should consider your ability to continue the program through times when the share prices are high. Please note that it takes up to 10 business days from the time you invest for the transfer agent to validate any electronic transfer. This will cause some delay in your ability to redeem or transfer from your account. For further information regarding any of the following automatic investment plans, contact your Thrivent Investment Mgt. representative or our Interaction Center at (800) THRIVENT (847-4836). Automatic Bank Withdrawal Plan Investors who wish to make regular additional investments in an existing Fund account may do so through the Funds' Automatic Bank Withdrawal Plan. Under this plan, the Funds will draft an investor's bank checking or savings account in the amount specified - which may not be less than $50 per account for all Funds. The proceeds will be invested in shares of the specified Fund at the applicable offering price determined on the date of the draft. To use this plan you must authorize the plan on your application form, or subsequently in writing, and submit additional documents. The Automatic Exchange Plan The automatic exchange plan allows investors to make regular automatic investments in an existing Fund account by redemption of the same class of shares from The AAL Money Market Fund account. The automatic exchange plan allows investors to select the transaction date. All such investments must be at least $50 for all Funds and will be subject to the applicable sales charge. To start, stop or change the plan, you must notify the Funds at least 24 hours prior to the transaction date. Automatic Payroll Deduction Savings and Investment Plan The payroll deduction savings and investment plan allows employees of Thrivent Financial, employees of Lutheran-affiliated institutions, Social Security recipients, federal employees and military personnel to invest in the Funds through direct deduction from their paychecks or commission checks. Retirement Plans Individual and employer-sponsored retirement plans may be established with assets invested in The AAL Mutual Funds. These accounts may offer you tax advantages. You should consult with your attorney and/or tax advisor before you establish a retirement plan. Additional fees may apply to some retirement accounts. Please review plan documents for more information. Your registered representative can provide you with the materials, documents and forms you need for establishing your retirement plan. Purchase Policies Your payment must be in U.S. dollars drawn on a U.S. Bank. The Funds does not accept cash. If you purchase shares by check, electronic funds transfer (other than bank wire), or automatic investment plan and you elect to redeem those shares soon after their purchase, the Funds may postpone paying the redemption proceeds until your payment has cleared or up to 10 days from the date of purchase. The Funds reserve the right to suspend the offering of shares for a period of time and the right to reject any specific purchase of shares. Confirmation Thrivent Investment Mgt. generally mails written confirmation of your purchases within five business days following the date of your purchase. For information about your shares, please contact the Thrivent Investment Mgt. Interaction Center at (800) THRIVENT (847-4836). Redeeming Shares You can sell your shares on any business day Thrivent Investment Mgt. prices the Funds' shares. Once the Fund receives your request for redemption, the Fund will redeem your shares at the next NAV on any day on which the NYSE is open for business. The Funds may postpone payment or suspend the right of redemption in unusual circumstances, as permitted by the U.S. Securities and Exchange Commission. When you purchase shares by check, the Funds may delay payment for redemption requests for the shares purchased for up to 10 business days or until your payment has cleared. If shares are held in the name of a corporation, trust, estate, custodianship, guardianship, partnership or pension and profit sharing plan, or if you have requested and received share certificates, additional documentation may be necessary. You may redeem shares in any of the following ways: * By mail; * By phone; * By the Internet; * By wire transfer; or * Through the Systematic Withdrawal Plan. Redemptions by Mail Step 1: Prepare a written request including the following information: * Name(s) of the account owner(s); * Your account number; * The name of the Fund(s) whose shares are being redeemed; and * Dollar or share amount you wish to redeem. If an account has multiple owners, the Fund may rely on the instructions of any one account owner. You must have a Medallion Signature Guarantee if you want to do any of the following: * Sell shares with a value of more than $100,000; * Send the proceeds to an address other than the one listed for your account; or * Make the check payable to someone other than the account owners(s). A Medallion Signature Guarantee is a stamp provided by a financial institution that verifies your signature. You endorse the certificate on the back and have the signature(s) guaranteed by an eligible guarantor institution such as a commercial bank, trust company, security broker or dealer, credit union, or a savings association participating in the Medallion Signature Guarantee Program. A Medallion Signature Guarantee may be obtained at any national bank or brokerage firm. Step 2: Mail your redemption request. Please note, an additional fee may be assessed for a redemption delivered by overnight mail or Saturday delivery. The Funds will mail payment proceeds within seven days following receipt of all required documents. However, mailing may be delayed if the Fund is waiting for your means of purchase to clear. Redemptions by Telephone The privilege to redeem shares by telephone is automatically extended to all accounts except certain retirement plan accounts, unless the option is specifically declined on your application. If you do not want the telephone redemption option, please call our Interaction Center at (800) THRIVENT (847-4836). By accepting this privilege, you assume some risks for unauthorized transactions. The following conditions apply: * Telephone redemption checks will be issued to the same payee(s) as the account registration and sent only to the address of record; * There has been no change of address in the preceding 30 days; * The request is for $100,000 or less; * Shares to be redeemed cannot be in certificate form; and * If an account has multiple owners, the Fund may rely on the instructions of any one account owner. The Funds will mail payment proceeds within seven days following receipt of all required documents. Redemptions by the Internet You may redeem shares within your Fund accounts over the Internet. The Fund requires a Personal Identification Number (PIN) prior to authorizing transactions on your Fund accounts. This privilege may not be available on retirement plan accounts. Redemptions by Wire Transfer When redeeming shares by wire transfer, the following conditions apply: * A fee of up to $30 may be assessed for redemptions by wire. * If an account has multiple owners, the Fund may rely on the instructions of any one account owner. * This privilege may not be available on all retirement plan accounts. Systematic Withdrawal Plan (Usually Appropriate for Class A Shares Only) You can have money automatically withdrawn from your Fund account(s) on a regular basis by using our systematic withdrawal plan. The plan allows you to receive funds or direct payments at regular intervals. The following rules and/or guidelines apply: * You need a minimum of $5,000 in your account to start the plan. * You can select the date(s) on which the money is withdrawn. * To start the plan or change the payee(s), you must notify the Fund in writing and you must have all account owner(s) sign the appropriate form, which is available from the Thrivent Investment Mgt. Interaction Center. * Money can be sent by check or electronic funds transfer. * To stop or change your plan, you must notify Thrivent Investment Mgt. prior to the next withdrawal. * Because of sales charges, you must consider carefully the costs of frequent investments in and withdrawals from your account. Please note, for minimum required distributions from certain retirement plan accounts, the Fund will waive the contingent deferred sales charge on Class B shares. Exchanging Shares Between Funds You may exchange some or all of your shares of one Fund for shares of the same class of any of the other Funds. If you exchange Class A shares of a Fund for which you have previously paid an initial sales charge for Class A shares of another Fund, you will not be charged an initial sales charge for the exchange. If you exchange Class B shares of one Fund for Class B shares of another Fund, you will not be charged a CDSC at the time of the exchange. If you own Class A shares of Thrivent Limited Maturity Bond Fund, you may exchange any or all of those shares for Class B shares of another Fund. The Class B shares which you acquire from the exchange will be subject to a CDSC from the date of the exchange. Shareholders who are eligible to purchase Institutional Class shares may exchange some or all of their Class A shares for Institutional Class shares of any of the Funds. All exchanges will be based on the NAV of the shares you are exchanging and acquiring and will be subject to the minimum investment requirements. Except as described above, shares of one class may not be exchanged for shares of another class. An excessive number of exchanges may be disadvantageous to the Funds. Therefore, the Funds reserve the right to terminate the exchange privilege of any shareholder who makes more than 12 exchanges in a year. Further, the Funds reserve the right to modify or terminate the exchange privilege at any time with respect to any Fund, if the Funds' Trustees determine that continuing the privilege may be detrimental to shareholders. If the exchange policies are materially modified or terminated, the Fund will give you at least 60 days prior notice. You may obtain an exchange form or receive more information about making exchanges between Funds by contacting your Thrivent Investment Mgt. registered representative. You may exchange funds in any of the following ways: * By mail; * By telephone; or * By the Internet. Exchanges by Mail Prepare and mail a written request including the following information: * Name(s) of the account owner(s); * Your Fund(s) and account number(s); * Dollar or share amount you wish to exchange; * The name of the Fund(s) and account number(s) you are exchanging into; and * Signatures of all account owners. Exchanges by Telephone The privilege to exchange shares by telephone is automatically extended to all accounts, unless the option is specifically declined on your application. If you do not want the telephone exchange option, please call our Interaction Center at (800) THRIVENT (847-4836). By accepting this privilege, you assume some risks for unauthorized transactions. You may exchange shares for which certificates have not been issued by calling our Interaction Center at (800) THRIVENT (847-4836). Telephone exchange requests received prior to the close of the NYSE, usually 4:00 p.m. Eastern Time, will receive that day's price. During periods of extreme volume caused by dramatic economic or stock market changes, shareholders may have difficulty reaching our Interaction Center by phone, and a telephone exchange may be difficult to implement at those times. The Funds reserve the right to temporarily discontinue the telephone exchange privilege during such periods of extreme volume. Exchanges by the Internet You may exchange shares within your Fund accounts over the Internet. The Fund requires a Personal Identification Number (PIN) prior to authorizing transactions on your Fund accounts. This privilege may not be available on all retirement plan accounts. Accounts With Low Balances Because of the high cost of maintaining accounts with low balances, the Funds may redeem shares in any account or charge an annual fee of $12 (a "small account fee") if the value of shares in the account falls below a certain minimum, including when the reduction in the value of shares results from a downturn in the markets. The required minimum amount for Class A and B share accounts is $1,000 for all Funds except Thrivent Limited Maturity Bond Fund. The required minimum amount for Class A and B share accounts of Thrivent Limited Maturity Bond Fund is $2,500. Before shares are redeemed to close an account or a small account fee is charged, you will be notified in writing and allowed 60 days to purchase additional shares. DISTRIBUTIONS DIVIDENDS Dividends are declared and paid as follows: - declared daily and paid monthly Thrivent High Yield Fund Thrivent Income Fund Thrivent Limited Maturity Bond Fund - declared and paid annually Thrivent Mid Cap Growth Fund Income dividends are derived from investment income, including dividends, interest, and certain foreign currency gains received by the Fund. CAPITAL GAINS Capital gains distributions, if any, are distributed at least annually. DISTRIBUTION OPTIONS When completing your application, you must select one of the following options for dividends and capital gains distributions: * Full Reinvestment. Distributions from the Fund will be reinvested in additional shares of the same class of that Fund. This option will be selected automatically unless one of the other options is specified. * Full Reinvestment in a Different Fund. You may also choose to have your distributions reinvested into an existing account of the same class of another Fund within The AAL Mutual Funds. * All Cash. Distributions will be paid in cash. Your request to receive all or a portion of your distributions in cash must be received at least 10 days before the record date of the dividend or other distribution. Distributions paid in shares will be credited to your account at the next determined NAV per share. TAXES General In general, any net investment income and short-term capital gain distributions you receive from a Fund are taxable as ordinary income. To the extent a Fund receives and distributes qualified dividend income, you are eligible for a tax rate lower than that on other ordinary income distributions. Distributions of other net capital gains by the Fund are generally taxable as capital gains- in most cases, at different rates from those that apply to ordinary income. We expect that distributions from Thrivent Mid Cap Growth Fund will consist primarily of capital gains and that distributions from Thrivent High Yield Fund, Thrivent Income Fund, and Thrivent Limited Maturity Bond Fund will consist primarily of ordinary income. The tax you pay on a given capital gains distribution generally depends on how long the Fund has held the portfolio securities it sold. It does not depend on how long you have owned your Fund shares or whether you reinvest your distributions or take them in cash. Every year, the Funds will send you information detailing the amount of qualified dividends, ordinary income and capital gains distributed to you for the previous year. The sale of shares in your account may produce a gain or loss, and is a taxable event. For tax purposes, an exchange between Funds is the same as a sale. You will not be required to pay federal income tax on (i) the automatic conversion of Class B shares to Class A shares, or (ii) exchanges of Class A or Class B shares of the Fund for Institutional Class shares of the same Fund. Your investment in the Funds could have additional tax consequences. Please consult your tax professional for assistance. By law, the Funds must withhold 28% of your distributions and proceeds if you have not provided complete, correct taxpayer information. Nonprincipal Investment Practices The principal investment strategies and risk factors of each Fund are outlined beginning on page 2. This section provides additional information about some of the securities and other practices in which certain Funds may engage, along with their associated risks. Repurchase agreements: Each of the Funds may buy securities with the understanding that the seller will buy them back with interest at a later date. If the seller is unable to honor its commitment to repurchase the securities, the Fund could lose money. When-issued securities: Each Fund may invest in securities prior to their date of issue. These securities could fall in value by the time they are actually issued, which may be any time from a few days to over a year. In addition, no income will be earned on these securities until they are actually delivered. Mortgage-backed and asset-backed securities: Each of the Funds may invest in mortgage-backed and asset-backed securities. Mortgage-backed securities are securities that are backed by pools of mortgages and which pay income based on the payments of principal and income they receive from the underlying mortgages. Asset-backed securities are similar but are backed by other assets, such as pools of consumer loans. Both are sensitive to interest rate changes as well as to changes in the redemption patterns of the underlying securities. If the principal payment on the underlying asset is repaid faster or slower than the holder of the mortgage-backed or asset-backed security anticipates, the price of the security may fall, especially if the holder must reinvest the repaid principal at lower rates or must continue to hold the securities when interest rates rise. Zero coupons: Each of the Funds may invest in zero coupon securities. A zero coupon security is a debt security that is purchased and traded at discount to its face value because it pays no interest for some or all of its life. Interest, however, is reported as income to the Fund that has purchased the security and the Fund is required to distribute to shareholders an amount equal to the amount reported. Those distributions may require the Fund to liquidate portfolio securities at a disadvantageous time. Foreign securities: Each of the Funds may invest in foreign securities. Foreign securities are generally more volatile than their domestic counterparts, in part because of higher political and economic risks, lack of reliable information and fluctuations in currency exchange rates. These risks are usually higher in less developed countries. Each of these Funds may use foreign currencies and related instruments to hedge its foreign investments. In addition, foreign securities may be more difficult to resell than comparable U.S. securities because the markets for foreign securities are less efficient. Even where a foreign security increases in price in its local currency, the appreciation may be diluted by the negative effect of exchange rates when the security's value is converted to U.S. dollars. Foreign withholding taxes also may apply and errors and delays may occur in the settlement process for foreign securities. International exposure: Each of the Funds may have some international exposure (including emerging markets) in their investments. Many U.S. companies in which these Funds may invest generate significant revenues and earnings from abroad. As a result, these companies and the prices of their securities may be affected by weaknesses in global and regional economies and the relative value of foreign currencies to the U.S. dollar. These factors, taken as a whole, could adversely affect the price of Fund shares. Restricted and illiquid securities: Each of the Funds may invest to a limited extent in restricted or illiquid securities. Any securities that are thinly traded or whose resale is restricted can be difficult to sell at a desired time and price. Some of these securities are new and complex, and trade only among institutions. The markets for these securities are still developing and may not function as efficiently as established markets. Owning a large percentage of restricted or illiquid securities could hamper a Fund's ability to raise cash to meet redemptions. Also, because there may not be an established market price for these securities, the Fund may have to estimate their value, which means that their valuation (and, to a much smaller extent, the valuation of the Fund) may have a subjective element. Securities lending: Each of the Funds may seek additional income by lending portfolio securities to qualified institutions. By reinvesting any cash collateral it receives in these transactions, a Fund could realize additional gains or losses. If the borrower fails to return the securities and the invested collateral has declined in value, the Fund could lose money. Derivatives: Each of the Funds may invest in derivatives. Derivatives, a category that includes options and futures, are financial instruments whose value derives from another security, an index or a currency. Each Fund may use derivatives for hedging (attempting to offset a potential loss in one position by establishing an interest in an opposite position). This includes the use of currency-based derivatives for hedging its positions in foreign securities. Each Fund may also use derivatives for speculation (investing for potential income or capital gain i.e., futures on the S&P 500, futures on U.S. Treasury Bonds, options on equity securities and options on U.S. Treasury Bond futures). While hedging can guard against potential risks, it adds to the fund's expenses and can eliminate some opportunities for gains. There is also a risk that a derivative intended as a hedge may not perform as expected. The main risk with derivatives is that some types can amplify a gain or loss, potentially earning or losing substantially more money than the actual cost of the derivative. With some derivatives, whether used for hedging or speculation, there is also the risk that the counterpart may fail to honor its contract terms, causing a loss for the Fund. In addition, suitable derivative investments for hedging or speculative purposes may not be available. High-yield bonds: Each of the Funds may invest in high-yield bonds. High-yield bonds are debt securities rated below BBB by S&P or Baa by Moody's. To the extent that a Fund invests in high-yield bonds, it takes on the following risks: o The risk of a bond's issuer defaulting on principal or interest payments is greater than on higher quality bonds. o Issuers of high-yield bonds are less secure financially and are more likely to be hurt by interest rate increases and declines in the health of the issuer or the economy. Government bonds and municipal bonds: Each of the Funds may invest in government bonds and municipal bonds. As a result, the Fund's performance may be affected by political and economic conditions at the state, regional or Federal level. These may include budgetary problems, declines in the tax base and other factors that may cause rating agencies to downgrade the credit ratings on certain issues. Bonds: The value of any bonds held by a Fund is likely to decline when interest rates rise; this risk is greater for bonds with longer maturities. A less significant risk is that a bond issuer could default on principal or interest payments, possibly causing a loss for the Fund. Short-term trading: The investment strategy for each Fund at times may include short-term trading. While a Fund ordinarily does not trade securities for short-term profits, it will sell any security at any time it believes best, which may result in short-term trading. Short-term trading can increase a Fund's transaction costs and may increase your tax liability. Initial public offering: Each of the Funds may engage in initial public offerings (IPOs) of securities. IPOs issued by unseasoned companies with little or no operating history are risky and their prices are highly volatile, but they can result in very large gains in their initial trading. Thus, when the Fund's size is smaller, any gains form IPOs will have an exaggerated impact on the Fund's reported performance than when the Fund is larger. Attractive IPOs are often oversubscribed and may not be available to the Fund, or only in very limited quantities. There can be no assurance that a Fund will have favorable IPO investment opportunities. Securities ratings: When fixed-income securities are rated by one or more independent rating agencies, a Fund uses these ratings to determine bond quality. Investment grade bonds are those that are rated within or above the BBB major rating category by S&P or the Baa major rating category by Moody's, or unrated but considered of equivalent quality by the Fund's adviser. High-yield bonds are below investment grade bonds in terms of quality. In cases where a bond is rated in conflicting categories by different rating agencies, a Fund may choose to follow the higher rating. If a bond is unrated, the Fund may assign it to a given category based on its own credit research. If a rating agency downgrades a security, the Fund will determine whether to hold or sell the security, depending on all of the facts and circumstances at that time. Defensive investing: In response to market, economic, political or other conditions, each Fund may invest without limitation in cash, preferred stocks, or investment-grade debt securities for temporary defensive purposes. If the Fund does this, different factors could affect the Fund's performance and it may not achieve its investment objective. THE AAL MUTUAL FUNDS By Telephone: 1-800-847-4836 press 1 to speak with a customer service representative or press 2 to use the Automated Service Line By Internet: www.thrivent.com By Mail: The AAL Mutual Funds P.O. Box 219348 Kansas City, MO 64121-9348 By Express Mail: The AAL Mutual Funds 210 West 10th Street 8th Floor Kansas City, MO 64105 The Statement of Additional Information, which is incorporated by reference into this Prospectus, contains additional information about the Funds. You may request a free copy of the Statement of Additional Information or you may make additional requests or inquiries by calling 1-800-847-4836. You also may review and copy information about the Funds (including the Statement of Additional Information) at the Public Reference Room of the Securities and Exchange Commission in Washington, DC. You may get more information about the Public Reference Room by calling 1-800-SEC-0330. You also may get information about the Funds on the EDGAR data base at the SEC Web site (www.sec.gov), and copies of the information may be obtained upon payment of a duplicating fee by writing the Public Reference Section of the SEC, Washington, DC 20549-6009, or by sending an email to: publicinfo@sec.gov. 1940 Act File No. 811-5075 THE AAL MUTUAL FUNDS PROSPECTUS Institutional Shares As Supplemented February 12, 2004 February 1, 2003 Thrivent Mid Cap Growth Fund Thrivent High Yield Fund Thrivent Income Fund Thrivent Limited Maturity Bond Fund 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 Thrivent Mid Cap Growth Fund Thrivent High Yield Fund Thrivent Income Fund Thrivent Limited Maturity Bond Fund MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE Investment Adviser Advisory Fees Portfolio Management Personal Securities Investments SHAREHOLDER INFORMATION Pricing Funds' Shares Institutional Class Shares Buying Shares Redeeming Shares Exchanging Shares Between Funds Accounts with Low Balances DISTRIBUTIONS Dividends Capital Gains Distribution Options TAXES General NONPRINCIPAL INVESTMENT PRACTICES THRIVENT MID CAP GROWTH FUND INVESTMENT OBJECTIVE Thrivent Mid Cap Growth Fund seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGIES Thrivent Mid Cap Growth Fund tries to increase the long-term value of your investment by investing in common stocks of U.S. companies with medium market capitalizations. Under normal market conditions, Thrivent Mid Cap Growth Fund invests at least 80% of its net assets (plus the amount of any borrowing for investment purposes) in companies with market capitalizations similar to those companies included in widely known mid cap indices such as the Russell Mid Cap Growth Index and the S&P Mid Cap 400/Barra Growth Index at the time of the Fund's investment. Although market capitalizations are constantly changing, as of February 1, 2004, mid cap companies have market capitalization between $259 million and $13.2 billion (according to the S&P Mid Cap 400 Index). Should Thrivent Investment Mgt. the Fund's investment adviser determine that the Fund would benefit from reducing the percentage of invested assets from 80% to a lesser amount, you will be notified at least 60 days prior to such a change. Thrivent Investment Mgt. the Fund's investment adviser, uses fundamental, quantitative, and technical investment research techniques to determine what securities to buy and sell. Fundamental investment analysis generally involves assessing a company's or security's value based on factors such as sales, assets, markets, management, products and services, earnings, and financial structure. Quantitative analysis generally involves assessing a company's or security's value based on such factors as the cost of capital; the historical and projected patterns of sales, costs, and profitability in the money market and the securities markets. Technical analysis generally involves studying trends and movements in a security's price, trading volume, and other market-related factors in an attempt to discern patterns. Thrivent Investment Mgt. focuses on companies that have a strong record of earnings growth or show good prospects for growth in sales and earnings and also considers the trends in the market as a whole. Thrivent Mid Cap Growth Fund may sell securities for a variety of reasons, such as to secure gains, limit losses, or reposition assets into more promising opportunities. PRINCIPAL INVESTMENT RISKS Thrivent Mid Cap Growth Fund is subject to the following principal investment risks. Market Risk. Over time stock markets generally tend to move in cycles with periods when stock prices rise and periods when stock prices decline. The value of the Fund's investments may move with these cycles and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. They also may decline because of factors that affect a particular industry. Equity Investment Risk. To the extent the Fund invests in common stocks, it may be particularly subject to the risks of changing economic, stock market, industry and company conditions, currency exchange rates and the risks inherent in management's ability to anticipate such changes that can adversely affect the value of the Fund's holdings. In addition, the interests of equity holders are typically subordinated to the interests of other senior shareholders, such as preferred shareholders, as well as to the interests of general creditors of the issuer. Issuer Risk. Issuer risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Growth style investing includes the risk of investing in securities whose prices historically have been more volatile than other securities, especially over the short term. Growth stock prices reflect projection of future earnings or revenues, and if a company' earning or revenues fall short of expectations, its stock price may fall dramatically. In addition, medium-sized companies often have greater price volatility, lower trading volume, and less liquidity than larger, more-established companies. These companies tend to have small revenues, narrower product lines, less management depth and experience, smaller shares of their product or service markets, fewer financial resources, and less competitive strength than larger companies. Mid Cap Risk. Medium-sized companies often have greater price volatility, lower trading volume, and less liquidity than larger, more-established companies. These companies tend to have small revenues, narrower product lines, less management depth and experience, smaller shares of their product or service markets, few financial resources, and less competitive strength than larger companies. Liquidity Risk. Liquidity risk exists when particular investments are difficult to sell. A Fund's investments in illiquid securities may reduce the returns of the Fund because it may be unable to sell the illiquid securities at an advantageous time or price. Funds with principal investment strategies that involve foreign securities, derivatives or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk. Investment Adviser Risk. The Fund is actively managed, and success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Thrivent Investment Mgt. and each individual portfolio manager will apply investment techniques and risk analysis in making investment decisions for the Funds, but there can be no guarantee that these will produce the desired results. Growth Securities Risk. Each Fund may invest in equity securities of companies that its portfolio manager or portfolio management team believes will experience relatively rapid earnings growth. Growth securities typically trade at higher multiples of current earnings than other securities. Therefore, the values of growth securities may be more sensitive to changes in current or expected earnings than the values of other securities. The Thrivent Mid Cap Growth Fund is newly-created so no bar chart or performance table is included. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the Thrivent Mid Cap Growth Fund. - --------------------------------------------------------------------------------------------- SHAREHOLDER FEES (fees paid directly from your investment) - --------------------------------------------------------------------------------------------- - ------------------------------------------------------ -------------------------------------- Maximum Sales Charge (Load) None - ------------------------------------------------------ -------------------------------------- - ------------------------------------------------------ -------------------------------------- Maximum Deferred Sales Charge (Load) None - ------------------------------------------------------ -------------------------------------- - --------------------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) - --------------------------------------------------------------------------------------------- - ------------------------------------------------------ -------------------------------------- Management Fees 0.44% - ------------------------------------------------------ -------------------------------------- - ------------------------------------------------------ -------------------------------------- Distribution (12b-1) Fees None - ------------------------------------------------------ -------------------------------------- - ------------------------------------------------------ -------------------------------------- Other Expenses/1/ 0.12% - ------------------------------------------------------ -------------------------------------- - ------------------------------------------------------ -------------------------------------- Total Annual Fund Operating Expenses 0.56% - ------------------------------------------------------ -------------------------------------- /1/ Because Thrivent Mid Cap Growth Fund has been newly organized, the percentage expense levels shown in the table as "Other Expenses" are based on estimates. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, and that the Fund's operating expenses remain the same. The example does not represent the Fund's actual expenses and returns, either past or future. You should use the expense example for comparison purposes only. Although your actual cost may be higher or lower, based on these assumptions your cost would be: - ----------------------------- -------------------------- 1 Year 3 Years - ----------------------------- -------------------------- - ----------------------------- -------------------------- $59 $185 - ----------------------------- -------------------------- You would pay the following expenses if you did not redeem your shares: - ----------------------------- -------------------------- 1 Year 3 Years - ----------------------------- -------------------------- - ----------------------------- -------------------------- $59 $185 - ----------------------------- -------------------------- Thrivent High Yield Fund INVESTMENT OBJECTIVE Thrivent High Yield Fund seeks a high current income and, secondarily, growth of capital. PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 80% of its net assets (plus the amount of any borrowing for investment purposes) in high-yield, high-risk bonds, notes, debentures and other debt obligations or preferred stocks (e.g. collateralized debt obligations, convertible bonds and convertible preferred stock). These securities are commonly known as "junk bonds." At the time of purchase these securities are rated within or below the BB major rating category by Standard & Poor's Corporation or the Ba major rating category by Moody's Investor Services, Inc. or are unrated but considered to be of comparable quality by Thrivent Investment Mgt., the Portfolio's investment adviser. The Fund invests in securities regardless of the securities' maturity average. Should Thrivent Investment Mgt. determine that the Fund would benefit from reducing the percentage of invested assets from 80% to a lesser amount, you will be notified at least 60 days prior to such a change. Thrivent Investment Mgt. uses fundamental, quantitative, and technical investment research techniques to determine what securities to buy and sell. Fundamental investment analysis generally involves assessing a company's or security's value based on factors such as sales, assets, markets, management, products and services, earnings, and financial structure. Quantitative analysis generally involves assessing a company's or security's value based on such factors as the cost of capital; the historical and projected patterns of sales, costs, and profitability in the money market and the securities markets. Technical analysis generally involves studying trends and movements in a security's price, trading volume, and other market-related factors in an attempt to discern patterns. Thrivent Investment Mgt. focuses on companies that it believes are financially sound and have strong cash flow, asset values and interest or dividend earnings. PRINCIPAL INVESTMENT RISKS Thrivent High Yield Fund is subject to the following principal investment risks. Market Risk. Over time, markets generally tend to move in cycles with periods when bond prices rise and periods when bond prices decline. The value of a Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. They also may decline because of factors that affect a particular industry. Issuer Risk. Issuer risk is the possibility that a company's performance will affect the market price of its security, and, consequently, the value of the Fund. Some factors affecting the performance of a company include demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. The price of the Fund's shares may be affected by weak equity markets when issuers of high-yield, high-risk bonds generally find it difficult to improve their financial condition by replacing debt with equity. Bonds may also exhibit price fluctuations due to changes in interest rate or bond yield levels. As a result, the value of the Fund's shares may fluctuate significantly in the short term. Credit Risk. Credit risk is the risk that an issuer of a bond held by the Fund may no longer be able to pay its debt. As a result of such an event, the bond may decline in price thereby affecting the value of the Fund. High-yield high-risk bonds are subject to greater credit risk than investment-grade bonds. To compensate for this risk, high-yield bonds have higher yields. Interest Rate Risk. Interest rate risk is the risk that bond prices decline in value when interest rates rise for bonds that pay a fixed rate of interest. This effect may cause the value of the Fund to decline and reduce the overall return of the Fund. Convertible Securities Risk. Convertible securities tend to be subordinate to other debt securities issued by the same company. Also, issuers of convertible securities are often not as strong financially as those issuing securities with higher credit ratings. These companies are more likely to encounter financial difficulties and are more vulnerable to changes in the economy, such as a recession or a sustained period of rising interest rates, that could affect their ability to make interest and principal payments. If an issuer stops making interest and/or principal payments, these securities may be worthless and the Fund could lose its entire investment. Liquidity Risk. Liquidity risk exists when particular investments are difficult to sell. A Fund's investments in illiquid securities may reduce the returns of the Fund because it may be unable to sell the illiquid securities at an advantageous time or price. Funds with principal investment strategies that involve foreign securities, derivatives or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk. High Yield Risk. Funds that invest in high yield securities and unrated securities of similar credit quality (commonly know as "junk bonds") may be subject to greater levels of interest rate, credit and liquidity risk than Funds that do not invest in such securities. These securities are considered predominately speculative with respect to the issuer's continuing ability to make principal and interest payments. An economic downturn or period of rising interest rates could adversely affect the market for these securities and reduce a Fund's ability to sell these securities (liquidity risk). If the issuer of a security is in default with respect to interest or principal payments, a Fund may lose its entire investment. Prepayment Risk. When interest rates decline, borrowers may pay off their principal amounts sooner than expected. This can reduce the returns of a Fund because the Fund will have to reinvest that money at the lower prevailing interest rates. Extension Risk. In some cases, a bond issuer may seek to extend the maturity of a bond issue rather than pay the principal amount due at the original maturity date. Even if interest continues to be paid on the bond, this will increase the Fund's risk by delaying an expected principal payment, and also force the Fund to either hold the security longer than anticipated or sell the security in the market at a price which may be unfavorable. If an extension happens during a time of rising interest rates, the Fund will be unable to reinvest its principal at the higher rates as expected. Investment Adviser Risk. The Fund is actively managed, and success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Thrivent Investment Mgt. and each individual portfolio manager will apply investment techniques and risk analysis in making investment decisions for the Funds, but there can be no guarantee that these will produce the desired results. Thrivent High Yield Fund is newly-created, so no bar chart or performance table is included. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the Thrivent High Yield Fund. - --------------------------------------------------------------------------------------------------------- SHAREHOLDER FEES (fees paid directly from your investment) - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------- ----------------------------------------------- Maximum Sales Charge (Load) None - --------------------------------------------------------- ----------------------------------------------- - --------------------------------------------------------- ----------------------------------------------- Maximum Deferred Sales Charge (Load) None - --------------------------------------------------------- ----------------------------------------------- - --------------------------------------------------------- ----------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) - --------------------------------------------------------- ----------------------------------------------- - --------------------------------------------------------- ----------------------------------------------- Management Fees 0.39% - --------------------------------------------------------- ----------------------------------------------- - --------------------------------------------------------- ----------------------------------------------- Distribution (12b-1) Fees None - --------------------------------------------------------- ----------------------------------------------- - --------------------------------------------------------- ----------------------------------------------- Other Expenses/1/ 0.10% - --------------------------------------------------------- ----------------------------------------------- - --------------------------------------------------------- ----------------------------------------------- Total Annual Fund Operating Expenses 0.49% - --------------------------------------------------------- ----------------------------------------------- /1/ Because Thrivent High Yield Fund has been newly organized, the percentage expense levels shown in the table as "Other Expenses" are based on estimates. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. You should use the expense example for comparison purposes only. The example does not represent the Fund's actual expenses and returns, either past or future. Although your actual cost may be higher or lower, based on these assumptions your cost would be: - ----------------------------- -------------------------- 1 Year 3 Years - ----------------------------- -------------------------- - ----------------------------- -------------------------- $51 $161 - ----------------------------- -------------------------- You would pay the following expenses if you did not redeem your shares: - ----------------------------- -------------------------- 1 Year 3 Years - ----------------------------- -------------------------- - ----------------------------- -------------------------- $51 $161 - ----------------------------- -------------------------- THRIVENT INCOME FUND INVESTMENT OBJECTIVE Thrivent Income Fund seeks high current income while preserving principal. The Fund's secondary investment objective is to obtain long-term growth of capital in order to maintain investors' purchasing power. PRINCIPAL INVESTMENT STRATEGIES The Thrivent Income Fund invests primarily in investment-grade corporate bonds, government bonds, and mortgage-backed securities. Under normal conditions, at least 65% of the Fund's assets will be invested in debt securities or preferred stock at least in the "Baa" major rating category by Moody's or at least in the "BBB" major rating category by S&P or unrated securities considered to be of comparable quality by Thrivent Investment Mgt., the Fund's investment adviser. The Fund may also invest in high-yield, high-risk bonds, notes, debentures and other debt obligations or preferred stock commonly known as "junk bonds." At the time of purchase these securities are rated within or below the "BB" major rating category by S&P or the "Ba" major rating category by Moody's or are unrated but considered to be of comparable quality by Thrivent Investment Mgt. Thrivent Investment Mgt. uses fundamental, quantitative and technical investment research techniques to determine what securities to buy and sell. Fundamental investment analysis generally involves assessing a company's or security's value based on factors such as sales, assets, markets, management, products and services, earnings, and financial structure. Quantitative analysis generally involves dealing with measurable factors such as the cost of capital; the historical and projected patterns of sales, costs, and profitability in the money market and the securities markets. Technical analysis generally involves studying trends and movements in a security's price, trading volume, and other market-related factors in an attempt to discern patterns. Thrivent Investment Mgt. focuses on companies which it believes are financially sound and have strong cash flow, asset values, and interest or dividend earnings. PRINCIPAL INVESTMENT RISKS The Thrivent Income Fund is subject to the following principal investment risk. Market Risk. Over time bond markets generally tend to move in cycles with periods when bond prices rise and periods when stock prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Issuer Risk. Issuer risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include: demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Some factors that could affect the yield of the Fund's shares include a weak economy, strong equity markets and changes by the Federal Reserve in its monetary policy. Credit Risk. Credit risk is the risk that an issuer of a bond held by the Fund may no longer be able to pay its debt. As a result of such an event, the bond may decline in price thereby affecting the value of the Fund. High-yield high-risk bonds are subject to greater credit risk than investment-grade bonds. To compensate for this risk, high-yield bonds have higher yields. Interest Rate Risk. Interest rate risk is the risk that bond prices decline in value when interest rates rise for bonds that pay a fixed rate of interest. Bonds with longer durations tend to be more sensitive to changes in interest rates than bonds with shorter durations. In addition, both mortgage-backed and asset-backed securities are sensitive to changes in the redemption patterns of the underlying security. If the principal payment on the underlying asset is repaid faster or slower than the holder of the asset-backed or mortgage-backed security anticipates, the price of the security may fall, particularly if the holder must reinvest the repaid principal at lower rates or must continue to hold the security when interest rates rise. This effect may cause the value of the Fund to decline and reduce the overall return of the Fund. Liquidity Risk. Liquidity risk exists when particular investments are difficult to sell. A Fund's investments in illiquid securities may reduce the returns of the Fund because it may be unable to sell the illiquid securities at an advantageous time or price. Funds with principal investment strategies that involve foreign securities, derivatives or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk. High Yield Risk. Funds that invest in high yield securities and unrated securities of similar credit quality (commonly know as "junk bonds") may be subject to greater levels of interest rate, credit and liquidity risk than Funds that do not invest in such securities. These securities are considered predominately speculative with respect to the issuer's continuing ability to make principal and interest payments. An economic downturn or period of rising interest rates could adversely affect the market for these securities and reduce a Fund's ability to sell these securities (liquidity risk). If the issuer of a security is in default with respect to interest or principal payments, a Fund may lose its entire investment. Prepayment Risk. When interest rates decline, borrowers may pay off their principal amounts sooner than expected. This can reduce the returns of a Fund because the Fund will have to reinvest that money at the lower prevailing interest rates. Extension Risk. In some cases, a bond issuer may seek to extend the maturity of a bond issue rather than pay the principal amount due at the original maturity date. Even if interest continues to be paid on the bond, this will increase the Fund's risk by delaying an expected principal payment, and also force the Fund to either hold the security longer than anticipated or sell the security in the market at a price which may be unfavorable. If an extension happens during a time of rising interest rates, the Fund will be unable to reinvest its principal at the higher rates as expected. Investment Adviser Risk. The Fund is actively managed, and success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Thrivent Investment Mgt. and each individual portfolio manager will apply investment techniques and risk analysis in making investment decisions for the Funds, but there can be no guarantee that these will produce the desired results. The Thrivent Income Fund is a newly-created, so no bar chart or performance table is included. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the Thrivent Income Fund. - -------------------------------------------------------------------------------------------- SHAREHOLDER FEES (fees paid directly from your investment) - -------------------------------------------------------------------------------------------- - ---------------------------------------------------------- --------------------------------- Maximum Sales Charge (Load) None - ---------------------------------------------------------- --------------------------------- - ---------------------------------------------------------- --------------------------------- Maximum Deferred Sales Charge (Load) None - ---------------------------------------------------------- --------------------------------- - -------------------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) - -------------------------------------------------------------------------------------------- - ---------------------------------------------------------- --------------------------------- Management Fees 0.34% - ---------------------------------------------------------- --------------------------------- - ---------------------------------------------------------- --------------------------------- Distribution (12b-1) Fees None - ---------------------------------------------------------- --------------------------------- - ---------------------------------------------------------- --------------------------------- Other/1/ 0.07% - ---------------------------------------------------------- --------------------------------- - ---------------------------------------------------------- --------------------------------- Total Annual Fund Operating Expenses 0.41% - ---------------------------------------------------------- --------------------------------- /1/ Because the Thrivent Income Fund has been newly organized, the percentage expense levels shown in the Table "Other Expenses" are based on estimates. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. You should use the expense example for comparison purposes only. The example does not represent the Fund's actual expenses and returns, either past or future. Although your actual cost may be higher or lower, based on these assumptions your cost would be: - ----------------------------- -------------------------- 1 Year 3 Years - ----------------------------- -------------------------- - ----------------------------- -------------------------- $43 $134 - ----------------------------- -------------------------- You would pay the following expenses if you did not redeem your shares: - ----------------------------- -------------------------- 1 Year 3 Years - ----------------------------- -------------------------- - ----------------------------- -------------------------- $43 $134 - ----------------------------- -------------------------- THRIVENT LIMITED MATURITY BOND FUND INVESTMENT OBJECTIVE The Thrivent Limited Maturity Bond Fund seeks a high level of current income consistent with stability of principal. PRINCIPAL INVESTMENT STRATEGIES The Thrivent Limited Maturity Bond Fund invests primarily in investment-grade corporate bonds, government bonds, municipal bonds, asset-backed securities, and mortgage-backed securities. Under normal conditions, at least 80% of the Fund's net assets (plus the amount of any borrowing for investment purposes) in debt securities or preferred stock in at least the "Baa" major rating category by Moody's or at least in the "BBB" major rating category by Standard & Poor's Corporation or unrated securities considered to be of comparable quality by Thrivent Investment Mgt., the Fund's investment adviser. Should Thrivent Investment Mgt. determine that the Fund would benefit from reducing the percentage of invested assets from 80% to a lesser amount, you will be notified at least 60 days prior to such a change. The Fund may also invest in high-yield, high-risk bonds, notes, debentures and other debt obligations or preferred stock commonly known as "junk bonds." At the time of purchase these securities are rated within or below the "BB" major rating category by S&P or the "Ba" major rating category by Moody's or are unrated but considered to be of comparable quality by Thrivent Investment Mgt. Thrivent Investment Mgt. uses fundamental, quantitative, and technical investment research techniques to determine what securities to buy and sell. Fundamental investment analysis generally involves assessing a company's or security's value based on factors such as sales, assets, markets, management, products and services, earnings, and financial structure. Quantitative analysis generally involves dealing with measurable factors. Such as the cost of capital; the historical and projected patterns of sales, costs, and profitability in the money market and the securities markets. Technical analysis generally involves studying trends and movements in a security's price, trading volume, and other market-related factors in an attempt to discern patterns. Thrivent Investment Mgt. focuses on companies which it believes are financially sound and have strong cash flow, asset values, and interest or dividend earnings. PRINCIPAL INVESTMENT RISKS The Thrivent Limited Maturity Bond Fund is subject to the following principal investment risk. Market Risk. Over time bond markets generally tend to move in cycles with periods when bond prices rise and periods when bond prices decline. The value of the Fund's investments may move with these cycles, and in some instances, increase or decrease more than its market as measured by the Fund's benchmark index. Issuer Risk. Issuer risk is the possibility that a company's performance will affect the market price of its security, and consequently the value of the Fund. Some factors affecting the performance of a company include demand for the company's products or services, the quality of management of the company and brand recognition and loyalty. Volatility Risk. Volatility risk is the risk that certain types of securities shift in and out of favor depending on market and economic conditions as well as investor sentiment. Some factors that could affect the yield of the Fund's shares include a weak economy, strong equity markets and changes by the Federal Reserve in its monetary policy. Credit Risk. Credit risk is the risk that an issuer of a bond held by the Fund may no longer be able to pay its debt. As a result of such an event, the bond may decline in price thereby affecting the value of the Fund. High-yield high-risk bonds are subject to greater credit risk than investment-grade bonds. To compensate for this risk, high-yield bonds have higher yields. Interest Rate Risk. Interest rate risk is the risk that bond prices decline in value when interest rates rise for bonds that pay a fixed rate of interest. In addition, both mortgage-backed and asset-backed securities are sensitive to changes in the redemption patterns of the underlying security. If the principal payment on the underlying asset is repaid faster or slower than the holder of the asset-backed or mortgage-backed security anticipates, the price of the security may fall, particularly if the holder must reinvest the repaid principal at lower rates or must continue to hold the security when interest rates rise. This effect may cause the value of the Fund to decline and reduce the overall return of the Fund. Prepayment Risk. When interest rates decline, borrowers may pay off their principal amounts sooner than expected. This can reduce the returns of a Fund because the Fund will have to reinvest that money at the lower prevailing interest rates. Extension Risk. In some cases, a bond issuer may seek to extend the maturity of a bond issue rather than pay the principal amount due at the original maturity date. Even if interest continues to be paid on the bond, this will increase the Fund's risk by delaying an expected principal payment, and also force the Fund to either hold the security longer than anticipated or sell the security in the market at a price which may be unfavorable. If an extension happens during a time of rising interest rates, the Fund will be unable to reinvest its principal at the higher rates as expected. Investment Adviser Risk. The Fund is actively managed, and success of the Fund's investment strategy depends significantly on the investment adviser's skill in assessing the potential of the securities in which the Fund invests. Thrivent Investment Mgt. and each individual portfolio manager will apply investment techniques and risk analysis in making investment decisions for the Funds, but there can be no guarantee that these will produce the desired results. The Thrivent Limited Maturity Bond Fund is newly-created, so no bar chart or performance table is included. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the Thrivent Limited Maturity Bond Fund. - -------------------------------------------------------------------------------------------- SHAREHOLDER FEES (fees paid directly from your investment) - -------------------------------------------------------------------------------------------- - -------------------------------------------------------- ----------------------------------- Maximum Sales Charge (Load) None - -------------------------------------------------------- ----------------------------------- - -------------------------------------------------------- ----------------------------------- Maximum Deferred Sales Charge (Load) None - -------------------------------------------------------- ----------------------------------- - -------------------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) - -------------------------------------------------------------------------------------------- - -------------------------------------------------------- ----------------------------------- Management Fees 0.30% - -------------------------------------------------------- ----------------------------------- - -------------------------------------------------------- ----------------------------------- Distribution (12b-1) Fees None - -------------------------------------------------------- ----------------------------------- - -------------------------------------------------------- ----------------------------------- Other Expenses/1/ 0.14% - -------------------------------------------------------- ----------------------------------- - -------------------------------------------------------- ----------------------------------- Total Annual Fund Operating Expenses 0.44% - -------------------------------------------------------- ----------------------------------- /1/ Because the Thrivent Limited Maturity Bond Fund has been newly organized, the percentage expense levels shown in the table as "Other Expenses" are based on estimates. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same. You should use the expense example for comparison purposes only. The example does not represent the Fund's actual expenses and returns, either past or future. Although your actual cost may be higher or lower, based on these assumptions your cost would be: - ----------------------------- -------------------------- 1 Year 3 Years - ----------------------------- -------------------------- - ----------------------------- -------------------------- $46 $146 - ----------------------------- -------------------------- You would pay the following expenses if you did not redeem your shares: - ----------------------------- -------------------------- 1 Year 3 Years - ----------------------------- -------------------------- - ----------------------------- -------------------------- $46 $146 - ----------------------------- -------------------------- MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE INVESTMENT ADVISER Thrivent Investment Management Inc. ("Thrivent Investment Mgt."), 625 Fourth Avenue South, Minneapolis, Minnesota 55415, serves as investment adviser for each of the Funds. Thrivent Investment Mgt. and its affiliates have been in the investment advisory business since 1970 and managed approximately $58 billion in assets as of September 30, 2003, including approximately $10.7 billion in mutual fund assets. Thrivent Investment Mgt. provides investment research and supervision of the Funds' investments. Thrivent Investment Management, Inc. and the Fund have received an exemptive order from the Securities and Exchange Commission ("SEC") that permits Thrivent Investment Management, Inc. and the Fund, with the approval of the Fund's Board of Directors, to retain a subadviser for a Portfolio, or subsequently change the subadviser, without submitting the respective investment subadvisory agreements, or material amendments to those agreements, to a vote of the shareholders of the applicable Portfolio. Thrivent Investment Management, Inc. will notify variable contract owners in the event that it adds a subadviser or changes the identity of the subadviser of a Portfolio ADVISORY FEES The adviser fee schedule for the four new Funds is set forth in the table below. The fee is a daily charge equal to the annual rate of a percentage of average daily net assets of each Fund - --------------------------------------------------------------------------------------------------------------------------------- Average Daily Net Assets in Millions of Dollars - --------------------------------------------------------------------------------------------------------------------------------- - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- Fund $0 to $100 to $200 to $250 to $500 to $1,000 to $2,500 to Over $100 $200 $250 $500 $1,000 $2,500 $5,000 $5,000 - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- Thrivent Mid Cap Growth Fund 0.45% 0.40% 0.40% 0.35% 0.30% 0.25% 0.25% 0.25% - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- Thrivent High Yield Fund 0.40% 0.40% 0.40% 0.40% 0.35% 0.30% 0.30% 0.30% - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- Thrivent Income Fund 0.35% 0.35% 0.35% 0.35% 0.325% 0.30% 0.30% 0.30% - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- Thrivent Limited Maturity Bond Fund 0.30% 0.30% 0.30% 0.30% 0.275% 0.25% 0.25% 0.25% - ------------------ ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- PORTFOLIO MANAGEMENT Thrivent Mid Cap Growth Fund Andrea J. Thomas, CFA and Brian L. Torkelson will serve as the Portfolio co-managers of the Thrivent Mid Cap Growth Fund. Andrea J. Thomas, CFA has served as portfolio manager of the LB Opportunity Growth Fund since 2002. She also has served as portfolio manager of the Opportunity Growth Portfolio, a series of an affiliated mutual fund group, since 2002. Ms. Thomas has been with Thrivent Investment Mgt. since 1993 and served as an associate portfolio manger from 1997 to 2002. Brian L. Thorkelson has served as the portfolio manger of the LB Mid Cap Growth Fund since its inception in 1998. He also has served as portfolio manger of the Mid Cap Growth Portfolio, a series of an affiliated mutual fund group, since 1997. Mr. Thorkelson has been with Thrivent Investment Mgt. since 1987. Thrivent High Yield Fund Paul J. Ocenasek and Mark L. Simenstad will serve as Portfolio co-managers of the Thrivent High Yield Fund. Mr. Ocenasek has served as a portfolio manager of the LB High Yield Fund since 1997. He also has served as portfolio co-manager of the High Yield Portfolio, a series of an affiliated mutual fund group, since 2001. Mr. Ocenasek has been with Thrivent Investment Mgt. since 1987. Mr. Simenstad has served as a portfolio manager of the LB High Yield Fund since 2001, and he has been a portfolio manager with Thrivent Investment Mgt. since 1999. Mr. Simenstad served as chief investment officer for fixed-income investing at Voyageur Asset Management from 1996 until 1999. Thrivent Income Fund Michael G. Landreville and Alan D. Onstad will serve as Portfolio co-managers of the Thrivent Income Fund. Mr. Landreville has served as a portfolio manager of the LB Income Fund since 1998. Mr. Landreville also serves as a portfolio manager of the following series of affiliated mutual fund groups: The AAL Bond Fund since 2002, Income Portfolio since 2001, Limited Maturity Bond Portfolio since 2001, and LB Limited Maturity Bond Fund since 1999. Mr. Landreville has been with Thrivent Investment Mgt. since 1983, and he served as associate portfolio manager from 1987 through 1997. Mr. Onstad has served as a portfolio manager of the LB Income Fund since 2002. Mr. Onstad also serves as a portfolio manager of the following series of affiliated mutual fund groups: Income Portfolio since 2002, The AAL Bond Fund since 1999, and Balanced Fund since 1999. Mr. Onstad has been a portfolio manager with Thrivent Investment Mgt. since 1995. Thrivent Limited Maturity Bond Fund Michael G. Landreville, CFA will serve as Portfolio manager of the Thrivent Limited Maturity Bond Fund. Mr. Landreville has served as portfolio manager of the LB Limited Maturity Bond Fund since its inception in 1999. Mr. Landreville also serves as a portfolio manager of the following series of affiliated mutual fund groups: Bond Fund since 2002, Income Portfolio since 2001, Limited Maturity Bond Portfolio since 2001, and LB Income Fund since 1998. Mr. Landreville has been with Thrivent Investment Mgt. since 1983, and he served as associate portfolio manager from 1987 through 1997. PERSONAL SECURITIES INVESTMENTS Personnel of Thrivent Investment Mgt., may invest in securities for their own account pursuant to codes of ethics that establish procedures for personal investing and restrict certain transactions. Transactions in securities that may be held by the Funds are permitted, subject to compliance with applicable provisions under the codes of ethics. SHAREHOLDER INFORMATION HOW TO CONTACT US By Telephone: 1-800-847-4836 press 1 to speak with a customer service representative or press 2 to use the Automated Service Line By Internet: www.thrivent.com By Mail: The AAL Mutual Funds P.O. Box P.O. Box 219348 Kansas City, MO 64121-9348 By Express Mail: The AAL Mutual Funds 210 West 10th Street, 8th Floor Kansas City MO 64105 PRICING FUNDS' SHARES The price of a Fund's shares is based on the Fund's net asset value ("NAV"). Each Fund determines the NAV for a particular class once daily at the close of trading on the New York Stock Exchange ("NYSE"), which is normally 4:00 p.m. Eastern time. The Funds do not determine NAV on holidays observed by the NYSE or on any other day when the NYSE is closed. The NYSE is regularly closed on Saturdays and Sundays, New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. The price at which you purchase or redeem shares of the Funds is based on the NAV next calculated after the Funds receive your payment or redemption request. The Fund determines the NAV for a particular class by dividing the total Fund assets attributable to that class, less all liabilities attributable to such class, by the total number of outstanding shares of that class. To determine the NAV, the other Funds generally value their securities at current market value using readily available market prices. If market prices are not available or do not accurately reflect fair value for a security, the fair value of that security may be determined under policies approved by the Board of Trustees and delegated to Thrivent Investment Mgt. Some of the Funds hold securities that trade on foreign exchanges. These exchanges may trade on weekends or other days when the Funds do not price their shares. As a result, the value of a Fund's shares may change at a time when those shares may not be purchased or redeemed. The Board of Trustees of The AAL Mutual Funds has authorized Thrivent Financial for Lutherans ("Thrivent Financial") and certain other third parties i.e., transfer agents and third party retirement plan administrators to receive orders for the purchase and redemption of shares of the Funds. INSTITUTIONAL CLASS SHARES The AAL Mutual Funds has adopted a system of multiple classes of shares for each of the Funds. There is no sales load imposed in connection with the purchase of Institutional Class shares and such shares are not subject to any Rule 12b-1 fee. Institutional Class shares are offered to institutions, church organizations, retirement plans sponsored by institutions and Lutheran participants in the Allocation Advantage(R) mutual fund asset allocation program offered by Thrivent Investment Mgt. Because the sales charges and expenses vary between the Class A shares, Class B shares and Institutional Class shares, performance will vary with respect to each class. A copy of the Class A and Class B prospectus may be obtained by writing to the Fund, calling toll free 1-800-847-4836, or downloading it from www.thrivent.com. BUYING SHARES Opening An Account You must open an account for each Fund that you want to purchase. Your Thrivent Investment Mgt. representative is ready to help you open a new account. If you do not know the name of your representative, please call the Investment Interaction Center ("Interaction Center") at (800) THRIVENT (847-4836). How you register your account with the Funds can affect your legal interests as well as the rights and interests of your family and beneficiaries. You should always consult with your legal and/or tax adviser to determine the account registration that best meets your needs. You must clearly identify the type of account you want on your application. If shares are held in the name of a corporation, trust, estate, custodianship, guardianship, partnership or pension and profit sharing plan, additional documentation may be necessary. Required Minimum Investments You may combine your purchases of Class A, Class B and Institutional Class shares of the Funds to meet the minimum investment requirements. As long as the initial minimum investment requirements are maintained, there are no subsequent minimum investment requirements. Please note that the following minimum investment requirements do not apply to shares purchased through the Allocation Advantage mutual fund asset allocation program described below. - ------------------------------------------- ------------------------------ ------------------------------ Initial Purchase Initial Purchase (Aggregate) (Per Fund) Institutions $500,000 $50,000 Lutheran Congregations $250,000 $25,000 - ------------------------------------------- ------------------------------ ------------------------------ The Allocation Advantage mutual fund asset allocation program is a fee-based investment advisory service offered by Thrivent Investment Mgt. to persons who make an initial investment of $100,000. Lutheran participants in the Allocation Advantage program may purchase Institutional Class shares of any Fund by making an initial minimum investment of $5,000 for a non-IRA account and $1,000 for an IRA account. Once the purchase minimums have been met, systematic investments of shares of mutual funds have a minimum purchase requirement of $100. Thrivent Investment Mgt. will charge participants in the Allocation Advantage program a fee of $50.00 for any redemption of shares of a mutual fund that have been held in the participant's account for less than six months. However, if the redemption of shares is made through the Systematic Withdrawal Plan, Thrivent Investment Mgt. will charge the participant a fee of $5.00 for each such redemption. In addition, Thrivent Investment Mgt. will also charge a fee of $15.00 for any redemption from a participant's account of shares of a mutual fund that is not available through the Allocation Advantage program. Shares of the Funds are issued on days on which the New York Stock Exchange ("NYSE") is open, which generally are weekdays other than national holidays. Your order will be considered received when your check or other payment is received in good order. Orders that are received before the close of regular trading on the NYSE (generally 4:00 p.m. Eastern time) will be processed at the net asset value calculated that day. Orders received after the close of regular trading on the NYSE will be processed at the net asset value calculated on the following business day. The Funds reserve the right to reject any purchase request. Initial Purchases You may purchase initial shares through your Registered Representative or in any of the following ways: * By mail * By wire transfer Initial Purchases by Mail To buy shares of the Funds by mail: * Complete and mail your new account application for each different account registration. If you do not complete the application properly, your purchase may be delayed or rejected. * Make your check payable to the Fund you are buying. If more than one Fund, make your check payable to "The AAL Mutual Funds." Initial Purchases by Wire Transfer In order to buy shares of the Funds by wire transfer, your bank must be a member of, or have a corresponding relationship with a member of, the Federal Reserve System. Step 1: Call the Interaction Center at (800) THRIVENT (847-4836) and provide the following information: * Your account registration; * The name of the Fund(s) in which you want to invest; * The Class of shares you wish to buy; * Your address; * Your Social Security or tax identification number; * The dollar amount; * The name of the wiring bank; and * The name and telephone number of the person at your bank who the Funds can contact about your purchase. Step 2: Instruct your bank to use the following instructions when wiring funds: Wire transfer to: State Street Corp. 225 Franklin Street Boston, MA 02101 ABA #011000028 Credit: Thrivent Financial Investor Services as agent For the benefit of The AAL Mutual Family of Funds Account #4195-538-6 Further Credit: [Name of the Fund] [Shareholder Account Number] [Shareholder Registration/Name] Please call (800) THRIVENT (847-4836) prior to the wire transfer in order to obtain a confirmation number and to ensure prompt and accurate handling of funds. Step 3: Mail your application. The Fund and its transfer agent are not responsible for the consequences of delays resulting from the banking or Federal Reserve wire transfer system, or from incomplete wiring instructions. Additional Purchases You may purchase additional shares through your Registered Representative or in any of the following ways: * By mail * By telephone * By the Internet * By wire transfer * Through the Automatic Investment Plan Additional Purchases By Mail To make additional purchases by mail, make your check payable to the specific Fund in which you are investing. Please indicate your Fund account number on the face of your check. If you have more than one account, always verify that you are investing in the proper account. This will help ensure the proper handling of the transaction. Additional Purchases By Telephone Before you can buy additional shares by telephone, you must have selected the Request for Telephone Purchase option on the application. Once you have selected this option, you can call the Interaction Center at (800) THRIVENT (847-4836) and the Fund will withdraw money from your bank checking or savings account to make your investment. You pay the next price computed after the Funds have received your investment from your bank, which is usually three business days after you authorize the transfer. If you need to invest sooner, you should consider making a wire transfer purchase. The Fund has implemented procedures designed to reasonably ensure that telephone instructions are genuine. These procedures include recording telephone conversations, requesting verification of certain personal information, restricting transmittal of redemption proceeds to pre-authorized account owners and addresses and supplying transaction verification information. Please note, however, that the Fund will not be liable for losses suffered by a shareholder that result from following telephone instructions reasonably believed to be authentic after verification pursuant to these procedures. If an account has multiple owners, the Fund may rely on the instructions of any one account owner. This privilege may not be available on all retirement plan accounts. Additional Purchases By the Internet You may purchase additional shares within your Fund accounts over the Internet (pre-authorized bank information is required prior to purchase). The Fund require a Personal Identification Number (PIN) prior to authorizing transactions on your Fund accounts. This privilege may not be available on all retirement plan accounts. Additional Purchases By Wire Transfer You may make additional purchases in an existing Fund account by wire transfer. In order to buy shares of the Funds by wire transfer, your bank must be a member of, or have a corresponding relationship with a member of the Federal Reserve System. Instruct your bank to use the following instructions when wiring funds: Wire transfer to: State Street Corp. 225 Franklin Street Boston, MA 02101 ABA #011000028 Credit: Thrivent Financial Investor Services as agent For the benefit of The AAL Mutual Funds Account #4195-538-6 Further Credit: [Name of the Fund] [Shareholder Account Number] [Shareholder Registration/Name] The Fund and its transfer agent are not responsible for the consequences of delays resulting from the banking or Federal Reserve wire transfer system, or from incomplete wiring instructions. Automatic Investment Plans The Funds offer several automatic investment plans to make periodic investing more convenient. Using the Funds' automatic investment plans, you may implement a strategy called dollar cost averaging. Dollar cost averaging involves investing a fixed amount of money at regular intervals. When you dollar cost average, you purchase more shares when the price is low and fewer shares when the price is high. Dollar cost averaging does not ensure a profit or protect against a loss during declining markets. Because such a program involves a continuous investment regardless of changing share prices, you should consider your ability to continue the program through times when the share prices are high. Please note that it takes up to 10 business days from the time you invest for the transfer agent to validate any electronic transfer. This will cause some delay in your ability to redeem or transfer from your account. For further information regarding any of the following automatic investment plans, contact your Thrivent Investment Mgt. representative or the Interaction Center at (800) THRIVENT (847-4836). Automatic Bank Withdrawal Plan Investors who wish to make regular additional investments in an existing Fund account may do so through the Funds' bank draft plan. Under this plan, the Funds will draft an investor's bank checking or savings account in the amount specified on specified dates. The proceeds will be invested in shares of the specified Fund at the applicable offering price determined on the date of the draft. To use this plan you must authorize the plan on your application form, or subsequently in writing, and submit additional documents. The Automatic Exchange Plan The automatic exchange plan allows investors to make regular automatic investments in an existing Fund account by redemption of the same class of shares from The AAL Money Market Fund account. The automatic exchange plan allows investors to select the transaction date. To start, stop or change the plan, you must notify the Funds at least 24 hours prior to the transaction date. Retirement Plans Individual and employer-sponsored retirement plans may be established with assets invested in The AAL Mutual Funds. These accounts may offer you tax advantages. You should consult with your attorney and/or tax advisor before you establish a retirement plan. Additional fees may apply to some retirement accounts. Please review plan documents for more information. Your registered representative can provide you with the materials, documents and forms you need for establishing your retirement plan. Purchase Policies Your payment must be in U.S. dollars drawn on an U.S. bank. The Funds do not accept cash. If you purchase shares by check, electronic funds transfer (other than bank wire), or automatic investment plan and you elect to redeem those shares soon after their purchase, the Funds may postpone paying the redemption proceeds until your payment has cleared or up to 10 days from the date of purchase. The Funds reserve the right to suspend the offering of shares for a period of time and the right to reject any specific purchase of shares. Confirmation Thrivent Investment Mgt. will maintain a share account for you. Share certificates will not be issued. Thrivent Investment Mgt. will generally mail written confirmation of your purchases within five business days following the date of your purchase. Thrivent Investment Mgt. will mail confirmation of your automatic investment plan transactions at least quarterly. For information about your shares, please contact the Interaction Center at (800) THRIVENT (847-4836). REDEEMING SHARES You can sell your shares on any business day Thrivent Investment Mgt. prices the Funds' shares. Once the Fund receives your request for redemption, it will redeem your shares at the next NAV on any day on which the NYSE is open for business. The Funds may postpone payment or suspend the right of redemption in unusual circumstances, as permitted by the U.S. Securities and Exchange Commission. When you purchase shares by check, the Funds may delay payment for redemption requests for the shares purchased for up to 10 business days or until your payment has cleared. If shares are held in the name of a corporation, trust, estate, custodianship, guardianship, partnership or pension and profit sharing plan, or if you have requested and received share certificates, additional documentation may be necessary. You may redeem shares in any of the following ways: * By mail * By telephone * By the Internet * By wire transfer * Through the Systematic Withdrawal Plan Redemptions by Mail Step 1: Prepare a written request including the following information: * Name(s) of the account owner(s); * Your account number; * The name of the Fund(s) whose shares are being redeemed; and * Dollar or share amount you wish to redeem. You must have a Medallion Signature Guarantee if you want to do any of the following: * Sell shares with a value of more than $100,000; * Send the proceeds to an address other than the one listed for your account; or * Make the check payable to someone other than the account owners(s). A Medallion Signature Guarantee is a stamp provided by a financial institution that verifies your signature. You endorse the certificate on the back and have the signature(s) guaranteed by an eligible guarantor institution such as a commercial bank, trust company, security broker or dealer, credit union, or a savings association participating in the Medallion Signature Guarantee Program. A Medallion Signature Guarantee may be obtained at any national bank or brokerage firm. Step 2: Mail your redemption request. Please note, an additional fee may be assessed for a redemption delivered by overnight mail or Saturday delivery. The Funds will mail payment proceeds within seven days following receipt of all required documents. However, mailing may be delayed if the Fund is waiting for your means of purchase to clear. Redemptions by Telephone The privilege to redeem shares by telephone is automatically extended to all accounts except certain retirement plan accounts, unless the option is specifically declined on your application. If you do not want the telephone redemption option, please call the Interaction Center at (800) THRIVENT (847-4836). By accepting this privilege, you assume some risks for unauthorized transactions. The following conditions apply: * Telephone redemption checks will be issued to the same payee(s) as the account registration and sent only to the address of record. * There has been no change of address in the preceding 30 days. * The request is for $100,000 or less. However, requests to redeem more than $100,000 will be accepted if the account contains pre-established wire instructions. * Shares to be redeemed cannot be in certificate form. The Funds will mail payment proceeds within seven days following receipt of all required documents. Redemptions by the Internet You may redeem shares within your Fund accounts over the Internet. The Fund requires a Personal Identification Number (PIN) prior to authorizing transactions on your Fund accounts. This privilege may not be available on retirement plan accounts. Redemptions by Wire Transfer When redeeming shares by wire transfer, the following conditions apply: * A fee of up to $30 may be assessed for redemptions by wire. * This privilege may not be available on all retirement plan accounts. Systematic Withdrawal Plan You can have money automatically withdrawn from your Fund account(s) on a regular basis by using the Systematic Withdrawal Plan. The plan allows you to receive funds or direct payments at regular intervals. The following rules and/or guidelines apply: * You need a minimum of $50,000 in your account ($25,000 for Lutheran congregations) to start the plan. * You can select the date(s) on which the money is withdrawn. * To start the plan or change the payee(s), you must notify the Fund in writing and you must have all account owner(s) sign the appropriate form, which is available from the Interaction Center. * Money can be sent by check or electronic funds transfer. * To stop or change your plan, you must notify Thrivent Investment Mgt. prior to the next withdrawal. EXCHANGING SHARES BETWEEN FUNDS You may exchange some or all of your shares of one Fund for shares of the same class of any of the other Funds. In addition, you may exchange Institutional Class shares of your Funds for Institutional Class shares of any of the Funds. If you are eligible to purchase Institutional Class shares, you may exchange some or all of your Class A shares for Institutional Class shares of any of the Funds or Institutional Class shares of any of the Funds. All exchanges will be based on the NAV of the shares you are exchanging and acquiring and will be subject to the minimum investment requirements. Except as described above, shares of one class may not be exchanged for shares of another class. An excessive number of exchanges may be disadvantageous to the Funds. Therefore, the Funds reserve the right to terminate the exchange privilege of any shareholder who makes more than 12 exchanges in a year. Further, the Funds reserve the right to modify or terminate the exchange privilege at any time with respect to any Fund, if the Funds' Trustees determine that continuing the privilege may be detrimental to shareholders. If the exchange policies are materially modified or terminated, the Fund will give you at least 60 days prior notice. You may obtain an exchange form or receive more information about making exchanges between Funds by contacting your Thrivent Investment Mgt. registered representative. You may exchange funds in any of the following ways: * By mail * By telephone * By the Internet Exchanges by Mail Prepare and mail a written request including the following information: * Name(s) of the account owner(s); * Your Fund(s) and account number(s); * Dollar or share amount you wish to exchange; * The name of the Fund(s) and account number(s) you are exchanging into; and * Signatures of all account owners. Exchanges by Telephone The privilege to exchange shares by telephone is automatically extended to all accounts, unless the option is specifically declined on your application. If you do not want the telephone exchange option, please call the Interaction Center at (800) THRIVENT (847-4836). By accepting this privilege, you assume some risks for unauthorized transactions. You may exchange shares for which certificates have not been issued by calling the Interaction Center at (800) THRIVENT (847-4836). Telephone exchange requests received prior to the close of the NYSE, usually 4:00 p.m. Eastern Time, will receive that day's price. During periods of extreme volume caused by dramatic economic or stock market changes, shareholders may have difficulty reaching the Interaction Center by phone, and a telephone exchange may be difficult to implement at those times. The Funds reserve the right to temporarily discontinue the telephone exchange privilege during such periods of extreme volume. Exchanges by the Internet You may exchange shares within your Fund accounts over the Internet. The Fund requires a Personal Identification Number (PIN) prior to authorizing transactions on your Fund accounts. This privilege may not be available on all retirement plan accounts. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Funds may redeem shares in any account if the value of Institutional Class shares in the account falls below the required minimum amount for your type of account. Before shares are redeemed to close an account, you will be notified in writing and allowed 60 days to purchase additional shares. Shares will not be redeemed if the account's value drops below the minimum only because of market fluctuations. DISTRIBUTIONS DIVIDENDS Dividends are declared and paid as follows: - declared daily and paid monthly Thrivent High Yield Fund Thrivent Income Fund Thrivent Limited Maturity Bond Fund - declared and paid annually Thrivent Mid Cap Growth Fund Income dividends are derived from investment income, including dividends, interest, and certain foreign currency gains received by a Fund. CAPITAL GAINS Capital gains distributions, if any, usually will be declared in December. DISTRIBUTION OPTIONS When completing your application, you must select one of the following options for dividends and capital gains distributions: o Full Reinvestment. Distributions from a Fund will be reinvested in additional shares of the same class of that Fund. This option will be selected automatically unless one of the other options is specified. o Full Reinvestment in a Different Fund. You may also choose to have your distributions reinvested into an existing account of the same class of another Fund within The AAL Mutual Funds . o All Cash. Distributions will be paid in cash. Your request to receive all or a portion of your distributions in cash must be received at least 10 days before the record date of the dividend or other distribution. Distributions paid in shares will be credited to your account at the next determined NAV per share. TAXES GENERAL In general, any net investment income and short-term capital gain distributions you receive from a Fund are taxable as ordinary income. To the extent a Fund receives and distributes qualified dividend income, you are eligible for a tax rate lower than that on other ordinary income distributions. Distributions of other net capital gains by a Fund are generally taxable as capital gains - in most cases, at different rates from those that apply to ordinary income. We expect that distributions from the Thrivent Mid Cap Growth will consist primarily of capital gains and that distributions from the Thrivent High Yield Fund, the Thrivent Income Fund, and the Thrivent Limited Maturity Bond Fund will consist primarily of ordinary income. The tax you pay on a given capital gains distribution generally depends on how long a Fund has held the portfolio securities it sold. It does not depend on how long you have owned your Fund shares or whether you reinvest your distributions or take them in cash. Every year, the Funds will send you information detailing the amount of qualified dividends, ordinary income and capital gains distributed to you for the previous year. The sale of shares in your account may produce a gain or loss, and is a taxable event. For tax purposes, an exchange between Funds is the same as a sale. You will not be required to pay federal income tax on exchanges of Class A or Class B shares of a Fund for Institutional Class Shares of the same Fund. Your investment in the Funds could have additional tax consequences. Please consult your tax professional for assistance. By law, the Funds must withhold 28% of your distributions and proceeds if you have not provided complete, correct taxpayer information. Nonprincipal Investment Practices The principal investment strategies and risk factors of each Fund are outlined beginning on page 2. This section provides additional information about some of the securities and other practices in which certain Funds may engage, along with their associated risks. Repurchase Agreements Each of the Funds may buy securities with the understanding that the seller will buy them back with interest at a later date. If the seller is unable to honor its commitment to repurchase the securities, the Fund could lose money. When-Issued Securities Each Fund may invest in securities prior to their date of issue. These securities could fall in value by the time they are actually issued, which may be any time from a few days to over a year. In addition, no income will be earned on these securities until they are actually delivered. Mortgage-Backed and Asset-Backed Securities Each of the Funds may invest in mortgage-backed and asset-backed securities. Mortgage-backed securities are securities that are backed by pools of mortgages and which pay income based on the payments of principal and income they receive from the underlying mortgages. Asset-backed securities are similar but are backed by other assets, such as pools of consumer loans. Both are sensitive to interest rate changes as well as to changes in the redemption patterns of the underlying securities. If the principal payment on the underlying asset is repaid faster or slower than the holder of the mortgage-backed or asset-backed security anticipates, the price of the security may fall, especially if the holder must reinvest the repaid principal at lower rates or must continue to hold the securities when interest rates rise. Zero Coupons Each of the Funds may invest in zero coupon securities. A zero coupon security is a debt security that is purchased and traded at discount to its face value because it pays no interest for some or all of its life. Interest, however, is reported as income to the Fund that has purchased the security and the Fund is required to distribute to shareholders an amount equal to the amount reported. Those distributions may require the Fund to liquidate portfolio securities at a disadvantageous time. Foreign Securities Each of the Funds may invest in foreign securities. Foreign securities are generally more volatile than their domestic counterparts, in part because of higher political and economic risks, lack of reliable information and fluctuations in currency exchange rates. These risks are usually higher in less developed countries. Each of these Funds may use foreign currencies and related instruments to hedge its foreign investments. In addition, foreign securities may be more difficult to resell than comparable U.S. securities because the markets for foreign securities are less efficient. Even where a foreign security increases in price in its local currency, the appreciation may be diluted by the negative effect of exchange rates when the security's value is converted to U.S. dollars. Foreign withholding taxes also may apply and errors and delays may occur in the settlement process for foreign securities. International Exposure Each of the Funds may have some international exposure (including emerging markets) in their investments. Many U.S. companies in which these Funds may invest generate significant revenues and earnings from abroad. As a result, these companies and the prices of their securities may be affected by weaknesses in global and regional economies and the relative value of foreign currencies to the U.S. dollar. These factors, taken as a whole, could adversely affect the price of Fund shares. Restricted and Illiquid Securities Each of the Funds may invest to a limited extent in restricted or illiquid securities. Any securities that are thinly traded or whose resale is restricted can be difficult to sell at a desired time and price. Some of these securities are new and complex, and trade only among institutions. The markets for these securities are still developing and may not function as efficiently as established markets. Owning a large percentage of restricted or illiquid securities could hamper a Fund's ability to raise cash to meet redemptions. Also, because there may not be an established market price for these securities, the Fund may have to estimate their value, which means that their valuation (and, to a much smaller extent, the valuation of the Fund) may have a subjective element. Securities Lending Each of the Funds except may seek additional income by lending portfolio securities to qualified institutions. By reinvesting any cash collateral it receives in these transactions, a Fund could realize additional gains or losses. If the borrower fails to return the securities and the invested collateral has declined in value, the Fund could lose money. Derivatives Each of the Funds may invest in derivatives. Derivatives, a category that includes options and futures, are financial instruments whose value derives from another security, an index or a currency. Each Fund may use derivatives for hedging (attempting to offset a potential loss in one position by establishing an interest in an opposite position). This includes the use of currency-based derivatives for hedging its positions in foreign securities. Each Fund may also use derivatives for speculation (investing for potential income or capital gain i.e. futures on the S&P 500, futures on U.S. Treasury Bonds, options on equity securities and options on U.S. Treasury Bond futures). While hedging can guard against potential risks, it adds to the fund's expenses and can eliminate some opportunities for gains. There is also a risk that a derivative intended as a hedge may not perform as expected. The main risk with derivatives is that some types can amplify a gain or loss, potentially earning or losing substantially more money than the actual cost of the derivative. With some derivatives, whether used for hedging or speculation, there is also the risk that the counterpart may fail to honor its contract terms, causing a loss for the Fund. In addition, suitable derivative investments for hedging or speculative purposes may not be available. High-Yield Bonds Each of the Funds may invest in high-yield bonds. High-yield bonds are debt securities rated below BBB by S&P or Baa by Moody's. To the extent that a Fund invests in high-yield bonds, it takes on the following risks: o The risk of a bond's issuer defaulting on principal or interest payments is greater than on higher quality bonds. o Issuers of high-yield bonds are less secure financially and are more likely to be hurt by interest rate increases and declines in the health of the issuer or the economy. Government Bonds And Municipal Bonds Each of the Funds may also invest in government bonds and municipal bonds. As a result, the Fund's performance may be affected by political and economic conditions at the state, regional or Federal level. These may include budgetary problems, declines in the tax base and other factors that may cause rating agencies to downgrade the credit ratings on certain issues. Bonds The value of any bonds held by a Fund is likely to decline when interest rates rise; this risk is greater for bonds with longer maturities. A less significant risk is that a bond issuer could default on principal or interest payments, possibly causing a loss for the Fund. Short-Term Trading The investment strategy for each Fund at times may include short-term trading. While a Fund ordinarily does not trade securities for short-term profits, it will sell any security at any time it believes best, which may result in short-term trading. Short-term trading can increase a Fund's transaction costs and may increase your tax liability. Initial Public Offering Each of the Funds may engage in initial public offerings (IPOs) of securities. IPOs issued by unseasoned companies with little or no operating history are risky and their prices are highly volatile, but they can result in very large gains in their initial trading. Thus, when the Fund's size is smaller, any gains form IPOs will have an exaggerated impact on the Fund's reported performance than when the Fund is larger. Attractive IPOs are often oversubscribed and may not be available to the Fund, or only in very limited quantities. There can be no assurance that a Fund will have favorable IPO investment opportunities. Securities Ratings When fixed-income securities are rated by one or more independent rating agencies, a Fund uses these ratings to determine bond quality. Investment grade bonds are those that are rated within or above the BBB major rating category by S&P or the Baa major rating category by Moody's, or unrated but considered of equivalent quality by the Fund's adviser. High-yield bonds are below investment grade bonds in terms of quality. In cases where a bond is rated in conflicting categories by different rating agencies, a Fund may choose to follow the higher rating. If a bond is unrated, the Fund may assign it to a given category based on its own credit research. If a rating agency downgrades a security, the Fund will determine whether to hold or sell the security, depending on all of the facts and circumstances at that time. Defensive Investing In response to market, economic, political or other conditions, each Fund may invest without limitation in cash, preferred stocks, or investment-grade debt securities for temporary defensive purposes. If the Fund does this, different factors could affect the Fund's performance and it may not achieve its investment objective. [Back cover page] The AAL Mutual Funds By Telephone: 1-800-847-4836 press 1 to speak with a customer service representative or press 2 to use the Automated Service Line By Internet: www.thrivent.com By Mail: The AAL Mutual Funds P.O. Box 219348 Kansas City, MO 64121-9348 By Express Mail: The AAL Mutual Funds 210 West 10th Street, 8th Floor Kansas City, MO 64105 The Statement of Additional Information, which is incorporated by reference into this Prospectus, contains additional information about the Funds. you may request a free copy of the Statement of Additional Information or you may make additional requests or inquiries by calling 1-800-847-4836. You also may review and copy information about the Funds (including the Statement of Additional Information) at the Public Reference Room of the Securities and Exchange Commission in Washington, DC. You may get more information about the Public Reference Room by calling 1-800-SEC-0330. You also may get information about the Funds on the EDGAR data base at the SEC Web site (www.sec.gov), and copies of the information may be obtained upon payment of a duplicating fee by writing the Public Reference Section of the SEC, Washington, DC 20549-6009, or by sending an email to: publicinfo@sec.gov. 1940 Act File No. 811-5075 APPENDIX D Form of Sub-advisory Agreement INVESTMENT SUB-ADVISORY AGREEMENT By and Among Thrivent Financial for Lutherans and The AAL Mutual Funds and [Sub-adviser] INVESTMENT SUBADVISORY AGREEMENT, made as of the ___ day of ________, 200_, (the "Effective Date") by and among Thrivent Investment Management Inc., a corporation organized and existing under the laws of the State of Massachusetts ("Adviser"), The AAL Mutual Funds., a business trust organized and existing under the laws of the State of Minnesota ("Trust"), and __________________________, a ______________ organized and existing under the laws of the State of ____________ ("Sub-adviser"). WHEREAS, Adviser has entered into an Investment Advisory Agreement dated as of the ____ day of _________, 200_ ("Advisory Agreement") with the Trust, which is engaged in business as an open-end investment company registered under the Investment Company Act of 1940, as amended ("1940 Act"); and WHEREAS, the Trust is authorized to issue shares of the _________ Fund ("Fund"), a separate series of the Trust; and WHEREAS, Sub-adviser is engaged principally in the business of rendering investment supervisory management services and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act"); and WHEREAS, the Trust and Adviser desire to retain Sub-adviser as sub-adviser to furnish certain investment advisory services to Adviser and the Fund and Sub-adviser is willing to furnish such services; NOW, THEREFORE, in consideration of the premises and mutual promises herein set forth, the parties hereto agree as follows: I. Appointment. (A) Adviser hereby appoints Sub-adviser as its investment Sub-adviser with respect to the Fund for the period and on the terms set forth in this Agreement, and (B) Sub-adviser hereby accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided. II Additional Series. In the event that the Trust establishes one or more series of shares other than the Fund with respect to which Adviser desires to retain Sub-adviser to render investment advisory services hereunder, Adviser shall so notify Sub-adviser in writing, indicating the advisory fee to be payable with respect to the additional series of shares. If Sub-adviser is willing to render such services on the terms provided for herein, it shall so notify Adviser in writing, whereupon such series shall become a Fund hereunder. III. Duties of Sub-adviser. A. Sub-adviser is hereby authorized and directed and hereby agrees to (i) furnish continuously an investment program for the Fund, and (ii) determine from time to time what investments shall be purchased, sold or exchanged and what portion of the assets of the Fund shall be held uninvested. Sub-adviser shall perform these duties subject always to (1) the overall supervision of Adviser and the Board of Directors of the Trust (the "Board"), (2) the Trust's Articles and By-laws (as defined below), as amended from time to time, (3) the stated investment objectives, policies and restrictions of the Fund as set forth in the Trust's then current Registration Statement (as defined below), (4) any additional policies or guidelines established by Adviser or Board that have been furnished in writing to Sub-adviser, (5) applicable provisions of law, including, without limitation, all applicable provisions of the 1940 Act and the rules and regulations thereunder, and (6) the provisions of the Internal Revenue Code of 1986, as amended (the "Code") applicable to "regulated investment companies" (as defined in Section 851 of the Code), as amended from time to time. In accordance with Section VII, Sub-Adviser shall arrange for the execution of all orders for the purchase and sale of securities and other investments for the Fund's account and will exercise full discretion and act for the Trust in the same manner and with the same force and effect as the Trust might or could do with respect to such purchases, sales, or other transactions, as well as with respect to all other things necessary or incidental to the furtherance or conduct of such purchases, sales, or other transactions, including without limitation, management of cash balances in the Fund. B. Sub-adviser shall have no responsibility with respect to maintaining custody of Fund assets. Sub-adviser shall affirm security transactions with central depositories and advise the custodian of the Fund ("Custodian") or such depositories or agents as may be designated by Custodian and Adviser promptly of each purchase and sale of a Fund security, specifying the name of the issuer, the description and amount or number of shares of the security purchased, the market price, the commission and gross or net price, the trade date and settlement date and the identity of the effecting broker or dealer. Sub-adviser shall from time to time provide Custodian and Adviser with evidence of authority of its personnel who are authorized to give instructions to Custodian. C. Unless Adviser advises Sub-adviser in writing that the right to vote proxies has been expressly reserved to Adviser or the Trust or otherwise delegated to another party, Sub-adviser shall exercise voting rights incident to any securities held in the Fund without consultation with Adviser or Trust, provided that Sub-adviser will follow any written instructions received from Adviser or Trust with respect to voting as to particular issues. Sub-adviser shall further respond to all corporate action matters incident to the securities held in the Fund including, without limitation, proofs of claim in bankruptcy and class action cases and shelf registrations. D. Upon request of Custodian and/or Trust, Sub-adviser shall provide assistance in connection with the determination of the fair value of securities in the Fund for which market quotations are not readily available. E. In the performance of its duties hereunder, Sub-adviser is and shall be an independent contractor and except as expressly provided for herein or otherwise expressly provided or authorized shall have no authority to act for or represent the Fund or the Trust in any way or otherwise be deemed to be an agent of the Fund, the Trust or of Adviser. IV. Compensation. For the services provided pursuant to this Agreement, Sub-adviser shall receive an investment management fee as set forth in Schedule 1, attached hereto and incorporated herein by reference. The management fee shall be payable monthly in arrears to Sub-adviser on or before the 10th day of the next succeeding calendar month. If this Agreement becomes effective or terminates before the end of any month, the investment management fee for the period from the effective date to the end of such month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proration which such period bears to the full month in which such effectiveness or termination occurs. V. Expenses. During the term of this Agreement, Sub-adviser will bear all expenses incurred by it in the performance of its duties hereunder, other than those expenses specifically assumed by the Trust hereunder. The Trust shall assume and shall pay all brokers' and underwriting commissions chargeable to the Trust in connection with the securities transactions to which the Fund is a party. VI. Duties of Adviser. Adviser has furnished Sub-adviser with copies of each of the following documents and will furnish to Sub-adviser at its principal office all future amendments and supplements to such documents, if any, as soon as practicable after such documents become available: (1) The Articles of Incorporation of the Trust, as filed with the State of Minnesota, as in effect on the date hereof and as amended from time to time ("Articles"); (2) The by-laws of the Trust as in effect on the date hereof and as amended from time to time ("By-Laws"); (3) Certified resolutions of the Board authorizing the appointment of Adviser and Sub-adviser and approving the form of the Advisory Agreement and this Agreement; (4) The Trust's Registration Statement under the 1940 Act and the Securities Act of 1933, as amended (the "1933 Act") on Form N-1A, as filed with the Securities and Exchange Commission ("SEC") relating to the Fund and its shares and all amendments thereto ("Registration Statement"); (5) The Notification of Registration of the Trust under the 1940 Act on Form N-8A as filed with the SEC and any amendments thereto; (6) The Fund's most recent prospectus (the "Prospectus"); and (7) Copies of reports made by the Trust to its shareholders. Adviser shall furnish Sub-adviser with any further documents, materials or information that Sub-adviser may reasonably request to enable it to perform its duties pursuant to this Agreement. VII. Fund Transactions. A. Sub-adviser agrees that, in executing Fund transactions and selecting brokers or dealers, if any, it shall use its best efforts to seek on behalf of the Fund the best overall terms available. In assessing the best overall terms available for any transaction, Sub-adviser shall consider all factors it deems relevant, including the breadth of the market in and the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, with respect to the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker or dealer, if any, to execute a particular transaction, Sub-adviser may also consider the brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended ("1934 Act")) provided to Sub-adviser with respect to the Fund and/or other accounts over which Sub-adviser exercises investment discretion. Sub-adviser may, in its discretion, agree to pay a broker or dealer that furnishes such brokerage or research services a higher commission than that which might have been charged by another broker-dealer for effecting the same transactions, if Sub-adviser determines in good faith that such commission is reasonable in relation to the brokerage and research services provided by the broker or dealer, viewed in terms of either that particular transaction or the overall responsibilities of Sub-adviser with respect to the accounts as to which it exercises investment discretion (as such term is defined under Section 3(a)(35) of the 1934 Act). Sub-adviser shall, upon request from Adviser, provide such periodic and special reports describing any such brokerage and research services received and the incremental commissions, net price or other consideration to which they relate. B. In no instance will Fund securities be purchased from or sold to Sub-adviser, or any affiliated person thereof, except in accordance with the federal securities laws and the rules and regulations thereunder. C. Sub-adviser may buy securities for the Fund at the same time it is selling such securities for another client account and may sell securities for the Fund at the time it is buying such securities for another client account. In such cases, subject to applicable legal and regulatory requirements, and in compliance with such procedures of the Trust as may be in effect from time to time, Sub-adviser may effectuate cross transactions between the Fund and such other account if it deems this to be advantageous. D. On occasions when Sub-adviser deems the purchase or sale of a security to be in the best interest of the Trust as well as other clients of Sub-adviser, Sub-adviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be purchased or sold to attempt to obtain a more favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by Sub-adviser in the manner Sub-adviser considers to be the most equitable and consistent with its fiduciary obligations to the Trust and to its other clients. VIII. Ownership of Records. Sub-adviser shall maintain all books and records required to be maintained by Sub-adviser pursuant to the 1940 Act and the rules and regulations promulgated thereunder with respect to transactions on behalf of the Fund. In compliance with the requirements of Rule 31a-3 under the 1940 Act, Sub-adviser hereby agrees (A) that all records that it maintains for the Fund are the property of the Trust, (B) to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any records that it maintains for the Trust and that are required to be maintained by Rule 31a-1 under the 1940 Act, and (C) to surrender promptly to the Trust any records that it maintains for the Trust upon request by the Trust; provided, however, Sub-adviser may retain copies of IX. Reports and Meetings. A. Sub-adviser shall furnish to the Board or Adviser, or both, as appropriate, such information, reports, evaluations, analyses and opinions as are required by law or that the Board or Adviser, as appropriate, may reasonably require, including, without limitation: compliance reporting and certification with respect to: 1. Affiliated Brokerage Transactions 2. Affiliated Underwritings 3. Cross Transactions 4. Prospectus Compliance 5. Code of Ethics 6. Soft Dollar Usage 7. Price Overrides/Fair Valuation Determinations B. Sub-adviser shall make available in person to the Board and to Adviser personnel of Sub-adviser as the Board or Adviser may reasonably request to review the investments and the investment program of the Fund and the services provided by Sub-adviser hereunder. X. Services to Other Clients. Nothing contained in this Agreement shall limit or restrict (i) the freedom of Sub-adviser, or any affiliated person thereof, to render investment management and corporate administrative services to other investment companies, to act as investment manager or investment counselor to other persons, firms, or corporations, or to engage in any other business activities, or (ii) the right of any director, officer, or employee of Sub-adviser, who may also be a director, officer, or employee of the Trust, to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any other business, whether of a similar nature or a dissimilar nature. XI. Sub-adviser's Use of the Services of Others. Sub-adviser may, at its cost, employ, retain, or otherwise avail itself of the services or facilities of other persons or organizations for the purpose of providing Sub-adviser or the Trust or Fund, as appropriate, with such statistical and other factual information, such advice regarding economic factors and trends, such advice as to occasional transactions in specific securities, or such other information, advice, or assistance as Sub-adviser may deem necessary, appropriate, or convenient for the discharge of its obligations hereunder or otherwise helpful to the Trust or the Fund, as appropriate, or in the discharge of Sub-adviser's overall responsibilities with respect to the other accounts that it serves as investment manager or counselor. XII. Liability of Sub-adviser; Indemnification. Neither Sub-adviser nor any of its officers, directors, or employees, nor any person performing executive, administrative, trading, or other functions for the Trust, the Fund (at the direction or request of Sub-adviser) or Sub-adviser in connection with Sub-adviser's discharge of its obligations undertaken or reasonably assumed with respect to this Agreement (collectively, "Related Persons"), shall be liable for (i) any error of judgment or mistake of law or for any loss suffered by the Trust or Fund or (ii) any error of fact or mistake of law contained in any report or data provided by Sub-adviser, except for any error, mistake or loss resulting from willful misfeasance, bad faith, or negligence in the performance by Sub-adviser or such Related Person of Sub-adviser's duties on behalf of the Trust or Fund or from reckless disregard by Sub-adviser or any such Related Person of the duties of Sub-adviser pursuant to this Agreement (each of which is referred to as a "Culpable Act"). Notwithstanding the foregoing, any stated limitations on liability shall not relieve Sub-adviser from any responsibility or liability Sub-adviser may have under state or federal statutes or from responsibility or liability for errors in connection with the execution of trade orders. Notwithstanding the foregoing, any stated limitations on liability shall not Relieve Sub-adviser from any responsibility or Liability Sub-adviser may have under state or federal statutes. Sub-adviser shall indemnify Adviser and its Related Persons and hold them harmless from and against any and all losses, damages, costs, charges, reasonable counsel fees, payments, expenses and liabilities (collectively, "Damages") arising directly or indirectly out of or in connection with the performance of services by Sub-adviser or its Related Persons hereunder to the extent such Damages result from any Culpable Act of Sub-adviser or its Related Persons. Adviser shall indemnify Sudadviser and its Related Persons from and against any Damages arising directly or indirectly out of or in connection with the performance of services by Adviser or its Related Persons under this Agreement or the Advisory Agreement, in each case, to the extent such Damages result from any willful misfeasance, bad faith, gross negligence or reckless disregard of its duties by Adviser or any of its Related Persons. XIII. Representations of Sub-adviser. Sub-adviser represents, warrants, and agrees as follows: A. Sub-adviser (i) is registered as an investment adviser under Advisers Act and will continue to be so registered for so long as this Agreement remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from performing the services contemplated by this Agreement; (iii) has met, and will continue to meet for so long as this Agreement remains in effect, any other applicable federal or state requirements, or the applicable requirements of any regulatory or industry self-regulatory agency, necessary to be met in order to perform the services contemplated by this Agreement; (iv) has the authority to enter into and perform the services contemplated by this Agreement; and (v) will immediately notify Adviser of the occurrence of any event that would disqualify Sub-adviser from serving as an investment adviser of an investment company pursuant to Section 9(a) of the 1940 Act or otherwise. B. Sub-adviser has adopted a written code of ethics (the "Sub-adviser Code") complying with the requirements of Rule 17j-1 under the 1940 Act, as may be amended from time to time, and, has provided the Adviser and the Trust with a copy of the Sub-adviser Code, together with evidence of its adoption. The Sub-adviser certifies that it has adopted procedures reasonably necessary to prevent access persons" as defined in Rule 17j-1 ("Access Persons") from violating the Sub-adviser Code. On a [quarterly] basis, Sub-adviser will either; (i) certify to Adviser that Sub-adviser and its Access Persons have complied with Sub-adviser Code with respect to the Fund, or (ii) identify any material violations of the Sub-adviser Code which have occurred with respect to the Fund. In addition, Sub-adviser will furnish at least annually to Adviser and the Board a written report that (a) describes any issues arising under the Sub-adviser Code since the last report to the Board, including, but not limited to, information about material violations of the Sub-adviser Code with respect to the Fund and sanctions imposed in response to the material violations and (b) certifies that the Sub-adviser has adopted procedures reasonably necessary to prevent Access Persons from violating the Sub-adviser Code. C. Sub-adviser has provided Adviser and the Trust with a copy of its Form ADV as most recently filed with the SEC and, if not so filed, its most recent Part 2 of Form ADV, and will, promptly after filing any amendment to its Form ADV with the SEC, and, if not so filed, any amendment to Part 2 of its Form ADV, furnish a copy of such amendment to Adviser. XIV. Compliance with Applicable Regulations. In performing its duties hereunder, Sub-adviser shall establish compliance procedures (copies of which shall be provided to Adviser, and shall be subject to review and approval by Adviser) reasonably calculated to ensure compliance at all times with all applicable provisions of the 1940 Act and the Advisers Act, and any rules and regulations adopted thereunder; Subchapter M of the Code; the provisions of the Registration Statement; the provisions of the Articles and the By-Laws of the Trust, as the same may be amended from time to time; and any other applicable provisions of state, federal or foreign law. XV. Term of Agreement. This Agreement shall become effective with respect to the Fund on the Effective Date and, with respect to any additional Fund, on the date of receipt by the Adviser of notice from the Sub-adviser in accordance with Section II hereof that the Subscriber is willing to serve as Sub-adviser with respect to such Fund. Unless sooner terminated as provided herein, this Agreement shall continue in effect for two years from the Effective Date with respect to the Fund and, with respect to each additional Fund, for two years from the date on which this Agreement becomes effective with respect to such Fund. Thereafter, this Agreement shall continue in effect from year to year, with respect to the Fund, subject to the termination provisions and all other terms and conditions hereof, so long as (a) such continuation shall be specifically approved at least annually (i) by either the Board, or by vote of a majority of the outstanding voting securities of the Fund; (ii) in either event, by the vote, cast in person at a meeting called for the purpose of voting on such approval, of a majority of the Directors of the Trust who are not interested persons of any party to this Agreement, cast in person at a meeting called for the purpose of voting on such approval; and (b) Sub-adviser shall not have notified the Trust, in writing, at least 60 days prior to such approval that it does not desire such continuation. Sub-adviser shall furnish to the Trust, promptly upon its request, such information as may reasonably be necessary to evaluate the terms of this Agreement or any extension, renewal, or amendment hereof. XVI. Termination of Agreement. Notwithstanding the foregoing, this Agreement may be terminated at any time, without the payment of any penalty, by vote of the Board or by a vote of a majority of the outstanding voting securities of the Fund on at least 60 days' prior written notice to Sub-adviser. This Agreement may also be terminated by Adviser: (i) on at least 60 days' prior written notice to Sub-adviser, without the payment of any penalty; (ii) upon material breach by Sub-adviser of any of the representations and warranties set forth in Paragraph 11 of this Agreement, if such breach shall not have been cured within a 20-day period after notice of such breach; or (iii) if Sub-adviser becomes unable to discharge its duties and obligations under this Agreement. Sub-adviser may terminate this Agreement at any time, without the payment of any penalty, on at least 60 days' prior notice to Adviser. This Agreement shall terminate automatically in the event of its "assignment, as such term is defined in the 1940 Act, or upon termination of the Advisory Agreement. Any approval, amendment, or termination of this Agreement by the holders of a majority of the outstanding voting securities (as defined in the 1940 Act) of any Fund shall be effective to continue, amend or terminate this Agreement with respect to any such Fund notwithstanding (i) that such action has not been approved by the holders of a majority of the outstanding voting securities of any other Fund affected thereby, and/or (ii) that such action has not been approved by the vote of a majority of the outstanding voting securities of the Trust, unless such action shall be required by any applicable law or otherwise. XVII. Amendments, Waivers, etc. Provisions of this Agreement may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. This Agreement (including any exhibits hereto) may be amended at any time by written mutual consent of the parties, subject to the requirements of the 1940 Act and rules and regulations promulgated and orders granted thereunder. XVIII. Notification. Sub-adviser will notify Adviser promptly of any change in the personnel of Sub-adviser with responsibility for making investment decisions in relation to the Fund or who have been authorized to give instructions to Custodian. XIX. Miscellaneous. A. Governing Law. This Agreement shall be construed in accordance with the laws of the State of Minnesota without giving effect to the conflicts of laws principles thereof and the 1940 Act. To the extent that the applicable laws of the State of Minnesota conflict with the applicable provisions of the 1940 Act, the latter shall control. B. Insurance. Sub-adviser agrees to maintain errors and omissions or professional liability insurance coverage in an amount that is reasonable in light of the nature and scope of Sub-adviser's business activities. C. Captions. The captions contained in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. D. Entire Agreement. This Agreement represents the entire agreement and understanding of the parties hereto and shall supersede any prior agreements between the parties relating to the subject matter hereof, and all such prior agreements shall be deemed terminated upon the effectiveness of this Agreement. E. Interpretation. Nothing herein contained shall be deemed to require the Trust to take any action contrary to its Articles or By-Laws, or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the Board of its responsibility for and control of the conduct of the affairs of the Fund. F. Definitions. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act shall be resolved by reference to such term or provision of the 1940 Act and to interpretations thereof, if any, by the United States courts or, in the absence of any controlling decision of any such court, by rules, regulations, or orders of the SEC validly issued pursuant to the 1940 Act. As used in this Agreement, the terms "majority of the outstanding voting securities," "affiliated person," "interested person," "assignment," broker," "investment adviser," "net assets," "sale," "sell," and "security" shall have the same meaning as such terms have in the 1940 Act, subject to such exemption as may be granted by the SEC by any rule, regulation, or order. Where the effect of a requirement of the federal securities laws reflected in any provision of this Agreement is made less restrictive by a rule, regulation, or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation, or order. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their duly authorized signatories as of the date and year first above written. THRIVENT INVESTMENT MANAGEMENT INC. Attest: By: Name: Name: Title: THE AAL MUTUAL FUNDS Attest: By: Name: Name: Title: [SUB-ADVISER] Attest: By: Name: Name: Title: Schedule I Dated ____________, 200_ Sub-advisory Fees _____________ Fund Average Daily Assets Annual Rate $0 - __million % $__ to __million % Above $__million 0% [Outside back cover of proxy and prospectus] The following documents contain additional information about the LB Funds and are incorporated into this proxy statement and prospectus by reference. To obtain copies of the documents without charge, write the LB Trust at 625 Fourth Avenue South, Minneapolis, Minnesota 55415 or call 1-800-847-4836. o The LB Trust prospectus dated December 30, 2003. o The LB Trust Statement of Additional Information dated December 30, 2003. o The LB Trust Annual Report dated October 31, 2003. The following documents contain additional information about the Thrivent/AAL Funds and are incorporated into this proxy statement and prospectus by reference. o The prospectus of the AAL International Fund, the AAL Aggressive Growth Fund, the AAL Capital Growth Fund, the AAL Equity Income Fund, the AAL Municipal Bond Fund and the AAL Money Market Fund dated June 27, 2003, as supplemented, accompanies this proxy statement and prospectus as Appendix B. o The prospectus of each New Thrivent Fund dated February 1, 2004, accompanies this proxy statement and prospectus as Appendix C. o Management's discussion of fund performance with respect to the AAL International Fund, the AAL Aggressive Growth Fund, the AAL Capital Growth Fund, the AAL Equity Income Fund, the AAL Municipal Bond Fund and the AAL Money Market Fund from the most recent Annual and Semi-Annual Reports for the Thrivent Trust is included in this proxy statement and prospectus under the heading "Management's Discussion for Existing AAL Funds". o The Statement of Additional Information relating to this proxy statement and prospectus dated May 17, 2004. o The Statement of Additional Information for the AAL International Fund, the AAL Aggressive Growth Fund, the AAL Capital Growth Fund, the AAL Equity Income Fund, the AAL Municipal Bond Fund and the AAL Money Market Fund dated June 27, 2003. o The Statement of Additional Information for the New Thrivent Funds dated February 1, 2004. To obtain copies of the above documents, without charge, write the Thrivent Trust at 625 Fourth Avenue South, Minneapolis, Minnesota 55415 or call 1-800-847-4836. The above documents relating to the LB Funds and the Thrivent/AAL Funds have been filed with the Securities and Exchange Commission (the "SEC"). You may obtain copies by accessing the SEC's Web site at http://www.sec.gov. For a prescribed fee, you may obtain copies of these documents by sending an email request to publicinfo@sec.gov or writing to: Public Reference Room, U.S. Securities and Exchange Commission, 450 5th Street, NW, Room 1300, Washington, D.C. 20549. 1940 Act File No. 811-5075 - The AAL Mutual Funds 1940 Act File No. 811-1467 - The Lutheran Brotherhood Family of Funds STATEMENT OF ADDITIONAL INFORMATION MAY 17, 2004 THE LUTHERAN BROTHERHOOD FAMILY OF FUNDS 625 Fourth Avenue South Minneapolis, Minnesota 55415 1-800-847-4836 THE AAL MUTUAL FUNDS 625 Fourth Avenue South Minneapolis, Minnesota 55415 1-800-847-4836 This Statement of Additional Information is not a prospectus but should be read in conjunction with the Proxy Statement and Prospectus dated May 17, 2004 for the Special Meeting of Shareholders to be held on June 9, 2004. The Proxy Statement and Prospectus describes proposed Agreements and Plans of Reorganization between The Lutheran Brotherhood Family of Funds and The AAL Mutual Funds, which provide that shares of each of the Lutheran Brotherhood Opportunity Growth Fund, Lutheran Brotherhood Mid Cap Growth Fund, Lutheran Brotherhood World Growth Fund, Lutheran Brotherhood Growth Fund, Lutheran Brotherhood Fund, Lutheran Brotherhood Value Fund, Lutheran Brotherhood High Yield Fund, Lutheran Brotherhood Income Fund, Lutheran Brotherhood Municipal Bond Fund, Lutheran Brotherhood Limited Maturity Bond Fund and Lutheran Brotherhood Money Market Fund (each an "LB Fund" and collectively the "LB Funds"), each a series of The Lutheran Brotherhood Family of Funds, will be exchanged for shares of comparable series of The AAL Mutual Funds (each an "AAL Fund" and collectively the "AAL Funds"). Copies of the Proxy Statement and Prospectus may be obtained at no charge by writing to The AAL Mutual Funds, 625 Fourth Avenue South, Minneapolis, Minnesota 55415 or by calling 1-800-874-4836. Unless otherwise indicated, capitalized terms used herein and not otherwise defined have the same meanings as are given to them in the Proxy Statement and Prospectus. This Statement of Additional Information consists of this cover page and the following documents: 1. The Statement of Additional Information dated June 27, 2003 of The AAL Mutual Funds included in Post-Effective Amendment No. 47 to the Registration Statement on Form N-1A of The AAL Mutual Funds, the definitive version of which was filed via EDGAR on March 10, 2004 (SEC File No. 033-12911), and incorporated by reference herein. 2. The Statement of Additional Information of The AAL Mutual Funds dated February 1, 2004, with respect to Thrivent Mid Cap Growth Fund, Thrivent High Yield Fund, Thrivent Income Fund and Thrivent Limited Maturity Bond Fund, included in Post-Effective Amendment No. 49 to the Registration Statement on Form N-1A of The AAL Mutual Funds, the definitive version of which was filed via EDGAR on February 12, 2004 (SEC Fil No. 033-12911), and incorporated by reference herein. 3. The unaudited financial statements of the Existing AAL Funds included in the Semiannual Report of The AAL Mutual Funds for the six months ended October 31, 2003, previously filed via EDGAR on Form N-CSR on December 23, 2003 (SEC File No. 811-5075), and incorporated by reference herein. 4. The audited financial statements of the Existing AAL Funds included in the Annual Report of The AAL Mutual Funds for the fiscal year ended April 30, 2003, previously filed via EDGAR on Form N-CSR on July 1, 2003 (SEC File No. 811-5075), and incorporated by reference herein. 5. The Statement of Additional Information dated December 30, 2003 of The Lutheran Brotherhood Family of Funds, included in Post-Effective Amendment No. 75 to the Registration Statement on Form N-1A of The Lutheran Brotherhood Family of Funds previously filed via EDGAR on December 22, 2003 (SEC File No. 2-259848), and incorporated by reference herein. 6. The audited financial statements of the LB Funds included in the Annual Report of The Lutheran Brotherhood Family of Funds for the fiscal year ended October 31, 2003, previously filed via EDGAR on December 23, 2003 (SEC File No. 811-1467), and incorporated by reference herein. 7. The pro forma financial statements of the Existing AAL Funds, Lutheran Brotherhood Opportunity Growth Fund and Lutheran Brotherhood Mid Cap Growth Fund giving effect to the proposed reorganizations. Pro forma financial statements relating to the reorganization of the following LB Funds into corresponding AAL Funds have not been prepared because in each case, the LB Fund is being reorganized into a newly organized AAL Fund that was organized to continue the operations of the corresponding LB Fund: Lutheran Brotherhood High Yield Fund, Lutheran Brotherhood Income Fund and Lutheran Brotherhood Limited Maturity Bond Fund. Statement of Assets and Liabilities as of October 31, 2003 AAL Aggressive AAL Lutheran Growth Fund Aggressive Brotherhood Pro-Forma Pro-Forma Growth Growth Adjustments/1/ Combined/3/ Fund Fund Assets: Investments at cost $36,691,648 $39,955,006 $76,646,654 Investments at value 43,199,681 41,844,305 85,043,986 Cash 0 91,929 91,929 Dividends and interest receivable 32,633 32,274 64,907 Receivable for investments sold 340,967 287,614 628,581 Receivable for trust shares sold 36,839 67,529 104,368 Receivable from affiliate 0 51,374 51,374 - ---------------------------------------------------------------------------------------------------- Total Assets 43,610,120 42,375,025 85,985,145 ==================================================================================================== Liabilities Payable for investments purchased 433,308 482,696 916,004 Accrued expenses 23,469 53,475 76,944 Payable for trust shares redeemed 17,239 15,963 33,202 Open options written, at value/2/ 740 555 1,295 Payable to affiliate 46,756 0 46,756 - ---------------------------------------------------------------------------------------------------- Total Liabilities 521,512 552,689 1,074,201 ==================================================================================================== Net Assets Trust capital 75,833,156 62,480,336 138,313,492 Accumulated undistributed net investment (299,678) (1,196) (300,874) income/(loss) Accumulated undistributed net realized gain (loss) (38,952,951)(22,546,139) (61,499,090) Net unrealized appreciation/(depreciation) on: Investments 6,508,033 1,889,299 8,397,332 Written options contracts 48 36 84 - ---------------------------------------------------------------------------------------------------- Total Net Assets $43,088,608 $41,822,336 $84,910,944 ==================================================================================================== Class A share capital $36,154,684 $28,048,794 $64,203,478 Shares of beneficial interest outstanding 8,317,648 2,609,486 6,452,829 14,770,477 (Class A) Net Asset Value per share $4.35 $10.75 $4.35 Maximum Public Offering Price $4.60 $11.38 $4.60 Class B share capital $3,644,136 $10,638,574 $14,282,710 Shares of beneficial interest outstanding 869,470 1,019,679 2,538,303 3,407,773 (Class B) Net Asset Value per share $4.19 $10.43 $4.19 Institutional Class share capital $3,289,788 $3,134,968 $6,424,756 Shares of beneficial interest outstanding 726,163 278,658 691,989 1,418,152 (Institutional Class) Net Asset Value per share $4.53 $11.25 $4.53 /1/ The adjustment is necessary to reflect capital shares outstanding post-reorganization /2/ Premium received on written options of $788 and $591 respectively /3/ Lutheran Brotherhood Growth Fund is the accounting survivor. Statement of Operations For the year ended October 31, 2003 AAL AAL Lutheran Aggressive Aggressive Brotherhood Growth Fund Growth Growth Pro-Forma Pro-Forma Fund Fund Adjustments Combined (15) Investment Income Dividends $375,191 $337,799 $712,990 Interest (1,112) 9,449 8,337 Foreign dividend tax withholding (1,646) (1,340) (2,986) - --------------------------------------------------------------------------------------------- Total Investment Income 372,433 345,908 718,341 ============================================================================================= Expenses Advisor fees 305,831 148,697 86,363 540,891 (1) Fund Accounting and pricing 28,655 0 21,345 50,000 (2) Administrative Service Fee 7,426 37,192 (30,194) 14,424 (3) Audit and Legal Fees 20,582 16,028 (11,610) 25,000 (4) Custody fees 25,943 28,948 (24,891) 30,000 (5) Distribution Class A 78,509 0 57,360 135,869 (6) Distribution Class B 32,491 67,051 22,350 121,892 (6) Shareholder Servicing Fees Class A 0 57,360 (57,360) 0 (7) Shareholder Servicing Fees Class B 0 22,350 (22,350) 0 (7) Shareholder Servicing Fees Class I 0 4,655 (4,655) 0 (7) Printing and postage Class A 102,780 55,308 0 158,088 (8) Printing and postage Class B 14,280 47,628 0 61,908 (8) Printing and postage Class I 42 96 0 138 (8) SEC and State Registration 45,076 38,770 (43,846) 40,000 (9) Transfer Agent Fees Class A 256,950 138,270 0 395,220 (8) Small Account Fee Credit Class A 0 (80,916) (80,916) (10) Transfer Agent Fees Class B 35,700 119,070 0 154,770 (8) Small Account Fee Credit Class B 0 (47,064) (47,064) (10) Transfer Agent Fees Class I 105 240 0 345 (8) Trustees' fees and insurance 2,276 11,675 (1,451) 12,500 (11) Other expenses 1,417 2,495 3,588 7,500 (12) - --------------------------------------------------------------------------------------------- Total Expenses Before 958,063 795,833 (133,331) 1,620,565 Reimbursement ============================================================================================= Less Reimbursement all Classes (2,181) (401,417) (173,353) (576,951) (13) Less Reimbursement Class I (4,655) 4,655 (14) - --------------------------------------------------------------------------------------------- Total Net Expenses 955,882 389,761 (302,029) 1,043,614 ============================================================================================= Net Investment Income/(Loss) ($583,449) ($43,853) $302,029 ($325,273) ============================================================================================= Average Net Assets Class A 31,403,600 22,944,000 54,347,600 84.6% 65.6% 75.4% Average Net Assets Class B 3,249,100 8,940,000 12,189,100 8.7% 25.5% 16.9% Average Net Assets Class I 2,478,823 3,103,333 5,582,156 6.7% 8.9% 7.7% Total Average Assets 37,131,523 34,987,333 72,118,856 - --------------------------------------------------------------------------------------------- Class A Expenses 438,239 293,622 (123,600) 608,261 Class B Expenses 82,471 181,459 27,575 291,506 Class I Expenses 147 4,895 (4,559) 483 Shared Expenses 437,206 315,857 (32,748) 720,315 - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- Gross Expense Ratio Class A 2.57% 2.18% 2.12% Gross Expense Ratio Class B 3.72% 2.93% 3.39% Gross Expense Ratio Class I 1.18% 1.06% 1.01% - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- Net Expense Ratio Class A 1.04% 1.32% Net Expense Ratio Class B 1.79% 2.59% Net Expense Ratio Class I -0.24% 0.21% - --------------------------------------------------------------------------------------------- (1) assumes an advisory fee of 75 bps (2) assumes fund accounting fees of $45,000 and $5,000 in pricing fees (3) assumes an administrative service fee of 2 bps (4) assume $20,000 for audit and tax services and $5,000 for legal (5) assumes 1/20th of a basis point for custody and transactions at $5 (6) assumes a distribution fee of 25 bps on Class A and 100 bps on Class B (7) assumes a discontinuation of the shareholder servicing fee (8) Transfer agent and Printing and Postage expenses in the pre-merger Financial statements have been re-stated to reflect an update in the rates charged. (9) assumes the same number of states with one filing fee (10) assumes a $12 annual fee for any account under its minimum account balance (11) assumes combined expenses of existing funds adjusted for slight decrease. (12) assumes combined expenses of existing funds adjusted for slight increase. (13) adjustment to reflect expense reimbursement of 80 bps by the investment adviser for all share classes. (14) adjustment for discontinuation of the Institutional Class reimbursement of the shareholder servicing fee. (15) Lutheran Brotherhood Growth Fund is the accounting survivor. Statement of Assets and Liabilities as of October 31, 2003 AAL International Lutheran Fund AAL Brotherhood Pro-Forma Pro-Forma International World Growth Adjustments/1/ Combined/3/ Fund Fund Assets: Investments at cost $150,335,710 $80,386,253 $230,721,963 Investments at value 159,431,386 78,321,455 237,752,841 Cash/2/ 0 761,105 761,105 Dividends and interest receivable 320,173 189,113 509,286 Receivable for investments sold 4,482,085 2,051,911 6,533,996 Receivable for trust shares sold 180,116 12,125 192,241 Receivable for forward contracts 5,435,769 0 5,435,769 - ---------------------------------------------------------------------------------------------------------- Total Assets 169,849,529 81,335,709 251,185,238 ========================================================================================================== Liabilities Payable for investments purchased 952,932 189,300 1,142,232 Accrued expenses 66,874 105,031 171,905 Payable for trust shares redeemed 93,043 68,511 161,554 Payable for forward contracts 5,435,742 0 5,435,742 Payable to affiliate 141,479 74,193 215,672 - ---------------------------------------------------------------------------------------------------------- Total Liabilities 6,690,070 437,035 7,127,105 ========================================================================================================== Net Assets Trust capital 233,285,008 104,417,754 337,702,762 Accumulated undistributed net investment 593,789 103,936 697,725 income/(loss) Accumulated undistributed net realized gain (loss) (79,840,388) (21,557,090) (101,397,478) Net unrealized appreciation/(depreciation) on: Investments 9,095,676 (2,064,798) 7,030,878 Foreign currency forward contracts 27 0 27 Foreign currency transactions 25,347 (1,128) 24,219 - ---------------------------------------------------------------------------------------------------------- Total Net Assets $163,159,459 $80,898,674 $244,058,133 ========================================================================================================== Class A share capital $152,737,737 $59,798,249 $212,535,986 Shares of beneficial interest outstanding 18,602,047 7,129,746 7,282,875 25,884,922 (Class A) Net Asset Value per share $8.21 $8.39 $8.21 Maximum Public Offering Price $8.69 $8.88 $8.69 Class B share capital $7,531,673 $10,773,987 $18,305,660 Shares of beneficial interest outstanding 946,041 1,343,675 1,353,303 2,299,344 (Class B) Net Asset Value per share $7.96 $8.02 $7.96 Institutional Class share capital $2,890,049 $10,326,438 $13,216,487 Shares of beneficial interest outstanding 347,681 1,181,338 1,242,299 1,589,980 (Institutional Class) Net Asset Value per share $8.31 $8.74 $8.31 /1/ The adjustment is necessary to reflect capital shares outstanding post-reorganization /2/ Includes foreign currency holdings of $752,212 /3/ Lutheran Brotherhood World Growth Fund is accounting survivor. Statement of Operations For the year ended October 31, 2003 AAL Lutheran International AAL Brotherhood Fund International World Growth Pro-Forma Pro-Forma Fund Fund Adjustments Combined (16) Investment Income Dividends $3,482,166 $1,880,864 $5,363,030 Interest 19,910 23,220 43,130 Foreign dividend tax withholding (418,362) (239,533) (657,895) - -------------------------------------------------------------------------------------------- Total Investment Income 3,083,714 1,664,551 4,748,265 ============================================================================================ Expenses Advisor fees 360,478 262,626 (73,681) 549,423 (1) Sub-advisor fee 528,862 385,832 (120,501) 794,193 (2) Fund Accounting and pricing 70,000 0 15,000 85,000 (3) Administrative Service Fee 28,795 75,431 (60,272) 43,954 (4) Audit and Legal Fees 26,470 16,194 2,336 45,000 (5) Custody fees 64,453 73,439 (52,892) 85,000 (6) Distribution Class A 335,872 0 136,757 472,629 (7) Distribution Class B 68,264 76,690 25,563 170,517 (7) Shareholder Servicing Fees Class A 0 136,757 (136,757) 0 (8) Shareholder Servicing Fees Class B 0 25,563 (25,563) 0 (8) Shareholder Servicing Fees Class I 0 16,300 (16,300) 0 (8) Printing and postage Class A 263,712 107,586 0 371,298 (9) Printing and postage Class B 24,522 49,812 0 74,334 (9) Printing and postage Class I 120 96 0 216 (9) SEC and State Registration 56,417 36,750 (33,167) 60,000 (10) Transfer Agent Fees Class A 659,280 268,965 0 928,245 (9) Small Account Fee Credit Class A 0 0 (149,184) (149,184) (11) Transfer Agent Fees Class B 61,305 124,530 0 185,835 (9) Small Account Fee Credit Class B 0 0 (47,532) (47,532) (11) Transfer Agent Fees Class I 300 240 0 540 (9) Trustees' fees and insurance 4,303 12,827 (4,630) 12,500 (12) Other expenses (19,162) 3,609 25,553 10,000 (13) - -------------------------------------------------------------------------------------------- Total Expenses Before 2,533,991 1,673,247 (515,270) 3,691,968 Reimbursement ============================================================================================ Less Reimbursement all Classes (4) (89,807) 89,811 0 (14) Less Reimbursement Class B (114,720) (114,720) (15) Less Reimbursement Class I (16,300) 16,300 0 (14) - -------------------------------------------------------------------------------------------- Total Net Expenses 2,533,987 1,567,140 (523,879) 3,577,248 ============================================================================================ Net Investment Income/(Loss) $549,727 $97,411 $523,879 $1,171,017 ============================================================================================ Average Net Assets Class A 134,348,800 54,702,800 189,051,600 93.3% 72.2% 86.0% Average Net Assets Class B 6,826,400 10,225,333 17,051,733 4.7% 13.5% 7.8% Average Net Assets Class I 2,799,333 10,866,667 13,665,999 2.0% 14.3% 6.2% Total Average Assets 143,974,533 75,794,800 219,769,333 - -------------------------------------------------------------------------------------------- Class A Expenses 1,258,864 534,349 (493,670) 1,299,543 Class B Expenses 154,091 176,573 100,022 430,686 Class I Expenses 420 16,540 (16,204) 756 Shared Expenses 1,120,616 945,785 (105,418) 1,960,983 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Gross Expense Ratio Class A 1.72% 2.22% 1.59% Gross Expense Ratio Class B 3.04% 2.97% 3.43% Gross Expense Ratio Class I 0.79% 1.40% 0.91% - -------------------------------------------------------------------------------------------- Net Expense Ratio Class A 2.11% 1.59% Net Expense Ratio Class B 2.86% 2.75% Net Expense Ratio Class I 1.13% 0.91% - -------------------------------------------------------------------------------------------- (1) assumes an advisory fee of 65 bps on first $50 million in assets and 60 bps after $50 million (2) assumes a subadvisory fee of 40 bps on first $50 million in assets and 35 bps after $50 million (3) assumes fund accounting fees of $75,000 and $10,000 in pricing fees (4) assumes an administrative service fee of 2 bps (5) assume $30,000 for audit and tax services and $15,000 for legal (6) assumes 1/20th of a basis point for custody and 5000 trades at $5 (7) assumes a distribution fee of 25 bps for Class A and 100 bps for Class B (8) assumes a discontinuation of the shareholder servicing fee (9) Transfer agent and Printing and Postage expenses in the pre-merger Financial statements have been re-stated to reflect an update in the rates charged (10) assumes the same number of states with one filing fee (11) assumes a $12 annual fee for any account under its minimum account balance (12) assumes combined expenses of existing funds adjusted for slight decrease (13) assumes combined expenses of existing funds adjusted for slight increase (14) adjustment to reflect discontinuation of the pre-merger expense reimbursement by the investment adviser for all share classes (15) adjustment to reflect expense limit of 2.75% by the investment adviser for Class B shares (16) Lutheran Brotherhood World Growth Fund is the accounting survivor. Statement of Assets and Liabilities as of October 31, 2003 AAL Capital Growth Fund AAL Lutheran Pro-Forma Pro-Forma Capital Brotherhood Adjustments/1/ Combined/2/ Growth Fund Fund Assets: Investments at cost $1,946,630,478 $838,693,705 $2,785,324,183 Investments at value 2,954,285,825 847,896,806 3,802,182,631 Cash 32,148 53,000 85,148 Dividends and interest receivable 2,805,038 813,485 3,618,523 Receivable for trust shares sold 832,684 156,296 988,980 - ---------------------------------------------------------------------------------------------------------- Total Assets 2,957,955,695 848,919,587 3,806,875,282 ========================================================================================================== Liabilities Payable for investments purchased 0 10,417 10,417 Accrued expenses 424,271 431,457 855,728 Payable for trust shares redeemed 1,328,697 414,663 1,743,360 Payable to affiliate 2,103,946 470,207 2,574,153 - ---------------------------------------------------------------------------------------------------------- Total Liabilities 3,856,914 1,326,744 5,183,658 ========================================================================================================== Net Assets Trust capital 2,015,365,104 1,062,169,283 3,077,534,387 Accumulated undistributed net investment income / 3,607,348 1,512,305 5,119,653 (loss) Accumulated undistributed net realized gain (loss) (72,529,018) (225,291,846) (297,820,864) Net unrealized appreciation/(depreciation) on: Investments 1,007,655,347 9,203,101 1,016,858,448 - ---------------------------------------------------------------------------------------------------------- Total Net Assets $2,954,098,781 $847,592,843 $3,801,691,624 ========================================================================================================== Class A share capital $2,793,059,763 $757,561,033 $3,550,620,796 Shares of beneficial interest outstanding 99,049,939 41,427,933 (26,865,295) 125,915,234 (Class A) Net Asset Value per share $28.20 $18.29 $28.20 Maximum Public Offering Price $29.84 $19.35 $29.84 Class B share capital $80,820,001 $64,934,652 $145,754,653 Shares of beneficial interest outstanding 3,021,193 3,686,935 (2,427,371) 5,448,564 (Class B) Net Asset Value per share $26.75 $17.61 $26.75 Institutional Class share capital $80,219,017 $25,097,158 $105,316,175 Shares of beneficial interest outstanding 2,836,964 1,364,351 (887,567) 3,724,531 (Institutional Class) Net Asset Value per share $28.28 $18.39 $28.28 /1/ The adjustment is necessary to reflect capital shares outstanding post-reorganization /2/ The AAL Capital Growth Fund is the accounting survivor. Statement of Operations For the year ended October 31, 2003 AAL Capital Lutheran Growth Fund AAL Capital Brotherhood Pro-Forma Pro-Forma Growth Fund Fund Adjustments Combined (16) Investment Income Dividends $39,670,010 $10,882,937 $50,552,947 Interest 913,138 280,528 1,193,666 Foreign dividend tax withholding (237,543) 0 (237,543) - ---------------------------------------------------------------------------------------------- Total Investment Income 40,345,605 11,163,465 51,509,070 ============================================================================================== Expenses Advisor fees 15,195,509 3,100,538 290,730 18,586,777 (1) Fund Accounting and pricing 146,597 0 (11,597) 135,000 (2) Administrative Service Fee 563,191 240,688 (77,800) 726,079 (3) Audit and Legal Fees 46,735 40,401 (42,136) 45,000 (4) Custody fees 61,462 26,549 (8,773) 79,238 (5) Distribution Class A 6,659,855 0 1,805,168 8,465,023 (6) Distribution Class B 831,293 480,553 160,184 1,472,030 (6) Shareholder Servicing Fees Class A 0 1,805,168 (1,805,168) 0 (7) Shareholder Servicing Fees Class B 0 160,184 (160,184) 0 (7) Shareholder Servicing Fees Class I 0 42,448 (42,448) 0 (7) Printing and postage Class A 1,671,234 557,736 0 2,228,970 (8) Printing and postage Class B 145,200 186,768 0 331,968 (8) Printing and postage Class I 426 600 0 1,026 (8) SEC and State Registration 102,948 70,639 (133,587) 40,000 (9) Transfer Agent Fees Class A 4,178,085 1,394,340 0 5,572,425 (8) Small Account Fee Credit Class A 0 0 (518,172) (518,172) (10) Transfer Agent Fees Class B 363,000 466,920 0 829,920 (8) Small Account Fee Credit Class B 0 0 (65,556) (65,556) (10) Transfer Agent Fees Class I 1,065 1,500 0 2,565 (8) Trustees' fees and insurance 17,327 40,890 (38,217) 20,000 (11) Other expenses 92,924 36,091 (29,015) 100,000 (12) - ---------------------------------------------------------------------------------------------- Total Expenses Before 30,076,851 8,652,013 (676,571) 38,052,293 Reimbursement ============================================================================================== Less Reimbursement all Classes (42,227) (32,165) 74,392 0 (13) Reimbursement Class B (595,243) (595,243) (14) Reimbursement Class I (42,448) 42,448 0 (15) Total Net Expenses 30,034,624 8,577,400 (1,154,974) 37,457,050 ============================================================================================== Net Investment Income/(Loss) $10,310,981 $2,586,065 $1,154,974 $14,052,020 ============================================================================================== Average Net Assets Class A 2,663,942,000 722,067,200 3,386,009,200 94.6% 88.6% 93.2% Average Net Assets Class B 83,129,300 64,073,600 147,202,900 3.0% 7.9% 4.1% Average Net Assets Class I 68,884,288 28,298,448 97,182,736 2.4% 3.5% 2.7% Total Average Assets 2,815,955,588 814,439,248 3,630,394,836 - ---------------------------------------------------------------------------------------------- Class A Expenses 12,509,174 4,115,391 (876,319) 15,748,246 Class B Expenses 1,339,493 845,738 383,131 2,568,362 Class I Expenses 1,491 44,548 (42,448) 3,591 Shared Expenses 16,226,693 3,646,336 (140,935) 19,732,094 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Gross Expense Ratio Class A 1.05% 1.02% 1.01% Gross Expense Ratio Class B 2.19% 1.77% 2.29% Gross Expense Ratio Class I 0.58% 0.61% 0.55% - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Net Expense Ratio Class A 1.01% Net Expense Ratio Class B 1.89% Net Expense Ratio Class I 0.55% - ---------------------------------------------------------------------------------------------- (1) assumes an advisory fee of 65 bps on first $500 million in assets, 57.5 bps on next $500 million, 50 bps on the next $1 billion, 47.5 bps on the next $500 million and 45 bps after $2.5 billion (2) assumes fund accounting fees of $125,000 and $10,000 in pricing fees (3) assumes an administrative service fee of 2 bps (4) assume $35,000 for audit and tax services and $10,000 for legal (5) assumes 1/20th of a basis point for custody and transactions at $5 (6) assumes a distribution fee of 25 bps for Class A and 100 bps for Class B (7) assumes a discontinuation of the shareholder servicing fee (8) Transfer agent and Printing and Postage expenses in the pre-merger Financial statements have been re-stated to reflect an update in the rates charged (9) assumes the same number of states with one filing fee (10) assumes a $12 annual fee for any account under its minium account balance (11) assumes combined expenses of existing funds adjusted for slight decrease (12) assumes combined expenses of existing funds adjusted for slight decrease (13) adjustment to reflect discontinuation of expense reimbursement by the investment adviser for all share classes (14) adjustment to reflect expense reimbursement by the investment adviser for Class B shares (15) pre-merger financial statement amount updated to reflect 12 months of reimbursement of Class I shareholder servicing fees, which is adjusted to reflect discontinuation of the Class I reimbursement of shareholder servicing fees (16) AAL Capital Growth Fund is the accounting survivor. Statement of Assets and Liabilities as of October 31, 2003 AAL Equity Lutheran Income Fund AAL Equity Brotherhood Pro-Forma Pro-Forma Income Fund Value Fund Adjustments/1/ Combined/2/ Assets: Investments at cost $227,347,105 $38,061,005 $265,408,110 Investments at value 248,034,864 41,313,078 289,347,942 Cash 0 27,998 27,998 Dividends and interest receivable 354,961 57,763 412,724 Receivable for trust shares sold 130,984 20,934 151,918 Receivable from affiliate 0 13,414 13,414 - ------------------------------------------------------------------------------------------------------- Total Assets 248,520,809 41,433,187 289,953,996 ======================================================================================================= Liabilities Payable for investments purchased 143,902 702,561 846,463 Accrued expenses 57,243 35,770 93,013 Payable for trust shares redeemed 0 54,106 54,106 Payable to affiliate 160,322 0 160,322 - ------------------------------------------------------------------------------------------------------- Total Liabilities 361,467 792,437 1,153,904 ======================================================================================================= Net Assets Trust capital 259,725,772 46,442,877 306,168,649 Accumulated undistributed net investment 231,202 155,539 386,741 income/(loss) Accumulated undistributed net realized gain (loss) (32,485,391) (9,209,739) (41,695,130) Net unrealized appreciation/(depreciation) on: Investments 20,687,759 3,252,073 23,939,832 - ------------------------------------------------------------------------------------------------------- Total Net Assets $248,159,342 $40,640,750 $288,800,092 ======================================================================================================= Class A share capital $228,191,216 $28,445,311 $256,636,527 Shares of beneficial interest outstanding 19,460,579 2,277,802 148,068 21,886,449 (Class A) Net Asset Value per share $11.73 $12.49 $11.73 Maximum Public Offering Price $12.41 $13.22 $12.41 Class B share capital $7,947,880 $9,128,812 $17,076,692 Shares of beneficial interest outstanding 681,098 745,112 37,187 1,463,397 (Class B) Net Asset Value per share $11.67 $12.25 $11.67 Institutional Class share capital $12,020,246 $3,066,627 $15,086,873 Shares of beneficial interest outstanding 1,023,897 241,826 19,392 1,285,115 (Institutional Class) Net Asset Value per share $11.74 $12.68 $11.74 /1/ The adjustment is necessary to reflect capital shares outstanding post-reorganization /2/ Lutheran Brotherhood Value Fund is the accounting survivor. Statement of Operations AAL For the year ended October 31, 2003 Equity Investment Income Lutheran Income Fund AAL Equity Brotherhood Pro-Forma Pro-Forma Income Fund Value Fund Adjustments Combined (14) Dividends $4,618,098 $694,404 $5,312,502 Interest 5,067 12,924 17,991 Foreign dividend tax withholding (13,583) (1,651) (15,234) - -------------------------------------------------------------------------------------------- Total Investment Income 4,609,582 705,677 5,315,259 ============================================================================================ Expenses Advisor fees 1,046,567 142,285 12,866 1,201,718 (1) Fund Accounting and pricing 55,822 0 (822) 55,000 (2) Administrative Service Fee 46,292 36,856 (29,738) 53,410 (3) Audit and Legal Fees 20,151 15,828 (10,979) 25,000 (4) Custody fees 10,790 9,811 (8,152) 12,449 (5) Distribution Class A 539,132 0 61,364 600,496 (6) Distribution Class B 82,817 59,829 19,943 162,589 (6) Shareholder Servicing Fees Class A 0 61,364 (61,364) 0 (7) Shareholder Servicing Fees Class B 0 19,943 (19,943) 0 (7) Shareholder Servicing Fees Class I 0 4,572 (4,572) 0 (7) Printing and postage Class A 198,246 41,616 0 239,862 (8) Printing and postage Class B 14,892 33,450 0 48,342 (8) Printing and postage Class I 150 66 0 216 (8) SEC and State Registration 58,997 38,212 (57,209) 40,000 (9) Transfer Agent Fees Class A 495,615 104,040 0 599,655 (8) Small Account Fee Credit Class A 0 0 (52,548) (52,548) (10) Transfer Agent Fees Class B 37,230 83,625 0 120,855 (8) Small Account Fee Credit Class B 0 0 (27,780) (27,780) (10) Transfer Agent Fees Class I 375 165 0 540 (8) Trustees' fees and insurance 5,749 11,719 (2,468) 15,000 (11) Other expenses 4,655 2,748 97 7,500 (12) - -------------------------------------------------------------------------------------------- Total Expenses Before 2,617,480 666,129 (181,305) 3,102,304 Reimbursement ============================================================================================ Less Reimbursement all Classes (41,761) (279,439) 321,200 0 (13) - -------------------------------------------------------------------------------------------- Total Net Expenses 2,575,719 386,690 139,895 3,102,304 ============================================================================================ Net Investment Income/(Loss) $2,033,863 $318,987 ($139,895) $2,212,955 ============================================================================================ Average Net Assets Class A 215,652,800 24,545,600 240,198,400 93.2% 69.0% 89.9% Average Net Assets Class B 8,281,700 7,977,200 16,258,900 3.6% 22.4% 6.1% Average Net Assets Class I 7,524,471 3,066,627 10,591,098 3.2% 8.6% 4.0% Total Average Assets 231,458,971 35,589,427 267,048,398 - -------------------------------------------------------------------------------------------- Class A Expenses 1,232,993 242,566 (88,094) 1,387,465 Class B Expenses 134,939 138,662 30,405 304,006 Class I Expenses 525 4,737 (4,506) 756 Shared Expenses 1,249,023 280,164 (119,110) 1,410,077 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Gross Expense Ratio Class A 1.11% 1.78% 1.11% Gross Expense Ratio Class B 2.17% 2.53% 2.40% Gross Expense Ratio Class I 0.55% 0.94% 0.54% - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Net Expense Ratio Class A 1.11% Net Expense Ratio Class B 2.40% Net Expense Ratio Class Institutional 0.54% - -------------------------------------------------------------------------------------------- (1) assumes an advisory fee of 45 bps (2) assumes fund accounting fees of $47,500 and $7,500 in pricing (3) assumes an administrative service fee of 2 bps (4) assume $20,000 for audit and tax services and $5,000 for legal (5) assumes 1/20th of a basis point for custody transactions at $5 (6) assumes a distribution fee of 25 bps for Class A and 100 bps for Class B (7) assumes a discontinuation of the shareholder servicing fee (8) Transfer agent and Printing and Postage expenses in the pre-merger Financial statements have been re-stated to reflect an update in the rates charged (9) assumes the same number of states with one filing fee (10) assumes a $12 annual fee for any account under its minimum account balance (11) assumes combined expenses of existing funds adjusted for slight decrease (12) assumes combined expenses of existing funds adjusted for slight increase (13) adjustment to reflect discontinuation of the expense reimbursement by the investment adviser for all share classes (14) Lutheran Brotherhood Value Fund is the accounting survivor. Statement of Assets and Liabilities as of October 31, 2003 AAL Municipal AAL Lutheran Bond Fund Municipal Brotherhood Pro-Forma Pro-Forma Bond Fund Municipal Adjustments Combined/2/ Bond Fund /1/ Assets: Investments at cost $623,301,360 $592,799,187 $1,216,100,547 Investments at value 665,091,609 657,635,415 1,322,727,024 Cash 47,107 6,473 53,580 Dividends and interest receivable 10,498,268 9,414,493 19,912,761 Receivable for investments sold 1,289,293 2,535,529 3,824,822 Receivable for trust shares sold 59,249 28,223 87,472 - ------------------------------------------------------------------------------------------------------- Total Assets 676,985,526 669,620,133 1,346,605,659 ======================================================================================================= Liabilities Payable for investments purchased 14,219,616 9,681 14,229,297 Payable for Variation Margin 34,375 0 34,375 Accrued expenses 34,180 100,385 134,565 Distribution payable 438,436 580,468 1,018,904 Payable for trust shares redeemed 171,958 121,944 293,902 Payable to affiliate 405,237 325,427 730,664 - ------------------------------------------------------------------------------------------------------- Total Liabilities 15,303,802 1,137,905 16,441,707 ======================================================================================================= Net Assets Trust capital 629,873,325 602,991,837 1,232,865,162 Accumulated undistributed net investment (7) 123,671 123,664 income/(loss) Accumulated undistributed net realized gain (loss) (9,966,821) 530,492 (9,436,329) Net unrealized appreciation/(depreciation) on: Investments 41,790,249 64,836,228 106,626,477 Futures (15,022) 0 (15,022) - ------------------------------------------------------------------------------------------------------- Total Net Assets $661,681,724 $668,482,228 $1,330,163,952 ======================================================================================================= Class A share capital $645,232,185 $641,710,436 $1,286,942,621 Shares of beneficial interest outstanding 56,493,329 70,630,347 (56,184,982) 112,678,311 (Class A) Net Asset Value per share $11.42 $9.09 $11.42 Maximum Public Offering Price $11.96 $9.52 $11.96 Class B share capital $12,968,864 $24,179,138 $37,148,002 Shares of beneficial interest outstanding 1,135,884 2,668,446 (2,117,741) 3,253,625 (Class B) Net Asset Value per share $11.42 $9.06 $11.42 Institutional Class share capital $3,480,675 $2,592,654 $6,073,329 Shares of beneficial interest outstanding 304,788 285,373 (227,028) 531,763 (Institutional Class) Net Asset Value per share $11.42 $9.09 $11.42 /1/ The adjustment is necessary to reflect capital shares outstanding post-reorganization /2/ Lutheran Brotherhood Municipal Bond Fund is accounting survivor. Statement of Operations For the year ended October 31, 2003 AAL Lutheran Municipal AAL Brotherhood Bond Fund Municipal Municipal Pro-Forma Pro-Forma Bond Fund Bond Fund Adjustments Combined (14) Investment Income Interest $34,567,060 $36,369,134 $70,936,194 - ---------------------------------------------------------------------------------------------- Total Investment Income 34,567,060 36,369,134 70,936,194 ============================================================================================== Expenses Advisor fees 3,055,206 2,188,961 $262,936 5,507,103 (1) Fund Accounting and pricing 77,231 0 7,769 85,000 (2) Administrative Service Fee 135,741 224,423 (88,330) 271,834 (3) Audit and Legal Fees 26,374 38,066 (39,440) 25,000 (4) Custody fees 16,849 18,920 (2,027) 33,742 (5) Distribution Class A 1,656,589 0 1,634,252 3,290,841 (6) Distribution Class B 125,887 180,468 60,156 366,511 (6) Shareholder Servicing Fees Class A 0 1,634,252 (1,634,252) 0 (7) Shareholder Servicing Fees Class B 0 60,156 (60,156) 0 (7) Shareholder Servicing Fees Class I 0 4,056 (4,056) 0 (7) Printing and postage Class A 124,662 108,096 0 232,758 (8) Printing and postage Class B 5,058 9,522 0 14,580 (8) Printing and postage Class I 24 114 0 138 (8) SEC and State Registration 87,100 66,234 (73,334) 80,000 (9) Transfer Agent Fees Class A 353,209 306,272 0 659,481 (8) Small Account Credit Fee Class A (9,960) (9,960) (15) Transfer Agent Fees Class B 14,331 26,979 0 41,310 (8) Small Account Credit Fee Class B (1,488) (1,488) (15) Transfer Agent Fees Class I 68 323 0 391 (8) Trustees' fees and insurance 18,741 35,155 (38,896) 15,000 (10) Other expenses (4,068) 25,217 (11,149) 10,000 (11) - ---------------------------------------------------------------------------------------------- Total Expenses Before 5,693,002 4,927,214 2,025 10,622,241 Reimbursement ============================================================================================== Less Reimbursement all Classes (277) (392) 669 0 (12) Less Reimbursement Class B (44,889) (44,889) (13) Less Reimbursement Class I (4,056) 4,056 0 (12) - ---------------------------------------------------------------------------------------------- Total Net Expenses 5,692,725 4,922,766 (38,139) 10,577,352 ============================================================================================== Net Investment Income/(Loss) $28,874,335 $31,446,368 $38,139 $60,358,892 ============================================================================================== Average Net Assets Class A 662,635,600 653,700,800 1,316,336,400 97.6% 96.1% 96.8% Average Net Assets Class B 12,588,700 24,062,400 36,651,100 1.9% 3.5% 2.7% Average Net Assets Class I 3,480,675 2,704,000 6,184,675 0.5% 0.4% 0.5% Total Average Assets 678,704,975 680,467,200 1,359,172,175 - ---------------------------------------------------------------------------------------------- Class A Expenses 2,134,460 2,067,386 (28,726) 4,173,120 Class B Expenses 145,276 256,567 19,070 420,913 Class I Expenses 92 4,379 (3,942) 529 Shared Expenses 3,413,174 2,598,882 15,623 6,027,679 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Gross Expense Ratio Class A 0.83% 0.70% 0.76% Gross Expense Ratio Class B 1.66% 1.45% 1.59% Gross Expense Ratio Class I 0.51% 0.54% 0.45% - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Net Expense Ratio Class A 0.70% 0.76% Net Expense Ratio Class B 1.45% 1.47% Net Expense Ratio Class I 0.39% 0.45% - ---------------------------------------------------------------------------------------------- (1) assumes advisory fees of 45 bps for first $500 million, 40 bps for next $500 and 35 bps for over $1 billion. (2) assumes fund accounting fees of $60,000 and $25,000 in pricing fees. (3) assumes an administrative service fee of 2 bps (4) assume $20,000 for audit and tax services and $5,000 for legal (5) assumes 1/20th of a basis point for custody and 5000 trades at $5 (6) assumes a distribution fee of 25 bps for Class A and 100 bps for Class B (7) assumes a discontinuation of the shareholder servicing fee (8) Transfer agent and Printing and Postage expenses in the pre-merger Financial statements have been re-stated to reflect an update in the rates charged. (9) assumes the same number of states with one filing fee (10) assumes combined expenses of existing funds adjusted for slight decrease. (11) assumes combined expenses of existing funds adjusted for slight decrease. (12) adjustment to reflect discontinuation of the pre-merger expense reimbursement for all share classes (13) adjustment to reflect expense reimbursement by the investment adviser for Class B shares (14) Lutheran Brotherhood Municipal Bond Fund is the accounting survivor. (15) assumes a $12 annual fee for any account under its minimum account balance Statement of Assets and Liabilities AAL Money as of October 31, 2003 Lutheran Market Fund AAL Money Brotherhood Pro-Forma Pro-Forma Market Fund Market Money Adjustments Combined/1/ Fund Assets: Investments at cost $418,743,567 $520,851,127 $939,594,694 Investments at value 418,743,567 520,851,127 939,594,694 Cash 7,539 1,641,669 1,649,208 Dividends and interest receivable 49,465 76,630 126,095 Receivable for trust shares sold 1,566,141 2,743,446 4,309,587 - ------------------------------------------------------------------------------------------------------- Total Assets 420,366,712 525,312,872 945,679,584 ======================================================================================================= Liabilities Payable for investments purchased 1,885,598 2,278,969 4,164,567 Accrued expenses 87,488 572,791 660,279 Distribution payable 6,308 2,146 8,454 Payable for trust shares redeemed 1,735,615 2,173,092 3,908,707 Payable to affiliate 195,011 187,195 382,206 - ------------------------------------------------------------------------------------------------------- Total Liabilities 3,910,020 5,214,193 9,124,213 ======================================================================================================= Net Assets Trust capital 416,421,481 520,098,679 936,520,160 Accumulated undistributed net investment 35,211 0 35,211 income/(loss) - ------------------------------------------------------------------------------------------------------- Total Net Assets $416,456,692 $520,098,679 $936,555,371 ======================================================================================================= Class A share capital $301,766,074 $500,265,347 $802,031,421 Shares of beneficial interest outstanding 301,766,074 500,265,347 500,265,347 802,031,421 (Class A) Net Asset Value per share $1.00 $1.00 $1.00 Class B share capital $2,278,123 $1,095,202 $3,373,325 Shares of beneficial interest outstanding 2,278,123 1,095,202 1,095,202 3,373,325 (Class B) Net Asset Value per share $1.00 $1.00 $1.00 Institutional Class share capital $112,412,495 $18,738,130 $131,150,625 Shares of beneficial interest outstanding 112,412,495 18,738,130 18,738,130 131,150,625 (Institutional Class) Net Asset Value per share $1.00 $1.00 $1.00 /1/ AAL Money Market Fund is the accounting survivor. Statement of Operations For the year ended October 31, 2003 AAL Money Lutheran Market Fund AAL Money Brotherhood Pro-Forma Pro-Forma Market Fund Money Adjustments Combined (15) Market Investment Income Dividends $11,279 $11,279 Interest 5,981,546 $7,964,597 13,946,143 - ---------------------------------------------------------------------------------------------- Total Investment Income 5,992,825 7,964,597 13,957,422 ============================================================================================== Expenses Advisor fees 2,264,617 1,474,356 $738,474 4,477,447 (1) Fund Accounting and pricing 52,526 0 12,474 65,000 (2) Administrative Service Fee 0 176,652 29,202 205,854 (3) Audit and Legal Fees 18,613 39,719 (8,332) 50,000 (4) Custody fees 22,744 83,048 (51,295) 54,497 (5) Distribution Fee Class A 435,126 0 709,166 1,144,292 (6) Distribution Fee Class B 23,682 0 11,753 35,435 (6) Shareholder Servicing Fees Class A 0 1,418,332 (1,418,332) 0 (7) Shareholder Servicing Fees Class B 0 3,358 (3,358) 0 (7) Shareholder Servicing Fees Class I 0 46,556 (46,556) 0 (7) Printing and postage Class A 37,787 488,824 264,509 791,120 (8) Printing and postage Class B 457 2,080 3,199 5,736 (8) Printing and postage Class I 75 408 525 1,008 (8) SEC and State Registration 88,304 134,568 (137,872) 85,000 (9) Transfer Agent Fees Class A 793,527 1,283,163 0 2,076,690 (8) Small Account Credit Fee Class A (78,696) (78,696)(16) Transfer Agent Fees Class B 9,597 5,460 0 15,057 (8) Small Account Credit Fee Class B (1,092) (1,092)(16) Transfer Agent Fees Class I 1,575 1,071 0 2,646 (8) Trustees' fees and insurance 6,808 34,169 4,023 45,000 (10) Other expenses (5,633) 24,645 5,988 25,000 (11) - ---------------------------------------------------------------------------------------------- Total Expenses Before 3,749,805 5,216,409 33,780 8,999,994 Reimbursement ============================================================================================== Less Reimbursement all Classes (438,610) (501,624) (89,037) (1,029,271) (12) Less Reimbursement Class B (36,024) (36,024) (13) Less Reimbursement Class I (46,556) 46,556 0 (14) - ---------------------------------------------------------------------------------------------- Total Net Expenses 3,311,195 4,668,229 (44,743) 7,934,681 ============================================================================================== Net Investment Income/(Loss) $2,681,630 $3,296,368 ($10,961) $6,022,740 ============================================================================================== Average Net Assets Class A 348,100,800 567,332,800 915,433,600 81.1% 94.6% 88.9% Average Net Assets Class B 2,706,514 1,343,200 4,049,714 0.6% 0.2% 0.4% Average Net Assets Class I 78,750,000 31,037,333 109,787,333 18.3% 5.2% 10.7% Total Average Assets 429,557,314 599,713,333 1,029,270,648 - ---------------------------------------------------------------------------------------------- Class A Expenses 1,266,440 3,101,776 (1,579,102) 2,789,114 Class B Expenses 33,736 7,344 14,056 55,136 Class I Expenses 1,650 47,627 (45,623) 3,654 Shared Expenses 2,447,979 2,059,662 1,644,450 6,152,091 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Gross Expense Ratio Class A 0.93% 0.89% 0.91% Gross Expense Ratio Class B 1.82% 0.89% 1.97% Gross Expense Ratio Class I 0.57% 0.50% 0.60% - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Net Expense Ratio Class A 0.83% 0.81% 0.81% Net Expense Ratio Class B 1.42% 0.81% 0.98% Net Expense Ratio Class I 0.47% 0.26% 0.50% - ---------------------------------------------------------------------------------------------- (1) assumes an advisory fee of 50 bps on first $500 million in assets, 40 bps on next $250 and 35 bps after $750 million. (2) assumes fund accounting fees of $60,000 and $5,000 in pricing fees. (3) assumes an administrative service fee of 2 bps (4) assume $35,000 for audit and tax services and $15,000 for legal (5) assumes 1/20th of a basis point for custody and 5000 trades at $5 (6) assumes a distribution fee of 12.5 bps for Class A and 87.5 bps for Class B (7) assumes a discontinuation of the shareholder servicing fee (8) Transfer agent and Printing and Postage expenses in the pre-merger Financial statements have been re-stated to reflect an update in the rates charged. (9) assumes the same number of states with one filing fee (10) assumes combined expenses of existing funds adjusted for slight increase. (11) assumes combined expenses of existing funds adjusted for slight increase. (12) adjustment to reflect expense reimbursement of 10 bps by the investment adviser for all share classes (13) adjustment to reflect an additional expense reimbursement of 89 bps by the investment adviser for Class B shares (14) adjustment for discontinuation of the Institutional class reimbursement of the shareholder servicing fee (15) AAL Money Market Fund is the accounting survivor (16) assumes a $12 annual fee for any account under its minimum account balance Statement of Asset and Liabilities as of October 31, 2003 Thrivent Mid Cap Lutheran Lutheran Growth Fund Brotherhood Brotherhood Pro-Forma Pro-Forma Opportunity Mid Cap Adjustments/1/ Combined/2/ Growth Fund Growth Fund Assets: Investments at cost $130,864,941 $123,265,653 $254,130,594 Investments at value 157,086,677 149,973,268 307,059,945 Cash 20,410 45,090 65,500 Dividends and interest receivable 25,827 16,047 41,874 Prepaid expenses 26 0 26 Receivable for investments sold 1,284,283 73,897 1,358,180 Receivable for trust shares sold 81,594 32,236 113,830 - --------------------------------------------------------------------------------------------------------- Total Assets 158,498,817 150,140,538 308,639,355 ========================================================================================================= Liabilities Payable for investments purchased 517,327 675,743 1,193,070 Accrued expenses 199,657 170,198 369,855 Payable for trust shares redeemed 64,879 92,327 157,206 Payable to affiliate 108,376 93,800 202,176 - --------------------------------------------------------------------------------------------------------- Total Liabilities 890,239 1,032,068 1,922,307 ========================================================================================================= Net Assets Trust capital 175,318,294 195,761,479 371,079,773 Accumulated undistributed net investment (3,617) (6,869) (10,486) income/(loss) Accumulated undistributed net realized gain (loss) (43,927,835) (73,353,755) (117,281,590) Net unrealized appreciation/(depreciation) on: Investments 26,221,736 26,707,615 52,929,351 - --------------------------------------------------------------------------------------------------------- Total Net Assets $157,608,578 $149,108,470 $306,717,048 ========================================================================================================= Class A share capital $113,116,436 $136,808,195 $249,924,631 Shares of beneficial interest outstanding 9,156,225 15,261,190 (11,073,958) 20,230,183 (Class A) Net Asset Value per share $12.35 $8.96 $12.35 Maximum public offering price $13.07 $9.48 $13.07 Class B share capital $37,234,218 $11,616,511 $48,850,729 Shares of beneficial interest outstanding 3,160,935 1,356,809 (986,164) 4,147,099 (Class B) Net Asset Value per share $11.78 $8.56 $11.78 Institutional Class share capital $7,257,924 $683,764 $7,941,688 Shares of beneficial interest outstanding 563,722 73,296 (53,129) 616,851 (Institutional Class) Net Asset Value per share $12.87 $9.33 $12.87 /1/ The adjustment is necessary to reflect capital shares outstanding post-reorganization /2/ Lutheran Brotherhood Mid Cap Growth Fund is accounting survivor. Statement of Operations For the year ended October 31, 2003 Thrivent Mid Cap Growth Fund Lutheran Lutheran Pro-Forma Pro-Forma Brotherhood Brotherhood Adjustments Combined (15) Mid Cap Opportunity Growth Fund Growth Fund Investment Income Dividends $414,329 $319,642 $733,971 Interest 77,106 68,744 $145,850 Foreign dividend tax withholding (1,407) (2,544) ($3,951) - ---------------------------------------------------------------------------------------------- Total Investment Income 490,028 385,842 875,870 ============================================================================================== Expenses Advisor fees 585,673 598,513 (104,275) 1,079,911 (1) Fund Accounting and pricing 0 0 55,000 55,000 (2) Administrative Service Fee 74,311 72,815 (95,417) 51,709 (3) Audit and Legal Fees 17,643 16,995 (14,638) 20,000 (4) Custody fees 12,184 18,693 46,687 77,564 (5) Distribution Class A 0 0 516,679 516,679 (6) Distribution Class B 245,517 75,300 106,939 427,756 (6) Printing and postage Class A 183,306 246,366 0 429,672 (7) Printing and postage Class B 134,808 58,542 0 193,350 (7) Printing and postage Class I 210 78 0 288 (7) SEC and State Registration 33,575 40,077 (33,652) 40,000 (8) Shareholder Servicing Fees Class A 233,693 282,986 (516,679) 0 (9) Shareholder Servicing Fees Class B 81,839 25,100 (106,939) 0 (9) Shareholder Servicing Fees Class I 11,558 2,090 (13,648) 0 (9) Transfer Agent Fees Class A 458,265 615,915 0 1,074,180 (7) Small Account Fee Credit Class A 0 0 (234,216) (234,216) (10) Transfer Agent Fees Class B 337,020 146,355 0 483,375 (7) Small Account Fee Credit Class B 0 0 (37,884) (37,884) (10) Transfer Agent Fees Class I 525 195 0 720 (7) Trustees' fees and insurance 15,129 14,252 (9,381) 20,000 (11) Other expenses 6,594 6,547 11,859 25,000 (12) - ---------------------------------------------------------------------------------------------- Total Expenses Before 2,431,850 2,220,819 (429,565) 4,223,104 Reimbursement ============================================================================================== Less Reimbursement all Classes (86,319) (867) 87,186 0 (13) Less Reimbursement Class B (143,218) (142,218) (14) - ---------------------------------------------------------------------------------------------- Total Net Expenses 2,345,531 2,219,952 (485,597) 4,079,886 ============================================================================================== Net Investment Income/(Loss) ($1,855,503) ($1,834,110) 485,597 ($3,204,016) ============================================================================================== - ---------------------------------------------------------------------------------------------- Average Net Assets Class A 93,477,200 113,194,400 206,671,600 69.8% 90.8% 79.9% Average Net Assets Class B 32,735,600 10,040,000 42,775,600 24.4% 8.1% 16.6% Average Net Assets Class I 7,705,333 1,393,333 9,098,667 5.8% 1.1% 3.5% Total Average Assets 133,918,133 124,627,733 258,545,867 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Class A Expenses 1,010,865 1,252,261 (476,811) 1,786,315 Class B Expenses 599,521 186,372 280,704 1,066,597 Class I Expenses 12,083 2,285 (13,360) 1,008 Shared Expenses 809,381 779,901 (220,098) 1,369,184 - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Gross Expense Ratio Class A 1.69% 1.73% 1.41% Gross Expense Ratio Class B 2.44% 2.48% 3.04% Gross Expense Ratio Class I 0.76% 0.79% 0.56% - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- Net Expense Ratio Class A 1.41% Net Expense Ratio Class B 2.69% Net Expense Ratio Class I 0.56% - ---------------------------------------------------------------------------------------------- (1) assumes an advisory fee of 45 bps on first $100 million in assets, 40 bps on next $150 million, 35 bps on the next $250 million, 30 bps on the next $500 million and 25 bps after $1 billion (2) assumes fund accounting fees of $50,000 and $5,000 in pricing fees (3) assumes an administrative service fee of 2 bps (4) assume $15,000 for audit and tax services and $5,000 for legal (5) assumes 1/20th of a basis point for custody and 5000 trades at $5 (6) assumes a distribution fee of 25 bps for Class A and 100 bps for Class B (7) Transfer agent and Printing and Postage expenses in the pre-merger Financial statements have been re-stated to reflect an update in the rates charged (8) assumes the same number of states with one filing fee (9) assumes a discontinuation of the shareholder servicing fee (10) assumes a $12 annual fee for any account under its minimum account balance (11) assumes combined expenses of existing funds adjusted for slight decrease (12) assumes combined expenses of existing funds adjusted for slight increase (13) adjustment to reflect discontinuation of the pre-merger expense reimbursement by the investment adviser for all share classes (14) adjustment to reflect expense limit 2.69% by the investment adviser for Class B shares (15) Lutheran Brotherhood Mid Cap Growth Fund is accounting survivor. The AAL Aggressive Growth Fund Schedule of Investments as of October 31, 2003 The AAL Aggressive The AAL Aggressive The AAL Aggressive Lutheran Brotherhood Growth Fund Growth Fund Growth Fund Growth Fund Pro-Forma Pro-Forma Combined/1/ Combined/1/ Shares Common Stock - 97.9% Value Shares Value Shares Value Communications Services - 1.3% 23,150 AT&T Wireless Services, Inc. $167,838 11,800 $85,550 11,350 $82,288 19,050 Nextel Communications, Inc. 461,010 9,700 234,740 9,350 226,270 13,100 Sprint Corporation (PCS Group) 56,985 6,600 28,710 6,500 28,275 5,000 Verizon Communications, Inc. 168,000 2,550 85,680 2,450 82,320 10,050 Vodafone Group plc ADR 212,557 5,150 108,922 4,900 103,635 Total Communications Services 1,066,390 543,602 522,788 Consumer Discretionary - 16.1% 5,350 Abercrombie & Fitch Company 152,475 2,700 76,950 2,650 75,525 7,250 Amazon.com, Inc. 394,545 3,700 201,354 3,550 193,191 1,700 AutoZone, Inc. 163,370 850 81,685 850 81,685 11,700 Bed Bath & Beyond, Inc. 494,208 5,850 247,104 5,850 247,104 10,000 Best Buy Company, Inc. 583,100 5,100 297,381 4,900 285,719 1,800 Centex Corporation 175,500 900 87,750 900 87,750 9,350 Clear Channel Communications, Inc. 381,667 4,750 193,895 4,600 187,772 21,585 Comcast Corporation 704,103 10,935 356,700 10,650 347,403 9,645 Cox Communications, Inc. 328,605 4,895 166,773 4,750 161,832 13,400 eBay, Inc. 749,596 6,800 380,392 6,600 369,204 8,550 EchoStar Communications Corporation 327,636 4,350 166,692 4,200 160,944 3,950 Fox Entertainment Group, Inc. 109,415 2,000 55,400 1,950 54,015 2,050 Gannett Company, Inc. 172,426 1,050 88,316 1,000 84,110 10,400 Gap, Inc. 198,432 5,300 101,124 5,100 97,308 3,200 General Motors Corporation 136,544 1,600 68,272 1,600 68,272 4,900 Harley-Davidson, Inc. 232,309 2,500 118,525 2,400 113,784 3,550 Hollywood Entertainment Corporation 53,960 1,800 27,360 1,750 26,600 31,320 Home Depot, Inc. 1,161,032 15,920 590,154 15,400 570,878 15,250 InterActiveCorp 559,827 7,750 284,502 7,500 275,325 8,600 International Game Technology 281,650 4,400 144,100 4,200 137,550 1,900 Johnson Controls, Inc. 204,308 950 102,154 950 102,154 10,500 Kohl's Corporation 588,734 5,350 299,974 5,150 288,760 1,900 Lennar Corporation 174,516 950 87,258 950 87,258 20,252 Liberty Media Corporation 204,343 10,386 104,795 9,866 99,548 12,380 Lowe's Companies, Inc. 729,554 6,350 374,206 6,030 355,348 1,950 Michaels Stores, Inc. 92,566 1,000 47,470 950 45,096 3,450 NIKE, Inc. $220,455 1,750 $111,825 1,700 $108,630 5,400 Omnicom Group, Inc. 430,920 2,750 219,450 2,650 211,470 14,000 Staples, Inc. 375,480 7,250 194,445 6,750 181,035 8,050 Starbucks Corporation 254,380 4,200 132,720 3,850 121,660 13,600 Target Corporation 540,464 6,900 274,206 6,700 266,258 27,340 Time Warner, Inc. 418,029 13,995 213,984 13,345 204,045 9,350 TJX Companies, Inc. 196,256 4,750 99,702 4,600 96,554 4,600 Tribune Company 225,630 2,350 115,268 2,250 110,362 9,050 Univision Communications, Inc. 307,248 4,600 156,170 4,450 151,078 20,233 Viacom, Inc. 806,689 10,290 410,262 9,943 396,427 18,400 Walt Disney Company 416,576 9,400 212,816 9,000 203,760 3,600 Yum! Brands, Inc. 122,904 1,850 63,159 1,750 59,745 Total Consumer Discretionary 13,669,452 6,954,293 6,715,159 Consumer Staples - 7.8% 6,350 Altria Group, Inc. 295,275 3,250 151,125 3,100 144,150 6,200 Anheuser-Busch Companies, Inc. 305,412 3,150 155,169 3,050 150,243 11,550 Coca-Cola Company 535,920 5,900 273,760 5,650 262,160 7,550 Colgate-Palmolive Company 401,585 3,850 204,782 3,700 196,803 4,250 Costco Wholesale Corporation 150,323 2,150 76,046 2,100 74,277 7,340 Gillette Company 234,146 3,800 121,220 3,540 112,926 21,800 PepsiCo, Inc. 1,042,476 11,150 533,193 10,650 509,283 10,800 Procter & Gamble Company 1,061,532 5,500 540,595 5,300 520,937 5,900 SYSCO Corporation 198,594 3,000 100,980 2,900 97,614 31,800 Wal-Mart Stores, Inc. 1,874,610 16,250 957,938 15,550 916,672 16,440 Walgreen Company 572,441 8,400 292,488 8,040 279,953 Total Consumer Staples 6,672,314 3,407,296 3,265,018 Energy - 2.9% 4,894 Apache Corporation 341,209 2,502 174,439 2,392 166,770 7,500 Baker Hughes, Inc. 211,950 3,850 108,801 3,650 103,149 5,750 BJ Services Company 188,657 2,900 95,149 2,850 93,508 2,450 Burlington Resources, Inc. 119,168 1,250 60,800 1,200 58,368 13,600 Chesapeake Energy Corporation 162,248 6,900 82,317 6,700 79,931 5,950 ENSCO International, Inc. 156,783 3,050 80,368 2,900 76,415 3,850 EOG Resources, Inc. 162,239 2,000 84,280 1,850 77,959 5,920 Exxon Mobil Corporation 216,554 3,050 111,569 2,870 104,985 8,250 Halliburton Company 197,010 4,300 102,684 3,950 94,326 3,750 Nabors Industries, Ltd. 141,750 1,900 71,820 1,850 69,930 3,830 Schlumberger, Ltd. 179,896 1,950 91,592 1,880 88,304 9,705 Smith International, Inc. 361,317 4,955 184,475 4,750 176,842 Total Energy 2,438,781 1,248,294 1,190,487 Financials - 12.0% 5,700 ACE, Ltd. $205,200 2,900 $104,400 2,800 $100,800 2,570 AFLAC, Inc. 93,754 1,320 48,154 1,250 45,600 1,600 Allstate Corporation 63,200 800 31,600 800 31,600 11,250 American Express Company 527,963 5,700 267,501 5,550 260,462 18,150 American International Group, Inc. 1,104,064 9,200 559,636 8,950 544,428 4,200 Bank of America Corporation 318,066 2,150 162,820 2,050 155,246 5,900 Bank of New York Company, Inc. 184,021 3,000 93,570 2,900 90,451 1,750 Bear Stearns Companies, Inc. 133,437 900 68,625 850 64,812 4,550 Capital One Financial Corporation 276,640 2,300 139,840 2,250 136,800 15,900 Charles Schwab Corporation 215,604 8,050 109,158 7,850 106,446 37,236 Citigroup, Inc. 1,764,986 18,840 893,016 18,396 871,970 9,265 Federal National Mortgage Corporation 664,208 4,715 338,018 4,550 326,190 1,050 FleetBoston Financial Corporation 42,409 550 22,214 500 20,195 4,600 Friedman, Billings, Ramsey Group, Inc. 91,632 2,350 46,812 2,250 44,820 7,020 Goldman Sachs Group, Inc. 659,178 3,520 330,528 3,500 328,650 6,595 J.P. Morgan Chase & Company 236,761 3,350 120,265 3,245 116,496 4,980 Lehman Brothers Holdings, Inc. 358,560 2,600 187,200 2,380 171,360 5,090 Marsh & McLennan Companies, Inc. 217,598 2,600 111,150 2,490 106,448 22,205 MBNA Corporation 549,573 11,550 285,862 10,655 263,711 3,600 Mellon Financial Corporation 107,532 1,850 55,260 1,750 52,272 8,250 Merrill Lynch & Company, Inc. 488,400 4,200 248,640 4,050 239,760 8,850 Morgan Stanley and Company 485,600 4,600 252,402 4,250 233,198 12,750 SLM Corporation 499,290 6,500 254,540 6,250 244,750 6,150 State Street Corporation 322,014 3,200 167,552 2,950 154,462 5,200 Wachovia Corporation 238,524 2,650 121,556 2,550 116,968 6,600 Wells Fargo & Company 371,712 3,350 188,672 3,250 183,040 Total Financials 10,219,926 5,208,991 5,010,935 Health Care - 17.8% 12,860 Abbott Laboratories 548,093 6,550 279,161 6,310 268,932 3,750 AdvancePCS, Inc. 193,013 1,900 97,793 1,850 95,220 3,250 Aetna, Inc. 186,582 1,650 94,726 1,600 91,856 2,800 Allergan, Inc. 211,736 1,450 109,649 1,350 102,087 26,600 Amgen, Inc. 1,642,816 13,550 836,848 13,050 805,968 2,150 Anthem, Inc. 147,125 1,100 75,273 1,050 71,852 1,300 Barr Laboratories, Inc. 99,800 650 49,900 650 49,900 3,250 Becton, Dickinson and Company 118,820 1,650 60,324 1,600 58,496 2,850 Biomet, Inc. 102,201 1,450 51,997 1,400 50,204 10,250 Boston Scientific Corporation 694,130 5,200 352,144 5,050 341,986 5,060 Cardinal Health, Inc. 300,260 2,595 153,987 2,465 146,273 2,950 Cephalon, Inc. 138,532 1,500 70,440 1,450 68,092 2,550 Chiron Corporation 139,307 1,300 71,019 1,250 68,288 9,500 Eli Lilly and Company $632,890 4,850 $323,107 4,650 $309,783 9,590 Forest Laboratories, Inc. 479,596 4,890 244,549 4,700 235,047 6,550 Genentech, Inc. 536,904 3,350 274,600 3,200 262,304 4,600 Genzyme Corporation 211,140 2,350 107,865 2,250 103,275 6,300 Gilead Sciences, Inc. 343,854 3,200 174,656 3,100 169,198 25,808 Johnson & Johnson 1,298,917 13,100 659,323 12,708 639,594 3,150 MedImmune, Inc. 83,979 1,600 42,656 1,550 41,323 23,480 Medtronic, Inc. 1,069,984 11,930 543,650 11,550 526,334 10,550 Merck & Company, Inc. 466,838 5,350 236,738 5,200 230,100 4,425 Mylan Laboratories, Inc. 106,864 2,250 54,338 2,175 52,526 80,025 Pfizer, Inc. 2,528,790 40,735 1,287,226 39,290 1,241,564 3,150 St. Jude Medical, Inc. 183,204 1,600 93,056 1,550 90,148 2,850 Stryker Corporation 231,164 1,450 117,610 1,400 113,554 6,750 Teva Pharmaceutical Industries, Ltd. 384,007 3,450 196,270 3,300 187,737 14,500 UnitedHealth Group, Inc. 737,760 7,350 373,968 7,150 363,792 3,550 WellPoint Health Networks, Inc. 315,595 1,800 160,020 1,750 155,575 15,560 Wyeth Corporation 686,818 7,910 349,147 7,650 337,671 4,900 Zimmer Holdings, Inc. 312,669 2,500 159,525 2,400 153,144 Total Health Care 15,133,388 7,701,565 7,431,823 Industrials - 7.6% 10,500 3M Company 828,134 5,350 421,954 5,150 406,180 6,800 Allied Waste Industries, Inc. 76,704 3,450 38,916 3,350 37,788 3,450 Apollo Group, Inc. 219,179 1,750 111,178 1,700 108,001 3,650 Boeing Company 140,488 1,850 71,206 1,800 69,282 2,850 Career Education Corporation 152,618 1,450 77,648 1,400 74,970 2,850 Caterpillar, Inc. 208,848 1,450 106,256 1,400 102,592 12,750 Cendant Corporation 260,483 6,500 132,795 6,250 127,688 5,250 Continental Airlines, Inc. 100,275 2,650 50,615 2,600 49,660 1,500 Corinthian Colleges, Inc. 92,880 750 46,440 750 46,440 2,550 Deere & Company 154,581 1,300 78,806 1,250 75,775 2,200 Dover Corporation 85,844 1,100 42,922 1,100 42,922 2,150 Emerson Electric Company 122,013 1,100 62,425 1,050 59,588 3,200 FedEx Corporation 242,432 1,650 125,004 1,550 117,428 70,670 General Electric Company 2,050,136 35,850 1,040,008 34,820 1,010,128 1,850 Illinois Tool Works, Inc. 136,067 950 69,872 900 66,195 1,850 Ingersoll-Rand Company 111,740 950 57,380 900 54,360 4,900 Lockheed Martin Corporation 227,164 2,500 115,900 2,400 111,264 2,750 Monster Worldwide, Inc. 70,042 1,400 35,658 1,350 34,384 500 Northrop Grumman Corporation 44,700 250 22,350 250 22,350 7,600 Northwest Airlines Corporation 104,044 3,850 52,706 3,750 51,338 2,400 Overnite Corporation 53,184 1,050 23,268 1,350 29,916 11,900 Tyco International, Ltd. 248,472 6,050 126,324 5,850 122,148 5,600 United Parcel Service, Inc. 406,112 2,900 210,308 2,700 195,804 3,840 United Technologies Corporation 325,210 1,950 165,146 1,890 160,064 Total Industrials 6,461,350 3,285,085 3,176,265 Information Technology - 31.9% 6,000 Accenture, Ltd. 140,400 3,050 71,370 2,950 69,030 29,400 ADC Telecommunications, Inc. 74,970 14,900 37,995 14,500 36,975 4,400 Adobe Systems, Inc. 192,896 2,250 98,640 2,150 94,256 5,400 Advanced Micro Devices, Inc. 82,080 2,750 41,800 2,650 40,280 7,400 Alcatel SA ADR 97,532 3,750 49,425 3,650 48,107 6,700 Amdocs, Ltd. 143,782 3,400 72,964 3,300 70,818 11,510 Analog Devices, Inc. 510,238 5,860 259,774 5,650 250,464 4,050 Apple Computer, Inc. 92,704 2,050 46,924 2,000 45,780 39,350 Applied Materials, Inc. 919,610 19,950 466,232 19,400 453,378 8,750 ASML Holding NV ADR 153,563 4,450 78,098 4,300 75,465 11,900 BEA Systems, Inc. 165,410 6,050 84,095 5,850 81,315 9,250 BMC Software, Inc. 160,765 4,700 81,686 4,550 79,079 4,800 Broadcom Corporation 153,360 2,450 78,278 2,350 75,082 18,200 Brocade Communications Systems, Inc. 119,210 9,300 60,915 8,900 58,295 6,900 Check Point Software Technologies, Ltd. 117,231 3,500 59,465 3,400 57,766 116,650 Cisco Systems, Inc. 2,447,317 59,650 1,251,457 57,000 1,195,860 2,450 Cognos, Inc. 84,452 1,250 43,088 1,200 41,364 2,850 Computer Associates International, Inc. 67,032 1,450 34,104 1,400 32,928 3,250 Computer Sciences Corporation 128,765 1,650 65,373 1,600 63,392 7,250 Cypress Semiconductor Corporation 155,585 3,750 80,475 3,500 75,110 46,900 Dell, Inc. 1,694,028 23,800 859,656 23,100 834,372 3,810 Electronic Arts, Inc. 377,342 1,960 194,118 1,850 183,224 3,950 Electronics for Imaging, Inc. 107,045 2,050 55,555 1,900 51,490 56,680 EMC Corporation 784,451 28,850 399,284 27,830 385,167 3,850 Emulex Corporation 109,032 1,950 55,224 1,900 53,808 21,150 First Data Corporation 755,055 10,800 385,560 10,350 369,495 4,900 Fiserv, Inc. 173,068 2,450 86,534 2,450 86,534 10,650 Flextronics International, Ltd. 149,100 5,450 76,300 5,200 72,800 13,534 Hewlett-Packard Company 301,944 6,900 153,939 6,634 148,005 82,200 Intel Corporation 2,716,714 41,900 1,384,795 40,300 1,331,919 9,940 International Business Machines 889,431 5,050 451,874 4,890 437,557 Corporation 2,700 Internet Security Systems, Inc. 44,307 1,500 24,615 1,200 19,692 2,600 Intuit, Inc. 129,948 1,300 64,974 1,300 64,974 7,200 Jabil Circuit, Inc. 200,520 3,650 101,652 3,550 98,868 9,250 JDS Uniphase Corporation 32,837 4,700 16,685 4,550 16,152 2,900 KLA-Tencor Corporation 166,257 1,500 85,995 1,400 80,262 2,850 Lexmark International, Inc. 209,788 1,450 106,734 1,400 103,054 11,250 Linear Technology Corporation 479,363 5,750 245,008 5,500 234,355 79,100 Lucent Technologies, Inc. 253,120 40,450 129,440 38,650 123,680 2,600 Marvell Technology Group, Ltd. $114,062 1,300 $57,031 1,300 $57,031 10,150 Maxim Integrated Products, Inc. 504,556 5,200 258,492 4,950 246,064 5,400 Microchip Technology, Inc. 176,634 2,750 89,952 2,650 86,682 114,900 Microsoft Corporation 3,004,632 58,350 1,525,850 56,550 1,478,782 10,300 Motorola, Inc. 139,358 5,250 71,032 5,050 68,326 27,250 Nasdaq (100) Index Tracking Stock 959,745 14,150 498,363 13,100 461,382 5,790 Network Appliance, Inc. 142,897 2,950 72,806 2,840 70,091 5,050 Network Associates, Inc. 70,346 2,600 36,218 2,450 34,128 34,315 Nokia Corporation ADR 583,011 17,565 298,429 16,750 284,582 45,350 Nortel Networks Corporation 201,808 23,000 102,350 22,350 99,458 6,150 Novellus Systems, Inc. 253,933 3,100 127,999 3,050 125,934 57,170 Oracle Corporation 683,753 29,000 346,840 28,170 336,913 9,300 Paychex, Inc. 361,956 4,750 184,870 4,550 177,086 11,300 PeopleSoft, Inc. 234,588 5,750 119,370 5,550 115,218 11,600 QUALCOMM, Inc. 551,000 5,900 280,250 5,700 270,750 7,100 SAP AG 259,434 3,600 131,544 3,500 127,890 3,000 Semtech Corporation 66,600 1,550 34,410 1,450 32,190 17,950 Siebel Systems, Inc. 225,990 9,150 115,198 8,800 110,792 8,050 Skyworks Solutions, Inc. 69,069 4,100 35,178 3,950 33,891 2,050 Storage Technology Corporation 49,405 1,050 25,305 1,000 24,100 4,200 Symantec Corporation 279,930 2,150 143,298 2,050 136,632 21,452 Taiwan Semiconductor Manufacturing 237,259 10,874 120,266 10,578 116,993 Company, Ltd. ADR 2,600 Tech Data Corporation 85,592 1,350 44,442 1,250 41,150 24,100 Texas Instruments, Inc. 696,972 12,250 354,270 11,850 342,702 7,150 Unisys Corporation 109,824 3,600 55,296 3,550 54,528 13,000 United Microelectronics Corporation 68,250 6,600 34,650 6,400 33,600 ADR 7,500 VeriSign, Inc. 119,025 3,800 60,306 3,700 58,719 17,650 VERITAS Software Corporation 638,047 8,950 323,542 8,700 314,505 9,820 Xilinx, Inc. 311,294 5,000 158,500 4,820 152,794 8,350 Yahoo!, Inc. 364,895 4,250 185,725 4,100 179,170 Total Information Technology 27,144,117 13,831,882 13,312,235 Materials - 0.3% 3,050 Alcoa, Inc. 96,289 1,550 48,934 1,500 47,355 3,800 Peabody Energy Corporation 126,654 1,950 64,994 1,850 61,660 Total Materials 222,943 113,928 109,015 Miscellaneous - 0.2% 2,300 S&P 400 Mid-Cap Depository Receipts 231,334 1,200 120,696 1,100 110,638 Total Miscellaneous 231,334 120,696 110,638 Total Common Stock 83,259,995 42,415,632 40,844,363 (cost $74,862,663) The AAL Aggressive Growth Fund/1/ The AAL Aggressive The AAL Aggressive Lutheran Brotherhood Pro-Forma Growth Fund/1/ Growth Fund Growth Fund Combined Pro-Forma Principal Combined Principal Principal Amount Short-Term Investments - 2.1% Value Amount Value Amount Value $1,000,000 Amsterdam Funding Corporation 1.050 11/3/2003 $999,942 0 $0 1,000,000 $999,942 784,049 The AAL Money Market Fund 0.528 11/1/2003 784,049 784,049 784,049 0 0 Total Short-Term Investments 1,783,991 784,049 999,942 (at amortized cost) Total Investments $85,043,986 $43,199,681 $41,844,305 (cost $76,646,654) /1/ Lutheran Brotherhood Growth Fund is the accounting survivor. The AAL International Fund Schedule of Investments as of October 31, 2003 The AAL The AAL The AAL Lutheran Brotherhood International Fund/1/ International Fund/1/ International Fund World Growth Fund Pro-Forma Pro-Forma Combined Combined Shares Common Stock - 98.1% Value Shares Value Shares Value Australia - 1.6% 381,718 BHP Billiton, Ltd. $3,143,831 346,355 $2,852,581 35,363 $291,250 1 BHP Steel, Ltd. 4 1 4 0 0 31,000 Coles Myer Limited 171,157 0 0 31,000 171,157 69,890 News Corporation, Ltd. 516,615 0 0 69,890 516,615 Total Australia 3,831,607 2,852,585 979,022 Belgium - 0.2% 21,530 Dexia SA 339,281 0 0 21,530 339,281 4,470 Fortis 79,753 0 0 4,470 79,753 7,100 Fortis (Amsterdam Exchange) 125,978 0 0 7,100 125,978 2,684 UCB SA 84,651 0 0 2,684 84,651 Total Belgium 629,663 0 629,663 Brazil - 0.5% 19,944 Banco Itau Holding Financeira SA ADR 814,712 19,944 814,712 0 0 3,594 Companhia Brasileira de Distribuicao 72,347 0 0 3,594 72,347 Grupo Pao de Acucar ADR 20,090 Petroleo Brasileiro SA - Petrobras ADR 437,158 0 0 20,090 437,158 Total Brazil 1,324,217 814,712 509,505 Canada - 0.1% 2,990 Alcan, Inc. 119,328 0 0 2,990 119,328 2,240 Royal Bank of Canada 107,887 0 0 2,240 107,887 Total Canada 227,215 0 227,215 Denmark - 0.2% 12,672 Novo Nordisk A/S 455,792 0 0 12,672 455,792 Total Denmark 455,792 0 455,792 Finland - 0.5% 66,384 Nokia Oyj 1,125,595 0 0 66,384 1,125,595 Total Finland 1,125,595 0 1,125,595 France - 11.7% 61,569 Accor SA $2,418,748 61,569 $2,418,748 0 $0 12,941 Aventis SA 684,752 0 0 12,941 684,752 26,156 Axa 495,796 0 0 26,156 495,796 25,514 Banque Nationale de Paris 1,340,416 0 0 25,514 1,340,416 45,761 Carrefour SA 2,405,644 45,761 2,405,644 0 0 10,744 Compagnie de Saint-Gobain 451,992 0 0 10,744 451,992 21,448 Credit Agricole SA 455,547 0 0 21,448 455,547 118,435 France Telecom SA 2,860,298 89,535 2,162,340 28,900 697,958 850 Groupe Danone 128,261 0 0 850 128,261 3,373 Hermes International 581,761 0 0 3,373 581,761 27,555 L'Oreal SA 2,037,315 21,724 1,606,192 5,831 431,123 1,042 LAFARGE SA 74,678 0 0 1,042 74,678 8,819 LVMH Moet Hennessy Louis Vuitton SA 610,679 0 0 8,819 610,679 29,741 Pinault-Printemps-Redoute SA 3,030,173 28,069 2,859,821 1,672 170,352 1,955 Renault SA 129,233 0 0 1,955 129,233 16,033 Sanofi-Synthelabo SA 993,446 0 0 16,033 993,446 8,850 Schneider Electric SA 518,016 0 0 8,850 518,016 2,669 Societe Generale 198,203 0 0 2,669 198,203 23,023 Societe Television Francaise 1 690,476 0 0 23,023 690,476 15,578 Sodexho Alliance SA 408,429 0 0 15,578 408,429 10,600 Thomson Multimedia SA 224,388 0 0 10,600 224,388 36,494 Total SA 5,684,634 21,984 3,424,426 14,510 2,260,208 35,171 Valeo SA 1,312,481 35,171 1,312,481 0 0 7,206 Vivendi Universal SA 151,365 0 0 7,206 151,365 Total France 27,886,731 16,189,652 11,697,079 Germany - 6.8% 17,557 Adidas-Salomon AG 1,626,706 17,557 1,626,706 0 0 33,413 Allianz AG 3,582,128 31,109 3,335,122 2,304 247,006 4,368 Bayer AG 105,281 0 0 4,368 105,281 7,156 Bayerische Hypo-Und Vereinsbank AG 157,645 0 0 7,156 157,645 17,600 Bayerische Motoren Werke AG 704,859 17,600 704,859 0 0 6,724 Celesia AG 281,404 0 0 6,724 281,404 6,913 Deutsche Bank AG 455,991 0 0 6,913 455,991 14,067 Deutsche Boerse AG 784,964 14,067 784,964 0 0 3,189 E.ON AG 161,192 0 0 3,189 161,192 1,789 Hypo Real Estate Holding AG 31,196 0 0 1,789 31,196 2,727 Rhoen-Klinikum AG 137,903 0 0 2,727 137,903 1,550 SAP AG 225,097 0 0 1,550 225,097 66,597 Siemens AG 4,496,188 64,217 4,335,506 2,380 160,682 67,987 Volkswagen AG 3,440,694 67,987 3,440,694 0 0 Total Germany 16,191,248 14,227,851 1,963,397 Hong Kong - 3.1% 120,000 BOC Hong Kong (Holdings), Ltd. $207,837 0 $0 120,000 $207,837 30,000 Cheung Kong Holdings, Ltd. 251,150 0 0 30,000 251,150 133,500 China Mobile (Hong Kong), Ltd. 378,734 0 0 133,500 378,734 120,000 Hong Kong & China Gas Company, Ltd. 166,471 0 0 120,000 166,471 341,000 Hutchison Whampoa, Ltd. 2,655,885 307,000 2,391,075 34,000 264,810 298,000 Sun Hung Kai Properties, Ltd. 2,533,535 256,000 2,176,460 42,000 357,075 180,000 Swire Pacific Limit 1,103,661 180,000 1,103,661 0 0 Total Hong Kong 7,297,273 5,671,196 1,626,077 Israel - 0.0% 5,035 Check Point Software Technologies, Ltd. 85,545 0 0 5,035 85,545 Total Israel 85,545 0 85,545 Italy - 6.6% 44,470 Alleanza Assicurazioni SPA 445,088 0 0 44,470 445,088 1,006,925 Banca Intesa SPA 3,392,665 958,223 3,228,572 48,702 164,093 11,100 Banco Popolare di Verona e Novara Scrl 171,465 0 0 11,100 171,465 278,789 Eni SPA 4,427,177 220,900 3,507,898 57,889 919,279 193,832 Fiat SpA 1,523,571 193,832 1,523,571 0 0 341,210 Mediaset SPA 3,453,829 324,912 3,288,856 16,298 164,973 23,505 Mediolanum SPA 163,988 0 0 23,505 163,988 98,626 Telecom Italia Mobile SPA 455,179 0 0 98,626 455,179 159,405 Telecom Italia RNC 276,485 0 0 159,405 276,485 128,634 Telecom Italia SPA 335,716 0 0 128,634 335,716 188,833 UniCredito Italiano SPA 930,972 0 0 188,833 930,972 Total Italy 15,576,135 11,548,897 4,027,238 Japan - 19.7% 180,000 Bridgestone Corporation 2,368,803 180,000 2,368,803 0 0 42,000 Canon, Inc. 2,052,098 32,000 1,563,503 10,000 488,595 13,300 Credit Saison Company, Ltd. 278,755 0 0 13,300 278,755 14,000 Dai Nippon Printing Company, Ltd. 216,689 0 0 14,000 216,689 9,400 Daito Trust Construction Company, Ltd. 290,054 0 0 9,400 290,054 30,000 Daiwa House Industry Company, Ltd. 323,646 0 0 30,000 323,646 63,000 Daiwa Securities Group, Inc. 465,230 0 0 63,000 465,230 123,500 Denso Corporation 2,343,565 110,700 2,100,669 12,800 242,896 3,000 Fanuc, Ltd. 181,270 0 0 3,000 181,270 42 Fuji Television Network, Inc. 224,702 0 0 42 224,702 13,700 Fujisawa Pharmaceutical Company, Ltd. 282,885 0 0 13,700 282,885 2,200 Funai Electric Company, Ltd. 293,511 0 0 2,200 293,511 68,500 Honda Motor Company 2,733,297 56,400 2,250,481 12,100 482,816 2,000 Hoya Corporation 180,932 0 0 2,000 180,932 59,000 Ito-Yokado Company, Ltd. 2,176,115 59,000 2,176,115 0 0 208 Japan Telecom Holdings Company $622,040 0 $0 208 $622,040 1,000 Keyence Corporation 220,719 0 0 1,000 220,719 23,000 Kirin Brewery Company, Ltd. 183,900 0 0 23,000 183,900 2,300 Kyocera Corporation 140,711 0 0 2,300 140,711 20,400 MARUI Company, Ltd. 259,553 0 0 20,400 259,553 294,000 Matsushita Electric Industrial Company, 3,860,912 294,000 3,860,912 0 0 Ltd. 28,000 Mitsubishi Corporation 291,113 0 0 28,000 291,113 193,000 Mitsubishi Estate Company, Ltd. 1,855,834 153,000 1,471,205 40,000 384,629 43,000 Mitsubishi Heavy Industries, Ltd. 118,031 0 0 43,000 118,031 309 Mitsubishi Tokyo Financial Group, Inc. 2,247,626 309 2,247,626 0 0 77,000 Mitsui Fudosan Company, Ltd. 718,174 0 0 77,000 718,174 44,000 Mitsui Trust Holdings, Inc. 235,351 0 0 44,000 235,351 4,300 Murata Manufacturing Company, Ltd. 245,315 4,300 245,315 0 0 55 Nippon Telegraph & Telephone 246,948 0 0 55 246,948 Corporation 418,300 Nissan Motor Company, Ltd. 4,714,287 400,800 4,517,060 17,500 197,227 59,000 Nomura Holdings, Inc. 1,009,788 0 0 59,000 1,009,788 917 NTT DoCoMo, Inc. 1,992,678 615 1,336,420 302 656,258 34,000 OJI Paper Company, Ltd. 181,089 0 0 34,000 181,089 32,000 Oki Electric Industry Company, Ltd. 142,430 0 0 32,000 142,430 23,300 ORIX Corporation 1,979,694 21,900 1,860,742 1,400 118,952 19,590 Rohm Company, Ltd. 2,649,328 15,690 2,121,897 3,900 527,431 21,500 Secom Company, Ltd. 842,403 0 0 21,500 842,403 27,000 Sekisui House, Ltd. 264,692 0 0 27,000 264,692 20,100 Seven-Eleven Japan Company, Ltd. 637,584 0 0 20,100 637,584 46,550 Shin-Etsu Chemical Company, Ltd. 1,737,371 41,200 1,537,695 5,350 199,676 5,000 Shiseido Company, Ltd. 52,498 0 0 5,000 52,498 2,100 SMC Corporation 253,141 0 0 2,100 253,141 5,600 Sony Corporation 197,062 0 0 5,600 197,062 14,000 Sumitomo Corporation 97,635 0 0 14,000 97,635 223,000 Sumitomo Metal Industries 206,904 0 0 223,000 206,904 105 Sumitomo Mitsui Financial Group, Inc. 531,873 0 0 105 531,873 20,000 Suzuki Motor Corporation 289,884 0 0 20,000 289,884 3,200 Takeda Chemical Industries, Ltd. 113,432 0 0 3,200 113,432 58,000 Teijin, Ltd. 172,529 0 0 58,000 172,529 19,500 Tokyo Electron, Ltd. 1,406,185 19,500 1,406,185 0 0 2,000 Toyoda Gosei Company, Ltd. 59,126 0 0 2,000 59,126 12,900 Toyota Motor Corporation 371,338 0 0 12,900 371,338 131 UFJ Holdings, Inc. 562,836 0 0 131 562,836 1,000 Uniden Corporation 19,011 0 0 1,000 19,011 15,000 Yamanouchi Pharmaceutical Company, 378,133 0 0 15,000 378,133 Ltd. 16,000 Yamato Transport Company, Ltd. 212,783 0 0 16,000 212,783 Total Japan 46,733,493 31,064,628 15,668,865 Luxembourg - 0.0% 3,490 SES Global $31,078 0 $0 3,490 $31,078 Total Luxembourg 31,078 0 31,078 Malaysia - 0.4% 149,000 Malayan Banking Berhad 400,002 149,000 400,002 0 0 60,000 Narra Industries Bhd 74,526 0 0 60,000 74,526 146,100 Resorts World Berhad 423,821 146,100 423,821 0 0 Total Malaysia 898,349 823,823 74,526 Mexico - 2.0% 13,800 America Movil SA de CV ADR 328,440 0 0 13,800 328,440 89,596 Cemex SA de CV ADR 2,150,304 89,596 2,150,304 0 0 67,500 Fomento Economico Mexicano SA de CV 239,786 0 0 67,500 239,786 377,000 Grupo Financiero BBVA Bancomer SA de 319,988 0 0 377,000 319,988 CV 19,947 Grupo Televisa SA 772,946 19,947 772,946 0 0 349,590 Wal-Mart de Mexico SA de CV 974,858 248,679 693,460 100,911 281,398 Total Mexico 4,786,322 3,616,710 1,169,612 Netherlands - 4.8% 1,328 Akzo Nobel NV 42,118 0 0 1,328 42,118 26,800 ASM Holding NV 469,062 0 0 26,800 469,062 34,886 Heineken NV 1,245,060 34,886 1,245,060 0 0 38,360 ING Groep NV 798,661 0 0 38,360 798,661 310,055 Koninklijke (Royal) KPN NV 2,352,229 255,755 1,940,283 54,300 411,946 14,600 Koninklijke (Royal) KPN NV (Amersterdam 110,763 0 0 14,600 110,763 Exchange 27,897 Koninklijke (Royal) Philips Electronics 752,489 0 0 27,897 752,489 NV 16,234 Koninklijke Numico NV 366,312 0 0 16,234 366,312 23,590 Reed Elsevier NV 262,959 0 0 23,590 262,959 5,510 Royal Dutch Petroleum Company 244,456 0 0 5,510 244,456 145,881 VNU NV 4,443,248 136,360 4,153,257 9,521 289,991 14,664 Wolters Kluwer NV 206,101 0 0 14,664 206,101 Total Netherlands 11,293,458 7,338,600 3,954,858 Norway - 0.1% 12,000 Orkla ASA 251,202 0 0 12,000 251,202 Total Norway 251,202 0 251,202 Russia - 0.2% 2,680 LUKOIL ADR 216,544 0 0 2,680 216,544 2,300 Oao Gazprom ADR $55,200 0 $0 2,300 $55,200 6,728 YUKOS Oil Company ADR 304,106 0 0 6,728 304,106 Total Russia 575,850 0 575,850 Singapore - 2.1% 201,000 DBS Group Holdings, Ltd. 1,654,529 201,000 1,654,529 0 0 208,000 MobileOne (Asia), Ltd. 162,491 0 0 208,000 162,491 400,472 United Overseas Bank, Ltd. 3,126,346 319,000 2,490,322 81,472 636,024 Total Singapore 4,943,366 4,144,851 798,515 South Korea - 4.1% 41,020 Daewoo Shipbuilding & Narine 552,088 41,020 552,088 0 0 Engineering Company 37,710 Hyundai Motor Company, Ltd. 1,262,204 37,710 1,262,204 0 0 39,746 Kookmin Bank ADR 1,460,666 39,746 1,460,666 0 0 6,295 Posco ADR 182,429 0 0 6,295 182,429 10,680 Samsung Electronics Company, Ltd. 4,257,484 8,350 3,328,651 2,330 928,833 4,590 Shinsegae Company, Ltd. 921,103 4,590 921,103 0 0 1,810 SK Telecom Company, Ltd. 320,485 0 0 1,810 320,485 39,398 SK Telecom Company, Ltd. ADR 772,201 34,498 676,161 4,900 96,040 Total South Korea 9,728,660 8,200,873 1,527,787 Spain - 3.3% 16,902 Acerinox SA 737,041 16,902 737,041 0 0 110 Antena 3 Television 3,586 1 12 109 3,574 186,607 Banco Bilbao Vizcaya Argentaria SA 2,144,917 131,830 1,515,294 54,777 629,623 55,852 Banco Santander Central Hispano SA 535,639 0 0 55,852 535,639 18,671 Endesa SA 296,769 0 0 18,671 296,769 15,150 Gas Natural SDG SA 291,129 0 0 15,150 291,129 17,800 Industria de Diseno Textil SA 367,712 0 0 17,800 367,712 9,351 Repsol YPF SA 162,827 0 0 9,351 162,827 247,654 Telefonica SA 3,087,931 215,310 2,684,642 32,344 403,289 5,450 Telefonica SA ADR 203,830 0 0 5,450 203,830 Total Spain 7,831,381 4,936,989 2,894,392 Sweden - 2.0% 26,105 Autoliv, Inc. 859,663 26,105 859,663 0 0 12,440 Electrolux AB 255,771 0 0 12,440 255,771 25,310 Hennes & Mauritz AB 536,696 0 0 25,310 536,696 38,635 Nordea AB 239,353 0 0 38,635 239,353 2,440 Sandvik AB 72,567 0 0 2,440 72,567 79,289 Securitas AB 975,765 0 0 79,289 975,765 91,071 Telefonaktiebolaget LM Ericsson 155,839 0 0 91,071 155,839 57,037 Volvo AB $1,592,008 57,037 $1,592,008 0 $0 Total Sweden 4,687,662 2,451,671 2,235,991 Switzerland - 4.7% 55,377 Adecco SA 3,261,351 34,907 2,055,799 20,470 1,205,552 74,638 Compagnie Financiere Richemont 1,683,737 74,638 1,683,737 0 0 80,511 Credit Suisse Group 2,838,817 69,391 2,446,726 11,120 392,091 7,467 Nestle SA 1,640,271 0 0 7,467 1,640,271 4,900 Roche Holding AG 405,350 0 0 4,900 405,350 11,863 STMicroelectronics 315,841 0 0 11,863 315,841 17,830 UBS AG 1,094,283 0 0 17,830 1,094,283 Total Switzerland 11,239,650 6,186,262 5,053,388 Taiwan - 2.0% 96,705 Cathay Financial Holding Company, Ltd. 1,593,960 96,705 1,593,960 0 0 109,890 Chinatrust Financial Holdings Company 114,910 0 0 109,890 114,910 126,261 First Financial Management Corporation 1,694,625 126,261 1,694,625 0 0 12,200 MediaTek Incorporation 126,866 0 0 12,200 126,866 169,796 Taiwan Semiconductor Manufacturing 334,310 0 0 169,796 334,310 Company, Ltd. 72,869 Taiwan Semiconductor Manufacturing 805,931 72,869 805,931 0 0 Company, Ltd. ADR Total Taiwan 4,670,602 4,094,516 576,086 Thailand - 0.5% 349,500 Bangkok Bank Public Company, Ltd. 794,855 220,500 516,775 129,000 278,080 376,000 Kasikornbank Public Company, Ltd. 419,290 376,000 419,290 0 0 Total Thailand 1,214,145 936,065 278,080 United Kingdom - 20.9% 17,453 Abbey National plc 166,554 0 0 17,453 166,554 89,407 AstraZeneca plc 4,221,685 70,077 3,308,947 19,330 912,738 9,512 Autonomy Corporation plc 40,661 0 0 9,512 40,661 183,506 BAA plc 1,451,108 183,506 1,451,108 0 0 545,373 BAE SYSTEMS plc 1,700,531 545,373 1,700,531 0 0 35,430 BG Group plc 162,041 0 0 35,430 162,041 62,659 BP Amoco plc 436,795 0 0 62,659 436,795 31,361 Cadbury Schweppes plc 201,045 0 0 31,361 201,045 20,500 Capita Group plc 86,101 0 0 20,500 86,101 4,028 Carnival plc 139,069 0 0 4,028 139,069 26,857 Celltech Group plc 209,465 0 0 26,857 209,465 87,200 Centrica plc 273,009 0 0 87,200 273,009 208,850 Compass Group plc 1,203,767 0 0 208,850 1,203,767 43,046 Diageo plc 507,962 0 0 43,046 507,962 24,000 DS Smith plc $67,231 0 $0 24,000 $67,231 66,990 Electrocomponents plc 395,620 0 0 66,990 395,620 28,370 Friends Provident plc 66,195 0 0 28,370 66,195 4,000 GKN plc 18,746 0 0 4,000 18,746 133,047 GlaxoSmithKline plc 2,863,931 0 0 133,047 2,863,931 26,574 Granada plc 53,103 0 0 26,574 53,103 146,742 Hays plc 304,167 0 0 146,742 304,167 83,705 HBOS plc 974,418 83,705 974,418 0 0 330,591 HSBC Holdings plc 4,964,624 314,991 4,730,264 15,600 234,360 143,868 Imperial Tobacco Group plc 2,385,186 143,868 2,385,186 0 0 123,327 InterContinental Hotels Group plc 1,119,109 123,327 1,119,109 0 0 28,158 Kesa Electricals plc 116,588 0 0 28,158 116,588 801,125 Kingfisher plc 3,847,657 596,734 2,866,004 204,391 981,653 85,341 Next plc 1,710,440 85,341 1,710,440 0 0 507,757 Northumbrian Water Limited, Ltd. 884,719 507,757 884,719 0 0 12,000 Reckitt Benckiser plc 251,821 0 0 12,000 251,821 435,650 Reed Elsevier plc 3,385,399 333,759 2,593,613 101,891 791,786 223,398 Rentokil Initial plc 846,547 223,398 846,547 0 0 47,802 Rio Tinto plc 1,165,077 0 0 47,802 1,165,077 71,984 Royal Bank of Scotland Group plc 1,930,082 0 0 71,984 1,930,082 134,468 Shell Transport & Trading Company plc 842,131 0 0 134,468 842,131 201,185 Smith & Nephew plc 1,598,624 201,185 1,598,624 0 0 15,700 Standard Chartered plc 251,011 0 0 15,700 251,011 183,950 Tesco plc 737,454 0 0 183,950 737,454 86,002 Tomkins plc 409,389 0 0 86,002 409,389 64,747 Unilever plc 552,651 0 0 64,747 552,651 15,488 United Busines Media plc 121,812 0 0 15,488 121,812 2,908,451 Vodafone Group plc 6,114,020 1,837,743 3,863,221 1,070,708 2,250,799 68,800 Woolworths Group plc 53,704 0 0 68,800 53,704 86,650 WPP Group plc 826,594 0 0 86,650 826,594 Total United Kingdom 49,657,843 30,032,731 19,625,112 Total Common Stock 233,174,082 155,132,612 78,041,470 (cost $226,143,204) The AAL International Fund/1/ The AAL The AAL Lutheran Brotherhood Pro-Forma International Fund/1/ International Fund World Growth Fund Combined Pro-Forma Principal Combined Principal Principal Amount Short-Term Investments - 1.9% Value Amount Value Amount Value $280,000 Federal Agricultural Mortgage 0.950 11/3/2003$279,985 0 $0 280,000 $279,985 Corporation Discount Notes 4,200,000 Federal National Mortgage Association 4,199,778 4,200,000 4,199,778 0 0 Discount Notes 0.950 11/3/2003 98,996 SSgA Money Market Fund 0.710 N/A 98,996 98,996 98,996 0 0 Total Short-Term Investments 4,578,759 4,298,774 279,985 (at amortized cost) Total Investments $237,752,841 $159,431,386 $78,321,455 (cost $230,721,963) /1/ Lutheran Brotherhood World Growth Fund is the accounting survivor. The AAL Capital Growth Fund Schedule of Investments as of October 31, 2003 The AAL Capital The AAL Capital The AAL Capital Lutheran Brotherhood Growth Fund/1/ Growth Fund/1/ Growth Fund Fund Pro-Forma Pro-Forma Combined Combined Shares Common Stock - 91.8% Value Shares Value Shares Value Communications Services - 2.3% 407,800 AT&T Wireless Services, Inc. $2,956,550 316,700 $2,296,075 91,100 $660,475 343,300 CenturyTel, Inc. 12,272,975 266,600 9,530,950 76,700 2,742,025 554,200 Nextel Communications, Inc. 13,411,640 430,400 10,415,680 123,800 2,995,960 1,153,671 SBC Communications, Inc. 27,665,030 895,839 21,482,219 257,832 6,182,811 646,400 Sprint Corporation (PCS Group) 2,811,840 501,900 2,183,265 144,500 628,575 889,900 Verizon Communications, Inc. 29,900,640 691,000 23,217,600 198,900 6,683,040 Total Communications Services 89,018,675 69,125,789 19,892,886 Consumer Discretionary - 17.4% 269,900 Clear Channel Communications, Inc. 11,017,318 209,600 8,555,872 60,300 2,461,446 3,988,000 Comcast Corporation 130,088,560 3,096,700 101,014,354 891,300 29,074,206 3,992,600 Cox Communications, Inc. 136,027,882 3,100,300 105,627,221 892,300 30,400,661 430,800 Family Dollar Stores, Inc. 18,787,188 334,500 14,587,545 96,300 4,199,643 437,200 Gannett Company, Inc. 36,772,892 339,500 28,555,345 97,700 8,217,547 1,783,900 Harley-Davidson, Inc. 84,574,699 1,385,200 65,672,332 398,700 18,902,367 1,028,300 Home Depot, Inc. 38,119,081 798,500 29,600,395 229,800 8,518,686 4,502,232 Liberty Media Corporation 45,427,521 3,496,032 35,274,963 1,006,200 10,152,558 366,100 New York Times Company 17,400,733 284,300 13,512,779 81,800 3,887,954 310,640 Starwood Hotels & Resorts Worldwide, 10,477,887 241,240 8,137,025 69,400 2,340,862 Inc. 2,404,340 Tiffany & Company 114,085,933 1,866,963 88,587,394 537,377 25,498,539 353,800 Tribune Company 17,353,890 274,700 13,474,035 79,100 3,879,855 Total Consumer Discretionary 660,133,584 512,599,260 147,534,324 Consumer Staples - 11.4% 514,500 Alberto-Culver Company 32,619,300 399,500 25,328,300 115,000 7,291,000 2,210,900 Altria Group, Inc. 102,806,850 1,716,800 79,831,200 494,100 22,975,650 60,050 Corn Products International, Inc. 2,035,094 46,650 1,580,968 13,400 454,126 299,171 Dean Foods Company 9,049,922 232,321 7,027,710 66,850 2,022,212 826,000 General Mills, Inc. 37,046,100 641,400 28,766,790 184,600 8,279,310 1,950,400 Wal-Mart Stores, Inc. 114,976,080 1,514,500 89,279,775 435,900 25,696,305 3,872,200 Walgreen Company 134,830,004 3,006,800 104,696,776 865,400 30,133,228 Total Consumer Staples 433,363,350 336,511,519 96,851,831 Energy - 7.0% 169,398 Apache Corporation $11,810,428 131,578 $9,173,618 37,820 $2,636,810 455,500 Baker Hughes, Inc. 12,872,430 353,700 9,995,562 101,800 2,876,868 188,900 BJ Services Company 6,197,809 146,700 4,813,227 42,200 1,384,582 214,900 Burlington Resources, Inc. 10,452,736 166,900 8,118,016 48,000 2,334,720 71,000 ChevronTexaco Corporation 5,275,300 55,100 4,093,930 15,900 1,181,370 186,200 ConocoPhillips 10,641,330 144,600 8,263,890 41,600 2,377,440 314,800 ENSCO International, Inc. 8,294,980 244,500 6,442,575 70,300 1,852,405 1,680,600 EOG Resources, Inc. 70,820,484 1,305,000 54,992,700 375,600 15,827,784 2,448,846 Exxon Mobil Corporation 89,578,787 1,901,500 69,556,870 547,346 20,021,917 196,900 Nabors Industries, Ltd. 7,442,820 152,900 5,779,620 44,000 1,663,200 248,000 Noble Corporation 8,513,840 192,600 6,611,958 55,400 1,901,882 278,900 Rowan Companies, Inc. 6,679,655 216,600 5,187,570 62,300 1,492,085 291,100 Schlumberger, Ltd. 13,672,967 226,100 10,619,917 65,000 3,053,050 155,700 Smith International, Inc. 5,796,711 120,900 4,501,107 34,800 1,295,604 Total Energy 268,050,277 208,150,560 59,899,717 Financials - 19.5% 1,006,300 AFLAC, Inc. 36,709,824 781,400 28,505,472 224,900 8,204,352 1,597,100 American Express Company 74,951,903 1,240,200 58,202,586 356,900 16,749,317 2,576,352 American International Group, Inc. 156,719,496 2,000,552 121,693,578 575,800 35,025,918 804,741 Bank of America Corporation 60,943,036 624,900 47,323,677 179,841 13,619,359 1,889,148 Citigroup, Inc. 89,545,615 1,466,948 69,533,335 422,200 20,012,280 907,900 Federal National Mortgage Corporation 65,087,351 705,000 50,541,450 202,900 14,545,901 1,922,340 J.P. Morgan Chase & Company 69,012,006 1,492,740 53,589,366 429,600 15,422,640 116,600 Marsh & McLennan Companies, Inc. 4,984,650 90,500 3,868,875 26,100 1,115,775 1,908,839 MBNA Corporation 47,243,765 1,482,239 36,685,415 426,600 10,558,350 959,850 Morgan Stanley and Company 52,666,969 745,300 40,894,611 214,550 11,772,358 1,275,300 National City Corporation 41,651,298 990,300 32,343,198 285,000 9,308,100 250,600 Northern Trust Corporation 11,640,370 194,600 9,039,170 56,000 2,601,200 513,300 State Street Corporation 26,876,388 398,600 20,870,696 114,700 6,005,692 81,762 Travelers Property Casualty Company, 1,332,720 63,454 1,034,300 18,308 298,420 Class A 167,503 Travelers Property Casualty Company, 2,742,024 130,100 2,129,737 37,403 612,287 Class B Total Financials 742,107,415 576,255,466 165,851,949 Health Care - 12.4% 272,000 AmerisourceBergen Corporation 15,441,440 211,200 11,989,824 60,800 3,451,616 465,400 Amgen, Inc. 28,743,104 361,400 22,320,064 104,000 6,423,040 73,400 Cardinal Health, Inc. 4,355,556 56,900 3,376,446 16,500 979,110 1,691,000 Johnson & Johnson $85,108,030 1,313,100 $66,088,323 377,900 $19,019,707 241,705 Medco Health Solutions, Inc. 8,024,606 187,689 6,231,275 54,016 1,793,331 559,300 Medtronic, Inc. 25,487,301 434,300 19,791,051 125,000 5,696,250 2,004,200 Merck & Company, Inc. 88,685,850 1,556,300 68,866,275 447,900 19,819,575 4,484,675 Pfizer, Inc. 141,715,732 3,482,400 110,043,842 1,002,275 31,671,890 831,700 WellPoint Health Networks, Inc. 73,938,130 645,800 57,411,620 185,900 16,526,510 Total Health Care 471,499,749 366,118,720 105,381,029 Industrials - 6.2% 115,000 CNF, Inc. 4,027,300 89,300 3,127,286 25,700 900,014 503,000 Dover Corporation 19,627,060 390,600 15,241,212 112,400 4,385,848 4,508,400 General Electric Company 130,788,684 3,500,800 101,558,208 1,007,600 29,230,476 818,700 Herman Miller, Inc. 18,805,539 635,700 14,602,029 183,000 4,203,510 195,600 PACCAR, Inc. 15,444,576 151,900 11,994,024 43,700 3,450,552 538,600 United Technologies Corporation 45,614,034 418,200 35,417,358 120,400 10,196,676 Total Industrials 234,307,193 181,940,117 52,367,076 Information Technology - 15.2% 679,800 Applied Materials, Inc. 15,886,926 527,900 12,337,023 151,900 3,549,903 275,500 Arrow Electronics, Inc. 5,881,925 213,900 4,566,765 61,600 1,315,160 2,988,800 Cisco Systems, Inc. 62,705,024 2,320,800 48,690,384 668,000 14,014,640 300,700 Computer Sciences Corporation 11,913,734 233,500 9,251,270 67,200 2,662,464 1,116,400 Dell, Inc. 40,324,368 866,900 31,312,428 249,500 9,011,940 905,300 EMC Corporation 12,529,352 703,000 9,729,520 202,300 2,799,832 1,672,892 First Data Corporation 59,722,244 1,299,032 46,375,442 373,860 13,346,802 384,280 Global Payments, Inc. 16,005,262 298,380 12,427,527 85,900 3,577,735 811,600 Hewlett-Packard Company 18,106,796 630,200 14,059,762 181,400 4,047,034 2,774,200 Intel Corporation 91,687,310 2,154,200 71,196,310 620,000 20,491,000 791,100 International Business Machines 70,787,628 614,300 54,967,564 176,800 15,820,064 Corporation 4,624,400 Microsoft Corporation 120,928,060 3,590,900 93,902,035 1,033,500 27,026,025 2,356,100 Oracle Corporation 28,178,956 1,829,500 21,880,820 526,600 6,298,136 749,200 Texas Instruments, Inc. 21,666,864 581,800 16,825,656 167,400 4,841,208 Total Information Technology 576,324,449 447,522,506 128,801,943 Utilities - 0.4% 310,600 Entergy Corporation 16,741,340 241,200 13,000,680 69,400 3,740,660 Total Utilities 16,741,340 13,000,680 3,740,660 Total Common Stock 3,491,546,032 2,711,224,617 780,321,415 (cost $2,474,691,116) The AAL Capital The AAL Capital The AAL Capital Lutheran Brotherhood Growth Fund/1/ Growth Fund/1/ Growth Fund Fund Pro-Forma Pro-Forma Combined Combined Principal Principal Shares Short-Term Investment - 8.2% Value Amount Value Amount Value $3,370,000 Abbey National North America 1.040 11/3/2003 $3,369,805 0 $0 3,370,000 $3,369,805 20,000,000 Amsterdam Funding Corporation 19,994,750 20,000,000 19,994,750 0 0 1.050 11/10/2003 12,300,000 Amsterdam Funding Corporation 12,287,802 0 0 12,300,000 12,287,802 1.050 12/5/2003 15,000,000 Barton Capital Corporation 1.040 11/13/200314,994,800 15,000,000 14,994,800 0 0 19,000,000 CXC LLC 1.050 12/8/2003 18,979,496 19,000,000 18,979,496 0 0 10,000,000 Eaglefunding Capital Corporation 9,998,833 0 0 10,000,000 9,998,833 1.050 11/5/2003 18,750,000 Falcon Asset Securitization Corporation 18,729,219 18,750,000 18,729,219 0 0 1.050 12/9/2003 5,000,000 Federal Home Loan Bank Discount Notes 4,995,422 5,000,000 4,995,422 0 0 1.030 12/3/2003 5,501,000 Federal Home Loan Mortgage Corporation 5,500,528 5,501,000 5,500,528 0 0 1.030 11/4/2003 3,938,000 Federal Home Loan Mortgage Corporation 3,936,761 3,938,000 3,936,761 0 0 Zero Coupon 11/12/2003 22,000,000 Federal National Mortgage Association 21,997,954 22,000,000 21,997,954 0 0 1.010 11/17/2003 4,900,000 Federal National Mortgage Association 4,895,514 4,900,000 4,895,514 0 0 Discount Notes 1.083 12/3/2003 6,900,000 Kitty Hawk Funding Corporation 6,895,371 0 0 6,900,000 6,895,371 1.050 11/24/2003 10,000,000 Old Line Funding Corporation 1.040 11/20/2003 9,994,511 10,000,000 9,994,511 0 0 5,000,000 Paradigm Funding, LLC 1.050 11/5/2003 4,999,417 0 0 5,000,000 4,999,417 16,500,000 Preferred Receivables Funding 16,482,194 16,500,000 16,482,194 0 0 Corporation 1.050 12/8/2003 7,356,000 River Fuel Trust No. 2 1.070 11/6/2003 7,354,907 7,356,000 7,354,907 0 0 20,000,000 Sheffield Receivables Corporation 19,980,167 20,000,000 19,980,167 0 0 1.050 12/5/2003 10,030,000 Sheffield Receivables Corporation 10,025,319 0 0 10,030,000 10,025,319 1.050 11/17/2003 12,700,000 Swiss Reinsurance Company 1.060 11/24/2003 12,691,399 12,700,000 12,691,399 0 0 12,538,511 The AAL Money Market Fund 0.528 11/1/2003 12,538,511 12,538,511 12,538,511 0 0 18,017,000 Triple A-1 Funding 1.050 11/7/2003 18,013,847 18,017,000 18,013,847 0 0 20,000,000 Tulip Funding Corporation 1.060 11/3/2003 19,998,822 20,000,000 19,998,822 0 0 11,993,000 Tulip Funding Corporation 1.060 12/1/2003 11,982,406 11,993,000 11,982,406 0 0 20,000,000 UBS Finance Corporation 1.040 11/3/2003 19,998,844 0 0 20,000,000 19,998,844 Total Short-Term Investments 310,636,599 243,061,208 67,575,391 (cost $310,633,067) Total Investments $3,802,182,631 $2,954,285,825 $847,896,806 (cost $2,785,324,183) /1/ The AAL Capital Growth Fund is the accounting survivor. The AAL Equity Income Fund Schedule of Investments as of October 31, 2003 The AAL Equity The AAL Equity The AAL Equity Lutheran Brotherhood Income Fund/1/ Income Fund/1/ Income Fund Value Fund Pro-Forma Pro-Forma Combined Combined Shares Common Stock - 97.3% Value Shares Value Shares Value Communications Services - 4.5% 26,100 ALLTEL Corporation $1,233,747 22,400 $1,058,848 3,700 $174,899 196,600 AT&T Wireless Services, Inc. 1,425,350 169,400 1,228,150 27,200 197,200 75,700 BellSouth Corporation 1,991,667 65,100 1,712,781 10,600 278,886 27,700 Nextel Communications, Inc. 670,340 23,800 575,960 3,900 94,380 102,787 SBC Communications, Inc. 2,464,832 88,347 2,118,561 14,440 346,271 108,464 Verizon Communications, Inc. 3,644,390 93,200 3,131,520 15,264 512,870 72,700 Vodafone Group plc ADR 1,537,605 62,500 1,321,875 10,200 215,730 Total Communications Services 12,967,931 11,147,695 1,820,236 Consumer Discretionary - 11.6% 20,300 Abercrombie & Fitch Company 578,550 17,500 498,750 2,800 79,800 8,900 AutoZone, Inc. 855,290 7,600 730,360 1,300 124,930 18,500 Best Buy Company, Inc. 1,078,735 15,900 927,129 2,600 151,606 49,900 Clear Channel Communications, Inc. 2,036,918 42,900 1,751,178 7,000 285,740 42,154 Comcast Corporation 1,429,864 36,231 1,228,956 5,923 200,908 82,670 Fox Entertainment Group, Inc. 2,289,959 71,200 1,972,240 11,470 317,719 51,000 Home Depot, Inc. 1,890,570 43,800 1,623,666 7,200 266,904 16,600 Johnson Controls, Inc. 1,784,998 14,200 1,526,926 2,400 258,072 179,200 Liberty Media Corporation 1,808,128 154,000 1,553,860 25,200 254,268 30,390 Lowe's Companies, Inc. 1,790,883 26,100 1,538,073 4,290 252,810 111,200 McDonald's Corporation 2,781,112 95,600 2,390,956 15,600 390,156 22,200 Sears, Roebuck and Company 1,168,386 19,100 1,005,233 3,100 163,153 72,400 Staples, Inc. 1,941,768 62,200 1,668,204 10,200 273,564 78,220 Target Corporation 3,108,463 67,200 2,670,528 11,020 437,935 52,700 Time Warner, Inc. 805,783 45,300 692,637 7,400 113,146 36,700 Toyota Motor Corporation ADR 2,129,334 31,500 1,827,630 5,200 301,704 29,800 Tribune Company 1,461,690 25,600 1,255,680 4,200 206,010 77,700 Viacom, Inc. 3,097,899 66,900 2,667,303 10,800 430,596 71,000 Walt Disney Company 1,607,440 61,000 1,381,040 10,000 226,400 Total Consumer Discretionary 33,645,770 28,910,349 4,735,421 Consumer Staples - 5.6% 69,100 Altria Group, Inc. 3,213,150 59,400 2,762,100 9,700 451,050 105,530 CVS Corporation $3,712,545 90,700 $3,190,826 14,830 $521,719 44,080 General Mills, Inc. 1,976,988 37,900 1,699,815 6,180 277,173 26,310 Kimberly-Clark Corporation 1,389,431 22,600 1,193,506 3,710 195,925 52,900 Kraft Foods, Inc. 1,539,390 45,500 1,324,050 7,400 215,340 59,500 Kroger Company 1,040,655 51,200 895,488 8,300 145,167 24,400 Procter & Gamble Company 2,398,276 20,900 2,054,261 3,500 344,015 33,000 SUPERVALU, Inc. 832,260 28,400 716,248 4,600 116,012 Total Consumer Staples 16,102,695 13,836,294 2,266,401 Energy - 9.9% 26,275 Apache Corporation 1,831,893 22,565 1,573,232 3,710 258,661 52,900 Baker Hughes, Inc. 1,494,954 45,500 1,285,830 7,400 209,124 49,000 BP plc 2,076,620 42,100 1,784,198 6,900 292,422 47,657 ChevronTexaco Corporation 3,540,915 40,947 3,042,362 6,710 498,553 94,256 ConocoPhillips 5,386,731 80,945 4,626,007 13,311 760,724 52,170 EOG Resources, Inc. 2,198,444 44,800 1,887,872 7,370 310,572 218,100 Exxon Mobil Corporation 7,978,098 187,900 6,873,382 30,200 1,104,716 46,100 Noble Corporation 1,582,613 39,600 1,359,468 6,500 223,145 60,300 Valero Energy Corporation 2,574,810 51,800 2,211,860 8,500 362,950 Total Energy 28,665,078 24,644,211 4,020,867 Financials - 30.1% 39,700 ACE, Ltd. 1,429,200 34,100 1,227,600 5,600 201,600 70,100 Allstate Corporation 2,768,950 60,200 2,377,900 9,900 391,050 58,000 American Express Company 2,721,940 49,800 2,337,114 8,200 384,826 68,400 American International Group, Inc. 4,160,772 58,800 3,576,804 9,600 583,968 93,390 Bank of America Corporation 7,072,425 80,200 6,073,546 13,190 998,879 56,600 Bank One Corporation 2,402,670 48,600 2,063,070 8,000 339,600 249,432 Citigroup, Inc. 11,823,076 214,333 10,159,384 35,099 1,663,692 27,100 Countrywide Financial Corporation 2,848,752 23,300 2,449,296 3,800 399,456 27,700 Equity Office Properties Trust 775,877 23,800 666,638 3,900 109,239 45,040 Federal Home Loan Mortgage 2,528,095 38,700 2,172,231 6,340 355,864 Corporation 56,610 Federal National Mortgage Corporation 4,058,371 48,600 3,484,134 8,010 574,237 16,600 Goldman Sachs Group, Inc. 1,558,740 14,200 1,333,380 2,400 225,360 47,380 Hartford Financial Services Group, Inc. 2,601,162 40,700 2,234,430 6,680 366,732 132,100 J.P. Morgan Chase & Company 4,742,390 113,500 4,074,650 18,600 667,740 23,900 Lehman Brothers Holdings, Inc. 1,720,800 20,500 1,476,000 3,400 244,800 55,200 MBNA Corporation 1,366,200 47,500 1,175,625 7,700 190,575 48,500 Merrill Lynch & Company, Inc. 2,871,200 41,700 2,468,640 6,800 402,560 88,200 MetLife, Inc. 2,769,480 75,800 2,380,120 12,400 389,360 46,900 Morgan Stanley and Company 2,573,403 40,300 2,211,261 6,600 362,142 29,100 National City Corporation 950,406 25,000 816,500 4,100 133,906 41,800 Prudential Financial, Inc. $1,615,152 35,900 $1,387,176 5,900 $227,976 19,900 Simon Property Group, Inc. 897,092 17,100 770,868 2,800 126,224 49,300 SouthTrust Corporation 1,570,205 42,400 1,350,440 6,900 219,765 37,000 St. Paul Companies, Inc. 1,410,810 31,800 1,212,534 5,200 198,276 79,100 Travelers Property Casualty Company 1,294,867 68,200 1,116,434 10,900 178,433 143,500 U.S. Bancorp 3,906,070 123,300 3,356,226 20,200 549,844 75,200 Wachovia Corporation 3,449,424 64,600 2,963,202 10,600 486,222 37,830 Washington Mutual, Inc. 1,655,063 32,500 1,421,875 5,330 233,188 101,700 Wells Fargo & Company 5,727,744 87,400 4,922,368 14,300 805,376 25,470 XL Capital, Ltd. 1,770,165 21,900 1,522,050 3,570 248,115 Total Financials 87,040,501 74,781,496 12,259,005 Health Care - 5.8% 20,100 Aetna, Inc. 1,153,941 17,300 993,193 2,800 160,748 21,900 Anthem, Inc. 1,498,617 18,800 1,286,484 3,100 212,133 10,500 CIGNA Corporation 599,025 9,000 513,450 1,500 85,575 112,500 IVAX Corporation 2,166,750 96,700 1,862,442 15,800 304,308 23,960 Johnson & Johnson 1,205,907 20,600 1,036,798 3,360 169,109 92,800 McKesson Corporation 2,809,056 79,800 2,415,546 13,000 393,510 4,208 Medco Health Solutions, Inc. 139,705 3,642 120,914 566 18,791 35,200 Merck & Company, Inc. 1,557,600 30,200 1,336,350 5,000 221,250 108,700 Pfizer, Inc. 3,434,920 93,400 2,951,440 15,300 483,480 52,600 Wyeth Corporation 2,321,764 45,200 1,995,128 7,400 326,636 Total Health Care 16,887,285 14,511,745 2,375,540 Industrials - 10.6% 19,700 Boeing Company 758,253 16,900 650,481 2,800 107,772 51,700 Burlington Northern Santa Fe 1,496,198 44,400 1,284,936 7,300 211,262 39,900 Caterpillar, Inc. 2,923,872 34,300 2,513,504 5,600 410,368 84,000 Cendant Corporation 1,716,120 72,200 1,475,046 11,800 241,074 22,600 Dover Corporation 881,852 19,400 756,988 3,200 124,864 9,900 Emerson Electric Company 561,825 8,500 482,375 1,400 79,450 24,800 FedEx Corporation 1,878,848 21,300 1,613,688 3,500 265,160 9,600 General Dynamics Corporation 803,520 8,200 686,340 1,400 117,180 54,800 General Electric Company 1,589,748 47,100 1,366,371 7,700 223,377 57,958 Honeywell International, Inc. 1,774,094 49,850 1,525,908 8,108 248,186 10,300 Illinois Tool Works, Inc. 757,565 8,800 647,240 1,500 110,325 27,400 Lockheed Martin Corporation 1,270,264 23,500 1,089,460 3,900 180,804 64,700 Masco Corporation 1,779,250 55,600 1,529,000 9,100 250,250 14,300 Northrop Grumman Corporation 1,278,420 12,300 1,099,620 2,000 178,800 40,140 Pitney Bowes, Inc. 1,649,754 34,500 1,417,950 5,640 231,804 21,600 Raytheon Company 571,968 18,600 492,528 3,000 79,440 60,700 Republic Services, Inc. $1,411,275 52,200 $1,213,650 8,500 $197,625 101,300 Tyco International, Ltd. 2,115,144 87,100 1,818,648 14,200 296,496 31,200 Union Pacific Corporation 1,953,120 26,800 1,677,680 4,400 275,440 40,900 United Technologies Corporation 3,463,821 35,100 2,972,619 5,800 491,202 Total Industrials 30,634,911 26,314,032 4,320,879 Information Technology - 9.8% 83,420 Applied Materials, Inc. 1,949,525 71,900 1,680,303 11,520 269,222 73,600 Cisco Systems, Inc. 1,544,128 63,300 1,328,034 10,300 216,094 46,400 Computer Associates International, Inc. 1,091,328 40,000 940,800 6,400 150,528 19,900 Computer Sciences Corporation 788,438 17,100 677,502 2,800 110,936 54,720 First Data Corporation 1,953,504 47,000 1,677,900 7,720 275,604 26,300 Fiserv, Inc. 928,916 22,600 798,232 3,700 130,684 56,100 Harris Corporation 2,088,042 48,200 1,794,004 7,900 294,038 207,700 Hewlett-Packard Company 4,633,787 178,500 3,982,335 29,200 651,452 77,300 Intel Corporation 2,554,765 66,400 2,194,520 10,900 360,245 25,150 International Business Machines 2,250,422 21,600 1,932,768 3,550 317,654 Corporation 79,000 Microsoft Corporation 2,065,850 67,900 1,775,585 11,100 290,265 156,300 Motorola, Inc. 2,114,739 134,400 1,818,432 21,900 296,307 34,600 Nokia Corporation ADR 587,854 29,800 506,302 4,800 81,552 73,300 Oracle Corporation 876,668 63,000 753,480 10,300 123,188 26,600 Storage Technology Corporation 641,060 22,900 551,890 3,700 89,170 81,100 Texas Instruments, Inc. 2,345,412 69,900 2,021,508 11,200 323,904 Total Information Technology 28,414,438 24,433,595 3,980,843 Materials - 5.8% 85,050 Alcoa, Inc. 2,685,029 73,100 2,307,767 11,950 377,262 34,200 BASF AG 1,573,200 29,400 1,352,400 4,800 220,800 50,400 E.I. du Pont de Nemours and Company 2,036,160 43,300 1,749,320 7,100 286,840 72,140 International Paper Company 2,838,709 62,000 2,439,700 10,140 399,009 22,900 Praxair, Inc. 1,593,382 19,700 1,370,726 3,200 222,656 107,500 United States Steel Corporation 2,542,375 92,400 2,185,260 15,100 357,115 60,400 Weyerhaeuser Company 3,637,892 52,000 3,131,960 8,400 505,932 Total Materials 16,906,747 14,537,133 2,369,614 Utilities - 3.6% 48,570 Dominion Resources, Inc. 2,991,912 41,700 2,568,720 6,870 423,192 25,000 Entergy Corporation 1,347,500 21,500 1,158,850 3,500 188,650 37,800 Exelon Corporation 2,398,410 32,500 2,062,125 5,300 336,285 45,100 FirstEnergy Corporation 1,550,989 38,800 1,334,332 6,300 216,657 33,200 FPL Group, Inc. 2,116,168 28,500 1,816,590 4,700 299,578 Total Utilities 10,404,979 8,940,617 1,464,362 Total Common Stock 281,670,335 242,057,167 39,613,168 (cost $257,730,503) The AAL Equity Income Fund/1/ The AAL Equity The AAL Equity Lutheran Brotherhood Pro-Forma Income Fund/1/ Income Fund Value Fund Combined Pro-Forma Principal Combined Principal Principal Amount Short-Term Investments - 2.7% Value Amount Value Amount Value $1,700,000 Federal Agricultural Mortgage 0.950 11/3/2003 $1,699,910 0 $0 1,700,000 $1,699,910 Corporation Discount Notes 5,977,697 The AAL Money Market Fund 0.528 11/1/2003 5,977,697 5,977,697 5,977,697 0 0 Total Short-Term Investments 7,677,607 5,977,697 1,699,910 (at amortized cost) Total Investments $289,347,942 $248,034,864 $41,313,078 (cost $265,408,110) /1/ The Lutheran Brotherhood Value Fund is the accounting survivor. The AAL Municipal Bond Fund Schedule of Investments as of October 31, 2003 The AAL Municipal Bond Fund/1/ The AAL The AAL Municipal Pro-Forma Municipal Bond Fund/1/ Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Alabama - 0.9% $1,000,000 Alabama 21st Century Authority Tobacco Settlement Revenue Bonds $ 926,880 5.75% 12/1/2020 1,000,000 $926,880 10,000,000 Huntsville, Alabama Health Care Authority 10,218,500 5.75% 6/1/2032 5,000,000 5,109,250 Revenue Bonds (Series B) Total Alabama 11,145,380 6,036,130 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Alabama - 0.9% Amount Value $1,000,000 Alabama 21st Century Authority Tobacco Settlement Revenue Bonds $ 0 $0 10,000,000 Huntsville, Alabama Health Care Authority 000,000 5,109,250 Revenue Bonds (Series B) Total Alabama 5,109,250 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Alaska - 0.5% 3,155,000 Alaska Energy Authority Power Revenue 3,233,591 5.0% 7/1/2021 0 0 Refunding Bonds (Bradley Lake) (Series 5) (FSA Insured) 3,730,000 Northern Tobacco Securitization Corporation 3,617,951 6.2% 6/1/2022 3,730,000 3,617,951 Alaska Tobacco Settlement Revenue Bonds Total Alaska 6,851,542 3,617,951 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Alaska - 0.5% Amount Value 3,155,000 Alaska Energy Authority Power Revenue 3,155,000 3,233,591 Refunding Bonds (Bradley Lake) (Series 5) (FSA Insured) 3,730,000 Northern Tobacco Securitization Corporation 0 0 Alaska Tobacco Settlement Revenue Bonds Total Alaska 3,233,591 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Arizona - 1.3% 720,000 Arizona Health Facilities Authority Revenue 732,204 4.0% 6/1/2004 720,000 732,204 Bonds (Arizona Healthcare Pooled Financing) (FGIC Insured) 750,000 Arizona Health Facilities Authority Revenue 781,650 4.0% 6/1/2005 750,000 781,650 Bonds (Arizona Healthcare Pooled Financing) (FGIC Insured) 780,000 Arizona Health Facilities Authority Revenue 828,625 4.25% 6/1/2006 780,000 828,625 Bonds (Arizona Healthcare Pooled Financing) (FGIC Insured) 815,000 Arizona Health Facilities Authority Revenue 879,336 4.5% 6/1/2007 815,000 879,336 Bonds (Arizona Healthcare Pooled Financing) (FGIC Insured) 975,000 Arizona Health Facilities Authority Revenue 1,073,026 5.0% 6/1/2011 975,000 1,073,026 Bonds (Arizona Healthcare Pooled Financing) (FGIC Insured) 1,020,000 Arizona Health Facilities Authority Revenue 1,111,433 5.0% 6/1/2012 1,020,000 1,111,433 Bonds (Arizona Healthcare Pooled Financing) (FGIC Insured) 500,000 Glendale, Arizona Industrial Development 531,570 5.75% 5/15/2021 0 0 Authority (Midwestern University) (Series A) 1,000,000 Maricopa County, Arizona Elementary School 1,043,950 5.125% 7/1/2012 1,000,000 1,043,950 District #068 Alhambra Prerefunded General Obligation Bonds (AMBAC Insured) 2,250,000 Phoenix, Arizona Civic Improvement 2,684,880 6.0% 7/1/2020 0 0 Corporation Wastewater System Revenue Bonds (FGIC Insured) $2,000,000 Phoenix, Arizona Industrial Development $2,121,520 5.375% 9/15/2020 0 $0 Authority Government Office Lease Revenue Bonds (Capital Mall Project) (AMBAC Insured) 230,000 Phoenix, Arizona Industrial Development 238,623 5.875% 6/1/2016 230,000 238,623 Authority Single Family Mortgage Revenue Bonds (Series 1A) (GNMA/FNMA/FHLMC Insured) 450,000 Pima County, Arizona Industrial Development 449,352 6.75% 7/1/2031 450,000 449,352 Authority Educational Revenue Bonds (Arizona Charter Schools Project) (Series A) 1,285,000 Pima County, Arizona Industrial Development 1,384,947 7.0% 12/20/2031 1,285,000 1,384,947 Authority Multifamily Bonds (La Hacienda Project) (GNMA/FHA Insured) 1,700,000 Pima County, Arizona Unified School District 1,910,290 8.9% 7/1/2005 0 0 #16 Catalina Foothills (Series A) (MBIA Insured) 1,000,000 Pinal County, Arizona Unified School District 1,119,730 5.8% 7/1/2011 0 0 #43 Apache Junction (Series A) (FGIC Insured) 500,000 Yavapai County Arizona Hospital Revenue 501,625 6.0% 8/1/2033 0 0 (Yavapai Regional Medical Center) (Series A) Total Arizona 17,392,761 8,523,146 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Arizona - 1.3% Amount Value 720,000 Arizona Health Facilities Authority Revenue 0 0 Bonds (Arizona Healthcare Pooled Financing) (FGIC Insured) 750,000 Arizona Health Facilities Authority Revenue 0 0 Bonds (Arizona Healthcare Pooled Financing) (FGIC Insured) 780,000 Arizona Health Facilities Authority Revenue 0 0 Bonds (Arizona Healthcare Pooled Financing) (FGIC Insured) 815,000 Arizona Health Facilities Authority Revenue 0 0 Bonds (Arizona Healthcare Pooled Financing) (FGIC Insured) 975,000 Arizona Health Facilities Authority Revenue 0 0 Bonds (Arizona Healthcare Pooled Financing) (FGIC Insured) 1,020,000 Arizona Health Facilities Authority Revenue 0 0 Bonds (Arizona Healthcare Pooled Financing) (FGIC Insured) 500,000 Glendale, Arizona Industrial Development 500,000 531,570 Authority (Midwestern University) (Series A) 1,000,000 Maricopa County, Arizona Elementary School 0 0 District #068 Alhambra Prerefunded General Obligation Bonds (AMBAC Insured) 2,250,000 Phoenix, Arizona Civic Improvement 2,250,000 2,684,880 Corporation Wastewater System Revenue Bonds (FGIC Insured) $2,000,000 Phoenix, Arizona Industrial Development $ 2,000,000 $2,121,520 Authority Government Office Lease Revenue Bonds (Capital Mall Project) (AMBAC Insured) 230,000 Phoenix, Arizona Industrial Development 0 0 Authority Single Family Mortgage Revenue Bonds (Series 1A) (GNMA/FNMA/FHLMC Insured) 450,000 Pima County, Arizona Industrial Development 0 0 Authority Educational Revenue Bonds (Arizona Charter Schools Project) (Series A) 1,285,000 Pima County, Arizona Industrial Development 0 0 Authority Multifamily Bonds (La Hacienda Project) (GNMA/FHA Insured) 1,700,000 Pima County, Arizona Unified School District 1,700,000 1,910,290 #16 Catalina Foothills (Series A) (MBIA Insured) 1,000,000 Pinal County, Arizona Unified School District 1,000,000 1,119,730 #43 Apache Junction (Series A) (FGIC Insured) 500,000 Yavapai County Arizona Hospital Revenue 500,000 501,625 (Yavapai Regional Medical Center) (Series A) Total Arizona 8,869,615 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Arkansas - 0.6% 740,000 Arkansas Housing Development Agency Single 895,578 8.375% 7/1/2010 0 0 Family Mortgage Revenue Bonds (FHA Insured) 2,400,000 Arkansas State Community Water System Public 2,445,288 5.0% 10/1/2023 1,400,000 1,426,418 Water Authority Revenue (Series B) (MBIA Insured) 487,500 Arkansas State Development Finance Authority 499,917 7.45% 1/1/2027 487,500 499,917 Single Family Mortgage Revenue Bonds (Series F) (GNMA Insured) (Subject to 'AMT') 3,000,000 Jonesboro, Arkansas Residential Housing and 3,313,830 5.8% 7/1/2011 0 0 Health Care Facilities Revenue Bonds (St. Bernards Regional Medical Center) (AMBAC Insured) 875,000 Pope County, Arkansas Pollution Control 916,650 6.3% 12/1/2016 0 0 Revenue Bonds (Arkansas Power and Light Company Project) (FSA Insured) Total Arkansas 8,071,263 1,926,335 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Arkansas - 0.6% Amount Value 740,000 Arkansas Housing Development Agency Single 740,000 895,578 Family Mortgage Revenue Bonds (FHA Insured) 2,400,000 Arkansas State Community Water System Public 1,000,000 1,018,870 Water Authority Revenue (Series B) (MBIA Insured) 487,500 Arkansas State Development Finance Authority 0 0 Single Family Mortgage Revenue Bonds (Series F) (GNMA Insured) (Subject to 'AMT') 3,000,000 Jonesboro, Arkansas Residential Housing and 3,000,000 3,313,830 Health Care Facilities Revenue Bonds (St. Bernards Regional Medical Center) (AMBAC Insured) 875,000 Pope County, Arkansas Pollution Control 875,000 916,650 Revenue Bonds (Arkansas Power and Light Company Project) (FSA Insured) Total Arkansas 6,144,928 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value California - 9.2% $3,450,000 Anaheim, California Public Financing Authority $3,932,206 6.0% 9/1/2024 $0 0 Lease Revenue Bonds (Public Improvements Project) (Series A) (FSA Insured) 5,000,000 California Infrastructure & Economic Bank 5,070,000 5.0% 7/1/2025 0 0 Revenue (Bay Area Toll Bridges) (1st Lien-A) 815,000 California Rural Home Mortgage Finance 856,524 7.1% 6/1/2031 815,000 856,524 Authority Single Family Mortgage Revenue Bonds (Series D) (GNMA/FNMA Insured)(Subject to 'AMT') 5,000,000 California State Department of Water Resources 5,360,550 5.375% 5/1/2018 5,000,000 5,360,550 Supply Revenue Bonds (Series A) (AMBAC Insured) 10,000,000 California State General Obligation Bonds 10,013,500 5.0% 2/1/2020 0 0 2,000,000 California State General Obligation Bonds 2,370,640 6.3% 9/1/2010 0 0 (AMBAC Insured) 3,000,000 California State Public Works Board Lease 3,659,880 7.4% 9/1/2010 0 0 Revenue Bonds (Department of Corrections State Prison) 4,000,000 California State Public Works Board Lease 4,390,920 5.375% 10/1/2015 0 0 Revenue Bonds (UCLA Replacement Hospital) (Series A) (FSA Insured) 1,500,000 California State Revenue General Obligation 1,688,160 7.0% 8/1/2006 0 0 Bonds 2,000,000 California State Revenue General Obligation 2,030,140 5.25% 11/1/2021 2,000,000 2,030,140 Bonds 300,000 California State Unrefunded General Obligation 315,255 6.0% 8/1/2016 0 0 Bonds (MBIA Insured) 1,000,000 California State Veterans General Obligation 1,315,870 9.5% 2/1/2010 0 0 Revenue Bonds (FGIC) (Series AT) 835,000 Central Valley Financing Authority Cogeneration 854,430 6.0% 7/1/2009 0 0 Project Revenue Bonds (Carson Ice-Gen Project) 4,030,000 Contra Costa County, California Home Mortgage 5,355,427 7.5% 5/1/2014 4,030,000 5,355,427 Revenue Bonds (GNMA Insured) (Escrowed to Maturity) 1,335,000 Foothill/Eastern Transportation Corridor Agency 1,315,763 Zero Coupon 1/1/2005 1,335,000 1,315,763 California Toll Road Revenue Bonds (Series A) 5,000,000 Foothill/Eastern Transportation Corridor Agency 5,573,600 Zero Coupon 1/1/2009 5,000,000 5,573,600 California Toll Road Revenue Bonds (Series A) 5,000,000 Foothill/Eastern Transportation Corridor Agency 5,758,100 Zero Coupon 1/1/2011 5,000,000 5,758,100 California Toll Road Revenue Bonds (Series A) 6,000,000 Foothill/Eastern Transportation Corridor Agency 6,922,980 Zero Coupon 1/1/2013 6,000,000 6,922,980 California Toll Road Revenue Bonds (Series A) 7,145,000 Foothill/Eastern Transportation Corridor Agency 8,244,115 Zero Coupon 1/1/2014 7,145,000 8,244,115 California Toll Road Revenue Bonds (Series A) 420,000 Golden West Schools Financing Authority 483,466 5.8% 2/1/2022 420,000 483,466 California Revenue Bonds (Series A) (MBIA Insured) $740,000 Los Angeles, California Department of Water and $793,413 6.1% 2/15/2017 740,000 $793,413 Power Electric Plant Prerefunded Revenue Bonds 260,000 Los Angeles, California Department of Water and 275,395 6.1% 2/15/2017 260,000 275,395 Power Electric Plant Unrefunded Revenue Bonds 2,000,000 Los Angeles, California Unified School District 2,070,240 5.0% 7/1/2021 2,000,000 2,070,240 Revenue Bonds (MBIA-Series A) 2,385,000 Orange County, California Recovery Certificates 2,634,495 5.8% 7/1/2016 0 0 Of Participation Bonds (Series A) (MBIA Insured) 1,785,000 Palmdale California Civic Authority Revenue 1,858,828 6.6% 9/1/2034 0 0 Bonds (Series A) 5,000,000 Pittsburg, California Redevelopment Agency Tax 1,616,350 Zero Coupon 8/1/2024 0 0 Allocation Bonds (Los Medanos Community Development Project) (AMBAC Insured) 4,200,000 Pomona, California Single Family Mortgage 5,566,932 7.6% 5/1/2023 4,200,000 5,566,932 Revenue Bonds (Series A) (GNMA/FNMA Insured) 2,815,000 Riverside County California Transportation 2,796,759 Zero Coupon 6/1/2004 0 0 Commission Sales Tax Revenue Bonds (Series A) (MBIA/IBC Insured) 3,480,000 Sacramento County, California Single Family 4,924,339 8.25% 1/1/2021 3,480,000 4,924,339 Mortgage Revenue Bonds (Subject to 'AMT') 500,000 Sacramento, California Cogeneration Authority 552,345 6.375% 7/1/2010 0 0 Bonds (Procter and Gamble Project) 500,000 Sacramento, California Cogeneration Authority 538,250 6.375% 7/1/2010 0 0 Revenue Bonds (Procter and Gamble Project) 1,500,000 San Bernardino County, California Single Family 1,981,290 7.5% 5/1/2023 1,500,000 1,981,290 Mortgage Revenue Bonds (Series A) (GNMA Insured) 1,500,000 San Francisco, California Bay Area Rapid Transit 1,827,045 6.75% 7/1/2010 0 0 District Sales Tax Revenue Bonds (AMBAC Insured) 15,000,000 San Joaquin Hills Transportation Corridor 18,502,799 7.65% 1/1/2013 0 0 Agency, California Toll Road Revenue Bonds Total California 121,450,006 57,512,274 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal California - 9.2% Amount Value $3,450,000 Anaheim, California Public Financing Authority 3,450,000 $3,932,206 Lease Revenue Bonds (Public Improvements Project) (Series A) (FSA Insured) 5,000,000 California Infrastructure & Economic Bank 5,000,000 5,070,000 Revenue (Bay Area Toll Bridges) (1st Lien-A) 815,000 California Rural Home Mortgage Finance 0 0 Authority Single Family Mortgage Revenue Bonds (Series D) (GNMA/FNMA Insured)(Subject to 'AMT') 5,000,000 California State Department of Water Resources 0 0 Supply Revenue Bonds (Series A) (AMBAC Insured) 10,000,000 California State General Obligation Bonds 0,000,000 10,013,500 2,000,000 California State General Obligation Bonds 2,000,000 2,370,640 (AMBAC Insured) 3,000,000 California State Public Works Board Lease 3,000,000 3,659,880 Revenue Bonds (Department of Corrections State Prison) 4,000,000 California State Public Works Board Lease 4,000,000 4,390,920 Revenue Bonds (UCLA Replacement Hospital) (Series A) (FSA Insured) 1,500,000 California State Revenue General Obligation 1,500,000 1,688,160 Bonds 2,000,000 California State Revenue General Obligation 0 0 Bonds 300,000 California State Unrefunded General Obligation 300,000 315,255 Bonds (MBIA Insured) 1,000,000 California State Veterans General Obligation 1,000,000 1,315,870 Revenue Bonds (FGIC) (Series AT) 835,000 Central Valley Financing Authority Cogeneration 835,000 854,430 Project Revenue Bonds (Carson Ice-Gen Project) 4,030,000 Contra Costa County, California Home Mortgage 0 0 Revenue Bonds (GNMA Insured) (Escrowed to Maturity) 1,335,000 Foothill/Eastern Transportation Corridor Agency 0 0 California Toll Road Revenue Bonds (Series A) 5,000,000 Foothill/Eastern Transportation Corridor Agency 0 0 California Toll Road Revenue Bonds (Series A) 5,000,000 Foothill/Eastern Transportation Corridor Agency 0 0 California Toll Road Revenue Bonds (Series A) 6,000,000 Foothill/Eastern Transportation Corridor Agency 0 0 California Toll Road Revenue Bonds (Series A) 7,145,000 Foothill/Eastern Transportation Corridor Agency 0 0 California Toll Road Revenue Bonds (Series A) 420,000 Golden West Schools Financing Authority 0 0 California Revenue Bonds (Series A) (MBIA Insured) $740,000 Los Angeles, California Department of Water and 0 $0 Power Electric Plant Prerefunded Revenue Bonds 260,000 Los Angeles, California Department of Water and 0 0 Power Electric Plant Unrefunded Revenue Bonds 2,000,000 Los Angeles, California Unified School District 0 0 Revenue Bonds (MBIA-Series A) 2,385,000 Orange County, California Recovery Certificates 2,385,000 2,634,495 Of Participation Bonds (Series A) (MBIA Insured) 1,785,000 Palmdale California Civic Authority Revenue 1,785,000 1,858,828 Bonds (Series A) 5,000,000 Pittsburg, California Redevelopment Agency Tax 5,000,000 1,616,350 Allocation Bonds (Los Medanos Community Development Project) (AMBAC Insured) 4,200,000 Pomona, California Single Family Mortgage 0 0 Revenue Bonds (Series A) (GNMA/FNMA Insured) 2,815,000 Riverside County California Transportation 2,815,000 2,796,759 Commission Sales Tax Revenue Bonds (Series A) (MBIA/IBC Insured) 3,480,000 Sacramento County, California Single Family 0 0 Mortgage Revenue Bonds (Subject to 'AMT') 500,000 Sacramento, California Cogeneration Authority 500,000 552,345 Bonds (Procter and Gamble Project) 500,000 Sacramento, California Cogeneration Authority 500,000 538,250 Revenue Bonds (Procter and Gamble Project) 1,500,000 San Bernardino County, California Single Family 0 0 Mortgage Revenue Bonds (Series A) (GNMA Insured) 1,500,000 San Francisco, California Bay Area Rapid Transit 1,500,000 1,827,045 District Sales Tax Revenue Bonds (AMBAC Insured) 15,000,000 San Joaquin Hills Transportation Corridor 15,000,000 18,502,799 Agency, California Toll Road Revenue Bonds Total California 63,937,732 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Colorado - 5.5% $2,500,000 Boulder Larimer Weld Counties, Colorado St. $2,494,512 Zero Coupon 12/15/2003 0 $0 Vrain Valley Public School District General Obligation Bonds (Series A) (MBIA Insured) 5,000,000 Boulder Larimer Weld Counties, Colorado St 4,926,350 Zero Coupon 12/15/2004 0 0 Vrain Valley Public School District General Obligation Bonds (Series A) (MBIA Insured) 2,000,000 Colorado Educational and Cultural Facilities 2,003,040 7.25% 9/15/2030 2,000,000 2,003,040 Authority Revenue Bonds (Bromley East Project) (Series A) 570,000 Colorado Educational and Cultural Facilities 576,008 6.0% 4/1/2021 570,000 576,008 Authority Revenue Bonds (Cherry Creek Academy Facility, Inc.) 1,280,000 Colorado Educational and Cultural Facilities 1,289,651 6.0% 4/1/2030 1,280,000 1,289,651 Authority Revenue Bonds (Cherry Creek Academy Facility, Inc.) 2,825,000 Colorado Educational and Cultural Facilities 3,550,686 7.25% 12/1/2030 2,825,000 3,550,686 Authority Revenue Bonds (Classical Academy) 920,000 Colorado Educational and Cultural Facilities 1,006,940 5.25% 12/1/2011 920,000 1,006,940 Authority Revenue Bonds (Pinnacle Charter School Project) 1,000,000 Colorado Educational and Cultural Facilities 1,009,680 5.75% 6/1/2016 0 0 Authority Revenue Bonds (University Lab School Project) 750,000 Colorado Educational and Cultural Facilities 757,815 6.125% 6/1/2021 750,000 757,815 Authority Revenue Bonds (University Lab School Project) 6,250,000 Colorado Educational and Cultural Facilities 6,309,062 6.25% 6/1/2031 5,250,000 5,299,612 Authority Revenue Bonds (University Lab School Project) 1,000,000 Colorado Health Facilities Authority Revenue 1,125,030 6.25% 12/1/2010 1,000,000 1,125,030 Bonds (Evangelical Lutheran Good Samaritan) 5,000,000 Colorado Health Facilities Authority Revenue 5,416,600 6.8% 12/1/2020 2,000,000 2,166,640 Bonds (Evangelical Lutheran Good Samaritan) 1,000,000 Colorado Health Facilities Authority Revenue 1,055,070 6.5% 9/1/2020 0 0 Bonds (Parkview Medical Center Project) 500,000 Colorado Health Facilities Authority Revenue 529,695 6.6% 9/1/2025 0 0 Bonds (Parkview Medical Center Project) 465,000 Colorado Housing and Finance Authority Revenue 482,651 7.45% 10/1/2016 465,000 482,651 Bonds (Single Family Program) (Series A-2) (Subject to 'AMT') 285,000 Colorado Housing and Finance Authority Revenue 292,151 7.25% 4/1/2010 285,000 292,151 Bonds (Single Family Program) (Series A-3) 365,000 Colorado Housing and Finance Authority Revenue 393,455 6.3% 8/1/2012 365,000 393,455 Bonds (Single Family Program) (Series A-3) 2,125,000 Colorado Housing and Finance Authority Revenue 2,280,975 6.7% 8/1/2017 2,125,000 2,280,975 Bonds (Single Family Program) (Series B-3) 340,000 Colorado Housing and Finance Authority Revenue 352,437 7.15% 10/1/2030 340,000 352,437 Bonds (Single Family Program) (Series C-3) (FHA/VA Insured) 195,000 Colorado Housing and Finance Authority Single 202,498 7.0% 11/1/2016 0 0 Family Revenue Bonds (Series A-3) 1,915,000 Colorado Housing and Finance Authority Single 2,030,187 6.35% 11/1/2029 0 0 Family Revenue Bonds (Series D-2) (Subject to 'AMT') 70,000 Colorado Water Resources and Power 70,667 6.25% 9/1/2013 0 0 Development Authority Clean Water Revenue Unrefunded Bonds (Series A) (FSA Insured) $3,525,000 Colorado Water Resources and Power $3,727,617 5.25% 11/1/2021 3,525,000 $3,727,617 Development Authority Small Water Resources Revenue Bonds (Series A) (FGIC Insured) 6,000,000 Denver, Colorado City & County Bonds 6,453,900 5.6% 10/1/2029 0 0 200,000 Denver, Colorado Health and Hospital Authority 212,102 5.25% 12/1/2010 200,000 212,102 Healthcare Revenue Bonds (Series A) 200,000 Denver, Colorado Health and Hospital Authority 205,726 5.25% 12/1/2011 200,000 205,726 Healthcare Revenue Bonds (Series A) 2,000,000 Denver, Colorado Health and Hospital Authority 2,107,620 6.25% 12/1/2016 2,000,000 2,107,620 Healthcare Revenue Bonds (Series A) 1,500,000 Denver, Colorado Health and Hospital Authority 1,498,065 6.0% 12/1/2023 500,000 499,355 Healthcare Revenue Bonds (Series A) 150,000 Douglas County, Colorado School District # RE-1 159,861 6.5% 12/15/2016 0 0 Douglas and Elbert Counties General Obligation Bonds (Series A) (MBIA Insured) 3,350,000 Douglas County, Colorado School District 3,585,002 6.5% 12/15/2016 0 0 Number 1 Douglas and Elbert General Obligation Bonds (Series A) (MBIA Insured) 1,000,000 Eagle Garfield and Routt Counties School District 1,075,820 6.3% 12/1/2012 0 0 General Obligation Bonds (FGIC Insured) 1,890,000 Goldsmith, Colorado Metropolitan District 1,723,396 Zero Coupon 6/1/2007 0 0 Capital Appreciation General Obligation Bonds (MBIA Insured) 1,890,000 Goldsmith, Colorado Metropolitan District 1,645,585 Zero Coupon 6/1/2008 0 0 Capital Appreciation General Obligation Bonds (MBIA Insured) 1,885,000 Goldsmith, Colorado Metropolitan District 1,616,783 Zero Coupon 12/1/2008 0 0 Capital Appreciation General Obligation Bonds (MBIA Insured) 3,000,000 Larimer County, Colorado School District # R 1 3,843,360 7.0% 12/15/2016 0 0 Poudre Valley (MBIA/IBC Insured) 4,000,000 Northwest Parkway Public Highway Authority 2,857,640 Zero Coupon 6/15/2021 4,000,000 2,857,640 Colorado Capital Appreciation Revenue Bonds (Series C) (AMBAC Insured) 3,500,000 Regional Transportation District, Colorado Sales 3,792,425 5.5% 11/1/2021 3,500,000 3,792,425 Tax Revenue Bonds (Series B) (AMBAC Insured) Total Colorado 72,660,062 34,979,576 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Colorado - 5.5% Amount Value $2,500,000 Boulder Larimer Weld Counties, Colorado St. 2,500,000 $2,494,512 Vrain Valley Public School District General Obligation Bonds (Series A) (MBIA Insured) 5,000,000 Boulder Larimer Weld Counties, Colorado St 5,000,000 4,926,350 Vrain Valley Public School District General Obligation Bonds (Series A) (MBIA Insured) 2,000,000 Colorado Educational and Cultural Facilities 0 0 Authority Revenue Bonds (Bromley East Project) (Series A) 570,000 Colorado Educational and Cultural Facilities 0 0 Authority Revenue Bonds (Cherry Creek Academy Facility, Inc.) 1,280,000 Colorado Educational and Cultural Facilities 0 0 Authority Revenue Bonds (Cherry Creek Academy Facility, Inc.) 2,825,000 Colorado Educational and Cultural Facilities 0 0 Authority Revenue Bonds (Classical Academy 920,000 Colorado Educational and Cultural Facilities 0 0 Authority Revenue Bonds (Pinnacle Charter School Project) 1,000,000 Colorado Educational and Cultural Facilities 1,000,000 1,009,680 Authority Revenue Bonds (University Lab School Project) 750,000 Colorado Educational and Cultural Facilities 0 0 Authority Revenue Bonds (University Lab School Project) 6,250,000 Colorado Educational and Cultural Facilities 1,000,000 1,009,450 Authority Revenue Bonds (University Lab School Project) 1,000,000 Colorado Health Facilities Authority Revenue 0 0 Bonds (Evangelical Lutheran Good Samaritan) 5,000,000 Colorado Health Facilities Authority Revenue 3,000,000 3,249,680 Bonds (Evangelical Lutheran Good Samaritan) 1,000,000 Colorado Health Facilities Authority Revenue 1,000,000 1,055,070 Bonds (Parkview Medical Center Project) 500,000 Colorado Health Facilities Authority Revenue 500,000 529,695 Bonds (Parkview Medical Center Project) 465,000 Colorado Housing and Finance Authority Revenue 0 0 Bonds (Single Family Program) (Series A-2) (Subject to 'AMT') 285,000 Colorado Housing and Finance Authority Revenue 0 0 Bonds (Single Family Program) (Series A-3) 365,000 Colorado Housing and Finance Authority Revenue 0 0 Bonds (Single Family Program) (Series A-3) 2,125,000 Colorado Housing and Finance Authority Revenue 0 0 Bonds (Single Family Program) (Series B-3) 340,000 Colorado Housing and Finance Authority Revenue 0 0 Bonds (Single Family Program) (Series C-3) (FHA/VA Insured) 195,000 Colorado Housing and Finance Authority Single 195,000 202,498 Family Revenue Bonds (Series A-3) 1,915,000 Colorado Housing and Finance Authority Single 1,915,000 2,030,187 Family Revenue Bonds (Series D-2) (Subject to 'AMT') 70,000 Colorado Water Resources and Power 70,000 70,667 Development Authority Clean Water Revenue Unrefunded Bonds (Series A) (FSA Insured) $3,525,000 Colorado Water Resources and Power 0 $0 Development Authority Small Water Resources Revenue Bonds (Series A) (FGIC Insured) 6,000,000 Denver, Colorado City & County Bonds 6,000,000 6,453,900 200,000 Denver, Colorado Health and Hospital Authority 0 0 Healthcare Revenue Bonds (Series A) 200,000 Denver, Colorado Health and Hospital Authority 0 0 Healthcare Revenue Bonds (Series A) 2,000,000 Denver, Colorado Health and Hospital Authority 0 0 Healthcare Revenue Bonds (Series A) 1,500,000 Denver, Colorado Health and Hospital Authority 1,000,000 998,710 Healthcare Revenue Bonds (Series A) 150,000 Douglas County, Colorado School District # RE-1 150,000 159,861 Douglas and Elbert Counties General Obligation Bonds (Series A) (MBIA Insured) 3,350,000 Douglas County, Colorado School District 3,350,000 3,585,002 Number 1 Douglas and Elbert General Obligation Bonds (Series A) (MBIA Insured) 1,000,000 Eagle Garfield and Routt Counties School District 1,000,000 1,075,820 General Obligation Bonds (FGIC Insured) 1,890,000 Goldsmith, Colorado Metropolitan District 1,890,000 1,723,396 Capital Appreciation General Obligation Bonds (MBIA Insured) 1,890,000 Goldsmith, Colorado Metropolitan District 1,890,000 1,645,585 Capital Appreciation General Obligation Bonds (MBIA Insured) 1,885,000 Goldsmith, Colorado Metropolitan District 1,885,000 1,616,783 Capital Appreciation General Obligation Bonds (MBIA Insured) 3,000,000 Larimer County, Colorado School District # R 1 3,000,000 3,843,360 Poudre Valley (MBIA/IBC Insured) 4,000,000 Northwest Parkway Public Highway Authority 0 0 Colorado Capital Appreciation Revenue Bonds (Series C) (AMBAC Insured) 3,500,000 Regional Transportation District, Colorado Sales 0 0 Tax Revenue Bonds (Series B) (AMBAC Insured) Total Colorado 37,680,486 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Connecticut - 0.5% 2,000,000 Connecticut State Health and Educational 2,037,160 5.125% 7/1/2027 2,000,000 2,037,160 Facilities Authority Revenue (Yale University) (Series W) 4,000,000 Connecticut State Special Tax Obligation 4,834,480 6.5% 10/1/2010 0 0 Revenue Bonds (Transportation Infrastructure) (Series B) Total Connecticut 6,871,640 2,037,160 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Connecticut - 0.5% Amount Value 2,000,000 Connecticut State Health and Educational 0 0 Facilities Authority Revenue (Yale University) (Series W) 4,000,000 Connecticut State Special Tax Obligation 4,000,000 4,834,480 Revenue Bonds (Transportation Infrastructure) (Series B) Total Connecticut 4,834,480 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value District of Columbia - 0.6% 8,155,000 District of Columbia Tobacco Settlement 7,483,680 6.25% 5/15/2024 8,155,000 7,483,680 Financing Corporation Revenue Bonds Total District of Columbia 7,483,680 7,483,680 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal District of Columbia - 0.6% Amount Value 8,155,000 District of Columbia Tobacco Settlement 0 0 Financing Corporation Revenue Bonds Total District of Columbia 0 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Florida - 1.8% $1,475,000 Brevard County, Florida Housing Finance $1,616,674 6.5% 9/1/2022 1,475,000 $1,616,674 Authority Homeowner Mortgage Revenue Bonds (Series B) (GNMA Insured) 2,245,000 Clay County, Florida Housing Finance Authority 2,319,332 6.0% 4/1/2029 2,245,000 2,319,332 Single Family Mortgage Revenue Bonds (GNMA/FNMA Insured) (Subject to 'AMT') 750,000 Florida Intergovernmental Finance Commission 773,768 5.125% 5/1/2021 0 0 Capital Revenue Bonds 620,000 Florida State Board of Education Capital Outlay 892,292 9.125% 6/1/2014 620,000 892,292 Unrefunded General Obligation Bonds (MBIA Insured) 1,520,000 Florida State Revenue Bonds (Jacksonville 1,565,068 5.0% 7/1/2019 0 0 Transportation) 2,000,000 Highlands County, Florida Health Facilities 2,085,340 6.0% 11/15/2031 2,000,000 2,085,340 Authority Revenue Bonds (Adventist Health System/Sunbelt, Inc.) (Series A) 1,500,000 Jacksonville, Florida Health Facilities Authority 1,728,000 5.75% 8/15/2015 0 0 Revenue Bonds (Series C) 1,145,000 Leon County, Florida Educational Facilities 1,669,399 8.5% 9/1/2017 1,145,000 1,669,399 Authority Certificates of Participation 620,000 Manatee County, Florida Housing Finance 673,903 7.2% 5/1/2028 620,000 673,903 Authority Single Family Mortgage Revenue Bonds (Series 1) (GNMA/FNMA/ FHLMC Insured) (Subject to 'AMT') 1,320,000 Orange County, Florida Health Facilities 1,478,387 5.75% 11/15/2008 1,320,000 1,478,387 Authority Revenue Bonds (Adventist Health Systems) 1,000,000 Orange County, Florida Health Facilities 1,125,510 5.85% 11/15/2010 1,000,000 1,125,510 Authority Revenue Bonds (Adventist Health Systems) 2,000,000 Orange County, Florida Health Facilities 2,403,640 6.25% 10/1/2018 2,000,000 2,403,640 Authority Revenue Bonds (Orlando Regional Healthcare System) (Series A) (MBIA Insured) 1,515,000 Orange County, Florida Housing Finance 1,590,538 5.9% 9/1/2028 1,515,000 1,590,538 Authority Homeowner Revenue Bonds (Series B-1) (GNMA/FNMA Insured) (Subject to 'AMT') $1,090,000 Palm Beach County, Florida Housing Finance $1,144,347 5.9% 10/1/2027 1,090,000 $1,144,347 Authority Single Family Homeowner Revenue Bonds (Series A-1) (GNMA/FNMA Insured) (Subject to 'AMT') 990,000 Pinellas County, Florida Housing Finance 1,028,184 7.25% 9/1/2029 990,000 1,028,184 Authority Single Family Housing Revenue Bonds (Multi-County Program) (Series B-1) (Subject to 'AMT) 1,505,000 Pinellas County, Florida Housing Finance 1,616,942 7.2% 9/1/2029 1,505,000 1,616,942 Authority Single Family Housing Revenue Bonds (Series A-1) (GNMA/FNMA Insured) (Subject to 'AMT') Total Florida 23,711,324 19,644,488 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Florida - 1.8% Amount Value $1,475,000 Brevard County, Florida Housing Finance 0 $0 Authority Homeowner Mortgage Revenue Bonds (Series B) (GNMA Insured) 2,245,000 Clay County, Florida Housing Finance Authority 0 0 Single Family Mortgage Revenue Bonds (GNMA/FNMA Insured) (Subject to 'AMT') 750,000 Florida Intergovernmental Finance Commission 750,000 773,768 Capital Revenue Bonds 620,000 Florida State Board of Education Capital Outlay 0 0 Unrefunded General Obligation Bonds (MBIA Insured) 1,520,000 Florida State Revenue Bonds (Jacksonville 1,520,000 1,565,068 Transportation) 2,000,000 Highlands County, Florida Health Facilities 0 0 Authority Revenue Bonds (Adventist Health System/Sunbelt, Inc.) (Series A) 1,500,000 Jacksonville, Florida Health Facilities Authority 1,500,000 1,728,000 Revenue Bonds (Series C) 1,145,000 Leon County, Florida Educational Facilities 0 Authority Certificates of Participation 620,000 Manatee County, Florida Housing Finance 0 Authority Single Family Mortgage Revenue Bonds (Series 1) (GNMA/FNMA/ FHLMC Insured) (Subject to 'AMT') 1,320,000 Orange County, Florida Health Facilities 0 0 Authority Revenue Bonds (Adventist Health Systems) 1,000,000 Orange County, Florida Health Facilities 0 0 Authority Revenue Bonds (Adventist Health Systems) 2,000,000 Orange County, Florida Health Facilities 0 0 Authority Revenue Bonds (Orlando Regional Healthcare System) (Series A) (MBIA Insured) 1,515,000 Orange County, Florida Housing Finance 0 0 Authority Homeowner Revenue Bonds (Series B-1) (GNMA/FNMA Insured) (Subject to 'AMT') $1,090,000 Palm Beach County, Florida Housing Finance $ 0 $0 Authority Single Family Homeowner Revenue Bonds (Series A-1) (GNMA/FNMA Insured) (Subject to 'AMT') 990,000 Pinellas County, Florida Housing Finance 0 0 Authority Single Family Housing Revenue Bonds (Multi-County Program) (Series B-1) (Subject to 'AMT) 1,505,000 Pinellas County, Florida Housing Finance 0 0 Authority Single Family Housing Revenue Bonds (Series A-1) (GNMA/FNMA Insured) (Subject to 'AMT') Total Florida 4,066,836 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Georgia - 2.3% 2,620,000 Atlanta, Georgia Water and Wastewater Revenue 2,962,434 5.0% 11/1/2038 0 0 Bonds (Series A) (FGIC Insured) 2,000,000 Brunswick, Georgia Water and Sewer Revenue 2,329,260 6.0% 10/1/2011 0 0 Refunding Bonds (MBIA Insured) 1,500,000 Brunswick, Georgia Water and Sewer Revenue 1,810,680 6.1% 10/1/2019 0 0 Refunding Bonds (MBIA Insured) 1,000,000 Chatham County, Georgia Hospital Authority 1,041,400 6.125% 1/1/2024 0 0 Revenue Bonds (Memorial Health University Medical Center) 5,000,000 Cherokee County, Georgia Water and Sewer 5,714,200 5.5% 8/1/2018 0 0 Authority Revenue Refunding Bonds (MBIA Insured) 1,000,000 Georgia State General Obligation Bonds (Series B) 1,175,520 6.3% 3/1/2009 0 0 1,000,000 Georgia State General Obligation Bonds (Series B) 1,185,370 6.3% 3/1/2010 0 0 2,000,000 Georgia State General Obligation Bonds (Series B) 2,295,720 5.65% 3/1/2012 0 0 3,500,000 Georgia State General Obligation Bonds (Series D) 3,870,265 5.0% 8/1/2012 0 0 1,000,000 McDuffie County, Georgia Development 1,043,360 6.95% 12/1/2023 0 0 Authority Waste Disposal Revenue (Temple-Inland, Inc.) 5,000,000 Rockdale County, Georgia Waterand Sewer 5,283,900 5.5% 7/1/2025 0 0 Authority Revenue Bonds (Series A) (MBIA Insured) 1,500,000 Savannah, Georgia Economic Development 1,635,855 6.75% 11/15/2020 1,500,000 1,635,855 Authority Student Housing Revenue Bonds (State University Project) (Series A)(ACA Insured) Total Georgia 30,347,964 1,635,855 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Georgia - 2.3% Amount Value 2,620,000 Atlanta, Georgia Water and Wastewater Revenue 2,620,000 2,962,434 Bonds (Series A) (FGIC Insured) 2,000,000 Brunswick, Georgia Water and Sewer Revenue 2,000,000 2,329,260 Refunding Bonds (MBIA Insured) 1,500,000 Brunswick, Georgia Water and Sewer Revenue 1,500,000 1,810,680 Refunding Bonds (MBIA Insured) 1,000,000 Chatham County, Georgia Hospital Authority 1,000,000 1,041,400 Revenue Bonds (Memorial Health University Medical Center) 5,000,000 Cherokee County, Georgia Water and Sewer 5,000,000 5,714,200 Authority Revenue Refunding Bonds (MBIA Insured) 1,000,000 Georgia State General Obligation Bonds (Series B) 1,000,000 1,175,520 1,000,000 Georgia State General Obligation Bonds (Series B) 1,000,000 1,185,370 2,000,000 Georgia State General Obligation Bonds (Series B) 2,000,000 2,295,720 3,500,000 Georgia State General Obligation Bonds (Series D) 3,500,000 3,870,265 1,000,000 McDuffie County, Georgia Development 1,000,000 1,043,360 Authority Waste Disposal Revenue (Temple-Inland, Inc.) 5,000,000 Rockdale County, Georgia Waterand Sewer 5,000,000 5,283,900 Authority Revenue Bonds (Series A) (MBIA Insured) 1,500,000 Savannah, Georgia Economic Development 0 0 Authority Student Housing Revenue Bonds (State University Project) (Series A)(ACA Insured) Total Georgia 28,712,109 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Hawaii - 1.7% $7,330,000 Hawaii State Highway Revenue Bonds $8,372,766 5.5% 7/1/2018 $0 0 1,000,000 Honolulu, Hawaii City & County (Series A) (FSA 1,029,710 5.25% 9/1/2024 0 0 Insured) 10,000,000 Honolulu, Hawaii City & County (Series A) (FSA 10,276,400 5.25% 3/1/2027 5,000,000 5,138,200 Insured) 2,555,000 Honolulu, Hawaii City & County Revenue Bonds 3,066,077 6.25% 4/1/2014 2,555,000 3,066,077 (Unrefunded Balance) (Series A) (FGIC Insured) Total Hawaii 22,744,953 8,204,277 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Hawaii - 1.7% Amount Value $7,330,000 Hawaii State Highway Revenue Bonds 7,330,000 $8,372,766 1,000,000 Honolulu, Hawaii City & County (Series A) (FSA 1,000,000 1,029,710 Insured) 10,000,000 Honolulu, Hawaii City & County (Series A) (FSA 5,000,000 5,138,200 Insured) 2,555,000 Honolulu, Hawaii City & County Revenue Bonds 0 0 (Unrefunded Balance) (Series A) (FGIC Insured) Total Hawaii 14,540,676 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Idaho - 0.4% 1,000,000 Idaho Falls, Idaho General Obligation Bonds 921,040 Zero Coupon 4/1/2007 0 0 (FGIC Insured) 3,115,000 Idaho Falls, Idaho General Obligation Bonds 2,488,760 Zero Coupon 4/1/2010 0 0 (FGIC Insured) Total Idaho 4,919,620 0 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Idaho - 0.4% Amount Value 1,000,000 Idaho Falls, Idaho General Obligation Bonds 1,000,000 921,040 (FGIC Insured) 3,115,000 Idaho Falls, Idaho General Obligation Bonds 3,115,000 2,488,760 (FGIC Insured) Total Idaho 4,919,620 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Illinois - 8.1% 1,000,000 Alton, Illinois Hospital Facilities Revenue and 992,690 6.0% 9/1/2014 0 0 Refunding Bonds (St. Anthony's Health Center) 2,000,000 Broadview, Illinois Tax Increment Tax 2,067,020 5.25% 7/1/2012 2,000,000 2,067,020 Allocation Bonds 1,000,000 Broadview, Illinois Tax Increment Tax 1,023,630 5.375% 7/1/2015 1,000,000 1,023,630 Allocation Revenue Bonds 10,000,000 Chicago, Illinois Capital Appreciation City 3,370,700 Zero Coupon 1/1/2024 0 0 Colleges General Obligation Bonds (FGIC Insured) 3,000,000 Chicago, Illinois Lakefront Millennium Project 2,685,180 Zero Coupon 1/1/2029 0 0 General Obligation Bonds (MBIA Insured) 345,000 Chicago, Illinois Single Family Mortgage Revenue 354,467 7.25% 9/1/2028 345,000 354,467 Bonds (Series A) (GNMA/FNMA/FHLMC Insured) (Subject to 'AMT') 1,750,000 Chicago, Illinois Single Family Mortgage Revenue 1,827,892 7.05% 10/1/2030 1,750,000 1,827,892 Bonds (Series C) (GNMA/FNMA/FHLMC Insured) (Subject to 'AMT') 580,000 Chicago, Illinois Single Family Mortgage Revenue 605,253 7.0% 3/1/2032 580,000 605,253 Bonds (Series C) (GNMA/FNMA/FHLMC Insured) (Subject to 'AMT') 7,200,000 Chicago, Illinois Tax Increment Capital 4,091,832 Zero Coupon 11/15/2014 7,200,000 4,091,832 Appreciation Tax Allocation Bonds (Series A) (ACA Insured) $1,000,000 Cook County, Illinois Community Consolidated $607,730 Zero Coupon 12/1/2014 1,000,000 $607,730 School District #15 Palatine Capital Appreciation General Obligation Bonds (FGIC Insured) 2,500,000 Cook County, Illinois General Obligation Bonds 2,985,975 6.25% 11/15/2011 0 0 (Series A) (MBIA Insured) 1,250,000 Cook County, Illinois School District #99 Cicero 1,680,412 8.5% 12/1/2011 1,250,000 1,680,412 General Obligation Bonds (FGIC Insured) 1,565,000 Cook County, Illinois School District #99 Cicero 2,201,814 8.5% 12/1/2014 1,565,000 2,201,814 General Obligation Bonds (FGIC Insured) 1,815,000 Cook County, Illinois School District #99 Cicero 2,605,342 8.5% 12/1/2016 1,815,000 2,605,342 General Obligation Bonds (FGIC Insured) 1,710,000 Du Page Cook & Will Counties Illinois 1,808,188 5.0% 1/1/2017 0 0 Community College District Number 502 1,000,000 Du Page County, Illinois General Obligation 1,121,520 5.6% 1/1/2021 1,000,000 1,121,520 Bonds (Stormwater Project) 1,000,000 Illinois Development Finance Authority Revenue 1,074,240 6.0% 5/15/2021 1,000,000 1,074,240 Bonds (Midwestern University) (Series B) 1,000,000 Illinois Development Finance Authority Revenue 1,053,980 6.0% 5/15/2026 0 0 Bonds (Midwestern University) (Series B) 2,365,000 Illinois Development Finance Authority Revenue 972,417 Zero Coupon 1/1/2021 2,365,000 972,417 Bonds (School District #304) (Series A) (FSA Insured) 4,900,000 Illinois Educational Facilities Authority Revenue 5,413,569 5.25% 11/1/2032 4,900,000 5,413,569 Bonds (Northwestern University) 1,000,000 Illinois Educational Facilities Authority Student 1,068,580 6.625% 5/1/2017 0 0 Housing Revenue Bonds (University Center Project) 380,000 Illinois Health Facilities Authority Revenue 433,838 5.25% 11/1/2032 380,000 433,838 Bonds (Series B) (MBIA/IBC Insured) 1,600,000 Illinois Health Facilities Authority Revenue 1,684,592 6.25% 9/1/2014 1,600,000 1,684,592 Bonds (Bethesda Home and Retirement)(Series A) 2,000,000 Illinois Health Facilities Authority Revenue 1,980,620 5.25% 9/1/2018 2,000,000 1,980,620 Bonds (Centegra Health Systems) 2,000,000 Illinois Health Facilities Authority Revenue 2,347,900 6.0% 4/1/2018 0 0 Bonds (Lutheran General Health Care Facilities) (FSA Insured) 2,500,000 Illinois Health Facilities Authority Revenue 2,548,775 6.0% 10/1/2024 2,500,000 2,548,775 Bonds (Passavant Memorial Area Hospital 1,000,000 Illinois Health Facilities Authority Revenue 1,073,650 6.85% 11/15/2029 1,000,000 1,073,650 Bonds (Riverside Health System) 4,180,000 Illinois Health Facilities Authority Revenue 4,530,284 5.25% 11/15/2014 4,180,000 4,530,284 Bonds (Rush-Presbyterian-St. Lukes) (Series A) (MBIA Insured) 3,990,000 Illinois Health Facilities Authority Revenue 4,273,688 6.875% 11/15/2030 1,995,000 2,136,844 Bonds (Swedish American Hospital) $4,655,000 Illinois Health Facilities Authority Revenue $4,307,877 5.25% 8/15/2018 4,655,000 $4,307,877 Bonds (Thorek Hospital and Medical Center) 2,120,000 Illinois Health Facilities Authority Unrefunded 2,269,057 5.25% 8/15/2018 2,120,000 2,269,057 Revenue Bonds (Series B) (MBIA/IBC Insured) 2,000,000 Illinois Sports Facilities Authority State Tax 1,044,780 Zero Coupon 6/15/2017 0 0 Supported Capital Appreciation Revenue Bonds (AMBAC Insured) 1,500,000 Illinois Sports Facilities Authority State Tax 736,515 Zero Coupon 6/15/2018 0 0 Supported Capital Appreciation Revenue Bonds (AMBAC Insured) 1,500,000 Illinois Sports Facilities Authority State Tax 693,030 Zero Coupon 6/15/2019 0 0 Supported Capital Appreciation Revenue Bonds (AMBAC Insured) 7,925,000 Illinois State Sales Tax Revenue Bonds (Second 9,208,137 5.75% 6/15/2018 0 0 Series) 3,065,000 Illinois State Sales Tax Revenue Bonds (Series L) 3,887,646 7.45% 6/15/2012 3,065,000 3,887,646 3,035,000 McHenry County, Illinois Community High 4,571,256 9.0% 12/1/2017 3,035,000 4,571,256 School District #157 General Obligation Bonds (FSA Insured) 4,000,000 McLean County, Illinois Bloomington - Normal 3,765,840 6.05% 12/15/2019 4,000,000 3,765,840 Airport Central Illinois Regional Authority Revenue Bonds (Subject to 'AMT') 1,410,000 Metropolitan Pier and Exposition Authority 1,456,121 5.25% 12/15/2028 0 0 Illinois State Tax Revenue Bonds (McCormick Place Exposition Project) (FGIC Insured) 1,115,000 Metropolitan Pier and Exposition Authority 1,282,518 5.5% 6/15/2015 1,115,000 1,282,518 Illinois State Tax Revenue Bonds (McCormick Place Exposition Project) (Series A) 885,000 Metropolitan Pier and Exposition Authority 1,007,962 5.5% 6/15/2015 885,000 1,007,962 Illinois State Tax Revenue Bonds (McCormick Place Exposition Project) (Series A) (FGIC Insured) 17,505,000 Metropolitan Pier and Exposition Authority 7,463,782 Zero Coupon 6/15/2020 0 0 Illinois State Tax Revenue Bonds (McCormick Place Exposition Project) (Series A) (FGIC Insured) 3,100,000 Metropolitan Pier and Exposition Authority 1,011,344 Zero Coupon 6/15/2024 3,100,000 1,011,344 Illinois State Tax Revenue Bonds (McCormick Place Exposition Project) (Series A) (MBIA Insured) 2,000,000 Metropolitan Pier and Exposition Authority 634,980 Zero Coupon 12/15/2024 2,000,000 634,980 Illinois State Tax Revenue Bonds (McCormick Place Exposition Project) (Series A) (MBIA Insured) 2,000,000 Metropolitan Pier and Exposition Authority 1,341,600 Zero Coupon 6/15/2020 2,000,000 1,341,600 Illinois State Tax Revenue Bonds (McCormick Place Exposition Project) (Series B) (MBIA Insured) 3,000,000 Regional Transportation Authority Illinois 3,691,110 6.7% 11/1/2021 3,000,000 3,691,110 Revenue Bonds (Series A) (FGIC Insured) Total Illinois 106,859,333 67,806,931 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Illinois - 8.1% Amount Value 1,000,000 Alton, Illinois Hospital Facilities Revenue and 1,000,000 992,690 Refunding Bonds (St. Anthony's Health Center) 2,000,000 Broadview, Illinois Tax Increment Tax 0 0 Allocation Bonds 1,000,000 Broadview, Illinois Tax Increment Tax 0 0 Allocation Revenue Bonds 10,000,000 Chicago, Illinois Capital Appreciation City 10,000,000 3,370,700 Colleges General Obligation Bonds (FGIC Insured) 3,000,000 Chicago, Illinois Lakefront Millennium Project 3,000,000 2,685,180 General Obligation Bonds (MBIA Insured) 345,000 Chicago, Illinois Single Family Mortgage Revenue 0 0 Bonds (Series A) (GNMA/FNMA/FHLMC Insured) (Subject to 'AMT') 1,750,000 Chicago, Illinois Single Family Mortgage Revenue 0 0 Bonds (Series C) (GNMA/FNMA/FHLMC Insured) (Subject to 'AMT') 580,000 Chicago, Illinois Single Family Mortgage Revenue 0 0 Bonds (Series C) (GNMA/FNMA/FHLMC Insured) (Subject to 'AMT') 7,200,000 Chicago, Illinois Tax Increment Capital 0 0 Appreciation Tax Allocation Bonds (Series A) (ACA Insured) $1,000,000 Cook County, Illinois Community Consolidated 0 $0 School District #15 Palatine Capital Appreciation General Obligation Bonds (FGIC Insured) 2,500,000 Cook County, Illinois General Obligation Bonds 2,500,000 2,985,975 (Series A) (MBIA Insured) 1,250,000 Cook County, Illinois School District #99 Cicero 0 0 General Obligation Bonds (FGIC Insured) 1,565,000 Cook County, Illinois School District #99 Cicero 0 0 General Obligation Bonds (FGIC Insured) 1,815,000 Cook County, Illinois School District #99 Cicero 0 0 General Obligation Bonds (FGIC Insured) 1,710,000 Du Page Cook & Will Counties Illinois 1,710,000 1,808,188 Community College District Number 502 1,000,000 Du Page County, Illinois General Obligation 0 0 Bonds (Stormwater Project) 1,000,000 Illinois Development Finance Authority Revenue 0 0 Bonds (Midwestern University) (Series B) 1,000,000 Illinois Development Finance Authority Revenue 1,000,000 1,053,980 Bonds (Midwestern University) (Series B) 2,365,000 Illinois Development Finance Authority Revenue 0 0 Bonds (School District #304) (Series A) (FSA Insured) 4,900,000 Illinois Educational Facilities Authority Revenue 0 0 Bonds (Northwestern University) 1,000,000 Illinois Educational Facilities Authority Student 1,000,000 1,068,580 Housing Revenue Bonds (University Center Project) 380,000 Illinois Health Facilities Authority Revenue 0 0 Bonds (Series B) (MBIA/IBC Insured) 1,600,000 Illinois Health Facilities Authority Revenue 0 0 Bonds (Bethesda Home and Retirement)(Series A) 2,000,000 Illinois Health Facilities Authority Revenue 0 0 Bonds (Centegra Health Systems) 2,000,000 Illinois Health Facilities Authority Revenue 2,000,000 2,347,900 Bonds (Lutheran General Health Care Facilities) (FSA Insured) 2,500,000 Illinois Health Facilities Authority Revenue 0 0 Bonds (Passavant Memorial Area Hospital 1,000,000 Illinois Health Facilities Authority Revenue 0 0 Bonds (Riverside Health System) 4,180,000 Illinois Health Facilities Authority Revenue 0 0 Bonds (Rush-Presbyterian-St. Lukes) (Series A) (MBIA Insured) 3,990,000 Illinois Health Facilities Authority Revenue 1,995,000 2,136,844 Bonds (Swedish American Hospital) $4,655,000 Illinois Health Facilities Authority Revenue 0 $0 Bonds (Thorek Hospital and Medical Center) 2,120,000 Illinois Health Facilities Authority Unrefunded 0 0 Revenue Bonds (Series B) (MBIA/IBC Insured) 2,000,000 Illinois Sports Facilities Authority State Tax 2,000,000 1,044,780 Supported Capital Appreciation Revenue Bonds (AMBAC Insured) 1,500,000 Illinois Sports Facilities Authority State Tax 1,500,000 736,515 Supported Capital Appreciation Revenue Bonds (AMBAC Insured) 1,500,000 Illinois Sports Facilities Authority State Tax 1,500,000 693,030 Supported Capital Appreciation Revenue Bonds (AMBAC Insured) 7,925,000 Illinois State Sales Tax Revenue Bonds (Second 7,925,000 9,208,137 Series) 3,065,000 Illinois State Sales Tax Revenue Bonds (Series L) 0 0 3,035,000 McHenry County, Illinois Community High 0 0 School District #157 General Obligation Bonds (FSA Insured) 4,000,000 McLean County, Illinois Bloomington - Normal 0 0 Airport Central Illinois Regional Authority Revenue Bonds (Subject to 'AMT') 1,410,000 Metropolitan Pier and Exposition Authority 1,410,000 1,456,121 Illinois State Tax Revenue Bonds (McCormick Place Exposition Project) (FGIC Insured) 1,115,000 Metropolitan Pier and Exposition Authority 0 0 Illinois State Tax Revenue Bonds (McCormick Place Exposition Project) (Series A) 885,000 Metropolitan Pier and Exposition Authority 0 0 Illinois State Tax Revenue Bonds (McCormick Place Exposition Project) (Series A) (FGIC Insured) 17,505,000 Metropolitan Pier and Exposition Authority 17,505,000 7,463,782 Illinois State Tax Revenue Bonds (McCormick Place Exposition Project) (Series A) (FGIC Insured) 3,100,000 Metropolitan Pier and Exposition Authority 0 0 Illinois State Tax Revenue Bonds (McCormick Place Exposition Project) (Series A) (MBIA Insured) 2,000,000 Metropolitan Pier and Exposition Authority 0 0 Illinois State Tax Revenue Bonds (McCormick Place Exposition Project) (Series A) (MBIA Insured) 2,000,000 Metropolitan Pier and Exposition Authority 0 0 Illinois State Tax Revenue Bonds (McCormick Place Exposition Project) (Series B) (MBIA Insured) 3,000,000 Regional Transportation Authority Illinois 0 0 Revenue Bonds (Series A) (FGIC Insured) Total Illinois 39,052,402 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Indiana - 1.4% $4,000,000 Avon, Indiana Community School Building $4,187,280 5.25% 1/1/2022 0 $0 Corporation Revenue Bonds (First Mortgage) (AMBAC Insured) 700,000 Ball State University, Indiana University Student 770,812 5.75% 7/1/2020 0 0 Fee Revenue Bonds (Series K) (FGIC Insured) 1,250,000 East Chicago, Indiana Elementary School Building 1,470,612 6.25% 1/5/2016 1,250,000 1,470,612 Corporation Revenue Bonds 395,000 Indiana State Housing Authority Single Family 404,322 5.25% 7/1/2017 395,000 404,322 Mortgage Revenue Bonds (Series C-2) (GNMA Insured) 510,000 Indiana Transportation Finance Authority 555,976 5.4% 11/1/2006 510,000 555,976 Airport Facilities Lease Revenue Bonds (Series A) 570,000 Indiana Transportation Finance Authority 666,626 5.75% 6/1/2012 570,000 666,626 Highway Prerefunded Revenue Bonds (Series A) (AMBAC Insured) 985,000 Indiana Transportation Finance Authority 1,219,814 7.25% 6/1/2015 985,000 1,219,814 Highway Prerefunded Revenue Bonds (Series A) (MBIA/IBC Insured) 250,000 Indiana Transportation Finance Authority 306,300 6.8% 12/1/2016 250,000 306,300 Highway Revenue Bonds (Series A) 3,565,000 Indiana Transportation Finance Authority 4,507,336 7.25% 6/1/2015 3,565,000 4,507,336 Highway Unrefunded Revenue Bonds (Series A) (MBIA/IBC Insured) 2,500,000 Petersburg, Indiana Industrial Pollution Control 2,545,000 6.1% 1/1/2016 2,500,000 2,545,000 Revenue Bonds (Indianapolis Power and Light Company) (Series A) (MBIA/IBC Insured) 2,120,000 Purdue University, Indiana Revenue Bonds 2,180,166 5.0% 7/1/2020 0 0 (Student Fees) (Series L) Total Indiana 18,814,244 11,675,986 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Indiana - 1.4% Amount Value $4,000,000 Avon, Indiana Community School Building $4,000,000 $4,187,280 Corporation Revenue Bonds (First Mortgage) (AMBAC Insured) 700,000 Ball State University, Indiana University Student 700,000 770,812 Fee Revenue Bonds (Series K) (FGIC Insured) 1,250,000 East Chicago, Indiana Elementary School Building 0 0 Corporation Revenue Bonds 395,000 Indiana State Housing Authority Single Family 0 0 Mortgage Revenue Bonds (Series C-2) (GNMA Insured) 510,000 Indiana Transportation Finance Authority 0 0 Airport Facilities Lease Revenue Bonds (Series A) 570,000 Indiana Transportation Finance Authority 0 0 Highway Prerefunded Revenue Bonds (Series A) (AMBAC Insured) 985,000 Indiana Transportation Finance Authority 0 0 Highway Prerefunded Revenue Bonds (Series A) (MBIA/IBC Insured) 250,000 Indiana Transportation Finance Authority 0 0 Highway Revenue Bonds (Series A) 3,565,000 Indiana Transportation Finance Authority 0 0 Highway Unrefunded Revenue Bonds (Series A) (MBIA/IBC Insured) 2,500,000 Petersburg, Indiana Industrial Pollution Control 0 0 Revenue Bonds (Indianapolis Power and Light Company) (Series A) (MBIA/IBC Insured) 2,120,000 Purdue University, Indiana Revenue Bonds 2,120,000 2,180,166 (Student Fees) (Series L) Total Indiana 7,138,258 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Iowa - 0.5% 4,500,000 Iowa Finance Authority Health Care Facilities 4,710,060 6.25% 7/1/2025 0 0 Revenue Bonds (Genesis Medical Center) 2,000,000 Iowa Financial Authority Revenue Bonds (Iowa 2,070,680 6.25% 5/1/2024 0 0 State Revolving Fund) Total Iowa 6,780,740 0 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Iowa - 0.5% Amount Value 4,500,000 Iowa Finance Authority Health Care Facilities 4,500,000 4,710,060 Revenue Bonds (Genesis Medical Center) 2,000,000 Iowa Financial Authority Revenue Bonds (Iowa 2,000,000 2,070,680 State Revolving Fund) Total Iowa 6,780,740 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Kansas - 1.6% $920,000 Kansas City, Kansas Utility System Capital $851,856 Zero Coupon 3/1/2007 0 $0 Appreciation Unrefunded Revenue Bonds (AMBAC Insured) 1,255,000 Kansas City, Kansas Utility System Prerefunded 1,163,950 Zero Coupon 3/1/2007 0 0 Capital Appreciation Revenue Bonds (AMBAC Insured) 2,605,000 Kansas City, Kansas Utility System Revenue 2,771,460 6.375% 9/1/2023 0 0 Bonds (FGIC Insured) 9,535,000 Kansas City, Kansas Utility System Unrefunded 10,144,286 6.375% 9/1/2023 4,140,000 4,404,546 Revenue Bonds (FGIC Insured) 1,000,000 Kansas State Development Finance Authority 1,035,320 5.375% 11/15/2024 0 0 Health Facilities Revenue Bonds (Stormont Vail Healthcare) (Series K) 2,000,000 Olathe, Kansas Health Facilities Revenue Bonds 2,069,740 5.5% 9/1/2025 0 0 (Olathe Medical Center Project) (Series A) (AMBAC Insured) 1,250,000 Sedgwick and Shawnee Counties, Kansas Single 1,326,400 6.7% 6/1/2029 1,250,000 1,326,400 Family Mortgage Revenue Bonds (Series A-2) (GNMA Insured) 2,300,000 University of Kansas Hospital Authority Health 2,332,637 5.5% 9/1/2022 2,300,000 2,332,637 Facilities Revenue Bond Total Kansas 21,695,649 8,063,583 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Kansas - 1.6% Amount Value $920,000 Kansas City, Kansas Utility System Capital 920,000 $851,856 Appreciation Unrefunded Revenue Bonds (AMBAC Insured) 1,255,000 Kansas City, Kansas Utility System Prerefunded 1,255,000 1,163,950 Capital Appreciation Revenue Bonds (AMBAC Insured) 2,605,000 Kansas City, Kansas Utility System Revenue 2,605,000 2,771,460 Bonds (FGIC Insured) 9,535,000 Kansas City, Kansas Utility System Unrefunded 5,395,000 5,739,740 Revenue Bonds (FGIC Insured) 1,000,000 Kansas State Development Finance Authority 1,000,000 1,035,320 Health Facilities Revenue Bonds (Stormont Vail Healthcare) (Series K) 2,000,000 Olathe, Kansas Health Facilities Revenue Bonds 2,000,000 2,069,740 (Olathe Medical Center Project) (Series A) (AMBAC Insured) 1,250,000 Sedgwick and Shawnee Counties, Kansas Single 0 0 Family Mortgage Revenue Bonds (Series A-2) (GNMA Insured) 2,300,000 University of Kansas Hospital Authority Health 0 0 Facilities Revenue Bond Total Kansas 13,632,06 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Kentucky - 0.6% 5,345,000 Kentucky State Turnpike Authority Economic 4,326,083 Zero Coupon 1/1/2010 0 0 Development Revenue Bonds (Revitalization Project) (FGIC Insured) 3,000,000 Maysville, Kentucky Solid Waste Disposal 3,117,750 6.9% 9/1/2022 0 0 Facility Revenue (Inland Container Corporate Project) Total Kentucky 7,443,833 0 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Kentucky - 0.6% Amount Value 5,345,000 Kentucky State Turnpike Authority Economic 5,345,000 4,326,083 Development Revenue Bonds (Revitalization Project) (FGIC Insured) 3,000,000 Maysville, Kentucky Solid Waste Disposal 3,000,000 3,117,750 Facility Revenue (Inland Container Corporate Project) Total Kentucky 7,443,833 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Louisiana - 1.8% $2,150,000 Jefferson Parish, Louisiana Home Mortgage $2,299,060 7.5% 12/1/2030 2,150,000 $2,299,060 Authority Single Family Mortgage Revenue Bonds (Series A-2) (GNMA/FNMA Insured) (Subject to 'AMT') 830,000 Jefferson Parish, Louisiana Home Mortgage 885,029 7.5% 6/1/2026 830,000 885,029 Authority Single Family Mortgage Revenue Bonds (Series D-1) (GNMA/FNMA Insured) (Subject to 'AMT') 1,310,000 Louisiana Housing Finance Agency Single Family 1,397,966 7.8% 12/1/2026 1,310,000 1,397,966 Mortgage Revenue Bonds (Series A-2) (GNMA/FNMA/FHLMC Insured) (Subject to 'AMT') 780,000 Louisiana Housing Finance Agency Single Family 832,962 7.05% 6/1/2031 780,000 832,962 Mortgage Revenue Bonds (Series D-2) (GNMA/FNMA Insured) (Subject to 'AMT') 3,000,000 Louisiana Public Facilities Authority Hospital 3,854,370 8.625% 12/1/2030 3,000,000 3,854,370 Revenue Bonds (Lake Charles Memorial) (AMBAC/TCRS Insured) 6,500,000 New Orleans, Louisiana General Obligation Bonds 4,519,905 Zero Coupon 9/1/2012 0 0 (AMBAC Insured) 3,000,000 Orleans Parish, Louisiana School Board 3,794,220 8.95% 2/1/2008 0 0 Administration Offices Revenue Bonds (MBIA Insured) 2,605,000 Regional Transportation Authority Louisiana 3,451,104 8.0% 12/1/2012 2,605,000 3,451,104 Sales Tax Revenue Bonds (Series A) (FGIC 4,200,000 Tobacco Settlement Financing Corporation 3,426,780 5.5% 5/15/2030 4,200,000 3,426,780 Louisiana Revenue Bonds (Series 2001-B) Total Louisiana 24,461,396 16,147,271 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Louisiana - 1.8% Amount Value $2,150,000 Jefferson Parish, Louisiana Home Mortgage 0 $0 Authority Single Family Mortgage Revenue Bonds (Series A-2) (GNMA/FNMA Insured) (Subject to 'AMT') 830,000 Jefferson Parish, Louisiana Home Mortgage 0 0 Authority Single Family Mortgage Revenue Bonds (Series D-1) (GNMA/FNMA Insured) (Subject to 'AMT') 1,310,000 Louisiana Housing Finance Agency Single Family 0 0 Mortgage Revenue Bonds (Series A-2) (GNMA/FNMA/FHLMC Insured) (Subject to 'AMT') 780,000 Louisiana Housing Finance Agency Single Family 0 0 Mortgage Revenue Bonds (Series D-2) (GNMA/FNMA Insured) (Subject to 'AMT') 3,000,000 Louisiana Public Facilities Authority Hospital 0 0 Revenue Bonds (Lake Charles Memorial) (AMBAC/TCRS Insured) 6,500,000 New Orleans, Louisiana General Obligation Bonds 6,500,000 4,519,905 (AMBAC Insured) 3,000,000 Orleans Parish, Louisiana School Board 3,000,000 3,794,220 Administration Offices Revenue Bonds (MBIA Insured) 2,605,000 Regional Transportation Authority Louisiana 0 0 Sales Tax Revenue Bonds (Series A) (FGIC 4,200,000 Tobacco Settlement Financing Corporation 0 0 Louisiana Revenue Bonds (Series 2001-B) Total Louisiana 8,314,125 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Maine - 0.1% 1,250,000 Maine Health and Higher Educational Facilities 1,323,876 7.0% 7/1/2024 0 0 Authority Revenue Bonds (Series B) (FSA Insured) Total Maine 1,323,876 0 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Maine - 0.1% Amount Value 1,250,000 Maine Health and Higher Educational Facilities 1,250,000 1,323,876 Authority Revenue Bonds (Series B) (FSA Insured) Total Maine 1,323,876 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Maryland - 1.0% $1,250,000 Frederick County Maryland Educational Facilities $1,263,950 5.75% 9/1/2025 0 $0 Revenue Bonds (Mount Saint Mary's College) (Series A) 1,940,000 Maryland State Economic Development 2,060,086 7.2% 4/1/2025 0 0 Corporation Revenue Bonds (Lutheran World Relief) 1,550,000 Maryland State Economic Development 1,635,886 6.0% 7/1/2033 1,550,000 1,635,886 Corporation Student Housing Revenue Bonds (Sheppard Pratt) (ACA Insured) 500,000 Maryland State Health and Higher Educational 502,485 5.0% 7/1/2032 0 0 Facilities Authority Revenue Bonds (Johns Hopkins University) (Series A) 1,000,000 Maryland State Health and Higher Educational 1,051,190 6.0% 7/1/2022 0 0 Facilities Authority Revenue Bonds (University of Maryland Medical System) 4,500,000 Morgan State University MD, Maryland 5,402,745 6.05% 7/1/2015 0 0 Academic and Auxiliary Facilities Fees Revenue Bonds (MBIA Insured) 340,000 Prince Georges County, Maryland Housing 346,106 7.4% 8/1/2032 340,000 346,106 Authority Single Family Mortgage Revenue Bonds (Series A) (GNMA/FNMA/ FHLMC Insured) (Subject to 'AMT') 425,000 Westminster, MD Education Facilities Revenue 422,782 5.5% 4/1/2027 425,000 422,782 Bond (McDaniel College) Total Maryland 12,685,230 2,404,774 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Maryland - 1.0% Amount Value $1,250,000 Frederick County Maryland Educational Facilities 1,250,000 $1,263,950 Revenue Bonds (Mount Saint Mary's College) (Series A) 1,940,000 Maryland State Economic Development 1,940,000 2,060,086 Corporation Revenue Bonds (Lutheran World Relief) 1,550,000 Maryland State Economic Development 0 0 Corporation Student Housing Revenue Bonds (Sheppard Pratt) (ACA Insured) 500,000 Maryland State Health and Higher Educational 500,000 502,485 Facilities Authority Revenue Bonds (Johns Hopkins University) (Series A) 1,000,000 Maryland State Health and Higher Educational 1,000,000 1,051,190 Facilities Authority Revenue Bonds (University of Maryland Medical System) 4,500,000 Morgan State University MD, Maryland 4,500,000 5,402,745 Academic and Auxiliary Facilities Fees Revenue Bonds (MBIA Insured) 340,000 Prince Georges County, Maryland Housing 0 0 Authority Single Family Mortgage Revenue Bonds (Series A) (GNMA/FNMA/ FHLMC Insured) (Subject to 'AMT') 425,000 Westminster, MD Education Facilities Revenue 0 0 Bond (McDaniel College) Total Maryland 10,280,456 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Massachusetts - 1.0% 4,935,000 Massachusetts State Construction Lien 5,461,466 5.25% 1/1/2013 4,935,000 5,461,466 General Obligation Bonds, Series A (FGIC-TCRS) 725,000 Massachusetts State Development Finance 770,298 5.625% 12/1/2016 725,000 770,298 Agency Revenue Bonds (Devens Electric 2,000,000 Massachusetts State General Obligation Bonds 2,351,840 6.5% 8/1/2008 0 0 (Series B) 2,500,000 Massachusetts State Health and Educational 2,621,975 6.1% 7/1/2014 0 0 Facilities Authority Revenue Bonds (Daughters of Charity) (Series D) $1,000,000 Massachusetts State Health and Educational $1,101,460 6.0% 7/1/2016 1,000,000 $1,101,460 Facilities Authority Revenue Bonds (Partners Healthcare System) (Series C) 1,170,000 Westfield, Massachusetts General Obligation 1,425,657 6.5% 5/1/2014 1,170,000 1,425,657 Bonds (FGIC Insured) Total Massachusetts 13,732,696 8,758,881 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Massachusetts - 1.0% Amount Value 4,935,000 Massachusetts State Construction Lien 0 0 General Obligation Bonds, Series A (FGIC-TCRS) 725,000 Massachusetts State Development Finance 0 0 Agency Revenue Bonds (Devens Electric 2,000,000 Massachusetts State General Obligation Bonds 2,000,000 2,351,840 (Series B) 2,500,000 Massachusetts State Health and Educational 2,500,000 2,621,975 Facilities Authority Revenue Bonds (Daughters of Charity) (Series D) $1,000,000 Massachusetts State Health and Educational 0 $0 Facilities Authority Revenue Bonds (Partners Healthcare System) (Series C) 1,170,000 Westfield, Massachusetts General Obligation 0 0 Bonds (FGIC Insured) Total Massachusetts 4,973,815 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Michigan - 4.1% 515,000 Chelsea, Michigan Economic Development 509,129 4.8% 11/15/2005 515,000 509,129 Corporation Obligation Revenue Bonds (United Methodist Retirement) 545,000 Chelsea, Michigan Economic Development 534,498 4.9% 11/15/2006 545,000 534,498 Corporation Obligation Revenue Bonds (United Methodist Retirement) 3,965,000 Chelsea, Michigan Economic Development 3,476,234 5.4% 11/15/2027 3,965,000 3,476,234 Corporation Obligation Revenue Bonds (United Methodist Retirement) 1,350,000 Dickinson County, Michigan Healthcare System 1,358,762 5.5% 11/1/2013 1,350,000 1,358,762 Hospital Revenue Bonds 250,000 Dickinson County, Michigan Healthcare System 243,230 5.7% 11/1/2018 250,000 243,230 Hospital Revenue Bonds 2,000,000 East Lansing, Michigan Building Authority 2,288,820 5.7% 4/1/2020 2,000,000 2,288,820 General Obligation Bonds 1,000,000 Grand Valley, Michigan State University Revenue 1,074,340 5.25% 10/1/2017 1,000,000 1,074,340 Bonds (MBIA Insured) 260,000 Hillsdale, Michigan Hospital Finance Authority 259,314 4.7% 5/15/2004 260,000 259,314 Revenue Bonds (Hillsdale Community Health Center) 135,000 Hillsdale, Michigan Hospital Finance Authority 134,000 4.8% 5/15/2005 135,000 134,000 Revenue Bonds (Hillsdale Community Health Center) 2,355,000 John Tolfree Health System Corporation 2,358,156 5.85% 9/15/2013 0 0 Michigan Mortgage Revenue Bonds 1,500,000 Livonia, Michigan Public Schools School District 1,253,490 Zero Coupon 5/1/2009 0 0 General Obligation Bonds (FGIC Insured) 2,460,000 Michigan Municipal Board Authority Revenue 2,376,655 Zero Coupon 12/1/2005 0 0 Bonds (Local Government Loan Program) (FGIC Insured) 1,380,000 Michigan Public Power Agency Revenue Bonds 1,500,239 5.25% 1/1/2016 1,380,000 1,500,239 (Combustion Turbine #1 Project) (Series A)(AMBAC Insured) 45,000 Michigan State Hospital Finance Authority 44,257 8.125% 8/15/2012 0 0 Revenue Bonds (Detroit Medical Center) 950,000 Michigan State Hospital Finance Authority 983,858 4.8% 5/1/2005 950,000 983,858 Revenue Bonds (Hackley Hospital) (Series A) 2,825,000 Michigan State Hospital Finance Authority 3,171,854 5.375% 8/15/2014 0 0 Revenue Bonds (MBIA Insured) 6,580,000 Michigan State Hospital Finance Authority 7,088,963 5.0% 11/1/2009 6,580,000 7,088,963 Revenue Bonds (Oakwood Obligated Group) $175,000 Michigan State Hospital Finance Authority $195,097 5.375% 8/15/2014 0 $0 Revenue Prerefunded Bonds (Series P) (MBIA Insured) 2,750,000 Michigan State Hospital Finance Authority 2,756,820 5.5% 3/1/2022 0 0 Revenue Refunding Bonds (Crittenton Hospital) (Series A) 4,500,000 Rochester, Michigan Community School District 4,869,135 5.0% 5/1/2019 0 0 (MBIA Insured) 3,320,000 Sault Ste Marie, Michigan Chippewa Indians 3,353,300 7.75% 9/1/2012 0 0 Housing Authority (Tribal Health and Human Services Center) 2,000,000 St. Clair County, Michigan Economic 2,311,140 6.4% 8/1/2024 0 0 Development Corporation Revenue Bonds (Detroit Edison) (Series AA) (AMBAC Insured) 990,000 Summit Academy North Michigan Public School 1,009,325 6.55% 7/1/2014 990,000 1,009,325 Academy Certificates of Participation 690,000 Summit Academy North Michigan Public School 723,023 8.375% 7/1/2030 690,000 723,023 Academy Certificates of Participation 1,000,000 Trenton, Michigan Building Authority General 1,108,420 5.6% 10/1/2019 1,000,000 1,108,420 Obligation Bonds (AMBAC Insured) 3,560,000 Wayne State University, Michigan University 3,604,749 5.125% 11/15/2029 0 0 Revenues (FGIC Insured) 3,455,000 West Ottawa Michigan Public School District 3,434,857 Zero Coupon 5/1/2004 0 0 General Obligation Bonds (MBIA Insured) 1,860,000 West Ottawa Michigan Public School District 1,813,965 Zero Coupon 5/1/2005 0 0 General Obligation Bonds (MBIA Insured) Total Michigan 53,835,630 22,292,155 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Michigan - 4.1% Amount Value 515,000 Chelsea, Michigan Economic Development 0 0 Corporation Obligation Revenue Bonds (United Methodist Retirement) 545,000 Chelsea, Michigan Economic Development 0 0 Corporation Obligation Revenue Bonds (United Methodist Retirement) 3,965,000 Chelsea, Michigan Economic Development 0 0 Corporation Obligation Revenue Bonds (United Methodist Retirement) 1,350,000 Dickinson County, Michigan Healthcare System 0 0 Hospital Revenue Bonds 250,000 Dickinson County, Michigan Healthcare System 0 0 Hospital Revenue Bonds 2,000,000 East Lansing, Michigan Building Authority 0 0 General Obligation Bonds 1,000,000 Grand Valley, Michigan State University Revenue 0 0 Bonds (MBIA Insured) 260,000 Hillsdale, Michigan Hospital Finance Authority 0 0 Revenue Bonds (Hillsdale Community Health Center) 135,000 Hillsdale, Michigan Hospital Finance Authority 0 0 Revenue Bonds (Hillsdale Community Health Center) 2,355,000 John Tolfree Health System Corporation 2,355,000 2,358,156 Michigan Mortgage Revenue Bonds 1,500,000 Livonia, Michigan Public Schools School District 1,500,000 1,253,490 General Obligation Bonds (FGIC Insured) 2,460,000 Michigan Municipal Board Authority Revenue 2,460,000 2,376,655 Bonds (Local Government Loan Program) (FGIC Insured) 1,380,000 Michigan Public Power Agency Revenue Bonds 0 0 (Combustion Turbine #1 Project) (Series A)(AMBAC Insured) 45,000 Michigan State Hospital Finance Authority 45,000 44,257 Revenue Bonds (Detroit Medical Center) 950,000 Michigan State Hospital Finance Authority 0 0 Revenue Bonds (Hackley Hospital) (Series A) 2,825,000 Michigan State Hospital Finance Authority 2,825,000 3,171,854 Revenue Bonds (MBIA Insured) 6,580,000 Michigan State Hospital Finance Authority 0 0 Revenue Bonds (Oakwood Obligated Group) $175,000 Michigan State Hospital Finance Authority 175,000 $195,097 Revenue Prerefunded Bonds (Series P) (MBIA Insured) 2,750,000 Michigan State Hospital Finance Authority 2,750,000 2,756,820 Revenue Refunding Bonds (Crittenton Hospital) (Series A) 4,500,000 Rochester, Michigan Community School District 4,500,000 4,869,135 (MBIA Insured) 3,320,000 Sault Ste Marie, Michigan Chippewa Indians 3,320,000 3,353,300 Housing Authority (Tribal Health and Human Services Center) 2,000,000 St. Clair County, Michigan Economic 2,000,000 2,311,140 Development Corporation Revenue Bonds (Detroit Edison) (Series AA) (AMBAC Insured) 990,000 Summit Academy North Michigan Public School 0 0 Academy Certificates of Participation 690,000 Summit Academy North Michigan Public School 0 0 Academy Certificates of Participation 1,000,000 Trenton, Michigan Building Authority General 0 0 Obligation Bonds (AMBAC Insured) 3,560,000 Wayne State University, Michigan University 3,560,000 3,604,749 Revenues (FGIC Insured) 3,455,000 West Ottawa Michigan Public School District 3,455,000 3,434,857 General Obligation Bonds (MBIA Insured) 1,860,000 West Ottawa Michigan Public School District 1,860,000 1,813,965 General Obligation Bonds (MBIA Insured) Total Michigan 31,543,475 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Minnesota - 3.8% 375,000 Chaska, Minnesota Economic Development 405,465 5.125% 12/1/2010 375,000 405,465 Authority School Facilities Lease Revenue Bonds(Independent School District #112) (Series A) 285,000 Duluth, Minnesota Economic Development 299,740 6.3% 11/1/2022 0 0 Authority Health Care Facilities Revenue Bonds (Duluth Clinic) (AMBAC Insured) 4,000,000 Lakeville Minnesota Independent School District 2,281,440 Zero Coupon 2/1/2016 4,000,000 2,281,440 #194 (Series B) (FGIC Insured) 800,000 Minneapolis & Saint Paul, Minnesota, Housing & 809,424 6.0% 12/1/2021 0 0 Redevelopment Authority Health Care System (Healthpartners Obligation Group Project) $1,000,000 Minneapolis and St. Paul Minnesota Metropolitan $1,035,950 5.125% 1/1/2020 0 $0 Airports Commission Airport Revenue Bonds (Series C) (FGIC Insured) 7,685,000 Minneapolis, Minnesota Community 6,484,065 Zero Coupon 3/1/2009 0 0 Development Agency Tax Increment Revenue Bonds (MBIA Insured) 5,000,000 Minnesota Agricultural and Economic 5,335,750 5.75% 11/15/2026 0 0 Development Board Health Care System Revenue Bonds (Fairview Hospital) (Series A) (MBIA Insured) 3,750,000 Minnesota Higher Education Facilities Authority 3,911,250 6.25% 5/1/2023 0 0 Revenue Bonds (Augsburg College) (Series 4-F1) 1,000,000 Minnesota Higher Education Facilities Authority 1,082,100 6.625% 5/1/2020 0 0 Revenue Bonds (College of Art and Design) (Series 5-D) 3,620,000 Minnesota State General Obligation Bonds 3,906,885 5.25% 8/1/2017 0 0 1,000,000 Northfield, Minnesota Hospital Revenue (Series C) 1,020,390 6.0% 11/1/2021 0 0 1,300,000 Northfield, Minnesota Hospital Revenue (Series C) 1,322,321 6.0% 11/1/2026 0 0 2,040,000 Northfield, Minnesota Hospital Revenue (Series C) 2,061,971 6.0% 11/1/2031 0 0 300,000 Scott County, Minnesota Housing and 308,016 5.0% 2/1/2017 300,000 308,016 Redevelopment Authority Facilities Lease Revenue Bonds (Workforce Center Project) 525,000 Scott County, Minnesota Housing and 536,980 5.0% 2/1/2018 525,000 536,980 Redevelopment Authority Facilities Lease Revenue Bonds (Workforce Center Project) 10,530,000 Southern Minnesota Municipal Power Agency 11,649,023 5.0% 1/1/2011 10,530,000 11,649,023 Power Supply System Revenue Bonds (Series A) (AMBAC Insured) 1,690,000 St. Paul, Minnesota Housing and Redevelopment 1,876,711 6.0% 5/1/2013 0 0 Authority Lease Parking Facilities Revenue Bonds (Rivercentre Parking Ramp) 5,000,000 White Earth Band of Chippewa Indians 5,506,300 7.0% 12/1/2011 5,000,000 5,506,300 Minnesota Revenue Bonds (Series A) (ACA Total Minnesota 49,833,781 20,687,224 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Minnesota - 3.8% Amount Value 375,000 Chaska, Minnesota Economic Development 0 0 Authority School Facilities Lease Revenue Bonds(Independent School District #112) (Series A) 285,000 Duluth, Minnesota Economic Development 285,000 299,740 Authority Health Care Facilities Revenue Bonds (Duluth Clinic) (AMBAC Insured) 4,000,000 Lakeville Minnesota Independent School District 0 0 #194 (Series B) (FGIC Insured) 800,000 Minneapolis & Saint Paul, Minnesota, Housing & 800,000 809,424 Redevelopment Authority Health Care System (Healthpartners Obligation Group Project) $1,000,000 Minneapolis and St. Paul Minnesota Metropolitan 1,000,000 $1,035,950 Airports Commission Airport Revenue Bonds (Series C) (FGIC Insured) 7,685,000 Minneapolis, Minnesota Community 7,685,000 6,484,065 Development Agency Tax Increment Revenue Bonds (MBIA Insured) 5,000,000 Minnesota Agricultural and Economic 5,000,000 5,335,750 Development Board Health Care System Revenue Bonds (Fairview Hospital) (Series A) (MBIA Insured) 3,750,000 Minnesota Higher Education Facilities Authority 3,750,000 3,911,250 Revenue Bonds (Augsburg College) (Series 4-F1) 1,000,000 Minnesota Higher Education Facilities Authority 1,000,000 1,082,100 Revenue Bonds (College of Art and Design) (Series 5-D) 3,620,000 Minnesota State General Obligation Bonds 3,620,000 3,906,885 1,000,000 Northfield, Minnesota Hospital Revenue (Series C) 1,000,000 1,020,390 1,300,000 Northfield, Minnesota Hospital Revenue (Series C) 1,300,000 1,322,321 2,040,000 Northfield, Minnesota Hospital Revenue (Series C) 2,040,000 2,061,971 300,000 Scott County, Minnesota Housing and 0 0 Redevelopment Authority Facilities Lease Revenue Bonds (Workforce Center Project) 525,000 Scott County, Minnesota Housing and 0 0 Redevelopment Authority Facilities Lease Revenue Bonds (Workforce Center Project) 10,530,000 Southern Minnesota Municipal Power Agency 0 0 Power Supply System Revenue Bonds (Series A) (AMBAC Insured) 1,690,000 St. Paul, Minnesota Housing and Redevelopment 1,690,000 1,876,711 Authority Lease Parking Facilities Revenue Bonds (Rivercentre Parking Ramp) 5,000,000 White Earth Band of Chippewa Indians 0 0 Minnesota Revenue Bonds (Series A) (ACA Total Minnesota 29,146,557 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Missouri - 1.1% 785,000 Missouri State Development Finance Board 836,041 5.875% 4/1/2017 785,000 836,041 Infrastructure Facilities Revenue Bonds (Eastland Center Project PhaseII Series B) 500,000 Missouri State Development Finance Board 530,550 6.0% 4/1/2021 500,000 530,550 Infrastructure Facilities Revenue Bonds (Eastland Center Project PhaseII Series B) 1,000,000 Missouri State Environmental Improvement and 1,084,150 5.25% 1/1/2018 1,000,000 1,084,150 Energy Resources Authority Water Pollution Revenue Bonds (Series A) $3,000,000 Missouri State Health and Educational Facilities $3,250,290 5.25% 5/15/2014 0 $0 Authority Health Facilities Revenue Bonds (Barnes Jewish, Inc. Christian) (Series A) 1,000,000 Missouri State Health and Educational Facilities 1,043,820 6.25% 12/1/2030 0 0 Authority Health Facilities Revenue Bonds (Saint Anthony's Medical Center) 3,375,000 Missouri State Health and Educational Facilities 3,611,993 7.5% 8/15/2012 3,375,000 3,611,993 Authority Prerefunded Revenue Bonds (Bethesda Health) (Series A) 2,000,000 Missouri State Health and Educational Facilities 2,193,806 6.5% 2/15/2021 0 0 Authority Revenue Bonds (Lake of the Ozarks) 590,000 Missouri State Housing Development Commission 619,335 7.45% 9/1/2031 590,000 619,335 Single Family Mortgage Revenue Bonds (Series B-1) (GNMA/FNMA Insured) (Subject to 'AMT') 940,000 Missouri State Housing Development Commission 985,543 7.15% 3/1/2032 940,000 985,543 Single Family Mortgage Revenue Bonds (Series C-1) (GNMA/FNMA Insured) (Subject to 'AMT') 535,000 Missouri State Housing Development Community 560,327 6.55% 9/1/2028 0 0 Single Family Mortgage Revenue Bonds (Series C-1) (GNMA/FNMA Insured) Total Missouri 14,715,855 7,667,612 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Missouri - 1.1% Amount Value 785,000 Missouri State Development Finance Board 0 0 Infrastructure Facilities Revenue Bonds (Eastland Center Project PhaseII Series B) 500,000 Missouri State Development Finance Board 0 0 Infrastructure Facilities Revenue Bonds (Eastland Center Project PhaseII Series B) 1,000,000 Missouri State Environmental Improvement and 0 0 Energy Resources Authority Water Pollution Revenue Bonds (Series A) $3,000,000 Missouri State Health and Educational Facilities 3,000,000 $3,250,290 Authority Health Facilities Revenue Bonds (Barnes Jewish, Inc. Christian) (Series A) 1,000,000 Missouri State Health and Educational Facilities 1,000,000 1,043,820 Authority Health Facilities Revenue Bonds (Saint Anthony's Medical Center) 3,375,000 Missouri State Health and Educational Facilities 0 0 Authority Prerefunded Revenue Bonds (Bethesda Health) (Series A) 2,000,000 Missouri State Health and Educational Facilities 2,000,000 2,193,806 Authority Revenue Bonds (Lake of the Ozarks) 590,000 Missouri State Housing Development Commission 0 0 Single Family Mortgage Revenue Bonds (Series B-1) (GNMA/FNMA Insured) (Subject to 'AMT') 940,000 Missouri State Housing Development Commission 0 0 Single Family Mortgage Revenue Bonds (Series C-1) (GNMA/FNMA Insured) (Subject to 'AMT') 535,000 Missouri State Housing Development Community 535,000 560,327 Single Family Mortgage Revenue Bonds (Series C-1) (GNMA/FNMA Insured) Total Missouri 7,048,243 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Montana - 0.8% 160,000 Montana State Board of Housing Single Family 167,426 6.0% 6/1/2016 160,000 167,426 Mortgage Revenue Bonds (Series A-1) 620,000 Montana State Board of Housing Single Family 646,356 6.25% 6/1/2019 620,000 646,356 Mortgage Revenue Bonds (Series A-2) (Subject to 'AMT') 2,385,000 Montana State Board of Investment Refunded 2,749,261 6.875% 6/1/2020 0 0 Balance 1996 Payroll Tax Revenue Bonds (MBIA Insured) 775,000 Montana State Board of Investment Refunded 893,366 6.875% 6/1/2020 0 0 Revenue Bonds (1996 Payroll Tax) (MBIA Insured) 1,240,000 Montana State Board of Investment Refunded 1,429,385 6.875% 6/1/2020 0 0 Revenue Bonds (Payroll Tax) (MBIA Insured) $1,340,000 Montana State Board of Regents Revenue Bonds $1,526,662 5.75% 5/15/2016 1,340,000 $1,526,662 (Higher Education-University of Montana) (Series F) (MBIA Insured) 3,000,000 Montana State Health Facilities Authority 3,177,000 7.375% 6/1/2030 3,000,000 3,177,000 Revenue Bonds (Hillcrest Senior Living Project) Total Montana 10,589,456 5,517,444 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Montana - 0.8% Amount Value 160,000 Montana State Board of Housing Single Family 0 0 Mortgage Revenue Bonds (Series A-1) 620,000 Montana State Board of Housing Single Family 0 0 Mortgage Revenue Bonds (Series A-2) (Subject to 'AMT') 2,385,000 Montana State Board of Investment Refunded 2,385,000 2,749,261 Balance 1996 Payroll Tax Revenue Bonds (MBIA Insured) 775,000 Montana State Board of Investment Refunded 775,000 893,366 Revenue Bonds (1996 Payroll Tax) (MBIA Insured) 1,240,000 Montana State Board of Investment Refunded 1,240,000 1,429,385 Revenue Bonds (Payroll Tax) (MBIA Insured) $1,340,000 Montana State Board of Regents Revenue Bonds 0 $0 (Higher Education-University of Montana) (Series F) (MBIA Insured) 3,000,000 Montana State Health Facilities Authority 0 0 Revenue Bonds (Hillcrest Senior Living Project) Total Montana 5,072,012 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Nebraska - 1.1% 500,000 American Public Energy Agency Nebraska Gas 512,040 4.0% 9/1/2004 500,000 512,040 Supply Revenue Bonds (Nebraska Public Gas Agency Project) (Series C) (AMBAC Insured) 170,000 American Public Energy Agency Nebraska Gas 179,398 4.3% 3/1/2011 170,000 179,398 Supply Revenue Bonds (Nebraska Public Gas Agency Project) (Series C) (AMBAC Insured) 2,500,000 Nebraska Public Power District Revenue Bonds 2,743,125 5.0% 1/1/2013 2,500,000 2,743,125 (Series B) (AMBAC Insured) 3,455,000 Omaha Public Power District Revenue Bonds 4,068,504 6.15% 2/1/2012 0 0 (Series B) 1,675,000 Omaha, Nebraska Special Assessment Bonds 1,874,794 5.5% 2/1/2015 1,675,000 1,874,794 (Riverfront Redevelopment Project) (Series A) 5,000,000 University of Nebraska Revenue Bonds (Lincoln 5,112,700 5.0% 7/1/2023 5,000,000 5,112,700 Student Fees & Facilities) (Series B) Total Nebraska 14,490,561 10,422,057 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Nebraska - 1.1% Amount Value 500,000 American Public Energy Agency Nebraska Gas 0 0 Supply Revenue Bonds (Nebraska Public Gas Agency Project) (Series C) (AMBAC Insured) 170,000 American Public Energy Agency Nebraska Gas 0 0 Supply Revenue Bonds (Nebraska Public Gas Agency Project) (Series C) (AMBAC Insured) 2,500,000 Nebraska Public Power District Revenue Bonds 0 0 (Series B) (AMBAC Insured) 3,455,000 Omaha Public Power District Revenue Bonds 3,455,000 4,068,504 (Series B) 1,675,000 Omaha, Nebraska Special Assessment Bonds 0 0 (Riverfront Redevelopment Project) (Series A) 5,000,000 University of Nebraska Revenue Bonds (Lincoln 0 0 Student Fees & Facilities) (Series B) Total Nebraska 4,068,504 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Nevada - 0.2% 2,500,000 Washoe County, Nevada General Obligation 2,986,800 6.4% 7/1/2029 2,500,000 2,986,800 Bonds (Reno-Sparks Convention)(Series A) (FSA Insured) Total Nevada 2,986,800 2,986,800 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Nevada - 0.2% Amount Value 2,500,000 Washoe County, Nevada General Obligation 0 0 Bonds (Reno-Sparks Convention)(Series A) (FSA Insured) Total Nevada 0 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value New Hampshire - 0.1% 1,100,000 New Hampshire State Turnpike System Revenue 1,372,316 12.314% 12/4/2003 0 0 Bonds (Series C) (FGIC Insured) Total New Hampshire 1,372,316 0 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal New Hampshire - 0.1% Amount Value 1,100,000 New Hampshire State Turnpike System Revenue 1,100,000 1,372,316 Bonds (Series C) (FGIC Insured) Total New Hampshire 1,372,316 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value New Jersey - 2.0% 1,250,000 East Orange, New Jersey General Obligation 1,473,138 8.4% 8/1/2006 0 0 Bonds (FSA Insured) $2,000,000 Hudson County New Jersey Certificate Of $2,380,480 6.25% 12/1/2015 2,000,000 $2,380,480 Participation Department of Finance and Administration (MBIA Insured) 1,110,000 New Jersey Health Care Facilities Finance 1,163,180 6.1% 7/1/2010 0 0 Authority Revenue Bonds (AMBAC Insured) 2,310,000 New Jersey State Transit Corporation Certificate 2,514,273 6.375% 10/1/2006 0 0 of Participation Bonds (FSA Insured) 4,700,000 New Jersey State Turnpike Authority Revenue 5,737,833 6.5% 1/1/2016 0 0 Bonds (Series C) (AMBAC-TCRS Insured) 5,000,000 New Jersey Transportation Trust Fund Authority 5,698,000 5.5% 12/15/2016 5,000,000 5,698,000 Revenue Bond (Transportation System) (Series A) (FSA Insured) 4,570,000 Tobacco Settlement Authority New Jersey 3,888,659 5.375% 6/1/2018 4,570,000 3,888,659 Tobacco Settlement Revenue Bonds 2,195,000 West New York, New Jersey Municipal Utilities 1,991,545 Zero Coupon 12/15/2007 0 0 Authority Revenue Bonds (FGIC Insured) 2,595,000 West New York, New Jersey Municipal Utilities 2,150,269 Zero Coupon 12/15/2009 0 0 Authority Revenue Bonds (FGIC Insured) Total New Jersey 26,997,377 11,967,139 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal New Jersey - 2.0% Amount Value 1,250,000 East Orange, New Jersey General Obligation 1,250,000 1,473,138 Bonds (FSA Insured) $2,000,000 Hudson County New Jersey Certificate Of 0 $0 Participation Department of Finance and Administration (MBIA Insured) 1,110,000 New Jersey Health Care Facilities Finance 1,110,000 1,163,180 Authority Revenue Bonds (AMBAC Insured) 2,310,000 New Jersey State Transit Corporation Certificate 2,310,000 2,514,273 of Participation Bonds (FSA Insured) 4,700,000 New Jersey State Turnpike Authority Revenue 4,700,000 5,737,833 Bonds (Series C) (AMBAC-TCRS Insured) 5,000,000 New Jersey Transportation Trust Fund Authority 0 0 Revenue Bond (Transportation System) (Series A) (FSA Insured) 4,570,000 Tobacco Settlement Authority New Jersey 0 0 Tobacco Settlement Revenue Bonds 2,195,000 West New York, New Jersey Municipal Utilities 2,195,000 1,991,545 Authority Revenue Bonds (FGIC Insured) 2,595,000 West New York, New Jersey Municipal Utilities 2,595,000 2,150,269 Authority Revenue Bonds (FGIC Insured) Total New Jersey 15,030,238 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value New Mexico - 1.5% 3,315,000 Alamogordo, New Mexico Hospital Revenue 3,363,266 5.3% 1/1/2013 0 0 Bonds (Gerald Champion Memorial Hospital Project) 5,000,000 Farmington New Mexico Power Revenue Bonds 5,611,900 9.875% 1/1/2013 0 0 3,445,000 Farmington New Mexico Utility System Revenue 3,989,861 9.875% 1/1/2008 0 0 (AMBAC Insured) 1,000,000 Jicarilla, New Mexico Apache Nation Revenue 1,026,600 5.5% 9/1/2023 1,000,000 1,026,600 Bonds 2,525,000 New Mexico Mortgage Finance Authority 2,791,034 7.0% 1/1/2026 2,525,000 2,791,034 Revenue Bonds (Series F) (GNMA/FNMA Insured) 595,000 New Mexico Mortgage Finance Authority Single 440,276 Zero Coupon 9/1/2019 595,000 440,276 Family Mortgage Capital Appreciation Revenue Bonds (Series D-2) (Subject to 'AMT') 2,280,000 New Mexico Mortgage Finance Authority Single 2,470,038 6.95% 9/1/2031 2,280,000 2,470,038 Family Mortgage Revenue Bonds (Series C-2) (GNMA/FNMA Insured) (Subject to 'AMT') Total New Mexico 19,692,975 6,727,948 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal New Mexico - 1.5% Amount Value 3,315,000 Alamogordo, New Mexico Hospital Revenue 3,315,000 3,363,266 Bonds (Gerald Champion Memorial Hospital Project) 5,000,000 Farmington New Mexico Power Revenue Bonds 5,000,000 5,611,900 3,445,000 Farmington New Mexico Utility System Revenue 3,445,000 3,989,861 (AMBAC Insured) 1,000,000 Jicarilla, New Mexico Apache Nation Revenue 0 0 Bonds 2,525,000 New Mexico Mortgage Finance Authority 0 0 Revenue Bonds (Series F) (GNMA/FNMA Insured) 595,000 New Mexico Mortgage Finance Authority Single 0 0 Family Mortgage Capital Appreciation Revenue Bonds (Series D-2) (Subject to 'AMT') 2,280,000 New Mexico Mortgage Finance Authority Single 0 0 Family Mortgage Revenue Bonds (Series C-2) (GNMA/FNMA Insured) (Subject to 'AMT') Total New Mexico 12,965,027 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value New York - 7.6% $6,500,000 Metropolitan Transportation Authority New $6,562,400 5.0% 11/15/2025 3,500,000 $3,533,600 York Revenue Bonds (Series A) (FGIC Insured) 5,000,000 Metropolitan Transportation Authority New 5,575,350 5.5% 7/1/2017 3,000,000 3,345,210 York Transportation Facilities Revenue Bonds (Series A) 4,225,000 Metropolitan Transportation Authority New 4,867,242 5.75% 7/1/2013 0 0 York Transportation Facilities Revenue Bonds (Series O) 13,000,000 New York City Transitional Finance Authority 14,259,960 5.25% 2/1/2029 13,000,000 14,259,960 (Future Tax Secured) (Series B) 1,100,000 New York Counties Tobacco Trust Settlement 1,105,522 5.8% 6/1/2023 1,100,000 1,105,522 Revenue Bonds 4,000,000 New York State Dormitory Authority Revenue 4,326,160 5.25% 5/15/2012 4,000,000 4,326,160 Bonds (Series B) 2,000,000 New York State Dormitory Authority Revenue 2,553,020 7.5% 5/15/2013 2,000,000 2,553,020 Bonds (State University Educational Facilities) (Series A) 5,000,000 New York State Dormitory Authority Revenue 5,761,650 5.875% 5/15/2017 5,000,000 5,761,650 Bonds (State University Educational Facilities) (Series A) 2,000,000 New York State Local Government Assistance 2,223,460 5.25% 4/1/2016 2,000,000 2,223,460 Corporation Revenue Bonds (Series E) (MBIA/IBC Insured) 1,900,000 New York State Mortgage Agency Revenue Bonds 1,916,663 5.35% 10/1/2016 1,900,000 1,916,663 (Series 26) 3,000,000 New York State Thruway Authority General 3,167,250 5.0% 1/1/2016 3,000,000 3,167,250 Revenue Bonds (Series E) 2,860,000 New York State Thruway Authority Revenue 2,974,915 6.0% 4/1/2014 0 0 Bonds (Series B) (FGIC Insured) 20,000,000 New York State Urban Development Corporation 21,465,400 5.0% 1/1/2017 10,000,000 10,732,700 Revenue Bonds (Correctional and Youth Facilities) (Series A) 1,620,000 New York State Urban Development Corporation 1,852,616 6.0% 1/1/2009 0 0 Revenue Bonds (Syracuse University Center) 1,720,000 New York State Urban Development Corporation 1,980,769 6.0% 1/1/2010 0 0 Revenue Bonds (Syracuse University Center) 8,940,000 New York, New York City Municipal 10,057,321 5.5% 11/1/2011 4,500,000 5,062,410 Transitional Finance Authority Revenue Bonds 3,000,000 New York, New York City Municipal 3,191,490 5.375% 11/15/2021 3,000,000 3,191,490 Transitional Finance Authority Revenue Bonds $2,000,000 New York, New York City Municipal Water and $2,326,920 5.875% 6/15/2012 $0 0 Sewer System Revenue Bonds (Series A) (AMBAC Insured) 3,000,000 New York, New York General Obligation Bonds 3,232,860 5.25% 3/15/2016 3,000,000 3,232,860 (Series H) (FSA/CR Insured) 1,000,000 Triborough, New York Bridge and Tunnel 1,164,250 6.75% 1/1/2009 0 0 Authority Revenue Bonds (Series Q) Total New York 100,565,218 64,411,955 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal New York - 7.6% Amount Value $6,500,000 Metropolitan Transportation Authority New 3,000,000 $3,028,800 York Revenue Bonds (Series A) (FGIC Insured) 5,000,000 Metropolitan Transportation Authority New 2,000,000 2,230,140 York Transportation Facilities Revenue Bonds (Series A) 4,225,000 Metropolitan Transportation Authority New 4,225,000 4,867,242 York Transportation Facilities Revenue Bonds (Series O) 13,000,000 New York City Transitional Finance Authority 0 0 (Future Tax Secured) (Series B) 1,100,000 New York Counties Tobacco Trust Settlement 0 0 Revenue Bonds 4,000,000 New York State Dormitory Authority Revenue 0 0 Bonds (Series B) 2,000,000 New York State Dormitory Authority Revenue 0 0 Bonds (State University Educational Facilities) (Series A) 5,000,000 New York State Dormitory Authority Revenue 0 0 Bonds (State University Educational Facilities) (Series A) 2,000,000 New York State Local Government Assistance 0 0 Corporation Revenue Bonds (Series E) (MBIA/IBC Insured) 1,900,000 New York State Mortgage Agency Revenue Bonds 0 0 (Series 26) 3,000,000 New York State Thruway Authority General 0 0 Revenue Bonds (Series E) 2,860,000 New York State Thruway Authority Revenue 2,860,000 2,974,915 Bonds (Series B) (FGIC Insured) 20,000,000 New York State Urban Development Corporation 10,000,000 10,732,700 Revenue Bonds (Correctional and Youth Facilities) (Series A) 1,620,000 New York State Urban Development Corporation 1,620,000 1,852,616 Revenue Bonds (Syracuse University Center) 1,720,000 New York State Urban Development Corporation 1,720,000 1,980,769 Revenue Bonds (Syracuse University Center) 8,940,000 New York, New York City Municipal 4,440,000 4,994,911 Transitional Finance Authority Revenue Bonds 3,000,000 New York, New York City Municipal 0 0 Transitional Finance Authority Revenue Bonds $2,000,000 New York, New York City Municipal Water and 2,000,000 $2,326,920 Sewer System Revenue Bonds (Series A) (AMBAC Insured) 3,000,000 New York, New York General Obligation Bonds 0 0 (Series H) (FSA/CR Insured) 1,000,000 Triborough, New York Bridge and Tunnel 1,000,000 1,164,250 Authority Revenue Bonds (Series Q) Total New York 36,153,263 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value North Carolina - 1.9% 1,170,000 Fayetteville, North Carolina Public Works 1,300,677 5.125% 3/1/2017 1,170,000 1,300,677 Commission Revenue Bonds (FSA Insured) 1,475,000 North Carolina Eastern Municipal Power Agency 1,721,369 6.0% 1/1/2026 1,475,000 1,721,369 Power System Prerefunded Revenue Bonds (Series A) 4,000,000 North Carolina Eastern Municipal Power Agency 4,142,520 5.375% 1/1/2017 4,000,000 4,142,520 Power System Revenue Bonds 175,000 North Carolina Eastern Municipal Power Agency 187,960 6.0% 1/1/2006 175,000 187,960 Power System Revenue Bonds (Series B) 1,960,000 North Carolina Eastern Municipal Power Agency 1,960,608 5.5% 1/1/2021 1,960,000 1,960,608 Power System Revenue Bonds (Series B) 5,000,000 North Carolina Eastern Municipal Power Agency 5,355,250 5.5% 1/1/2014 0 0 Power System Revenue Bonds (Series D) 2,000,000 North Carolina Eastern Municipal Power Agency 2,187,780 6.75% 1/1/2026 2,000,000 2,187,780 Power System Revenue Bonds (Series D) 1,250,000 North Carolina Municipal Power Agency #1 1,384,512 6.25% 1/1/2007 1,250,000 1,384,512 Catawba Electric Revenue Bonds (Series B) 250,000 North Carolina Municipal Power Agency #1 285,532 6.5% 1/1/2009 250,000 285,532 Catawba Electric Revenue Bonds (Series B) 610,000 North Carolina Municipal Power Agency #1 677,515 6.375% 1/1/2013 610,000 677,515 Catawba Electric Revenue Bonds (Series B) 4,000,000 North Carolina Municipal Power Agency #1 4,661,480 6.0% 1/1/2011 0 0 Catawba Electric Revenue Bonds (Series B) (MBIA Insured) 1,000,000 Wake County, North Carolina Industrial, 1,031,230 5.375% 2/1/2017 1,000,000 1,031,230 Facilities, and Pollution Control Revenue Bonds (Carolina Power and Light Company Project) Total North Carolina 24,896,433 14,879,703 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal North Carolina - 1.9% Amount Value 1,170,000 Fayetteville, North Carolina Public Works 0 0 Commission Revenue Bonds (FSA Insured) 1,475,000 North Carolina Eastern Municipal Power Agency 0 0 Power System Prerefunded Revenue Bonds (Series A) 4,000,000 North Carolina Eastern Municipal Power Agency 0 0 Power System Revenue Bonds 175,000 North Carolina Eastern Municipal Power Agency 0 0 Power System Revenue Bonds (Series B) 1,960,000 North Carolina Eastern Municipal Power Agency 0 0 Power System Revenue Bonds (Series B) 5,000,000 North Carolina Eastern Municipal Power Agency 5,000,000 5,355,250 Power System Revenue Bonds (Series D) 2,000,000 North Carolina Eastern Municipal Power Agency 0 0 Power System Revenue Bonds (Series D) 1,250,000 North Carolina Municipal Power Agency #1 0 0 Catawba Electric Revenue Bonds (Series B) 250,000 North Carolina Municipal Power Agency #1 0 0 Catawba Electric Revenue Bonds (Series B) 610,000 North Carolina Municipal Power Agency #1 0 0 Catawba Electric Revenue Bonds (Series B) 4,000,000 North Carolina Municipal Power Agency #1 4,000,000 4,661,480 Catawba Electric Revenue Bonds (Series B) (MBIA Insured) 1,000,000 Wake County, North Carolina Industrial, 0 0 Facilities, and Pollution Control Revenue Bonds (Carolina Power and Light Company Project) Total North Carolina 10,016,730 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value North Dakota - 0.8% 3,500,000 Grand Forks, North Dakota Health Care System 3,785,740 7.125% 8/15/2024 0 0 Revenue Bonds (Altru Health Systems Group) 2,000,000 North Dakota State Municipal Bond Bank (State 2,206,300 6.3% 10/1/2015 0 0 Revolving Fund Program) (Series A) $1,340,000 North Dakota State Water Commission Revenue $1,434,939 5.75% 7/1/2027 0 $0 Bonds (Southwest Pipeline) (Series A) (AMBAC Insured) 3,250,000 Ward County, North Dakota Health Care 3,298,718 6.25% 7/1/2021 3,250,000 3,298,718 Facilities Revenue Bonds (Trinity Medical Center) (Series B) Total North Dakota 10,725,697 3,298,718 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal North Dakota - 0.8% Amount Value 3,500,000 Grand Forks, North Dakota Health Care System 3,500,000 3,785,740 Revenue Bonds (Altru Health Systems Group) 2,000,000 North Dakota State Municipal Bond Bank (State 2,000,000 2,206,300 Revolving Fund Program) (Series A) $1,340,000 North Dakota State Water Commission Revenue 1,340,000 $1,434,939 Bonds (Southwest Pipeline) (Series A) (AMBAC Insured) 3,250,000 Ward County, North Dakota Health Care 0 0 Facilities Revenue Bonds (Trinity Medical Center) (Series B) Total North Dakota 7,426,979 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Ohio - 2.7% 2,500,000 Akron, Ohio Certificates of Participation (Akron 2,751,825 6.9% 12/1/2016 0 0 Municipal Baseball Stadium Project) 875,000 Akron, Ohio Economic Development (MBIA 1,037,418 6.0% 12/1/2012 0 0 Insured) 1,700,000 Cincinnati, Ohio General Obligation Bonds 1,835,133 5.375% 12/1/2019 1,700,000 1,835,133 3,785,000 Cleveland, Ohio Public Power System Revenue 4,090,298 7.0% 11/15/2024 0 0 Bonds (Series A) (MBIA Insured) 2,000,000 Lorain County, Ohio Hospital Revenue Bonds 2,048,940 5.4% 10/1/2021 0 0 (Catholic Healthcare Partners) 2,000,000 Lucas County, Ohio Health Care Facilities 2,087,600 6.55% 8/15/2024 0 0 Revenue Bonds (Sunset Retirement) (Series A) 2,000,000 Montgomery County, Ohio Hospital Revenue 2,124,620 6.75% 4/1/2018 2,000,000 2,124,620 Bonds (Kettering Medical Center) 2,500,000 Montgomery County, Ohio Hospital Revenue 2,633,375 6.75% 4/1/2022 2,500,000 2,633,375 Bonds (Kettering Medical Center) 2,055,000 Ohio Housing Finance Agency Mortgage 2,091,600 5.75% 9/1/2026 2,055,000 2,091,600 Residential Revenue Bonds (Series A-1) (GNMA Insured) (Subject to 'AMT') 2,250,000 Ohio State Air Quality Development Authority 2,281,298 6.375% 12/1/2020 0 0 Revenue Bonds (Columbus and Southern) (Series A) (FGIC Insured) 2,000,000 Ohio State Higher Educational Facility 2,505,300 6.5% 10/1/2020 0 0 Commission Revenue Bonds (Case Western Reserve University) 895,000 Ohio State Higher Educational Facility 885,450 6.625% 12/1/2014 0 0 Commission Revenue Bonds (Higher Education Facility - Ohio Dominican) 4,000,000 Ohio State Infrastructure Improvement (Series B) 4,387,320 5.25% 3/1/2014 0 0 2,000,000 Ohio State Turnpike Commission Turnpike 2,213,400 5.5% 2/15/2024 0 0 Revenue Bonds (Series A) (FGIC Insured) $2,115,000 University of Akron, Ohio General Receipts $2,284,750 5.5% 1/1/2020 0 $0 Revenue Bonds (FGIC Insured) Total Ohio 35,258,327 8,684,728 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Ohio - 2.7% Amount Value 2,500,000 Akron, Ohio Certificates of Participation (Akron 2,500,000 2,751,825 Municipal Baseball Stadium Project) 875,000 Akron, Ohio Economic Development (MBIA 875,000 1,037,418 Insured) 1,700,000 Cincinnati, Ohio General Obligation Bonds 0 0 3,785,000 Cleveland, Ohio Public Power System Revenue 3,785,000 4,090,298 Bonds (Series A) (MBIA Insured) 2,000,000 Lorain County, Ohio Hospital Revenue Bonds 2,000,000 2,048,940 (Catholic Healthcare Partners) 2,000,000 Lucas County, Ohio Health Care Facilities 2,000,000 2,087,600 Revenue Bonds (Sunset Retirement) (Series A) 2,000,000 Montgomery County, Ohio Hospital Revenue 0 0 Bonds (Kettering Medical Center) 2,500,000 Montgomery County, Ohio Hospital Revenue 0 0 Bonds (Kettering Medical Center) 2,055,000 Ohio Housing Finance Agency Mortgage 0 0 Residential Revenue Bonds (Series A-1) (GNMA Insured) (Subject to 'AMT') 2,250,000 Ohio State Air Quality Development Authority 2,250,000 2,281,298 Revenue Bonds (Columbus and Southern) (Series A) (FGIC Insured) 2,000,000 Ohio State Higher Educational Facility 2,000,000 2,505,300 Commission Revenue Bonds (Case Western Reserve University) 895,000 Ohio State Higher Educational Facility 895,000 885,450 Commission Revenue Bonds (Higher Education Facility - Ohio Dominican) 4,000,000 Ohio State Infrastructure Improvement (Series B) 4,000,000 4,387,320 2,000,000 Ohio State Turnpike Commission Turnpike 2,000,000 2,213,400 Revenue Bonds (Series A) (FGIC Insured) $2,115,000 University of Akron, Ohio General Receipts 2,115,000 $2,284,750 Revenue Bonds (FGIC Insured) Total Ohio 26,573,599 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Oklahoma - 0.8% 3,615,000 Bass, Oklahoma Memorial Baptist Hospital 4,250,987 8.35% 5/1/2009 0 0 Authority Hospital Revenue (Bass Memorial Hospital Project) 300,000 Oklahoma Housing Finance Agency Single Family 322,983 7.55% 9/1/2028 300,000 322,983 Mortgage Revenue Bonds (Series C-2) (Subject to 'AMT') 550,000 Oklahoma Housing Finance Agency Single Family 595,226 7.1% 9/1/2028 550,000 595,226 Mortgage Revenue Bonds (Series D-2) (GNMA/FNMA Insured) (Subject to 'AMT') 1,500,000 Oklahoma State Municipal Power Authority 1,737,360 5.875% 1/1/2012 0 0 (Series B) (MBIA Insured) 2,900,000 Payne County, Oklahoma Economic 3,490,962 6.375% 6/1/2030 2,900,000 3,490,962 Development Authority Student Housing Revenue Bonds (Collegiate Housing Foundation) (Series A) Total Oklahoma 10,397,518 4,409,171 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Oklahoma - 0.8% Amount Value 3,615,000 Bass, Oklahoma Memorial Baptist Hospital 3,615,000 4,250,987 Authority Hospital Revenue (Bass Memorial Hospital Project) 300,000 Oklahoma Housing Finance Agency Single Family 0 0 Mortgage Revenue Bonds (Series C-2) (Subject to 'AMT') 550,000 Oklahoma Housing Finance Agency Single Family 0 0 Mortgage Revenue Bonds (Series D-2) (GNMA/FNMA Insured) (Subject to 'AMT') 1,500,000 Oklahoma State Municipal Power Authority 1,500,000 1,737,360 (Series B) (MBIA Insured) 2,900,000 Payne County, Oklahoma Economic 0 0 Development Authority Student Housing Revenue Bonds (Collegiate Housing Foundation) (Series A) Total Oklahoma 5,988,347 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Oregon - 0.5% 550,000 Forest Grove, Oregon Revenue Bonds (Campus 622,710 6.0% 5/1/2015 550,000 622,710 Improvement - Pacific University) 3,500,000 Klamath Falls, Oregon Inter-Community Hospital 3,741,325 7.1% 9/1/2024 3,500,000 3,741,325 Authority Revenue Bonds (Gross-Merle West Medical Center Project) 2,000,000 Western Lane Hospital District Oregon Hospital 2,096,980 5.875% 8/1/2012 0 0 Facility Authority Revenue (Sisters of Saint Joseph of Peace Project) (MBIA Insured) Total Oregon 6,461,015 4,364,035 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Oregon - 0.5% Amount Value 550,000 Forest Grove, Oregon Revenue Bonds (Campus 0 0 Improvement - Pacific University) 3,500,000 Klamath Falls, Oregon Inter-Community Hospital 0 0 Authority Revenue Bonds (Gross-Merle West Medical Center Project) 2,000,000 Western Lane Hospital District Oregon Hospital 2,000,000 2,096,980 Facility Authority Revenue (Sisters of Saint Joseph of Peace Project) (MBIA Insured) Total Oregon 2,096,980 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Pennsylvania - 2.2% $1,600,000 Allegheny County, Pennsylvania Hospital $1,844,128 6.2% 9/1/2015 0 $0 Development Authority Revenue Bonds (Allegheny General Hospital Project) (Series A) (MBIA Insured) 565,000 Allegheny County, Pennsylvania Hospital 574,916 8.55% 11/15/2004 0 0 Development Authority Revenue Bonds (West Penn Allegheny Health Systems) (Series B) 2,480,000 Allegheny County, Pennsylvania Redevelopment 2,766,514 6.0% 12/15/2010 2,480,000 2,766,514 Authority Tax Increment Tax Allocation Bonds (Waterfront Project) (Series B) 2,415,000 Allegheny County, Pennsylvania Redevelopment 2,702,820 6.55% 12/15/2017 2,415,000 2,702,820 Authority Tax Increment Tax Allocation Bonds (Waterfront Project) (Series C) 2,575,000 Allegheny County, Pennsylvania Sanitation 2,261,314 Zero Coupon 6/1/2008 0 0 Authority Sewer Revenue (Series A) (FGIC Insured) 3,845,000 Carbon County, Pennsylvania Industrial 4,124,570 6.65% 5/1/2010 3,845,000 4,124,570 Development Authority Revenue Bonds (Panther Creek Partners Project) (Subject to 'AMT') 2,000,000 Cornwall Lebanon, Pennsylvania School District 1,134,680 Zero Coupon 3/15/2016 2,000,000 1,134,680 Capital Appreciation General Obligation Bonds (FSA Insured) 1,520,000 Cornwall Lebanon, Pennsylvania School District 811,999 Zero Coupon 3/15/2017 1,520,000 811,999 Capital Appreciation General Obligation Bonds (FSA Insured) 2,000,000 Lancaster County, Pennsylvania, Hospital 1,977,080 5.5% 3/15/2026 1,000,000 988,540 Authority Revenue Bonds 2,000,000 Lebanon County, Pennsylvania Good Samaritan 2,008,300 6.0% 11/15/2018 2,000,000 2,008,300 Hospital Authority Revenue Bonds (Good Samaritan Hospital Project) 3,170,000 Millcreek Township Pennsylvania School District 2,668,950 Zero Coupon 8/15/2009 0 0 General Obligation Bonds (FGIC Insured) 435,000 Montgomery County, Pennsylvania Higher 455,945 6.75% 11/15/2024 435,000 455,945 Education and Health Authority Revenue Bonds (Foulkeways at Gwynedd Project) 1,880,000 Montgomery County, Pennsylvania Higher 1,959,524 6.75% 11/15/2030 1,880,000 1,959,524 Education and Health Authority Revenue Bonds (Foulkeways at Gwynedd Project) 3,000,000 Pennsylvania State General Obligation Bonds 2,842,590 Zero Coupon 7/1/2006 0 0 (Second Series) (AMBAC Insured) 1,000,000 York County, Pennsylvania Solid Waste & Refuse 1,144,670 5.5% 12/1/2012 0 0 Authority Solid Waste System Revenue (FGIC Insured) Total Pennsylvania 29,278,000 16,952,892 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Pennsylvania - 2.2% Amount Value $1,600,000 Allegheny County, Pennsylvania Hospital 1,600,000 $1,844,128 Development Authority Revenue Bonds (Allegheny General Hospital Project) (Series A) (MBIA Insured) 565,000 Allegheny County, Pennsylvania Hospital 565,000 574,916 Development Authority Revenue Bonds (West Penn Allegheny Health Systems) (Series B) 2,480,000 Allegheny County, Pennsylvania Redevelopment 0 0 Authority Tax Increment Tax Allocation Bonds (Waterfront Project) (Series B) 2,415,000 Allegheny County, Pennsylvania Redevelopment 0 0 Authority Tax Increment Tax Allocation Bonds (Waterfront Project) (Series C) 2,575,000 Allegheny County, Pennsylvania Sanitation 2,575,000 2,261,314 Authority Sewer Revenue (Series A) (FGIC Insured) 3,845,000 Carbon County, Pennsylvania Industrial 0 0 Development Authority Revenue Bonds (Panther Creek Partners Project) (Subject to 'AMT') 2,000,000 Cornwall Lebanon, Pennsylvania School District 0 0 Capital Appreciation General Obligation Bonds (FSA Insured) 1,520,000 Cornwall Lebanon, Pennsylvania School District 0 0 Capital Appreciation General Obligation Bonds (FSA Insured) 2,000,000 Lancaster County, Pennsylvania, Hospital 1,000,000 988,540 Authority Revenue Bonds 2,000,000 Lebanon County, Pennsylvania Good Samaritan 0 0 Hospital Authority Revenue Bonds (Good Samaritan Hospital Project) 3,170,000 Millcreek Township Pennsylvania School District 3,170,000 2,668,950 General Obligation Bonds (FGIC Insured) 435,000 Montgomery County, Pennsylvania Higher 0 0 Education and Health Authority Revenue Bonds (Foulkeways at Gwynedd Project) 1,880,000 Montgomery County, Pennsylvania Higher 0 0 Education and Health Authority Revenue Bonds (Foulkeways at Gwynedd Project) 3,000,000 Pennsylvania State General Obligation Bonds 3,000,000 2,842,590 (Second Series) (AMBAC Insured) 1,000,000 York County, Pennsylvania Solid Waste & Refuse 1,000,000 1,144,670 Authority Solid Waste System Revenue (FGIC Insured) Total Pennsylvania 12,325,108 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Puerto Rico - 1.1% $2,830,000 Puerto Rico Commonwealth Aqueduct and Sewer $3,129,442 9.0% 7/1/2009 0 $0 Authority Revenue Bonds (Series A) (FSA Insured) 3,000,000 Puerto Rico Commonwealth General Obligation 3,151,620 6.45% 7/1/2017 0 0 Bonds 3,000,000 Puerto Rico Electric Power Authority Power 3,156,720 6.0% 7/1/2016 0 0 Revenue Bonds (Series T) 5,000,000 Puerto Rico Industrial Tourist Educational 5,218,450 6.625% 6/1/2026 2,000,000 2,087,380 Medical and Environmental Central Facilities Revenue Bonds (AES Cogen Facilities Project) (Subject to 'AMT') Total Puerto Rico 14,656,232 2,087,380 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Puerto Rico - 1.1% Amount Value $2,830,000 Puerto Rico Commonwealth Aqueduct and Sewer 2,830,000 $3,129,442 Authority Revenue Bonds (Series A) (FSA Insured) 3,000,000 Puerto Rico Commonwealth General Obligation 3,000,000 3,151,620 Bonds 3,000,000 Puerto Rico Electric Power Authority Power 3,000,000 3,156,720 Revenue Bonds (Series T) 5,000,000 Puerto Rico Industrial Tourist Educational 3,000,000 3,131,070 Medical and Environmental Central Facilities Revenue Bonds (AES Cogen Facilities Project) (Subject to 'AMT') Total Puerto Rico 12,568,852 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value South Carolina - 1.7% 1,000,000 Beaufort-Jasper, South Carolina Water and Sewer 1,036,590 5.0% 3/1/2021 0 0 Authority Waterworks and Sewer Systems Refunding Revenue Bonds (FSA Insured) 1,000,000 Greenwood County, South Carolina Hospital 998,080 5.5% 10/1/2026 0 0 Revenue Bonds (Self Memorial Hospital) 2,000,000 Piedmont, South Carolina Municipal Power 2,375,380 6.25% 1/1/2021 0 0 Agency Electric Revenue Bonds (FGIC Insured) 5,000,000 Piedmont, South Carolina Municipal Power 5,002,500 5.0% 1/1/2022 0 0 Agency Electric Revenue Bonds (FGIC Insured) 3,320,000 Piedmont, South Carolina Municipal Power 3,348,917 6.55% 1/1/2016 3,320,000 3,348,917 Agency Electric Revenue Bonds (Series A) 2,000,000 South Carolina Jobs Economic Development 2,133,060 6.875% 8/1/2027 2,000,000 2,133,060 Authority Hospital Facilities Revenue Bonds (Palmetto Health Alliance) (Series C) 5,000,000 South Carolina State Public Service Authority 5,221,400 5.0% 1/1/2020 5,000,000 5,221,400 Revenue Referendum (Series D) (FSA Insured) 500,000 South Carolina Transportation Infrastructure 565,420 5.5% 10/1/2007 500,000 565,420 Bank Revenue Bonds (Series A) (MBIA Insured) 2,000,000 Spartanburg, South Carolina Waterworks Revenue 2,084,860 5.25% 6/1/2028 0 0 Bonds (FGIC Insured) Total South Carolina 22,766,207 11,268,797 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal South Carolina - 1.7% Amount Value 1,000,000 Beaufort-Jasper, South Carolina Water and Sewer 1,000,000 1,036,590 Authority Waterworks and Sewer Systems Refunding Revenue Bonds (FSA Insured) 1,000,000 Greenwood County, South Carolina Hospital 1,000,000 998,080 Revenue Bonds (Self Memorial Hospital) 2,000,000 Piedmont, South Carolina Municipal Power 2,000,000 2,375,380 Agency Electric Revenue Bonds (FGIC Insured) 5,000,000 Piedmont, South Carolina Municipal Power 5,000,000 5,002,500 Agency Electric Revenue Bonds (FGIC Insured) 3,320,000 Piedmont, South Carolina Municipal Power 0 0 Agency Electric Revenue Bonds (Series A) 2,000,000 South Carolina Jobs Economic Development 0 0 Authority Hospital Facilities Revenue Bonds (Palmetto Health Alliance) (Series C) 5,000,000 South Carolina State Public Service Authority 0 0 Revenue Referendum (Series D) (FSA Insured) 500,000 South Carolina Transportation Infrastructure 0 0 Bank Revenue Bonds (Series A) (MBIA Insured) 2,000,000 Spartanburg, South Carolina Waterworks Revenue 2,000,000 2,084,860 Bonds (FGIC Insured) Total South Carolina 11,497,410 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value South Dakota - 0.2% $1,170,000 South Dakota Health and Educational Facilities $1,143,441 5.625% 4/1/2032 0 $0 Authority Revenue Bonds (Prairie Lakes Health Care System) 2,000,000 South Dakota State Health and Educational 2,080,120 5.65% 4/1/2022 2,000,000 2,080,120 Facilities Authority Revenue Bonds (Prairie Lakes Health Care System, Inc.) (ACA/CBI Insured) Total South Dakota 3,223,561 2,080,120 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal South Dakota - 0.2% Amount Value $1,170,000 South Dakota Health and Educational Facilities 1,170,000 $1,143,441 Authority Revenue Bonds (Prairie Lakes Health Care System) 2,000,000 South Dakota State Health and Educational 0 0 Facilities Authority Revenue Bonds (Prairie Lakes Health Care System, Inc.) (ACA/CBI Insured) Total South Dakota 1,143,441 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Tennessee - 1.8% 2,000,000 Carter County Industrial Development Board 2,012,840 3.2% 10/1/2007 2,000,000 2,012,840 Revenue Bonds 1,265,000 Dickson County, Tennessee General Obligation 1,332,703 5.0% 3/1/2020 0 0 Bond (FGIC Insured) 2,000,000 Memphis-Shelby County, Tennessee Airport 2,153,800 5.35% 9/1/2012 2,000,000 2,153,800 Authority Special Facilities and Project Revenue Bonds (Federal Express Corporation) 4,500,000 Memphis-Shelby County, Tennessee Airport 4,747,635 5.05% 9/1/2012 2,000,000 2,110,060 Authority Special Facilities Revenue Bonds (Federal Express Corporation) 1,500,000 Metropolitan Government Nashville and 1,694,910 7.25% 6/20/2036 1,500,000 1,694,910 Davidson County, Tennessee Health and Educational Facilities Revenue Bonds (Series A-1 (GNMA Insured) 4,155,000 Metropolitan Government Nashville and 4,628,836 6.625% 3/20/2036 4,155,000 4,628,836 Davidson County, Tennessee Industrial Development Board Revenue Bonds (Series A) 1,450,000 Metropolitan Government Nashville and 1,487,700 5.2% 5/15/2023 0 0 Davidson County, Tennessee Revenue Bonds 5,000,000 Shelby County, Tennessee Health Educational and 5,092,450 5.375% 7/1/2024 0 0 Housing Facilities Board Revenue Bonds (St. Jude Children's Research Project) 640,000 Tennergy Corporation Tennessee Gas Revenue 681,978 4.125% 6/1/2009 640,000 681,978 Bonds (MBIA Insured) 150,000 Tennessee Energy Acquisition Corporation Gas 165,543 5.0% 9/1/2007 150,000 165,543 Revenue Bonds (Series A) (AMBAC Insured) Total Tennessee 23,998,395 13,447,967 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Tennessee - 1.8% Amount Value 2,000,000 Carter County Industrial Development Board 0 0 Revenue Bonds 1,265,000 Dickson County, Tennessee General Obligation 1,265,000 1,332,703 Bond (FGIC Insured) 2,000,000 Memphis-Shelby County, Tennessee Airport 0 0 Authority Special Facilities and Project Revenue Bonds (Federal Express Corporation) 4,500,000 Memphis-Shelby County, Tennessee Airport 2,500,000 2,637,575 Authority Special Facilities Revenue Bonds (Federal Express Corporation) 1,500,000 Metropolitan Government Nashville and 0 0 Davidson County, Tennessee Health and Educational Facilities Revenue Bonds (Series A-1 (GNMA Insured) 4,155,000 Metropolitan Government Nashville and 0 0 Davidson County, Tennessee Industrial Development Board Revenue Bonds (Series A) 1,450,000 Metropolitan Government Nashville and 1,450,000 1,487,700 Davidson County, Tennessee Revenue Bonds 5,000,000 Shelby County, Tennessee Health Educational and 5,000,000 5,092,450 Housing Facilities Board Revenue Bonds (St. Jude Children's Research Project) 640,000 Tennergy Corporation Tennessee Gas Revenue 0 0 Bonds (MBIA Insured) 150,000 Tennessee Energy Acquisition Corporation Gas 0 0 Revenue Bonds (Series A) (AMBAC Insured) Total Tennessee 10,550,428 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Texas - 11.7% $1,250,000 Abilene, Texas Waterworks and Sewer System $1,247,150 3.2% 8/15/2004 1,250,000 $1,247,150 General Obligation Bonds (Series B) 1,250,000 Abilene, Texas Waterworks and Sewer System 1,247,175 3.54% 8/15/2004 1,250,000 $1,247,175 General Obligation Bonds (Series B) 7,000,000 Alliance Airport, Texas Income Authority 7,318,360 6.375% 4/1/2021 2,000,000 2,090,960 Special Facilities Revenue Bond (Federal Express Corporation Project) (Subject to 'AMT') 2,000,000 Amarillo, Texas Health Facilities Corporation 2,251,640 5.5% 1/1/2017 2,000,000 2,251,640 Revenue Bonds (Baptist St. Anthony's Hospital Corporation)(FSA Insured) 750,000 Arlington, Texas General Obligation Bonds 814,350 5.375% 8/15/2016 750,000 814,350 1,055,000 Arlington, Texas General Obligation Bonds 1,140,244 5.5% 8/15/2019 1,055,000 1,140,244 2,165,000 Arlington, Texas Independent School District 1,826,394 Zero Coupon 2/15/2009 0 0 Capital Appreciation Refunding General Obligation Bonds (PSF/GTD Insured) 7,000,000 Austin Texas Utility System Revenue Capital 6,050,870 Zero Coupon 11/15/2008 0 0 Appreciation Refunding Bonds (Financial Services Department) (Series A) (MBIA Insured) 8,100,000 Austin Texas Utility System Revenue Capital 6,671,160 Zero Coupon 11/15/2009 0 0 Appreciation Refunding Bonds (Financial Services Department) (Series A) (MBIA Insured) 2,500,000 Austin, Texas Higher Education Authority, Inc. 2,516,050 5.75% 8/1/2031 0 0 University Revenue Bonds (St Edwards University Project) 2,250,000 Austin, Texas Utility System Revenue Bonds 2,624,715 6.0% 11/15/2013 1,250,000 1,458,175 (FGIC Insured) 1,575,000 Bexar County, Texas General Obligation Bonds 1,652,080 5.0% 6/15/2015 0 0 2,265,000 Bexar County, Texas Housing Finance 2,300,787 7.0% 12/1/2036 2,265,000 2,300,787 Corporation Multi- Family Housing Revenue Bonds (American Opty-Waterford Apartments) (Series A1) 1,930,000 Bexar County, Texas Housing Finance 2,042,712 6.0% 8/1/2023 1,930,000 2,042,712 Corporation Multi-Family Housing Revenue Bonds (Dymaxion and Marrach Park Apartments) (Series A) (MBIA Insured) 2,000,000 Bexar County, Texas Housing Finance 2,027,500 6.0% 6/1/2031 2,000,000 2,027,500 Corporation Multi-Family Housing Revenue Bonds (Nob Hill Apartments) (Series A) 1,720,000 Bexar County, Texas Housing Finance 1,949,207 7.0% 3/20/2031 1,720,000 1,949,207 Corporation Multi-Family Housing Revenue Bonds (Pan American Apartments) (Series A-1) (GNMA Insured) 1,000,000 Bluebonnet Trails Community Mental Health and 1,034,450 6.125% 12/1/2016 1,000,000 1,034,450 Mental Retardation Revenue Bonds $3,950,000 Colorado River, Texas Municipal Water District $4,159,192 5.0% 1/1/2014 3,950,000 $4,159,192 Revenue Bonds (MBIA Insured) 2,000,000 Copperas Cove, Texas Independent School 2,091,480 6.9% 8/15/2014 0 0 District General Obligation Bonds (PSF/GTD Insured) 500,000 Corpus Christi, Texas General Obligation Bonds 547,045 5.0% 3/1/2012 500,000 547,045 (Series A) (FSA Insured) 1,000,000 Dallas-Fort Worth Texas International Airport 1,082,000 5.5% 11/1/2016 0 0 Revenue (Series A) (MBIA Insured) (Subject to 'AMT') 500,000 Dallas-Fort Worth Texas International Airport 538,305 5.5% 11/1/2017 0 0 Revenue (Series A) (MBIA Insured) (Subject to 'AMT') 1,000,000 Dallas-Fort Worth Texas Regional Airport 1,046,080 7.375% 11/1/2008 0 0 Revenue Refunding Bonds (Series A) (FGIC Insured) 1,000,000 Dallas-Fort Worth Texas Regional Airport 1,046,080 7.375% 11/1/2009 0 0 Revenue Refunding Bonds (Series A) (FGIC Insured) 2,000,000 Dallas-Fort Worth Texas Regional Airport 2,091,960 7.375% 11/1/2010 0 0 Revenue Refunding Bonds (Series A) (FGIC Insured) 4,000,000 Dallas-Fort Worth Texas Regional Airport 4,165,120 6.0% 11/1/2012 0 0 Revenue Refunding Bonds (Series A) (MBIA Insured) 1,375,000 Deer Park, Texas Independent School District 1,494,474 5.0% 2/15/2013 1,375,000 1,494,474 General Obligation Bonds (PSF/GTD Insured) 1,635,000 Denton, Texas Independent School District 1,673,145 3.45% 1/31/2005 1,635,000 1,673,145 General Obligation Bonds 2,285,000 Denton, Texas Independent School District 2,669,977 6.25% 2/15/2009 0 0 General Obligation Bonds (PSF/GTD Insured) 3,210,000 Denton, Texas Utility System Revenue Bonds 3,518,898 5.25% 12/1/2015 3,210,000 3,518,898 (Series A) (FSA Insured) 1,445,000 Frisco, Texas Independent School District 1,684,827 6.25% 8/15/2017 1,445,000 1,684,827 General Obligation Bonds (PSF/GTD Insured) 1,000,000 Georgetown, Texas Higher Education Finance 1,010,500 6.3% 2/15/2014 0 0 Corporation Revenue Bonds (Southwestern University Project) 7,000,000 Harris County, Houston, Texas General 2,272,270 Zero Coupon 8/15/2024 7,000,000 2,272,270 Obligation Bonds (MBIA Insured) 1,500,000 Harris County, Texas Health Facilities 1,795,035 6.25% 7/1/2027 1,500,000 1,795,035 Corporation Revenue Bonds (Sisters of Charity Health Care Systems) (Series B) 2,000,000 Harris County, Texas Health Facilities 2,131,540 6.375% 6/1/2029 0 0 Development Authority Hospital Revenue Bonds (Memorial Hermann Healthcare Project) (Series 8,470,000 Houston, Texas Airport System Revenue Bonds 8,518,025 5.0% 7/1/2027 6,000,000 6,034,020 (FSA Insured) $2,000,000 Houston, Texas Airport System Revenue Bonds $2,069,680 5.625% 7/1/2030 0 $0 (Series A) (FSA Insured) (Subject to 'AMT') 5,000,000 Houston, Texas Water and Sewer System Revenue 5,222,800 5.25% 12/1/2022 0 0 Bonds (Series A) 5,000,000 Houston, Texas Water and Sewer System Revenue 5,682,500 5.75% 12/1/2032 5,000,000 5,682,500 Bonds (Series A) (FSA Insured) 5,315,000 Lewisville, Texas Independent School District 2,435,492 Zero Coupon 8/15/2019 0 0 General Obligation Bonds (PSF/GTD Insured) 1,000,000 Lower Colorado River Authority Texas Revenue 1,139,490 5.875% 5/15/2015 1,000,000 1,139,490 Bonds (Series A) 3,770,000 Mesquite, Texas Independent School District 4,240,194 6.0% 2/15/2020 3,770,000 4,240,194 General Obligation Bonds (Series A) (PSF/GTD Insured) 2,600,000 North Texas Health Facilities Development 2,688,894 6.0% 9/1/2023 0 0 Corporation Hospital Revenue United Regional Healthcare System, Inc. 575,000 Nueces County, Texas Housing Finance 611,444 6.25% 7/1/2010 575,000 611,444 Corporation Multi-Family Housing Revenue Bonds (Dolphins Landing Apartments Project) (Series A) 1,865,000 Nueces County, Texas Housing Finance 1,964,722 6.875% 7/1/2030 1,865,000 1,964,722 Corporation Multi-Family Housing Revenue Bonds (Dolphins Landing Apartments Project) (Series A) 1,000,000 Panhandle, Texas Regional Housing Finance 1,075,930 6.25% 3/1/2010 1,000,000 1,075,930 Revenue Bonds (Series A) 1,000,000 Ridge Parc Development Corporation Texas 1,094,760 6.1% 6/20/2033 1,000,000 1,094,760 Multifamily Revenue Bonds (GNMA Insured) 2,795,000 Ridge Parc Development Corporation Texas 3,031,233 6.15% 11/20/2041 2,795,000 3,031,233 Multifamily Revenue Bonds (GNMA Insured) 1,365,000 San Antonio, Texas General Obligation Bonds 1,479,346 5.25% 2/1/2014 1,365,000 1,479,346 (General Improvement) 1,000,000 San Antonio, Texas Water Revenue Bonds (FSA 1,097,120 5.5% 5/15/2018 1,000,000 1,097,120 Insured) 1,000,000 San Antonio, Texas Water Revenue Bonds (FSA 1,094,110 5.5% 5/15/2019 1,000,000 1,094,110 Insured) 1,000,000 San Antonio, Texas Water Revenue Bonds (FSA 1,084,390 5.5% 5/15/2020 1,000,000 1,084,390 Insured) 1,180,000 South San Antonio, Texas Independent School 1,345,471 6.0% 8/15/2017 1,180,000 1,345,471 District General Obligation Bonds (PSF/GTD Insured) 1,250,000 South San Antonio, Texas Independent School 1,418,250 6.0% 8/15/2018 1,250,000 1,418,250 District General Obligation Bonds (PSF/GTD Insured) 1,275,000 South San Antonio, Texas Independent School 1,443,032 6.0% 8/15/2019 1,275,000 1,443,032 District General Obligation Bonds (PSF/GTD Insured) 11,615,000 Southeast Texas Housing Finance Corporation 6,013,318 Zero Coupon 9/1/2017 0 0 (MBIA Insured) 1,410,000 Tarrant County, Texas College District General 1,575,393 5.375% 2/15/2013 1,410,000 1,575,393 Obligation Bonds 1,040,000 Tarrant County, Texas Housing Finance 922,854 6.0% 6/1/2031 1,040,000 922,854 Corporation Multi-Family Revenue Bonds (Series A) 4,315,000 Texas State Veterans Land Board General 3,467,232 0.05% 7/1/2010 0 0 Obligation Bonds $1,000,000 Texas State Water Development Board Revenue $1,059,640 5.25% 7/15/2017 0 $0 Bond (State Revolving) (Series A) 2,000,000 Travis County, Texas Health Facilities 2,409,520 6.25% 11/15/2017 2,000,000 2,409,520 Development Corporation Revenue Bonds (Ascension Health Credit) (Series A) (MBIA Insured) 315,000 Westlake, Texas General Obligation Bonds 363,088 6.5% 5/1/2013 315,000 363,088 350,000 Westlake, Texas General Obligation Bonds 398 458 6.5% 5/1/2015 350,000 398,458 335,000 Westlake, Texas General Obligation Bonds 376,376 6.5% 5/1/2017 335,000 376,376 1,650,000 Westlake, Texas General Obligation Bonds 1,703,064 5.75% 5/1/2024 1,650,000 1,703,064 2,000,000 Westlake, Texas General Obligation Bonds 2,060,920 5.8% 5/1/2032 2,000,000 2,060,920 430,000 Wylie Texas Independent School District G.O. 530,474 6.875% 8/15/2014 0 0 Bonds (PSF/GTD Insured) 745,000 Wylie, Texas Independent School District 931,563 6.875% 8/15/2014 0 0 General Obligation Bonds (PSF/GTD Insured) 3,280,000 Wylie, Texas Independent School District 3,966,865 7.0% 8/15/2024 3,280,000 3,966,865 Unrefunded General Obligation Bonds (PSF/GTD Insured) Total Texas 154,248,420 84,361,786 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Texas - 11.7% Amount Value $1,250,000 Abilene, Texas Waterworks and Sewer System 0 0 General Obligation Bonds (Series B) 1,250,000 Abilene, Texas Waterworks and Sewer System 0 0 General Obligation Bonds (Series B) 7,000,000 Alliance Airport, Texas Income Authority 5,000,000 5,227,400 Special Facilities Revenue Bond (Federal Express Corporation Project) (Subject to 'AMT') 2,000,000 Amarillo, Texas Health Facilities Corporation 0 0 Revenue Bonds (Baptist St. Anthony's Hospital Corporation)(FSA Insured) 750,000 Arlington, Texas General Obligation Bonds 0 0 1,055,000 Arlington, Texas General Obligation Bonds 0 0 2,165,000 Arlington, Texas Independent School District 2,165,000 1,826,394 Capital Appreciation Refunding General Obligation Bonds (PSF/GTD Insured) 7,000,000 Austin Texas Utility System Revenue Capital 7,000,000 6,050,870 Appreciation Refunding Bonds (Financial Services Department) (Series A) (MBIA Insured) 8,100,000 Austin Texas Utility System Revenue Capital 8,100,000 6,671,160 Appreciation Refunding Bonds (Financial Services Department) (Series A) (MBIA Insured) 2,500,000 Austin, Texas Higher Education Authority, Inc. 2,500,000 2,516,050 University Revenue Bonds (St Edwards University Project) 2,250,000 Austin, Texas Utility System Revenue Bonds 1,000,000 1,166,540 (FGIC Insured) 1,575,000 Bexar County, Texas General Obligation Bonds 1,575,000 1,652,080 2,265,000 Bexar County, Texas Housing Finance 0 0 Corporation Multi- Family Housing Revenue Bonds (American Opty-Waterford Apartments) (Series A1) 1,930,000 Bexar County, Texas Housing Finance 0 0 Corporation Multi-Family Housing Revenue Bonds (Dymaxion and Marrach Park Apartments) (Series A) (MBIA Insured) 2,000,000 Bexar County, Texas Housing Finance 0 0 Corporation Multi-Family Housing Revenue Bonds (Nob Hill Apartments) (Series A) 1,720,000 Bexar County, Texas Housing Finance 0 0 Corporation Multi-Family Housing Revenue Bonds (Pan American Apartments) (Series A-1) (GNMA Insured) 1,000,000 Bluebonnet Trails Community Mental Health and 0 0 Mental Retardation Revenue Bonds $3,950,000 Colorado River, Texas Municipal Water District $ 0 $0 Revenue Bonds (MBIA Insured) 2,000,000 Copperas Cove, Texas Independent School 2,000,000 2,091,480 District General Obligation Bonds (PSF/GTD Insured) 500,000 Corpus Christi, Texas General Obligation Bonds 0 0 (Series A) (FSA Insured) 1,000,000 Dallas-Fort Worth Texas International Airport 1,000,000 1,082,000 Revenue (Series A) (MBIA Insured) (Subject to 'AMT') 500,000 Dallas-Fort Worth Texas International Airport 500,000 538,305 Revenue (Series A) (MBIA Insured) (Subject to 'AMT') 1,000,000 Dallas-Fort Worth Texas Regional Airport 1,000,000 1,046,080 Revenue Refunding Bonds (Series A) (FGIC Insured) 1,000,000 Dallas-Fort Worth Texas Regional Airport 1,000,000 1,046,080 Revenue Refunding Bonds (Series A) (FGIC Insured) 2,000,000 Dallas-Fort Worth Texas Regional Airport 2,000,000 2,091,960 Revenue Refunding Bonds (Series A) (FGIC Insured) 4,000,000 Dallas-Fort Worth Texas Regional Airport 4,000,000 4,165,120 Revenue Refunding Bonds (Series A) (MBIA Insured) 1,375,000 Deer Park, Texas Independent School District 0 0 General Obligation Bonds (PSF/GTD Insured) 1,635,000 Denton, Texas Independent School District 0 0 General Obligation Bonds 2,285,000 Denton, Texas Independent School District 2,285,000 2,669,977 General Obligation Bonds (PSF/GTD Insured) 3,210,000 Denton, Texas Utility System Revenue Bonds 0 0 (Series A) (FSA Insured) 1,445,000 Frisco, Texas Independent School District 0 0 General Obligation Bonds (PSF/GTD Insured) 1,000,000 Georgetown, Texas Higher Education Finance 1,000,000 1,010,500 Corporation Revenue Bonds (Southwestern University Project) 7,000,000 Harris County, Houston, Texas General 0 0 Obligation Bonds (MBIA Insured) 1,500,000 Harris County, Texas Health Facilities 0 0 Corporation Revenue Bonds (Sisters of Charity Health Care Systems) (Series B) 2,000,000 Harris County, Texas Health Facilities 2,000,000 2,131,540 Development Authority Hospital Revenue Bonds (Memorial Hermann Healthcare Project) (Series 8,470,000 Houston, Texas Airport System Revenue Bonds 2,470,000 2,484,005 (FSA Insured) $2,000,000 Houston, Texas Airport System Revenue Bonds 2,000,000 $2,069,680 (Series A) (FSA Insured) (Subject to 'AMT') 5,000,000 Houston, Texas Water and Sewer System Revenue 5,000,000 5,222,800 Bonds (Series A) 5,000,000 Houston, Texas Water and Sewer System Revenue 0 0 Bonds (Series A) (FSA Insured) 5,315,000 Lewisville, Texas Independent School District 5,315,000 2,435,492 General Obligation Bonds (PSF/GTD Insured) 1,000,000 Lower Colorado River Authority Texas Revenue 0 0 Bonds (Series A) 3,770,000 Mesquite, Texas Independent School District 0 0 General Obligation Bonds (Series A) (PSF/GTD Insured) 2,600,000 North Texas Health Facilities Development 2,600,000 2,688,894 Corporation Hospital Revenue United Regional Healthcare System, Inc. 575,000 Nueces County, Texas Housing Finance 0 0 Corporation Multi-Family Housing Revenue Bonds (Dolphins Landing Apartments Project) (Series A) 1,865,000 Nueces County, Texas Housing Finance 0 0 Corporation Multi-Family Housing Revenue Bonds (Dolphins Landing Apartments Project) (Series A) 1,000,000 Panhandle, Texas Regional Housing Finance 0 0 Revenue Bonds (Series A) 1,000,000 Ridge Parc Development Corporation Texas 0 0 Multifamily Revenue Bonds (GNMA Insured) 2,795,000 Ridge Parc Development Corporation Texas 0 0 Multifamily Revenue Bonds (GNMA Insured) 1,365,000 San Antonio, Texas General Obligation Bonds 0 0 (General Improvement) 1,000,000 San Antonio, Texas Water Revenue Bonds (FSA 0 0 Insured) 1,000,000 San Antonio, Texas Water Revenue Bonds (FSA 0 0 Insured) 1,000,000 San Antonio, Texas Water Revenue Bonds (FSA 0 0 Insured) 1,180,000 South San Antonio, Texas Independent School 0 0 District General Obligation Bonds (PSF/GTD Insured) 1,250,000 South San Antonio, Texas Independent School 0 0 District General Obligation Bonds (PSF/GTD Insured) 1,275,000 South San Antonio, Texas Independent School 0 0 District General Obligation Bonds (PSF/GTD Insured) 11,615,000 Southeast Texas Housing Finance Corporation 11,615,000 6,013,318 (MBIA Insured) 1,410,000 Tarrant County, Texas College District General 0 0 Obligation Bonds 1,040,000 Tarrant County, Texas Housing Finance 0 0 Corporation Multi-Family Revenue Bonds (Series A) 4,315,000 Texas State Veterans Land Board General 4,315,000 3,467,232 Obligation Bonds $1,000,000 Texas State Water Development Board Revenue 1,000,000 $1,059,640 Bond (State Revolving) (Series A) 2,000,000 Travis County, Texas Health Facilities 0 0 Development Corporation Revenue Bonds (Ascension Health Credit) (Series A) (MBIA Insured) 315,000 Westlake, Texas General Obligation Bonds 0 0 350,000 Westlake, Texas General Obligation Bonds 0 0 335,000 Westlake, Texas General Obligation Bonds 0 0 1,650,000 Westlake, Texas General Obligation Bonds 0 0 2,000,000 Westlake, Texas General Obligation Bonds 0 0 430,000 Wylie Texas Independent School District G.O. 430,000 530,474 Bonds (PSF/GTD Insured) 745,000 Wylie, Texas Independent School District 745,000 931,563 General Obligation Bonds (PSF/GTD Insured) 3,280,000 Wylie, Texas Independent School District 0 0 Unrefunded General Obligation Bonds (PSF/GTD Insured) Total Texas 69,886,634 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Utah - 1.2% 1,605,000 Intermountain Power Agency Utah Power Supply 1,645,542 5.5% 7/1/2020 1,605,000 1,645,542 Prerefunded Revenue Bonds (Series A) (AMBAC/TCRS Insured) 440,000 Intermountain Power Agency Utah Power Supply 451,079 5.25% 7/1/2017 440,000 451,079 Revenue Bonds (Series B) 5,000,000 Intermountain Power Agency Utah Power Supply 5,529,050 5.75% 7/1/2019 0 0 Revenue Bonds (Series B) (MBIA Insured) 585,000 Intermountain Power Agency Utah Power Supply 586,340 5.0% 7/1/2016 585,000 586,340 Revenue Bonds (Series B) (MBIA/IBC Insured) 3,405,000 Timpanogos, Utah Special Service District Sewer 3,826,880 6.1% 6/1/2019 0 0 Revenue(Series A) (AMBAC Insured) 3,750,000 Utah Associated Municipal Power System 3,937,050 6.25% 6/1/2014 0 0 Revenue Bonds (San Juan Project) (MBIA Insured) Total Utah 15,975,941 2,682,961 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Utah - 1.2% Amount Value 1,605,000 Intermountain Power Agency Utah Power Supply 0 0 Prerefunded Revenue Bonds (Series A) (AMBAC/TCRS Insured) 440,000 Intermountain Power Agency Utah Power Supply 0 0 Revenue Bonds (Series B) 5,000,000 Intermountain Power Agency Utah Power Supply 5,000,000 5,529,050 Revenue Bonds (Series B) (MBIA Insured) 585,000 Intermountain Power Agency Utah Power Supply 0 0 Revenue Bonds (Series B) (MBIA/IBC Insured) 3,405,000 Timpanogos, Utah Special Service District Sewer 3,405,000 3,826,880 Revenue(Series A) (AMBAC Insured) 3,750,000 Utah Associated Municipal Power System 3,750,000 3,937,050 Revenue Bonds (San Juan Project) (MBIA Insured) Total Utah 13,292,980 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Vermont - 0.2% 2,500,000 Vermont Educational and Health Buildings 2,549,700 5.5% 7/1/2021 0 0 Financing Agency Revenue Bonds (Norwich University Project) Total Vermont 2,549,700 0 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Vermont - 0.2% Amount Value 2,500,000 Vermont Educational and Health Buildings 2,500,000 2,549,700 Financing Agency Revenue Bonds (Norwich University Project) Total Vermont 2,549,700 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Virginia - 0.9% $3,000,000 Fairfax County, Virginia Industrial Development $3,254,700 5.875% 8/15/2016 0 0 Authority Revenue Bonds (Inova Health Systems Project) 2,500,000 Fairfax County, Virginia Industrial Development 2,662,850 5.25% 8/15/2019 2,500,000 $2,662,850 Authority Revenue Bonds (Inova Health Systems Project) 3,625,000 Fairfax County, Virginia Water Authority Water 3,851,019 5.0% 4/1/2021 0 0 Revenue Bonds 1,355,000 Riverside, Virginia Regional Jail Authority Jail 1,484,606 5.875% 7/1/2014 1,355,000 1,484,606 Facilities Revenue Bonds (MBIA Insured) 1,130,000 Riverside, Virginia Regional Jail Authority Jail 1,238,084 5.875% 7/1/2014 1,130,000 1,238,084 Facilities Unrefunded Revenue Bonds (MBIA Insured) Total Virginia 12,491,259 5,385,540 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Virginia - 0.9% Amount Value $3,000,000 Fairfax County, Virginia Industrial Development $3,000,000 3,254,700 Authority Revenue Bonds (Inova Health Systems Project) 2,500,000 Fairfax County, Virginia Industrial Development 0 0 Authority Revenue Bonds (Inova Health Systems Project) 3,625,000 Fairfax County, Virginia Water Authority Water 3,625,000 3,851,019 Revenue Bonds 1,355,000 Riverside, Virginia Regional Jail Authority Jail 0 0 Facilities Revenue Bonds (MBIA Insured) 1,130,000 Riverside, Virginia Regional Jail Authority Jail 0 0 Facilities Unrefunded Revenue Bonds (MBIA Insured) Total Virginia 7,105,719 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Washington - 4.4% 2,060,000 Clark and Skamania Counties, Washington School 2,448,228 6.0% 12/1/2019 2,060,000 2,448,228 District #112-6 Washougal General Obligation Bonds (FGIC Insured) 1,655,000 Douglas County, Washington Public Utility 2,069,793 8.75% 9/1/2018 0 0 District # 1 Wells Hydroelectric Bonds 1,395,000 Douglas County, Washington Public Utility 1,703,421 8.75% 9/1/2018 0 0 District # 1 Wells Hydroelectric Revenue Bonds 1,000,000 Energy Northwest Washington Electric Revenue 1,114,040 5.75% 7/1/2018 1,000,000 1,114,040 Bonds (Columbia Generating) (Series A) (MBIA Insured) 1,000,000 Grant County, Washington Public Utilities 1,066,800 5.25% 1/1/2017 1,000,000 1,066,800 District #2 Priest Rapids Hydro Electric Revenue Bonds (Series A) (MBIA Insured) 2,000,000 Grant County, Washington Public Utility District 2,000,780 5.0% 1/1/2023 0 0 #2 Revenue Bonds (Second Series A) (AMBAC Insured) 10,000,000 King County, Washington Sewer Revenue Bonds 11,184,500 5.5% 1/1/2013 5,000,000 5,592,250 (Series B) (FSA Insured) 1,500,000 Tacoma, Washington Conservation System 1,592,280 6.6% 1/1/2015 0 0 Revenue Bonds (Tacoma Public Utilities Project) 45,000 Washington State Bonds (Series 93A) 51,867 5.75% 10/1/2012 0 0 $2,955,000 Washington State General Obligation Bond (Series $3,387,198 5.75% 10/1/2012 0 $0 93A) 2,000,000 Washington State General Obligation Bond (Series 2,319,480 6.0% 6/1/2012 0 0 B and AT-7) 2,000,000 Washington State General Obligation Bonds 2,207,020 5.0% 9/1/2007 2,000,000 2,207,020 (Motor Vehicle Fuel Tax) 1,500,000 Washington State General Obligation Bonds 1,731,615 6.25% 2/1/2011 0 0 (Series A andAT-6) 5,000,000 Washington State General Obligation Bonds 6,116,400 6.75% 2/1/2015 5,000,000 6,116,400 (Series A) 2,500,000 Washington State General Obligation Bonds 2,940,175 6.25% 6/1/2010 0 0 (Series B andAT-7) 1,000,000 Washington State Health Care Facilities 1,040,440 5.0% 10/1/2018 0 0 Authority Revenue Bonds (Central Washington Health Services Association) (AMBAC Insured) 1,700,000 Washington State Health Care Facilities 1,844,381 6.0% 12/1/2030 1,700,000 1,844,381 Authority Revenue Bonds (Kadlec Medical 2,000,000 Washington State Health Care Facilities 2,118,240 5.125% 11/15/2018 2,000,000 2,118,240 Authority Revenue Bonds (Swedish Health Services) (AMBAC Insured) 1,000,000 Washington State Higher Education Facilities 1,084,420 5.875% 10/1/2029 0 0 Authority(Whitman College) 2,975,000 Washington State Housing Finance Commission 3,200,386 6.3% 1/1/2021 2,975,000 3,200,386 Multi-Family Mortgage Revenue Bonds (Pooled Loan Program) (Subject to 'AMT') 1,000,000 Washington State Housing Finance Commission 1,023,070 5.35% 7/1/2014 1,000,000 1,023,070 Nonprofit Housing Revenue Bonds (Crista Ministries Projects) (Series A) 3,000,000 Washington State Public Power Supply System 3,333,090 5.75% 7/1/2012 0 0 Refunding Revenue Bonds (Nuclear Project#1) (Series A) (MBIA Insured) 2,000,000 Washington State Public Power Supply System 2,222,060 5.75% 7/1/2011 0 0 Revenue Bonds (Nuclear Project) (Series A) (MBIA Insured) Total Washington 57,799,684 26,730,815 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Washington - 4.4% Amount Value 2,060,000 Clark and Skamania Counties, Washington School 0 0 District #112-6 Washougal General Obligation Bonds (FGIC Insured) 1,655,000 Douglas County, Washington Public Utility 1,655,000 2,069,793 District # 1 Wells Hydroelectric Bonds 1,395,000 Douglas County, Washington Public Utility 1,395,000 1,703,421 District # 1 Wells Hydroelectric Revenue Bonds 1,000,000 Energy Northwest Washington Electric Revenue 0 0 Bonds (Columbia Generating) (Series A) (MBIA Insured) 1,000,000 Grant County, Washington Public Utilities 0 0 District #2 Priest Rapids Hydro Electric Revenue Bonds (Series A) (MBIA Insured) 2,000,000 Grant County, Washington Public Utility District 2,000,000 2,000,780 #2 Revenue Bonds (Second Series A) (AMBAC Insured) 10,000,000 King County, Washington Sewer Revenue Bonds 5,000,000 5,592,250 (Series B) (FSA Insured) 1,500,000 Tacoma, Washington Conservation System 1,500,000 1,592,280 Revenue Bonds (Tacoma Public Utilities Project) 45,000 Washington State Bonds (Series 93A) 45,000 51,867 $2,955,000 Washington State General Obligation Bond (Series 2,955,000 $3,387,198 93A) 2,000,000 Washington State General Obligation Bond (Series 2,000,000 2,319,480 B and AT-7) 2,000,000 Washington State General Obligation Bonds 0 0 (Motor Vehicle Fuel Tax) 1,500,000 Washington State General Obligation Bonds 1,500,000 1,731,615 (Series A andAT-6) 5,000,000 Washington State General Obligation Bonds 0 0 (Series A) 2,500,000 Washington State General Obligation Bonds 2,500,000 2,940,175 (Series B andAT-7) 1,000,000 Washington State Health Care Facilities 1,000,000 1,040,440 Authority Revenue Bonds (Central Washington Health Services Association) (AMBAC Insured) 1,700,000 Washington State Health Care Facilities 0 0 Authority Revenue Bonds (Kadlec Medical 2,000,000 Washington State Health Care Facilities 0 0 Authority Revenue Bonds (Swedish Health Services) (AMBAC Insured) 1,000,000 Washington State Higher Education Facilities 1,000,000 1,084,420 Authority(Whitman College) 2,975,000 Washington State Housing Finance Commission 0 0 Multi-Family Mortgage Revenue Bonds (Pooled Loan Program) (Subject to 'AMT') 1,000,000 Washington State Housing Finance Commission 0 0 Nonprofit Housing Revenue Bonds (Crista Ministries Projects) (Series A) 3,000,000 Washington State Public Power Supply System 3,000,000 3,333,090 Refunding Revenue Bonds (Nuclear Project#1) (Series A) (MBIA Insured) 2,000,000 Washington State Public Power Supply System 2,000,000 2,222,060 Revenue Bonds (Nuclear Project) (Series A) (MBIA Insured) Total Washington 31,068,869 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Wisconsin - 1.2% $1,105,000 Monroe, Wisconsin School District General $1,358,599 6.875% 4/1/2014 1,105,000 $1,358,599 Obligation Bonds (AMBAC Insured) 1,500,000 Wisconsin State Health and Educational Facilities 1,498,470 5.5% 2/15/2015 1,500,000 1,498,470 Authority Revenue Bonds (Aurora Health Care) (Series B) 1,000,000 Wisconsin State Health and Educational Facilities 1,108,500 5.75% 8/15/2020 1,000,000 1,108,500 Authority Revenue Bonds (Eagle River Memorial Hospital, Inc. Project) 1,000,000 Wisconsin State Health and Educational Facilities 1,003,200 5.5% 2/15/2018 1,000,000 1,003,200 Authority Revenue Bonds (Franciscan Sisters Christian)(Series A) 2,000,000 Wisconsin State Health and Educational Facilities 2,003,840 6.0% 2/15/2025 2,000,000 2,003,840 Authority Revenue Bonds (Marshfield Clinic) (Series B) 2,000,000 Wisconsin State Health and Educational Facilities 2,054,800 5.5% 8/15/2029 2,000,000 2,054,800 Authority Revenue Bonds (Watertown Memorial Hospital, Inc.) 6,000,000 Wisconsin State Health and Educational Facilities 6,158,160 5.75% 8/15/2025 0 0 Authority Revenue Bonds (Wheaton Franciscan Services) Total Wisconsin 15,185,569 9,027,409 Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Wisconsin - 1.2% Amount Value $1,105,000 Monroe, Wisconsin School District General 0 $0 Obligation Bonds (AMBAC Insured) 1,500,000 Wisconsin State Health and Educational Facilities 0 0 Authority Revenue Bonds (Aurora Health Care) (Series B) 1,000,000 Wisconsin State Health and Educational Facilities 0 0 Authority Revenue Bonds (Eagle River Memorial Hospital, Inc. Project) 1,000,000 Wisconsin State Health and Educational Facilities 0 0 Authority Revenue Bonds (Franciscan Sisters Christian)(Series A) 2,000,000 Wisconsin State Health and Educational Facilities 0 0 Authority Revenue Bonds (Marshfield Clinic) (Series B) 2,000,000 Wisconsin State Health and Educational Facilities 0 0 Authority Revenue Bonds (Watertown Memorial Hospital, Inc.) 6,000,000 Wisconsin State Health and Educational Facilities 6,000,000 6,158,160 Authority Revenue Bonds (Wheaton Franciscan Services) Total Wisconsin 6,158,160 The AAL Municipal Pro-Forma Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Long-Term Fixed Income - 97.7% Value Rate Date Amount Value Wyoming - 0.7% 5,825,000 Wyoming State Farm Loan Board Capital 6,695,955 5.75% 10/1/2020 5,825,000 6,695,955 Facilities Revenue Bonds 2,500,000 Wyoming State Farm Loan Board Capital 2,606,950 6.1% 4/1/2024 0 0 Projects Facilities Revenue Bonds Total Wyoming 9,302,905 6,695,955 Total Long-Term Fixed Income 1,291,742,024 635,496,609 (cost $1,185,115,547) Lutheran Brotherhood Municipal Bond Fund Long-Term Fixed Income - 97.7% Principal Wyoming - 0.7% Amount Value 5,825,000 Wyoming State Farm Loan Board Capital 0 0 Facilities Revenue Bonds 2,500,000 Wyoming State Farm Loan Board Capital 2,500,000 2,606,950 Projects Facilities Revenue Bonds Total Wyoming 2,606,950 Total Long-Term Fixed Income 656,245,415 The AAL Municipal Bond Fund/1/ The AAL The AAL Municipal Pro-Forma Municpal Bond Fund/1/ Bond Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Short-Term Investments - 2.3% Value Rate Date Amount Value $860,000 Allegheny County, Pennsylvania Hospital $860,000 8.45% 11/15/2003 0 $0 Development Authority Revenue Bonds (West Penn Allegheny Health Systems) (Series B) $405,000 Berkeley County, SC Pollution Control Revenue $405,000 1.15% 11/3/2003 405,000 $405,000 Bonds (Amoco Chemical Company Project) 1,200,000 Boston Massachusetts Water and Sewer 1,200,000 1.0% 11/6/2003 1,200,000 1,200,000 Community Revenue Bond (Series A) (LOC-State Street) 400,000 Dade County, Florida, Industrial Development 400,000 1.18% 11/3/2003 0 0 Authority (Florida Power and Light) 2,195,000 Hammond Indiana Pollution Control Revenue 2,195,000 1.15% 11/3/2003 2,195,000 2,195,000 Bonds (Amoco Oil Company Project) 2,315,000 Harris County, Texas Health Facilities 2,315,000 1.15% 11/3/2003 2,185,000 2,185,000 Development Authority Revenue Bonds (Texas Childrens Hospital) (MBIA Insured) (Series B-1) 1,385,000 Hurley, New Mexico Pollution Control Revenue 1,385,000 1.15% 11/3/2003 1,385,000 1,385,000 Bonds (Kennecott Santa Fe Project-BP PLC) 1,100,000 Illinois Development Finance Authority Revenue 1,100,000 1.15% 11/3/2003 1,100,000 1,100,000 Bond (Amoco Project) 9,800,000 Indiana State Educational Facilities Authority 9,800,000 0.95% 11/6/2003 9,800,000 9,800,000 Revenue Bonds (University of Notre Dame) 1,930,000 Michigan State Strategic Fund Pollution Control 1,930,000 1.15% 11/3/2003 1,930,000 1,930,000 Revenue Bonds (Consumers Power Project) (AMBAC Insured) 3,400,000 Port Authority of New York and New Jersey 3,400,000 1.15% 11/3/2003 3,400,000 3,400,000 Special Obligation Revenue Bonds (Versatile Structure) (LOC-Bayerische Landesbank) 465,000 Salt Lake, Utah County Pollution Control 465,000 1.15% 11/3/2003 465,000 465,000 Revenue Bonds (Service Station Holding 1,390,000 St. Lucie County, Florida Pollution Control 1,390,000 1.18% 11/3/2003 1,390,000 1,390,000 Revenue Bond Florida Power and Light Project 400,000 Southwest Higher Education Authority Revenue 400,000 1.15% 11/3/2003 400,000 400,000 Bonds (Southern Methodist University) 3,740,000 Valdez, Alaska Marine Term Revenue Bond (BP 3,740,000 1.15% 11/3/2003 3,740,000 3,740,000 Pipeline, Inc.) Total Short-Term Investments 30,985,000 29,595,000 (at amortized cost) Total Investments $1,322,727,024 $665,091,609 (cost $1,216,100,547) Lutheran Brotherhood Municipal Bond Fund Short-Term Investments - 2.3% Principal Amount Value $860,000 Allegheny County, Pennsylvania Hospital 860,000 $860,000 Development Authority Revenue Bonds (West Penn Allegheny Health Systems) (Series B) $405,000 Berkeley County, SC Pollution Control Revenue 0 $0 Bonds (Amoco Chemical Company Project) 1,200,000 Boston Massachusetts Water and Sewer 0 0 Community Revenue Bond (Series A) (LOC-State Street) 400,000 Dade County, Florida, Industrial Development 400,000 400,000 Authority (Florida Power and Light) 2,195,000 Hammond Indiana Pollution Control Revenue 0 0 Bonds (Amoco Oil Company Project) 2,315,000 Harris County, Texas Health Facilities 130,000 130,000 Development Authority Revenue Bonds (Texas Childrens Hospital) (MBIA Insured) (Series B-1) 1,385,000 Hurley, New Mexico Pollution Control Revenue 0 0 Bonds (Kennecott Santa Fe Project-BP PLC) 1,100,000 Illinois Development Finance Authority Revenue 0 0 Bond (Amoco Project) 9,800,000 Indiana State Educational Facilities Authority 0 0 Revenue Bonds (University of Notre Dame) 1,930,000 Michigan State Strategic Fund Pollution Control 0 0 Revenue Bonds (Consumers Power Project) (AMBAC Insured) 3,400,000 Port Authority of New York and New Jersey 0 0 Special Obligation Revenue Bonds (Versatile Structure) (LOC-Bayerische Landesbank) 465,000 Salt Lake, Utah County Pollution Control 0 0 Revenue Bonds (Service Station Holding 1,390,000 St. Lucie County, Florida Pollution Control 0 0 Revenue Bond Florida Power and Light Project 400,000 Southwest Higher Education Authority Revenue 0 0 Bonds (Southern Methodist University) 3,740,000 Valdez, Alaska Marine Term Revenue Bond (BP 0 0 Pipeline, Inc.) Total Short-Term Investments 1,390,000 (at amortized cost) Total Investments $657,635,415 (cost $1,216,100,547) /1/ The Lutheran Brotherhood Municipal Bond Fund is the accounting survivor. The AAL Money Market Fund Schedule of Investments as of October 31, 2003 The AAL Money Market Fund/1/ The AAL Money The AAL Money Pro-Forma Market Fund/1/ Market Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Certificates of Deposit - 6.9% Value Rate Date Amount Value Banking-Foreign $23,000,000 Deutsche Bank NY $23,000,000 1.4% 9/3/2004 10,000,000 $10,000,000 18,750,000 Royal Bank of Scotland CD 18,748,006 1.48% 11/19/2004 8,500,000 8,499,110 23,000,000 Svenska Handelsbanke 23,000,079 1.065% 11/28/2003 10,000,000 10,000,034 Total Certificates of Deposit 64,748,085 28,499,144 Lutheran Brotherhood Money Market Fund Certificates of Deposit - 6.9% Principal Amount Value Banking-Foreign $23,000,000 Deutsche Bank NY 13,000,000 $13,000,000 18,750,000 Royal Bank of Scotland CD 10,250,000 10,248,896 23,000,000 Svenska Handelsbanke 13,000,000 13,000,045 Total Certificates of Deposit 36,248,941 The AAL Money Market Fund/1/ The AAL Money The AAL Money Pro-Forma Market Fund/1/ Market Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Commercial Paper - 79.6% Value Rate Date Amount Value Asset-Backed Securities - 21.4% $3,580,000 Amsterdam Funding Corporation $3,578,208 1.06% 11/18/2003 3,580,000 $3,578,208 23,000,000 Barton Capital Corporation 22,992,617 1.06% 11/12/2003 10,000,000 9,996,761 19,200,000 Barton Capital Corporation 19,181,909 1.06% 12/3/2003 8,400,000 8,392,085 6,925,000 CAFCO, LLC 6,921,364 1.05% 11/19/2003 0 0 15,000,000 CAFCO, LLC 14,999,108 1.07% 11/3/2003 6,400,000 6,399,619 23,000,000 Corporate Receivables Corporation Funding LLC 22,989,165 1.06% 11/17/2003 11,000,000 10,994,818 18,750,000 CXC LLC 18,731,953 1.05% 12/4/2003 8,500,000 8,491,819 4,031,000 Edison Asset Securitization, LLC 4,029,399 1.1% 11/14/2003 4,031,000 4,029,399 1,551,000 Kitty Hawk Funding Corporation 1,550,819 1.05% 11/5/2003 0 0 22,000,000 Montauk Funding Corporation 21,996,669 1.09% 11/6/2003 10,000,000 9,998,486 15,230,000 Old Line Funding Corporation 15,229,112 1.05% 11/3/2003 7,030,000 7,029,590 3,146,000 Triple A-1 Funding 3,145,449 1.05% 11/7/2003 0 0 23,000,000 Tulip Funding Corporation 22,997,997 1.08% 11/4/2003 10,000,000 9,999,100 4,161,000 Tulip Funding Corporation 4,158,217 1.07% 11/28/2003 1,887,000 1,885,738 18,750,000 Windmill Funding Corporation 18,717,428 1.06% 12/30/2003 8,500,000 8,485,234 Total Asset-Backed Securities 201,219,414 89,280,857 Lutheran Brotherhood Money Market Fund Commercial Paper - 79.6% Principal Amount Value Asset-Backed Securities - 21.4% $3,580,000 Amsterdam Funding Corporation 0 $0 23,000,000 Barton Capital Corporation 13,000,000 12,995,856 19,200,000 Barton Capital Corporation 10,800,000 10,789,824 6,925,000 CAFCO, LLC 6,925,000 6,921,364 15,000,000 CAFCO, LLC 8,600,000 8,599,489 23,000,000 Corporate Receivables Corporation Funding LLC 12,000,000 11,994,347 18,750,000 CXC LLC 10,250,000 10,240,134 4,031,000 Edison Asset Securitization, LLC 0 0 1,551,000 Kitty Hawk Funding Corporation 1,551,000 1,550,819 22,000,000 Montauk Funding Corporation 12,000,000 11,998,183 15,230,000 Old Line Funding Corporation 8,200,000 8,199,522 3,146,000 Triple A-1 Funding 3,146,000 3,145,449 23,000,000 Tulip Funding Corporation 13,000,000 12,998,897 4,161,000 Tulip Funding Corporation 2,274,000 2,272,479 18,750,000 Windmill Funding Corporation 10,250,000 10,232,194 Total Asset-Backed Securities 111,938,557 The AAL Money Market Fund/1/ The AAL Money The AAL Money Pro-Forma Market Fund/1/ Market Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Value Rate Date Amount Value Banking-Domestic - 12.3% $11,500,000 Citigroup, Inc. $11,493,567 1.06% 11/20/2003 5,000,000 $4,997,203 21,750,000 Citigroup, Inc. 21,725,259 1.05% 12/10/2003 9,860,000 9,848,784 1,601,000 River Fuel Trust No. 1 1,600,477 1.07% 11/12/2003 1,601,000 1,600,477 14,778,000 River Fuel Trust No. 1 14,737,807 1.10% 1/30/2004 6,698,000 6,679,785 21,000,000 Toronto Dominion Holdings 20,998,198 1.035% 11/4/2003 9,000,000 8,999,224 16,000,000 Toronto Dominion Holdings 15,988,907 1.040% 11/25/2003 4,000,000 3,997,227 28,950,000 Ventures Business Trust 28,948,327 1.04% 11/3/2003 8,950,000 8,949,483 Total Banking-Domestic 115,492,542 45,072,183 Lutheran Brotherhood Money Market Fund Principal Amount Value Banking-Domestic - 12.3% $11,500,000 Citigroup, Inc. 6,500,000 $6,496,364 21,750,000 Citigroup, Inc. 11,890,000 11,876,475 1,601,000 River Fuel Trust No. 1 0 0 14,778,000 River Fuel Trust No. 1 8,080,000 8,058,022 21,000,000 Toronto Dominion Holdings 12,000,000 11,998,974 16,000,000 Toronto Dominion Holdings 12,000,000 11,991,680 28,950,000 Ventures Business Trust 20,000,000 19,998,844 Total Banking-Domestic 70,420,359 The AAL Money Market Fund/1/ The AAL Money The AAL Money Pro-Forma Market Fund/1/ Market Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Value Rate Date Amount Value Banking-Foreign - 9.2% $5,750,000 Abbey National North America $5,749,668 1.04% 11/3/2003 0 $0 3,550,000 Royal Bank of Scotland plc 3,545,341 1.05% 12/16/2003 0 0 15,650,000 Royal Bank of Scotland plc 15,629,762 1.06% 12/15/2003 9,650,000 9,637,535 18,000,000 Stadshypotek Delaware, Inc. 17,989,400 1.06% 11/21/2003 9,000,000 8,994,700 22,000,000 Westdeutsche Landesbank 21,975,733 1.045% 12/9/2003 10,000,000 9,988,970 22,000,000 Westdeutsche Landesbank 21,962,783 1.050% 12/29/2003 10,000,000 9,983,083 Total Banking-Foreign 86,852,687 38,604,288 Lutheran Brotherhood Money Market Fund Principal Amount Value Banking-Foreign - 9.2% $5,750,000 Abbey National North America 5,750,000 $5,749,668 3,550,000 Royal Bank of Scotland plc 3,550,000 3,545,341 15,650,000 Royal Bank of Scotland plc 6,000,000 5,992,227 18,000,000 Stadshypotek Delaware, Inc. 9,000,000 8,994,700 22,000,000 Westdeutsche Landesbank 12,000,000 11,986,763 22,000,000 Westdeutsche Landesbank 12,000,000 11,979,700 Total Banking-Foreign 48,248,399 The AAL Money Market Fund/1/ The AAL Money The AAL Money Pro-Forma Market Fund/1/ Market Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Value Rate Date Amount Value Chemicals - 4.2% 23,000,000 Henkel Corporation 22,970,765 1.04% 12/15/2003 10,000,000 9,987,289 16,125,000 Henkel Corporation 16,104,038 1.04% 12/16/2003 7,310,000 7,300,497 Total Chemicals 39,074,803 17,287,786 Lutheran Brotherhood Money Market Fund Principal Amount Value Chemicals - 4.2% 23,000,000 Henkel Corporation 13,000,000 12,983,476 16,125,000 Henkel Corporation 8,815,000 8,803,541 Total Chemicals 21,787,017 The AAL Money Market Fund/1/ The AAL Money The AAL Money Pro-Forma Market Fund/1/ Market Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Value Rate Date Amount Value Drugs & Health Care - 1.2% 11,500,000 Alcon Capital Corporation 11,497,010 1.04% 11/10/2003 5,000,000 4,998,700 Total Drugs & Health Care 11,497,010 4,998,700 Lutheran Brotherhood Money Market Fund Principal Amount Value Drugs & Health Care - 1.2% 11,500,000 Alcon Capital Corporation 6,500,000 6,498,310 Total Drugs & Health Care 6,498,310 The AAL Money Market Fund/1/ The AAL Money The AAL Money Pro-Forma Market Fund/1/ Market Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Value Rate Date Amount Value Education - 1.9% $2,500,000 Northwestern University $2,499,763 1.14% 11/4/2003 0 $0 5,000,000 Northwestern University 4,998,014 1.10% 11/14/2003 0 0 5,000,000 Northwestern University 4,994,000 1.01% 11/18/2003 5,000,000 4,994,000 5,000,000 Northwestern University 4,996,334 1.10% 11/25/2003 5,000,000 4,996,334 Total Education 17,488,111 9,990,334 Lutheran Brotherhood Money Market Fund Principal Amount Value Education - 1.9% $2,500,000 Northwestern University $2,500,000 $2,499,763 5,000,000 Northwestern University 5,000,000 4,998,014 5,000,000 Northwestern University 0 0 5,000,000 Northwestern University 0 0 Total Education 7,497,777 The AAL Money Market Fund/1/ The AAL Money The AAL Money Pro-Forma Market Fund/1/ Market Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Value Rate Date Amount Value Finance - 13.5% $23,000,000 American General Finance Corporation $22,987,497 1.03% 11/20/2003 10,000,000 $9,994,564 23,000,000 American General Finance Corporation 22,984,718 1.04% 11/24/2003 10,000,000 9,993,356 21,400,000 American Honda Finance Corporation 21,392,438 1.06% 11/13/2003 9,200,000 9,196,749 22,000,000 General Electric Capital Corporation 21,980,108 1.05% 12/2/2003 10,000,000 9,990,958 22,000,000 General Electric Capital Corporation 21,974,333 1.05% 12/11/2003 10,000,000 9,988,333 2,354,648 SSgA Money Market Fund 2,354,648 0.071% 2,354,648 2,354,648 12,825,000 Toyota Motor Credit Corporation 12,816,364 1.01% 11/25/2003 5,825,000 5,821,077 Total Finance 126,490,106 57,339,685 Lutheran Brotherhood Money Market Fund Principal Amount Value Finance - 13.5% $23,000,000 American General Finance Corporation 13,000,000 $12,992,933 23,000,000 American General Finance Corporation 13,000,000 12,991,362 21,400,000 American Honda Finance Corporation 12,200,000 12,195,689 22,000,000 General Electric Capital Corporation 12,000,000 11,989,150 22,000,000 General Electric Capital Corporation 12,000,000 11,986,000 2,354,648 SSgA Money Market Fund 0 0 12,825,000 Toyota Motor Credit Corporation 7,000,000 6,995,287 Total Finance 69,150,421 The AAL Money Market Fund/1/ The AAL Money The AAL Money Pro-Forma Market Fund/1/ Market Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Value Rate Date Amount Value Insurance - 5.0% 6,000,000 American Family Financial Services, Inc. 5,999,314 1.03% 11/5/2003 2,500,000 2,499,714 7,500,000 American Family Financial Services, Inc. 7,492,209 1.10% 12/5/2003 3,200,000 3,196,676 11,012,000 American Family Financial Services, Inc. 10,978,769 1.12% 2/6/2004 4,856,000 4,841,346 22,500,000 Swiss Reinsurance Company 22,425,750 1.1% 2/17/2004 10,500,000 10,465,350 Total Insurance 46,896,042 21,003,086 Lutheran Brotherhood Money Market Fund Principal Amount Value Insurance - 5.0% 6,000,000 American Family Financial Services, Inc. 3,500,000 3,499,600 7,500,000 American Family Financial Services, Inc. 4,300,000 4,295,533 11,012,000 American Family Financial Services, Inc. 6,156,000 6,137,423 22,500,000 Swiss Reinsurance Company 12,000,000 11,960,400 Total Insurance 25,892,956 The AAL Money Market Fund/1/ The AAL Money The AAL Money Pro-Forma Market Fund/1/ Market Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Value Rate Date Amount Value Investment Banking & Brokerage - 2.2% 20,250,000 Goldman Sachs Group, Inc. 20,243,790 0.92% 11/13/2003 7,250,000 7,247,777 Total Investment Banking & Brokerage 20,243,790 7,247,777 Lutheran Brotherhood Money Market Fund Principal Amount Value Investment Banking & Brokerage - 2.2% 20,250,000 Goldman Sachs Group, Inc. 13,000,000 12,996,013 Total Investment Banking & Brokerage 12,996,013 The AAL Money Market Fund/1/ The AAL Money The AAL Money Pro-Forma Market Fund/1/ Market Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Value Rate Date Amount Value Media - 2.1% 20,000,000 Gannett Company 19,992,634 1.02% 11/14/2003 10,000,000 9,996,317 Total Media 19,992,634 9,996,317 Lutheran Brotherhood Money Market Fund Principal Amount Value Media - 2.1% 20,000,000 Gannett Company 10,000,000 9,996,317 Total Media 9,996,317 The AAL Money Market Fund/1/ The AAL Money The AAL Money Pro-Forma Market Fund/1/ Market Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Value Rate Date Amount Value Oil & Gas - 6.6% $37,855,000 Northern Illinois Gas Company $37,709,807 1.12% 3/2/2004 17,460,000 $17,393,073 22,500,000 Shell Finance (UK) plc 22,478,113 1.03% 12/5/2003 10,500,000 10,489,786 2,000,000 Shell Finance (UK) plc 1,997,804 1.04% 12/9/2003 2,000,000 1,997,804 Total Oil & Gas 62,185,724 29,880,663 Total Commercial Paper 747,432,863 330,701,676 Lutheran Brotherhood Money Market Fund Principal Amount Value Oil & Gas - 6.6% $37,855,000 Northern Illinois Gas Company 20,395,000 $20,316,734 22,500,000 Shell Finance (UK) plc 12,000,000 11,988,327 2,000,000 Shell Finance (UK) plc 0 0 Total Oil & Gas 32,305,061 Total Commercial Paper 416,731,187 The AAL Money Market Fund/1/ The AAL Money The AAL Money Pro-Forma Market Fund/1/ Market Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount U.S. Government - 9.1% Value Rate Date Amount Value $23,000,000 Federal Home Loan Mortgage Corporation $22,968,346 1.074% 12/18/2003 11,000,000 $10,984,776 17,650,000 Federal Home Loan Mortgage Corporation 17,623,996 1.057% 12/22/2003 7,650,000 7,638,729 Discount Notes 5,000,000 Federal Home Loan Mortgage Corporation 4,994,135 1.049% 12/12/2003 5,000,000 4,994,135 Discount Notes 23,000,000 Federal National Mortgage Association Discount 22,974,585 1.039% 12/10/2003 10,000,000 9,988,950 Notes 17,255,000 Federal National Mortgage Association Discount 17,091,854 1.251% 8/6/2004 7,503,000 7,432,059 Notes Total U.S. Government 85,652,916 41,038,649 Lutheran Brotherhood Money Market Fund Principal U.S. Government - 9.1% Amount Value $23,000,000 Federal Home Loan Mortgage Corporation 12,000,000 $11,983,570 17,650,000 Federal Home Loan Mortgage Corporation 10,000,000 9,985,267 Discount Notes 5,000,000 Federal Home Loan Mortgage Corporation 0 0 Discount Notes 23,000,000 Federal National Mortgage Association Discount 13,000,000 12,985,635 Notes 17,255,000 Federal National Mortgage Association Discount 9,752,000 9,659,795 Notes Total U.S. Government 44,614,267 The AAL Money Market Fund/1/ The AAL Money The AAL Money Pro-Forma Market Fund/1/ Market Fund Combined Pro-Forma Principal Combined Interest Maturity Principal Amount Variable Rate Notes - 4.4% Value Rate Date Amount Value $18,750,000 American Honda Finance Corporation $18,760,254 1.37% 1/22/2004 8,500,000 $8,504,644 5,000,000 Cargill, Inc. 5,001,122 1.18% 11/19/2003 0 0 8,000,000 Illinois Student Assistance Commission 8,000,000 1.12% 11/5/2003 0 0 10,000,000 Wells Fargo Bank 9,999,454 1.06% 12/1/2003 10,000,000 9,999,454 Total Variable Rate Notes 41,760,830 18,504,098 Total Investments $939,594,694 $418,743,567 (at amortized cost) Lutheran Brotherhood Money Market Fund Principal Variable Rate Notes - 4.4% Amount Value $18,750,000 American Honda Finance Corporation 10,250,000 $10,255,610 5,000,000 Cargill, Inc. 5,000,000 5,001,122 8,000,000 Illinois Student Assistance Commission 8,000,000 8,000,000 10,000,000 Wells Fargo Bank 0 0 Total Variable Rate Notes 23,256,732 Total Investments $520,851,127 (at amortized cost) /1/ The AAL Money Market Fund is the accounting survivor. Thrivent Mid Cap Growth Fund Schedule of Investments as of October 31, 2003 Thrivent Thrivent Lutheran Brotherhood Lutheran Brotherhood Mid Cap Mid Cap Mid Cap Growth Opportunity Growth Fund/1/ Growth Fund/1/ Fund Growth Fund Pro-Forma Pro-Forma Combined Combined Shares Common Stock - 95.9% Value Shares Value Shares Value Communications Services - 1.2% 12,100 Commonwealth Telephone Enterprises, $493,196 0 $0 12,100 $493,196 Inc. 12,100 EMS Technologies, Inc. 215,380 0 0 12,100 215,380 22,200 IDT Corporation 424,464 0 0 22,200 424,464 6,900 Millicom International Cellular SA 424,833 0 0 6,900 424,833 27,800 Nextel Communications, Inc. 672,760 27,800 672,760 0 0 55,800 Nextel Partners, Inc. 670,716 55,800 670,716 0 0 13,000 United States Cellular Corporation 440,180 13,000 440,180 0 0 6,200 Vimpel Communications 403,620 0 0 6,200 403,620 Total Communications Services 3,745,149 1,783,656 1,961,493 Consumer Discretionary - 17.8% 17,200 99 CENTS Only Stores 512,044 5,100 151,827 12,100 360,217 34,500 Abercrombie & Fitch Company 983,250 34,500 983,250 0 0 9,400 Action Performance Companies, Inc. 192,512 0 0 9,400 192,512 4,600 Advance Auto Parts, Inc. 359,812 4,600 359,812 0 0 21,500 Alliance Gaming Corporation 521,375 0 0 21,500 521,375 9,000 Amazon.com, Inc. 489,780 9,000 489,780 0 0 16,300 American Eagle Outfitters, Inc. 260,637 0 0 16,300 260,637 6,600 Applebee's International, Inc. 247,566 6,600 247,566 0 0 3,000 AutoZone, Inc. 288,300 3,000 288,300 0 0 24,860 Bed Bath & Beyond, Inc. 1,050,086 24,860 1,050,086 0 0 8,850 Best Buy Company, Inc. 516,044 8,850 516,044 0 0 12,200 Brinker International, Inc. 388,326 12,200 388,326 0 0 6,200 CarMax, Inc. 195,362 6,200 195,362 0 0 42,700 Cheesecake Factory, Inc. 1,705,438 21,450 856,713 21,250 848,725 40,550 Chico's FAS, Inc. 1,522,247 23,900 897,206 16,650 625,041 13,112 Christopher & Banks Corporation 382,870 0 0 13,112 382,870 48,800 Coach, Inc. 1,730,936 34,400 1,220,168 14,400 510,768 11,600 Columbia Sportswear Company 675,584 0 0 11,600 675,584 29,100 Cost Plus, Inc. 1,334,817 0 0 29,100 1,334,819 12,500 Cox Radio, Inc. 276,500 12,500 276,500 0 0 27,500 Cumulus Media, Inc. 515,075 0 0 27,500 515,075 6,600 D.R. Horton, Inc. 262,680 6,600 262,680 0 0 20,580 Dollar Tree Stores, Inc. $785,744 20,580 $785,744 0 $0 4,500 E.W. Scripps Company 418,095 4,500 418,095 0 0 5,800 eBay, Inc. 324,452 5,800 324,452 0 0 15,200 EchoStar Communications Corporation 582,464 15,200 582,464 0 0 10,700 Emmis Communications Corporation 237,326 0 0 10,700 237,326 6,800 Entercom Communications Corporation 311,508 6,800 311,508 0 0 25,000 Ethan Allen Interiors, Inc. 920,000 0 0 25,000 920,000 20,700 Family Dollar Stores, Inc. 902,727 20,700 902,727 0 0 8,550 Fred's, Inc. 322,164 0 0 8,550 322,164 14,000 Genesco, Inc. 235,900 0 0 14,000 235,900 41,300 Gentex Corporation 1,612,765 28,700 1,120,735 12,600 492,030 30,400 Getty Images, Inc. 1,358,880 6,700 299,490 23,700 1,059,390 9,300 Gildan Activewear Inc. 254,727 0 0 9,300 254,727 17,000 GTECH Holdings Corporation 759,560 8,900 397,652 8,100 361,908 29,600 Gymboree Corporation 488,400 29,600 488,400 0 0 14,140 Harley-Davidson, Inc. 670,377 14,140 670,377 0 0 9,500 Harman International Industries, Inc.1,217,900 7,100 910,220 2,400 307,680 4,700 Harrah's Entertainment, Inc. 204,450 4,700 204,450 0 0 19,400 Hibbett Sporting Goods, Inc. 529,814 0 0 19,400 529,814 47,500 Insight Enterprises, Inc. 798,950 0 0 47,500 798,950 20,836 InterActiveCorp 764,890 20,836 764,890 0 0 28,300 International Game Technology 926,825 28,300 926,825 0 0 18,300 J. Jill Group, Inc. 222,711 0 0 18,300 222,711 8,500 Jarden Corporation 350,965 0 0 8,500 350,965 11,000 Krispy Kreme Doughnuts, Inc. 476,520 0 0 11,000 476,520 12,700 Lamar Advertising Company 384,810 12,700 384,810 0 0 6,700 Leapfrog Enterprises, Inc. 231,619 6,700 231,619 0 0 3,600 Lennar Corporation 330,660 3,600 330,660 0 0 26,300 Linens 'n Things, Inc. 776,376 6,200 183,024 20,100 593,352 15,400 Lodgenet Entertainment Corporation 279,972 0 0 15,400 279,972 13,300 Mandalay Resort Group 522,025 13,300 522,025 0 0 12,500 Mattel, Inc. 242,000 12,500 242,000 0 0 17,000 May Department Stores Company 475,320 17,000 475,320 0 0 10,700 Men's Wearhouse, Inc. 315,222 0 0 10,700 315,222 6,800 Meredith Corporation 329,936 0 0 6,800 329,936 7,500 Michaels Stores, Inc. 356,025 7,500 356,025 0 0 12,200 O'Reilly Automotive, Inc. 528,138 12,200 528,138 0 0 34,600 Oakley, Inc. 375,410 0 0 34,600 375,410 6,200 Outback Steakhouse, Inc. 260,400 6,200 260,400 0 0 13,200 Overstock.com, Inc. 195,360 13,200 195,360 0 0 34,505 Pacific Sunwear of California, Inc. 796,720 9,900 228,591 24,605 568,129 16,800 Panera Bread Company 675,864 0 0 16,800 675,864 15,900 Papa John's International, Inc. 418,329 0 0 15,900 418,329 17,300 Pennsylvania National Gaming, Inc. 409,837 0 0 17,300 409,837 15,300 PETsMART, Inc. 391,833 15,300 391,833 0 0 4,400 Pixar, Inc. $302,764 4,400 $302,764 0 $0 6,400 Priceline.com, Inc. 179,584 0 0 6,400 179,584 22,000 ProQuest Company 653,400 0 0 22,000 653,400 37,700 Radio One, Inc. 599,430 17,300 275,070 20,400 324,360 8,500 Rent-A-Center, Inc. 265,710 8,500 265,710 0 0 6,700 Ross Stores, Inc. 335,067 6,700 335,067 0 0 10,700 Royal Caribbean Cruises, Ltd. 317,897 10,700 317,897 0 0 5,600 Ryland Group, Inc. 497,840 0 0 5,600 497,840 14,100 Salem Communications Corporation 327,825 0 0 14,100 327,825 26,200 SBS Broadcasting SA 742,508 0 0 26,200 742,508 12,950 SCP Pool Corporation 453,250 0 0 12,950 453,250 2,000 Select Comfort Corporation 62,600 0 0 2,000 62,600 4,200 Sharper Image Corporation 120,960 0 0 4,200 120,960 48,750 Sonic Corporation 1,355,737 23,300 647,973 25,450 707,764 39,000 Staples, Inc. 1,045,980 39,000 1,045,980 0 0 16,600 Starbucks Corporation 524,560 16,600 524,560 0 0 10,300 Starcraft Corporation 443,930 0 0 10,300 443,930 6,600 Starwood Hotels & Resorts Worldwide, 222,618 6,600 222,618 0 0 Inc. 17,700 Station Casinos, Inc. 526,575 0 0 17,700 526,575 17,300 Steiner Leisure, Ltd. 238,048 0 0 17,300 238,048 10,500 Superior Industries International, Inc.446,250 10,500 446,250 0 0 15,400 Talbots, Inc. 506,198 15,400 506,198 0 0 6,700 Tiffany & Company 317,915 6,700 317,915 0 0 11,700 TJX Companies, Inc. 245,583 11,700 245,583 0 0 14,700 Tractor Supply Company 616,077 0 0 14,700 616,077 9,500 Tuesday Morning Corporation 302,955 0 0 9,500 302,955 33,600 Tweeter Home Entertainment Group, 280,560 0 0 33,600 280,560 26,800 Ultimate Electronics, Inc. 240,932 0 0 26,800 240,932 31,235 Univision Communications, Inc. 1,060,428 31,235 1,060,428 0 0 7,900 Weight Watchers International, Inc. 291,510 7,900 291,510 0 0 5,300 Wendy's International, Inc. 196,365 5,300 196,365 0 0 16,600 Westwood One, Inc. 496,838 16,600 496,838 0 0 24,900 Wet Seal, Inc. 273,651 0 0 24,900 273,651 44,100 Williams-Sonoma, Inc. 1,558,053 30,400 1,074,032 13,700 484,021 15,800 XM Satellite Radio Holdings, Inc. 320,108 0 0 15,800 320,108 Total Consumer Discretionary 54,754,919 30,194,212 24,560,707 Consumer Staples - 1.1% 16,100 Chattem, Inc. 236,187 0 0 16,100 236,187 7,300 Coca-Cola Bottling Company 368,650 0 0 7,300 368,650 Consolidated 10,800 Constellation Brands, Inc. 338,796 0 0 10,800 338,796 11,400 Dean Foods Company 344,850 11,400 344,850 0 0 24,900 Performance Food Group Company $927,525 10,200 $379,950 14,700 $547,575 20,800 United Natural Foods, Inc. 804,544 0 0 20,800 804,544 5,350 Whole Foods Market, Inc. 316,934 5,350 316,934 0 0 Total Consumer Staples 3,337,486 1,041,734 2,295,752 Energy - 4.5% 11,510 Apache Corporation 802,477 11,510 802,477 0 0 20,620 BJ Services Company 676,542 20,620 676,542 0 0 26,300 Brigham Exploration Company 176,210 0 0 26,300 176,210 21,200 Cal Dive International, Inc. 439,476 0 0 21,200 439,476 4,700 Cooper Cameron Corporation 201,254 4,700 201,254 0 0 13,786 Devon Energy Corporation 668,621 13,786 668,621 0 0 10,100 ENSCO International, Inc. 266,135 10,100 266,135 0 0 16,200 EOG Resources, Inc. 682,668 16,200 682,668 0 0 23,400 Halliburton Company 558,792 23,400 558,792 0 0 22,500 Hydril Company 527,625 0 0 22,500 527,625 13,200 McMoran Exploration Company 197,208 0 0 13,200 197,208 4,400 Murphy Oil Corporation 259,512 4,400 259,512 0 0 11,400 Nabors Industries, Ltd. 430,920 11,400 430,920 0 0 8,800 National-Oilwell, Inc. 167,816 8,800 167,816 0 0 14,200 Newfield Exploration Company 564,166 14,200 564,166 0 0 11,900 Noble Corporation 408,527 11,900 408,527 0 0 37,100 Patterson-UTI Energy, Inc. 1,060,689 14,600 417,414 22,500 643,275 8,200 Pioneer Natural Resources Company 216,890 8,200 216,890 0 0 4,200 Pogo Producing Company 175,602 4,200 175,602 0 0 34,600 Pride International, Inc. 566,748 12,200 199,836 22,400 366,912 23,000 Prima Energy Corporation 639,860 0 0 23,000 639,860 15,020 Smith International, Inc. 559,195 15,020 559,195 0 0 15,500 Spinnaker Exploration Company 396,645 0 0 15,500 396,645 37,600 St. Mary Land & Exploration Company 981,360 0 0 37,600 981,360 7,800 Stone Energy Corporation 281,892 0 0 7,800 281,892 16,200 Tom Brown, Inc. 437,724 0 0 16,200 437,724 16,300 Unit Corporation 316,057 0 0 16,300 316,057 26,600 Veritas DGC, Inc. 235,676 0 0 26,600 235,676 7,100 Weatherford International, Ltd. 246,725 7,100 246,725 0 0 15,000 World Fuel Services Corporation 429,900 0 0 15,000 429,900 18,066 XTO Energy, Inc. 427,622 18,066 427,622 0 0 Total Energy 14,000,534 7,930,714 6,069,820 Financials - 8.6% 13,900 A.G. Edwards, Inc. 562,950 13,900 562,950 0 0 25,800 Affiliated Managers Group, Inc. 1,870,500 9,900 717,750 15,900 1,152,750 2,100 Alexander's, Inc. 225,540 0 0 2,100 225,540 4,800 Alexandria Real Estate Equities, Inc. $244,800 0 $0 4,800 $244,800 6,150 Ambac Financial Group, Inc. 435,051 6,150 435,051 0 0 23,000 Arthur J. Gallagher & Company 671,370 23,000 671,370 0 0 13,600 Astoria Financial Corporation 471,104 0 0 13,600 471,104 13,300 Bank of Hawaii Corporation 524,020 13,300 524,020 0 0 3,700 Bank of the Ozarks, Inc. 157,657 0 0 3,700 157,657 4,300 Cathay Bancorp, Inc. 208,034 0 0 4,300 208,034 21,600 Charles Schwab Corporation 292,896 0 0 21,600 292,896 7,770 Charter One Financial, Inc. 248,329 7,770 248,329 0 0 26,200 Doral Financial Corporation 1,323,100 13,650 689,325 12,550 633,775 23,400 E*TRADE Group, Inc. 241,020 23,400 241,020 0 0 19,200 East West Bancorp, Inc. 942,528 12,500 613,625 6,700 328,903 17,300 Eaton Vance Corporation 603,424 17,300 603,424 0 0 2,900 Everest Re Group, Ltd. 240,555 2,900 240,555 0 0 7,500 Federal Agricultural Mortgage 234,525 0 0 7,500 234,525 Corporation 20,800 Financial Federal Corporation 697,840 0 0 20,800 697,840 19,175 First Financial Bankshares, Inc. 806,309 0 0 19,175 806,309 12,300 First Tennessee National Corporation 557,928 12,300 557,928 0 0 20,700 Greater Bay Bancorp 558,072 0 0 20,700 558,072 7,400 HCC Insurance Holdings, Inc. 215,636 7,400 215,636 0 0 7,100 IBERIABANK Corporation 366,147 0 0 7,100 366,147 41,600 Investment Technology Group, Inc. 826,176 27,800 552,108 13,800 274,068 50,200 Investors Financial Services Corporation1,773,566 29,600 1,045,768 20,600 727,798 64,800 Knight Trading Group, Inc. 896,832 33,300 460,872 31,500 435,960 8,400 Legg Mason, Inc. 699,300 8,400 699,300 0 0 8,700 Moody's Corporation 503,121 8,700 503,121 0 0 30,366 New York Community Bancorp, Inc. 1,099,250 13,733 497,135 16,633 602,115 6,600 Novastar Financial, Inc. 486,750 0 0 6,600 486,750 11,900 PartnerRe, Ltd. 645,813 4,900 265,923 7,000 379,890 18,100 ProAssurance Corporation 544,810 0 0 18,100 544,810 20,100 Providian Financial Corporation 223,311 20,100 223,311 0 0 16,100 Radian Group, Inc. 851,690 16,100 851,690 0 0 5,300 RenaissanceRe Holdings, Ltd. 238,394 5,300 238,394 0 0 5,200 SEI Investments Company 151,424 5,200 151,424 0 0 5,900 Southwest Bancorporation of Texas, Inc.211,869 0 0 5,900 211,869 20,100 Staten Island Bancorp, Inc. 400,593 0 0 20,100 400,593 11,100 SWS Group, Inc. 240,870 11,100 240,870 0 0 5,600 T. Rowe Price Group, Inc. 230,440 5,600 230,440 0 0 15,500 TCF Financial Corporation 808,790 15,500 808,790 0 0 26,900 Texas Capital Bancshares, Inc. 365,840 0 0 26,900 365,840 13,150 Union Planters Corporation 437,500 13,150 437,500 0 0 24,200 W.R. Berkley Corporation 829,818 6,450 221,170 17,750 608,648 8,000 WFS Financial, Inc. 348,880 0 0 8,000 348,880 10,300 Willis Group Holdings, Ltd. 342,990 10,300 342,990 0 0 10,800 Wintrust Financial Corporation $468,072 0 $0 10,800 $468,072 Total Financials 26,325,434 14,091,789 12,233,645 Health Care - 19.6% 17,050 Accredo Health, Inc. 544,918 0 0 17,050 544,918 13,750 Advanced Neuromodulation Systems, Inc. 563,750 0 0 13,750 563,750 16,100 AdvancePCS, Inc. 828,667 16,100 828,667 0 0 9,600 Advisory Board Company 349,344 0 0 9,600 349,344 4,600 Aetna, Inc. 264,086 4,600 264,086 0 0 27,200 Alexion Pharmaceuticals, Inc. 503,200 0 0 27,200 503,200 42,000 Align Technology, Inc. 647,640 0 0 42,000 647,640 17,100 Alkermes, Inc. 221,787 0 0 17,100 221,787 7,200 Allergan, Inc. 544,464 7,200 544,464 0 0 26,500 American Medical Systems Holdings, Inc.530,000 0 0 26,500 530,000 9,500 AmerisourceBergen Corporation 539,315 9,500 539,315 0 0 9,703 Anthem, Inc. 663,976 9,703 663,976 0 0 18,300 Applera Corporation (Celera Genomics 244,671 18,300 244,671 0 0 Group) 3,600 Applied Biosystems Group 83,088 3,600 83,088 0 0 25,200 ArthroCare Corporation 563,220 0 0 25,200 563,220 12,300 Barr Laboratories, Inc. 944,271 12,300 944,271 0 0 4,800 Biogen, Inc. 194,256 4,800 194,256 0 0 30,557 Biomet, Inc. 1,095,774 30,557 1,095,774 0 0 11,600 Biosite Diagnostics, Inc. 299,280 0 0 11,600 299,280 16,600 Biovail Corporation 399,230 16,600 399,230 0 0 4,500 Boston Scientific Corporation 304,740 4,500 304,740 0 0 7,500 Britesmile, Inc. 223,500 0 0 7,500 223,500 57,200 Bruker BioSciences Corporation 297,440 0 0 57,200 297,440 3,500 C.R. Bard, Inc. 280,175 3,500 280,175 0 0 53,500 Caliper Technologies Corporation 300,135 0 0 53,500 300,135 18,500 CancerVax Corporation 238,095 0 0 18,500 238,095 37,700 Candela Corporation 646,555 0 0 37,700 646,555 91,800 Caremark Rx, Inc. 2,299,590 50,800 1,272,540 41,000 1,027,050 25,400 Celgene Corporation 1,058,926 12,000 500,280 13,400 558,646 20,900 Cell Genesys, Inc. 268,356 0 0 20,900 268,356 4,200 Cephalon, Inc. 197,232 4,200 197,232 0 0 21,900 Cerner Corporation 927,903 15,400 652,498 6,500 275,405 6,700 Charles River Laboratories 216,008 6,700 216,008 0 0 International, Inc. 10,500 Chiron Corporation 573,615 10,500 573,615 0 0 27,600 Community Health Systems, Inc. 662,952 11,300 271,426 16,300 391,526 52,600 Conceptus, Inc. 644,350 0 0 52,600 644,350 11,800 Covance, Inc. 307,154 0 0 11,800 307,154 17,100 Coventry Health Care, Inc. 936,225 9,500 520,125 7,600 416,100 12,900 CV Therapeutics, Inc. $227,427 0 $0 12,900 $227,427 57,600 Cytyc Corporation 744,768 14,900 192,657 42,700 552,111 15,000 Datascope Corporation 499,350 0 0 15,000 499,350 19,600 DaVita, Inc. 687,960 0 0 19,600 687,960 26,000 Dendrite International, Inc. 392,600 0 0 26,000 392,600 17,800 Dentsply International, Inc. 786,582 17,800 786,582 0 0 12,300 Digene Corporation 432,960 0 0 12,300 432,960 26,800 Diversa Corporation 225,924 0 0 26,800 225,924 30,400 EPIX Medical, Inc. 562,704 0 0 30,400 562,704 8,800 Express Scripts, Inc. 483,296 8,800 483,296 0 0 10,100 First Health Group Corporation 246,541 10,100 246,541 0 0 39,350 First Horizon Pharmaceutical 278,204 0 0 39,350 278,204 18,300 Fisher Scientific International, Inc. 736,575 18,300 736,575 0 0 7,980 Forest Laboratories, Inc. 399,080 7,980 399,080 0 0 7,600 Galen Holdings plc 384,940 0 0 7,600 384,940 9,500 Genzyme Corporation 436,050 9,500 436,050 0 0 22,600 Gilead Sciences, Inc. 1,233,508 22,600 1,233,508 0 0 14,900 Hanger Orthopedic Group, Inc. 254,045 14,900 254,045 0 0 27,200 Harvard Bioscience, Inc. 201,307 0 0 27,200 201,307 20,250 Health Management Associates, Inc. 448,538 20,250 448,538 0 0 4,500 Henry Schein, Inc. 279,225 4,500 279,225 0 0 35,000 Human Genome Sciences, Inc. 486,850 35,000 486,850 0 0 16,450 IDEC Pharmaceuticals Corporation 577,888 16,450 577,888 0 0 27,700 Inspire Pharmaceuticals, Inc. 515,774 0 0 27,700 515,774 23,900 Integra Life Sciences Holdings 806,386 0 0 23,900 806,386 Corporation 11,400 InterMune, Inc. 228,000 0 0 11,400 228,000 14,300 IntraBiotics Pharmaceuticals, Inc. 190,190 0 0 14,300 190,190 17,600 Inverness Medical Innovations, Inc. 471,680 0 0 17,600 471,680 5,100 Invitrogen Corporation 324,309 5,100 324,309 0 0 15,100 KOS Pharmaceuticals, Inc. 599,621 0 0 15,100 599,621 21,500 Kyphon, Inc. 592,325 0 0 21,500 592,325 21,800 Laboratory Corporation of America 772,810 21,800 772,810 0 0 Holdings 75,600 Lexicon Genetics, Inc. 423,360 0 0 75,600 423,360 17,000 LifePoint Hospitals, Inc. 437,070 0 0 17,000 437,070 13,800 Lincare Holdings, Inc. 537,372 13,800 537,372 0 0 21,700 Manor Care, Inc. 722,176 21,700 722,176 0 0 12,500 Martek Biosciences Corporation 605,125 0 0 12,500 605,125 17,200 Medicines Company 458,380 0 0 17,200 458,380 10,300 Medicis Pharmaceutical Corporation 652,505 10,300 652,505 0 0 22,300 MedImmune, Inc. 594,518 22,300 594,518 0 0 6,600 MGI PHARMA, Inc. 247,896 0 0 6,600 247,896 12,400 Mid Atlantic Medical Services, Inc. 724,160 5,700 332,880 6,700 391,280 14,400 Millennium Pharmaceuticals, Inc. 229,248 14,400 229,248 0 0 33,400 MIM Corporation $196,726 0 $0 33,400 $196,726 36,000 Mylan Laboratories, Inc. 869,400 36,000 869,400 0 0 16,200 Nastech Pharmaceutical Company 147,420 0 0 16,200 147,420 28,300 NeoPharm, Inc. 432,424 0 0 28,300 432,424 18,700 Neurocrine Biosciences, Inc. 875,721 4,100 192,003 14,600 683,718 18,200 Noven Pharmaceuticals, Inc. 183,638 0 0 18,200 183,638 21,500 NPS Pharmaceuticals, Inc. 566,095 0 0 21,500 566,095 12,462 Odyssey Healthcare, Inc. 345,696 0 0 12,462 345,696 27,100 Omnicare, Inc. 1,039,014 27,100 1,039,014 0 0 21,600 Onyx Pharmaceuticals, Inc. 528,552 0 0 21,600 528,552 21,100 OSI Pharmaceuticals, Inc. 590,800 0 0 21,100 590,800 4,300 Patterson Dental Company 275,114 4,300 275,114 0 0 22,200 Pharmaceutical Product Development 667,554 8,200 246,574 14,000 420,980 26,800 PolyMedica Corporation 790,600 0 0 26,800 790,600 23,500 Priority Healthcare Corporation 508,305 0 0 23,500 508,305 65,000 Protein Design Labs, Inc. 876,200 36,200 487,976 28,800 388,224 35,900 Province Healthcare Company 460,956 0 0 35,900 460,956 3,900 Quest Diagnostics, Inc. 263,835 3,900 263,835 0 0 27,200 Regeneron Pharmaceuticals, Inc. 376,448 0 0 27,200 376,448 4,500 ResMed, Inc. 187,965 4,500 187,965 0 0 24,200 Select Medical Corporation 812,394 0 0 24,200 812,394 14,100 St. Jude Medical, Inc. 820,056 14,100 820,056 0 0 4,100 Stryker Corporation 332,551 4,100 332,551 0 0 12,200 Sunrise Senior Living, Inc. 352,580 0 0 12,200 352,580 15,700 SurModics, Inc. 329,857 0 0 15,700 329,857 13,100 Taro Pharmaceutical Industries, Ltd. 841,675 0 0 13,100 841,675 7,600 TECHNE Corporation 264,708 7,600 264,708 0 0 12,200 Teva Pharmaceutical Industries, Ltd. 694,058 12,200 694,058 0 0 10,400 Trimeris, Inc. 266,240 0 0 10,400 266,240 12,400 Varian Medical Systems, Inc. 792,856 12,400 792,856 0 0 10,700 VISX, Inc. 259,582 0 0 10,700 259,582 5,800 Watson Pharmaceuticals, Inc. 227,766 5,800 227,766 0 0 7,000 WellPoint Health Networks, Inc. 622,300 7,000 622,300 0 0 15,400 Wilson Greatbatch Technologies, Inc. 580,580 0 0 15,400 580,580 11,500 Zimmer Holdings, Inc. 733,815 11,500 733,815 0 0 12,000 Zoll Medical Corporation 407,880 0 0 12,000 407,880 Total Health Care 60,068,476 29,367,081 30,701,395 Industrials - 8.8% 10,600 Actuant Corporation 341,744 0 0 10,600 341,744 7,350 Alliant Techsystems, Inc. 380,436 7,350 380,436 0 0 10,900 American Power Conversion Corporation 220,507 10,900 220,507 0 0 8,800 American Standard Companies, Inc. 842,160 8,800 842,160 0 0 10,400 American Woodmark Corporation 510,640 0 0 10,400 510,640 21,200 AMR Corporation $281,536 0 $0 21,200 $281,536 12,100 Apollo Group, Inc. 768,713 12,100 768,713 0 0 2,700 Apollo Group, Inc. (University of 185,652 0 0 2,700 185,652 Phoenix Online) 8,700 Aramark Corporation 232,464 8,700 232,464 0 0 28,300 Atlantic Coast Airlines Holdings, Inc. 313,281 0 0 28,300 313,281 10,500 Bright Horizons Family Solutions, Inc. 451,080 0 0 10,500 451,080 49,900 C.H. Robinson Worldwide, Inc. 1,955,082 21,600 846,288 28,300 1,108,794 20,500 Career Education Corporation 1,097,775 14,600 781,830 5,900 315,945 22,700 ChoicePoint, Inc. 795,408 10,200 357,408 12,500 438,000 5,400 Cintas Corporation 230,364 5,400 230,364 0 0 11,500 Continental Airlines, Inc. 219,650 0 0 11,500 219,650 41,000 Copart, Inc. 511,270 0 0 41,000 511,270 20,000 Corinthian Colleges, Inc. 1,238,400 6,500 402,480 13,500 835,920 34,100 Corporate Executive Board Company 1,739,441 13,500 688,635 20,600 1,050,806 22,900 CoStar Group, Inc. 862,185 0 0 22,900 862,185 7,100 Danaher Corporation 588,235 7,100 588,235 0 0 10,300 DeVry, Inc. 249,981 10,300 249,981 0 0 4,800 Education Management Corporation 303,264 4,800 303,264 0 0 26,900 EGL, Inc. 438,739 26,900 438,739 0 0 13,200 Engineered Support Systems, Inc. 892,452 0 0 13,200 892,452 18,520 Expeditors International of 695,241 18,520 695,241 0 0 Washington, Inc. 20,800 Fastenal Company 924,976 20,800 924,976 0 0 13,300 Fluor Corporation 493,164 13,300 493,164 0 0 31,800 Forward Air Corporation 924,744 0 0 31,800 924,744 5,800 Genesee & Wyoming, Inc. 140,998 0 0 5,800 140,998 6,000 ITT Educational Services, Inc. 298,800 0 0 6,000 298,800 2,900 ITT Industries, Inc. 197,171 2,900 197,171 0 0 7,800 J.B. Hunt Transport Services, Inc. 197,964 7,800 197,964 0 0 13,200 Jacobs Engineering Group, Inc. 611,424 8,400 389,088 4,800 222,336 4,800 JetBlue Airways Corporation 276,864 0 0 4,800 276,864 17,300 L-3 Communications Holdings, Inc. 808,602 17,300 808,602 0 0 16,800 Manpower, Inc. 779,520 16,800 779,520 0 0 7,900 Mercury Computer Systems, Inc. 169,929 0 0 7,900 169,929 11,000 Mueller Industries, Inc. 347,160 0 0 11,000 347,160 19,200 Pall Corporation 449,280 19,200 449,280 0 0 18,800 Right Management Consultants, Inc. 339,340 0 0 18,800 339,340 18,300 Robert Half International, Inc. 432,063 18,300 432,063 0 0 15,900 Roto-Rooter, Inc. 561,270 0 0 15,900 561,270 6,400 SPX Corporation 307,968 6,400 307,968 0 0 24,500 Stericycle, Inc. 1,131,410 8,000 369,440 16,500 761,970 32,900 Stewart & Stevenson Services, Inc. 550,088 0 0 32,900 550,088 1,900 Strayer Education, Inc. 186,067 0 0 1,900 186,067 9,300 Swift Transportation Company, Inc. 208,599 9,300 208,599 0 0 32,900 TeleTech Holdings, Inc. $216,482 0 $0 32,900 $216,482 3,600 W.W. Grainger, Inc. 164,808 3,600 164,808 0 0 Total Industrials 27,064,391 13,749,388 13,315,003 Information Technology - 32.5% 68,900 3Com Corporation 496,080 68,900 496,080 0 0 28,375 Activision, Inc. 428,179 0 0 28,375 428,179 206,000 ADC Telecommunications, Inc. 525,300 206,000 525,300 0 0 22,900 Adobe Systems, Inc. 1,003,936 22,900 1,003,936 0 0 10,700 ADTRAN, Inc. 727,921 3,300 224,499 7,400 503,422 18,200 Advanced Energy Industries, Inc. 415,506 0 0 18,200 415,506 37,700 Advanced Fibre Communications, Inc. 907,439 8,700 209,409 29,000 698,030 16,100 Advent Software, Inc. 294,791 0 0 16,100 294,791 45,700 Aeroflex, Inc. 424,096 0 0 45,700 424,096 18,200 Affiliated Computer Services, Inc. 890,526 18,200 890,526 0 0 40,000 Agile Software Corporation 438,800 0 0 40,000 438,800 141,500 Alliance Fiber Optic Products, Inc. 349,505 0 0 141,500 349,505 18,800 Altera Corporation 380,324 18,800 380,324 0 0 7,800 Altiris, Inc. 268,164 0 0 7,800 268,164 64,900 Alvarion, Ltd. 504,922 0 0 64,900 504,922 31,900 Amdocs, Ltd. 684,574 31,900 684,574 0 0 7,500 Analog Devices, Inc. 332,475 7,500 332,475 0 0 14,900 Applied Films Corporation 467,115 0 0 14,900 467,115 68,000 Ariba, Inc. 221,000 68,000 221,000 0 0 89,000 Arris Group, Inc. 534,000 89,000 534,000 0 0 19,400 ASM International NV 339,694 0 0 19,400 339,694 50,100 Asyst Technologies, Inc. 934,365 25,900 483,035 24,200 451,330 12,900 ATMI, Inc. 296,571 0 0 12,900 296,571 15,100 August Technology Corporation 292,940 0 0 15,100 292,940 17,100 Avid Technology, Inc. 884,754 0 0 17,100 884,754 19,600 Avocent Corporation 740,880 0 0 19,600 740,880 38,800 BEA Systems, Inc. 539,320 38,800 539,320 0 0 25,200 BISYS Group, Inc. 360,360 25,200 360,360 0 0 15,800 Broadcom Corporation 504,810 15,800 504,810 0 0 86,800 Brocade Communications Systems, Inc. 568,540 86,800 568,540 0 0 28,700 Brooks Automation, Inc. 716,065 0 0 28,700 716,065 48,600 Business Objects SA ADR 1,596,996 21,600 709,776 27,000 887,220 51,400 Cable Design Technologies Corporation 495,496 0 0 51,400 495,496 23,700 CACI International, Inc. 1,173,861 11,600 574,548 12,100 599,313 36,600 Cadence Design Systems, Inc. 563,274 36,600 563,274 0 0 9,800 CDW Corporation 588,490 9,800 588,490 0 0 31,200 Check Point Software Technologies, 530,088 31,200 530,088 0 0 Ltd. 31,400 CheckFree Corporation 864,442 7,400 203,722 24,000 660,720 72,800 CIENA Corporation 466,648 72,800 466,648 0 0 11,400 Citrix Systems, Inc. $288,192 11,400 $288,192 0 $0 13,500 Cognex Corporation 362,475 0 0 13,500 362,475 36,038 Cognizant Technology Solutions 1,635,765 17,338 786,972 18,700 848,793 Corporation 18,300 Cognos, Inc. 630,801 8,400 289,548 9,900 341,253 15,300 Coherent, Inc. 351,900 0 0 15,300 351,900 20,300 Concord EFS, Inc. 217,007 20,300 217,007 0 0 22,100 Corning, Inc. 242,658 22,100 242,658 0 0 240,100 Corvis Corporation 343,343 0 0 240,100 343,343 22,100 Cree, Inc. 392,496 0 0 22,100 392,496 20,800 Cymer, Inc. 949,728 4,800 219,168 16,000 730,560 13,400 Cypress Semiconductor Corporation 287,564 13,400 287,564 0 0 26,400 Digital River, Inc. 722,832 0 0 26,400 722,832 13,700 DSP Group, Inc. 327,156 0 0 13,700 327,156 18,500 DST Systems, Inc. 699,670 18,500 699,670 0 0 35,700 DuPont Photomasks, Inc. 827,526 18,400 426,512 17,300 401,014 9,700 eCollege.com, Inc. 210,393 0 0 9,700 210,393 13,300 Electro Scientific Industries, Inc. 326,648 0 0 13,300 326,648 10,200 Electronic Arts, Inc. 1,010,208 10,200 1,010,208 0 0 28,800 Embarcadero Technologies, Inc. 371,520 0 0 28,800 371,520 25,800 Emulex Corporation 730,656 9,000 254,880 16,800 475,776 22,600 Exar Corporation 363,634 0 0 22,600 363,634 11,000 Fair Isaac Corporation 701,580 4,000 255,120 7,000 446,460 15,800 FEI Company 375,250 0 0 15,800 375,250 16,800 FileNET Corporation 448,896 0 0 16,800 448,896 15,950 Fiserv, Inc. 563,354 15,950 563,354 0 0 21,400 Flextronics International, Ltd. 299,600 21,400 299,600 0 0 13,400 FLIR Systems, Inc. 418,884 0 0 13,400 418,884 33,600 Foundry Networks, Inc. 781,536 8,300 193,058 25,300 588,478 7,200 Global Imaging Systems, Inc. 209,160 0 0 7,200 209,160 22,700 Global Payments, Inc. 945,455 6,300 262,395 16,400 683,060 42,900 Globecomm Systems, Inc. 178,893 0 0 42,900 178,893 62,300 Harmonic, Inc. 483,448 62,300 483,448 0 0 18,000 Helix Technology Corporation 323,100 0 0 18,000 323,100 18,000 Hutchinson Technology, Inc. 603,180 0 0 18,000 603,180 10,200 Hyperion Solutions Corporation 341,598 0 0 10,200 341,598 30,500 Ibis Technology Corporation 352,275 0 0 30,500 352,275 87,900 Informatica Corporation 958,110 46,300 504,670 41,600 453,440 41,300 Integrated Circuit Systems, Inc. 1,386,441 28,500 956,745 12,800 429,696 6,900 International Rectifier Corporation 329,337 6,900 329,337 0 0 25,900 Intersil Corporation 667,961 21,600 557,064 4,300 110,897 10,400 Intuit, Inc. 519,792 10,400 519,792 0 0 13,100 Iron Mountain, Inc. 500,944 6,800 260,032 6,300 240,912 12,300 Itron, Inc. 252,027 0 0 12,300 252,027 20,300 J2 Global Communication, Inc. 574,896 0 0 20,300 574,896 37,200 Jabil Circuit, Inc. $1,036,020 37,200 $1,036,020 0 $0 21,300 JDA Software Group, Inc. 456,033 0 0 21,300 456,033 144,400 JDS Uniphase Corporation 512,620 144,400 512,620 0 0 25,800 Juniper Networks, Inc. 464,142 25,800 464,142 0 0 13,180 KLA-Tencor Corporation 755,609 13,180 755,609 0 0 8,500 Kronos, Inc. 510,000 0 0 8,500 510,000 59,200 Lam Research Corporation 1,701,408 34,400 988,656 24,800 712,752 30,800 Lexar Media, Inc. 705,628 0 0 30,800 705,628 6,400 Lexmark International, Inc. 471,104 6,400 471,104 0 0 9,200 Linear Technology Corporation 392,012 9,200 392,012 0 0 16,400 Logitech International ADR 653,048 0 0 16,400 653,048 153,800 Lucent Technologies, Inc. 492,160 153,800 492,160 0 0 7,600 Macromedia, Inc. 145,236 7,600 145,236 0 0 13,800 Macrovision Corporation 303,186 0 0 13,800 303,186 17,200 Magma Design Automation, Inc. 416,756 0 0 17,200 416,756 17,300 Manhattan Associates, Inc. 481,632 0 0 17,300 481,632 19,400 Mantech International Corporation 474,524 0 0 19,400 474,524 14,900 Marvell Technology Group, Ltd. 653,663 14,900 653,663 0 0 21,300 Mattson Technology, Inc. 302,673 0 0 21,300 302,673 16,160 Maxim Integrated Products, Inc. 803,314 16,160 803,314 0 0 13,000 MAXIMUS, Inc. 453,830 0 0 13,000 453,830 31,400 McDATA Corporation 320,908 31,400 320,908 0 0 18,000 Mercury Interactive Corporation 835,920 18,000 835,920 0 0 23,200 Metrologic Instruments, Inc. 543,576 0 0 23,200 543,576 33,000 Micrel, Inc. 544,500 33,000 544,500 0 0 33,810 Microchip Technology, Inc. 1,105,925 33,810 1,105,925 0 0 17,100 MicroStrategy, Inc. 940,500 0 0 17,100 940,500 33,400 MKS Instruments, Inc. 868,400 0 0 33,400 868,400 135,900 MRV Communications, Inc. 418,572 0 0 135,900 418,572 14,100 National Instruments Corporation 600,378 14,100 600,378 0 0 11,800 National Semiconductor Corporation 479,434 11,800 479,434 0 0 11,300 Netease.Com, Inc. 513,020 0 0 11,300 513,020 35,852 NetIQ Corporation 435,243 0 0 35,852 435,243 36,700 NetScreen Technologies, Inc. 976,954 10,300 274,186 26,400 702,768 53,100 Network Appliance, Inc. 1,310,508 53,100 1,310,510 0 0 13,900 Network Associates, Inc. 193,627 13,900 193,627 0 0 20,430 Novellus Systems, Inc. 843,555 20,430 843,555 0 0 32,100 O2Micro International, Ltd. 684,051 0 0 32,100 684,051 17,700 OmniVision Technologies, Inc. 1,005,360 0 0 17,700 1,005,360 24,200 Open Text Corporation 478,192 0 0 24,200 478,192 26,200 Pacific Internet, Ltd. 200,430 0 0 26,200 200,430 58,200 Packeteer, Inc. 1,017,336 29,200 510,416 29,000 506,920 19,900 Paychex, Inc. 774,508 19,900 774,508 0 0 23,700 PEC Solutions, Inc. 360,714 0 0 23,700 360,714 28,500 Pegasus Solutions, Inc. 311,220 0 0 28,500 311,220 9,900 PeopleSoft, Inc. $205,524 9,900 $205,524 0 $0 15,200 Photon Dynamics, Inc. 574,864 0 0 15,200 574,864 22,400 Photronics, Inc. 482,496 0 0 22,400 482,496 22,500 Pixelworks, Inc. 271,800 0 0 22,500 271,800 13,000 Plantronics, Inc. 361,530 0 0 13,000 361,530 33,800 Plato Learning, Inc. 362,674 0 0 33,800 362,674 19,300 Plexus Corporation 333,697 0 0 19,300 333,697 17,100 Polycom, Inc. 342,513 0 0 17,100 342,513 11,100 Power Integrations, Inc. 386,502 0 0 11,100 386,502 10,800 QLogic Corporation 605,340 10,800 605,340 0 0 16,100 Quest Software, Inc. 239,890 0 0 16,100 239,890 25,800 Radiant Systems, Inc. 171,828 0 0 25,800 171,828 22,400 RadiSys Corporation 437,920 0 0 22,400 437,920 32,400 RealNetworks, Inc. 215,460 32,400 215,460 0 0 22,100 Red Hat, Inc. 332,384 22,100 332,384 0 0 32,400 REMEC, Inc. 357,372 0 0 32,400 357,372 46,200 RF Micro Devices, Inc. 541,002 46,200 541,002 0 0 16,600 SafeNet, Inc. 553,610 0 0 16,600 553,610 13,800 SanDisk Corporation 1,112,280 4,700 378,820 9,100 733,460 23,900 Seachange International, Inc. 368,060 0 0 23,900 368,060 15,100 SERENA Software, Inc. 260,475 0 0 15,100 260,475 60,200 Siebel Systems, Inc. 757,918 60,200 757,918 0 0 9,700 Sigmatel, Inc. 246,380 0 0 9,700 246,380 7,000 Silicon Laboratories, Inc. 377,860 0 0 7,000 377,860 31,100 Skyworks Solutions, Inc. 266,838 0 0 31,100 266,838 12,700 Sohu.com, Inc. 438,150 0 0 12,700 438,150 8,500 Storage Technology Corporation 204,850 8,500 204,850 0 0 23,260 SunGard Data Systems, Inc. 652,443 23,260 652,443 0 0 50,000 Superconductor Technologies 254,500 50,000 254,500 0 0 85,200 Sycamore Networks, Inc. 426,000 0 0 85,200 426,000 13,500 Symantec Corporation 899,775 13,500 899,775 0 0 12,000 Synopsys, Inc. 380,640 12,000 380,640 0 0 24,100 Take-Two Interactive Software, Inc. 953,155 14,900 589,295 9,200 363,860 21,300 Tekelec, Inc. 342,717 0 0 21,300 342,717 21,500 Tektronix, Inc. 551,905 21,500 551,905 0 0 10,400 Teradyne, Inc. 236,912 10,400 236,912 0 0 22,750 THQ, Inc. 403,585 0 0 22,750 403,585 67,700 TIBCO Software, Inc. 435,988 0 0 67,700 435,988 66,600 Trikon Technologies, Inc. 409,523 0 0 66,600 409,523 15,000 United Online, Inc. 431,850 0 0 15,000 431,850 18,400 UTStarcom, Inc. 579,600 18,400 579,600 0 0 29,600 Varian Semiconductor Equipment 1,431,160 15,300 739,755 14,300 691,405 Associates, Inc. 13,900 Varian, Inc. 497,759 0 0 13,900 497,759 15,500 VeriSign, Inc. 245,985 15,500 245,985 0 0 22,900 Verisity, Ltd. $286,021 0 $0 22,900 $286,021 21,300 VERITAS Software Corporation 769,995 21,300 769,995 0 0 24,100 Verity, Inc. 338,605 0 0 24,100 338,605 182,000 Vignette Corporation 456,820 92,900 233,179 89,100 223,641 13,800 Vishay Intertechnology, Inc. 258,750 13,800 258,750 0 0 6,800 Waters Corporation 213,724 6,800 213,724 0 0 27,100 WebEx Communications, Inc. 598,639 0 0 27,100 598,639 49,500 webMethods, Inc. 429,660 49,500 429,660 0 0 18,300 Websense, Inc. 428,220 0 0 18,300 428,220 14,040 Xilinx, Inc. 445,068 14,040 445,068 0 0 17,500 Yahoo!, Inc. 764,750 17,500 764,750 0 0 3,900 Zebra Technologies Corporation 222,105 3,900 222,105 0 0 16,300 Zoran Corporation 271,558 0 0 16,300 271,558 10,700 Zygo Corporation 161,142 0 0 10,700 161,142 Total Information Technology 99,795,338 47,719,470 52,075,868 Materials - 1.4% 20,600 Arch Coal, Inc. 504,700 20,600 504,700 0 0 7,000 Cabot Corporation 195,300 0 0 7,000 195,300 12,200 Cytec Industries, Inc. 425,902 12,200 425,902 0 0 20,800 Ecolab, Inc. 559,312 20,800 559,312 0 0 5,800 Florida Rock Industries, Inc. 332,050 0 0 5,800 332,050 11,800 Packaging Corporation of America 232,460 11,800 232,460 0 0 10,100 Pactiv Corporation 222,705 10,100 222,705 0 0 8,200 Phelps Dodge Corporation 506,268 8,200 506,268 0 0 7,300 Praxair, Inc. 507,934 7,300 507,934 0 0 8,100 Rayonier, Inc. 340,605 0 0 8,100 340,605 14,100 Silgan Holdings, Inc. 450,918 0 0 14,100 450,918 Total Materials 4,278,154 2,959,281 1,318,873 Utilities - 0.4% 11,700 Equitable Resources, Inc. 482,040 11,700 482,040 0 0 5,000 Kinder Morgan, Inc. 267,750 5,000 267,750 0 0 11,100 Piedmont Natural Gas Company, Inc. 441,003 0 0 11,100 441,003 Total Utilities 1,190,793 749,790 441,003 Total Common Stock 294,560,674 149,587,115 144,973,559 (cost $241,631,324) Lutheran Brotherhood Lutheran Brotherhood Mid Cap Growth Opportunity Thrivent Fund Growth Fund Mid Cap Thrivent Growth Fund/1/ Mid Cap Pro-Forma Growth Fund/1/ Combined Pro-Forma Principal Combined Principal Principal Amount Long-Term Fixed Income - 0.0% Value Amount Value Amount Value $1,382 Timco Aviation Services, Inc. $1 0 $0 1,382 $1 Total Long-Term Fixed Income 1 0 1 (cost $0) Lutheran Brotherhood Lutheran Brotherhood Mid Cap Growth Opportunity Fund Growth Fund Thrivent Mid Cap Thrivent Growth Fund/1/ Mid Cap Pro-Forma Growth Fund/1/ Combined Pro-Forma Principal Combined Principal Principal Amount Short-Term Investments - 4.1% Value Amount Value Amount Value $12,500,000 Amsterdam Funding Corporation $12,499,270 7,500,000 $7,499,562 5,000,000 $4,999,708 Total Short-Term Investments 12,499,270 7,499,562 4,999,708 (at amortized cost) Total Investments $307,059,945 $157,086,677 $149,973,268 (cost $254,130,594) /1/ The Lutheran Brotherhood Mid Cap Growth Fund is the accounting survivor. Notes to Pro Forma Financial Statements October 31, 2003 (Unaudited) 1. (Lutheran Brotherhood Growth Fund into AAL Aggressive Growth Fund) 1). Description of the Fund The AAL Aggressive Growth Fund is a fund within The AAL Mutual Fund ("Fund"), which is registered under the Investment Company Act of 1940, as amended, as an open-ended, diversified investment company. The AAL Aggressive Growth Fund offers three classes of shares: Class A, Class B and Institutional shares. All shareholders bear the common expenses of the Fund based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. 2). Basis of Combination The accompanying pro forma financial statements are presented to show the effects of the proposed reorganization of the Lutheran Brotherhood Growth Fund, a series of the Lutheran Brotherhood Family of Funds, into the AAL Aggressive Growth Fund as if the reorganization had taken place as of November 1, 2003. Under the terms of the Plan of Reorganization, the reorganization of the Lutheran Brotherhood Growth Fund into the AAL Aggressive Growth Fund would be accounted for as a tax free mergers of investment companies. The reorganization would be accomplished by the acquisition of the net assets of the Lutheran Brotherhood Growth Fund in exchange for shares of the AAL Aggressive Growth Fund at net asset value. The Statement of Assets and Liabilities and the related Statement of Operations of the Lutheran Brotherhood Growth Fund and the AAL Aggressive Growth Fund have been combined as of and for the twelve months ended October 31, 2003. Following the reorganization, the Lutheran Brotherhood Growth Fund will be the accounting survivor. In accordance with accounting principles generally accepted in the United States of America, the historical cost of investment securities will be carried forward to the surviving fund and the results of operations for pre-combination periods of the surviving fund will not be restated. The accompanying pro-forma financial statements should be read in conjunction with the financial statements of the Lutheran Brotherhood Growth Fund and the AAL Aggressive Growth Fund included in their respective annual reports and semi-annual reports dated October 31, 2003. The following notes refer to the accompanying pro forma financial statements as if the above mentioned reorganization of the Lutheran Brotherhood Growth Fund into the AAL Aggressive Growth Fund had taken place as of November 1, 2003. 3). Statement of Operations - pro-forma The pro-forma expenses reflect a management fee of 0.75%. Certain fixed expenses (audit, legal and fund accounting) have been reduced to reflect expense savings as a result of the proposed reorganization. 4). Portfolio Valuation Securities traded on U.S. or foreign securities exchanges or included in a national market system are valued at the official closing price at the close of each business day. Over-the-counter securities and listed securities for which no price is readily available are valued at the current bid price considered best to represent the value at that time. Security prices are based on quotes that are obtained from an independent pricing service approved by the Board of Trustees. Securities which cannot be valued by the approved pricing service are valued using valuations obtained from dealers that make markets in the securities. Exchange listed options and futures contracts are valued at the last quoted sales price. 5). Capital Shares The pro-forma net asset value per share assumes the issuance of shares of the AAL Aggressive Growth Fund that would have been issued at October 31, 2003 in connection with the proposed reorganization. The number of shares assumed to be issued is equal to the net asset value of shares of the Lutheran Brotherhood Growth Fund as of October 31, 2003, divided by the net asset value per share of the shares of the AAL Aggressive Growth Fund as of October 31, 2003. The pro-forma number of shares outstanding for the combined fund consists of the following at October 31, 2003. - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Shares of AAL Aggressive Total Outstanding Growth Fund Before Additional Shares Assumed Shares Reorganization Issued After Reorganization In Reorganization - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Class A Shares 8,317,648 6,452,829 14,770,477 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Class B Shares 869,470 2,538,303 3,407,773 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Institutional Shares 726,163 691,989 1,418,152 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- 6). Federal Income Taxes Each Fund has elected to be taxed as a "regulated investment company" under the Internal Revenue Code. After the reorganization, the AAL Aggressive Growth Fund intends to continue to qualify as a regulated investment company, if such qualification is in the best interest of its shareholders, by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of taxable income sufficient to relieve it from all or substantially all Federal income tax. The identified cost of investments for the funds is substantially the same for both financial accounting and Federal income tax purposes. The tax cost of investments will remain unchanged for the combined fund. 7). Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as the date of the financial statements and the reported amounts of income and expenses during\ the reporting period. Actual results could differ from those estimates. 2. (Lutheran Brotherhood World Growth Fund into AAL International Fund) 1). Description of the Fund The AAL International Fund is a fund within The AAL Mutual Fund ("Fund"), which is registered under the Investment Company Act of 1940, as amended, as an open-ended, diversified investment company. The AAL International Fund offers three classes of shares: Class A, Class B and Institutional shares. All shareholders bear the common expenses of the Fund based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. 2). Basis of Combination The accompanying pro forma financial statements are presented to show the effects of the proposed reorganization of the Lutheran Brotherhood World Growth Fund into the AAL International Fund, as if the reorganization had taken place as of November 1, 2003. Under the terms of the Agreement and Plan of Reorganization, the combination of the Lutheran Brotherhood World Growth Fund and AAL International Fund will be accounted for as a tax-free merger of investment companies. The reorganization would be accomplished by the acquisition of the net assets of Lutheran Brotherhood World Growth Fund in exchange for shares of AAL International Fund at net asset value. The Statement of Assets and Liabilities and the related Statement of Operations of the AAL International Fund and the Lutheran Brotherhood World Growth Fund have been combined as of and for the twelve months ended October 31, 2003. Following the reorganization, the Lutheran Brotherhood World Growth Fund will be the accounting survivor. In accordance with accounting principles generally accepted in the United States of America, the historical cost of investment securities will be carried forward to the surviving fund and the results of operations for pre-combination periods of the surviving fund will not be restated. The accompanying pro-forma financial statements should be read in conjunction with the financial statements of the AAL International Fund and the Lutheran Brotherhood World Growth Fund included in their respective semi-annual and annual report and dated October 31, 2003. The following notes refer to the accompanying pro forma financial statements as if the above-mentioned reorganization of the Lutheran Brotherhood World Growth Fund into the AAL International Fund had taken place as of November 1, 2003. 3). Statement of Operations - pro-forma The expense pro-forma reflects a management fee of 0.61% (the 2003 management fee in effect for the AAL International Fund). Certain fixed expenses (audit, legal and fund accounting) have been reduced to reflect expense savings as a result of the proposed reorganization. 4). Portfolio Valuation Securities traded on U.S. or foreign securities exchanges or included in a national market system are valued at the official closing price at the close of each business day. Over-the-counter securities and listed securities for which no price is readily available are valued at the current bid price considered best to represent the value at that time. Security prices are based on quotes that are obtained from an independent pricing service approved by the Board of Trustees. Securities which cannot be valued by the approved pricing service are valued using valuations obtained from dealers that make markets in the securities. Exchange listed options and futures contracts are valued at the last quoted sales price. 5). Fair valuation of international securities As many foreign markets close before the U.S. markets, events may occur between the close of the foreign market and the close of the U.S. markets that could have a material impact on the valuation of foreign securities. The advisor under the supervision of the Board of Trustees evaluates the impacts of these events and may adjust the valuation of foreign securities to reflect the fair value as of the close of the U.S. markets. The pro-forma net asset value per share assumes the issuance of shares of the AAL International Fund that would have been issued at October 31, 2003 in connection with the proposed reorganization. The number of shares assumed to be issued is equal to the net asset value of shares of the Lutheran Brotherhood World Growth Fund as of October 31, 2003 divided by the net asset value per share of the shares of the AAL International Fund as of October 31, 2003. The pro-forma number of shares outstanding for the combined fund consists of the following at October 31, 2003. - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Shares of AAL International Additional Shares Assumed Total Outstanding Fund Before Reorganization Issued Shares In Reorganization After Reorganization - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Class A Shares 18,602,047 7,282,875 25,884,922 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Class B Shares 946,041 1,353,303 2,299,344 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Institutional Shares 347,681 1,242,299 1,589,980 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- 6). Federal Income Taxes Each Fund has elected to be taxed as a "regulated investment company" under the Internal Revenue Code. After the reorganization, the AAL International Fund intends to continue to qualify as a regulated investment company, if such qualification is in the best interest of its shareholders, by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of taxable income sufficient to relieve it from all or substantially all Federal income tax. The identified cost of investments for the funds is substantially the same for both financial accounting and Federal income tax purposes. The tax cost of investments will remain unchanged for the combined fund. 7). Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. 3. (Lutheran Brotherhood Municipal Bond Fund into AAL Municipal Bond Fund) 1). Description of the Fund The AAL Municipal Bond Fund is a fund within The AAL Mutual Fund ("Fund"), which is registered under the Investment Company Act of 1940, as amended, as an open-ended, diversified investment company. The AAL Municipal Bond Fund offers three classes of shares: Class A, Class B and Institutional shares. All shareholders bear the common expenses of the Fund based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. 2). Basis of Combination The accompanying pro forma financial statements are presented to show the effects of the proposed reorganization of the Lutheran Brotherhood Municipal Bond Fund, a series of the Lutheran Brotherhood Family of Funds, into the AAL Municipal Bond Fund as if the reorganization had taken place as of November 1, 2003. Under the terms of the Plan of Reorganization, the reorganization of the Lutheran Brotherhood Municipal Bond Fund into the AAL Municipal Bond Fund would be accounted for as a tax free mergers of investment companies. The reorganization would be accomplished by the acquisition of the net assets of the Lutheran Brotherhood Municipal Bond Fund in exchange for shares of the AAL Municipal Bond Fund at net asset value. The Statement of Assets and Liabilities and the related Statement of Operations of the Lutheran Brotherhood Municipal Bond Fund and the AAL Municipal Bond Fund have been combined as of and for the twelve months ended October 31, 2003. Following the reorganization, the Lutheran Brotherhood Municipal Bond Fund will be the accounting survivor. In accordance with accounting principles generally accepted in the United States of America, the historical cost of investment securities will be carried forward to the surviving fund and the results of operations for pre-combination periods of the surviving fund will not be restated. The accompanying pro-forma financial statements should be read in conjunction with the financial statements of the Lutheran Brotherhood Municipal Bond Fund and the AAL Municipal Bond Fund included in their respective annual and semi-annual reports dated October 31, 2003. The following notes refer to the accompanying pro forma financial statements as if the above mentioned reorganization of the Lutheran Brotherhood Municipal Bond Fund into the AAL Municipal Bond Fund had taken place as of November 1, 2003. 3). Statement of Operations - pro-forma The pro-forma expenses reflect a management fee of 0.41%. Certain fixed expenses (audit, legal and fund accounting) have been reduced to reflect expense savings as a result of the proposed reorganization. 4). Portfolio Valuation Securities traded on U.S. or foreign securities exchanges or included in a national market system are valued at the official closing price at the close of each business day. Over-the-counter securities and listed securities for which no price is readily available are valued at the current bid price considered best to represent the value at that time. Security prices are based on quotes that are obtained from an independent pricing service approved by the Board of Trustees. Securities which cannot be valued by the approved pricing service are valued using valuations obtained from dealers that make markets in the securities. Exchange listed options and futures contracts are valued at the last quoted sales price. 5). Capital Shares The pro-forma net asset value per share assumes the issuance of shares of the AAL Municipal Bond Fund that would have been issued at October 31, 2003 in connection with the proposed reorganization. The number of shares assumed to be issued is equal to the net asset value of shares of the Lutheran Brotherhood Municipal Bond Fund as of October 31, 2003 divided by the net asset value per share of the shares of the AAL Municipal Bond Fund as of October 31, 2003. The pro-forma number of shares outstanding for the combined fund consists of the following at October 31, 2003. - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Shares of AAL Municipal Bond Additional Shares Assumed Total Outstanding Fund Before Reorganization Issued Shares In Reorganization After Reorganization - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Class A Shares 56,493,329 56,184,982 112,678,311 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Class B Shares 1,135,884 2,117,741 3,253,625 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Institutional Shares 304,788 227,028 531,816 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- 6). Federal Income Taxes Each Fund has elected to be taxed as a "regulated investment company" under the Internal Revenue Code. After the reorganization, the AAL Municipal Bond Fund intends to continue to qualify as a regulated investment company, if such qualification is in the best interest of its shareholders, by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of taxable income sufficient to relieve it from all or substantially all Federal income tax. The identified cost of investments for the funds is substantially the same for both financial accounting and Federal income tax purposes. The tax cost of investments will remain unchanged for the combined fund. 4. (Lutheran Brotherhood Fund into AAL Capital Growth Fund) 1). Description of the Fund The AAL Capital Growth Fund is a fund within The AAL Mutual Fund ("Fund"), which is registered under the Investment Company Act of 1940, as amended, as an open-ended, diversified investment company. The AAL Capital Growth Fund offers three classes of shares: Class A, Class B and Institutional shares. All shareholders bear the common expenses of the Fund based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. 2). Basis of Combination The accompanying pro forma financial statements are presented to show the effects of the proposed reorganization of the Lutheran Brotherhood Fund, a series of the Lutheran Brotherhood Family of Funds, into the AAL Capital Growth Fund as if the reorganization had taken place as of November 1, 2003. Under the terms of the Plan of Reorganization, the reorganization of the Lutheran Brotherhood Fund into the AAL Capital Growth Fund would be accounted for as a tax free mergers of investment companies. The reorganization would be accomplished by the acquisition of the net assets of the Lutheran Brotherhood Fund in exchange for shares of the AAL Capital Growth Fund at net asset value. The Statement of Assets and Liabilities and the related Statement of Operations of the Lutheran Brotherhood Fund and the AAL Capital Growth Fund have been combined as of and for the twelve months ended October 31, 2003. Following the reorganization, the AAL Capital Growth Fund will be the accounting survivor. In accordance with accounting principles generally accepted in the United States of America, the historical cost of investment securities will be carried forward to the surviving fund and the results of operations for pre-combination periods of the surviving fund will not be restated. The accompanying pro-forma financial statements should be read in conjunction with the financial statements of the Lutheran Brotherhood Fund and the AAL Capital Growth Fund included in their respective annual and semi-annual reports dated October 31, 2003. The following notes refer to the accompanying pro forma financial statements as if the above mentioned reorganization of the Lutheran Brotherhood Fund into the AAL Capital Growth Fund had taken place as of November 1, 2003. 3). Statement of Operations - pro-forma The pro-forma expenses reflect a management fee of 0.51%. Certain fixed expenses (audit, legal and fund accounting) have been reduced to reflect expense savings as a result of the proposed reorganization. 4). Portfolio Valuation Securities traded on U.S. or foreign securities exchanges or included in a national market system are valued at the official closing price at the close of each business day. Over-the-counter securities and listed securities for which no price is readily available are valued at the current bid price considered best to represent the value at that time. Security prices are based on quotes that are obtained from an independent pricing service approved by the Board of Trustees. Securities which cannot be valued by the approved pricing service are valued using valuations obtained from dealers that make markets in the securities. Exchange listed options and futures contracts are valued at the last quoted sales price. 5). Capital Shares The pro-forma net asset value per share assumes the issuance of shares of the AAL Capital Growth Fund that would have been issued at October 31, 2003 in connection with the proposed reorganization. The number of shares assumed to be issued is equal to the net asset value of shares of the LB Fund as of October 31, 2003, divided by the net asset value per share of the shares of the AAL Capital Growth Fund as of October 31, 2003. The pro-forma number of shares outstanding for the combined fund consists of the following at October 31, 2003. - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Shares of AAL Capital Growth Additional Shares Assumed Total Outstanding Fund Before Reorganization Issued In Reorganization Shares After Reorganization - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Class A Shares 99,049,939 26,865,295 125,915,234 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Class B Shares 3,021,193 2,427,371 5,448,564 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Institutional Shares 2,836,964 887,567 3,724,531 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- 6). Federal Income Taxes Each Fund has elected to be taxed as a "regulated investment company" under the Internal Revenue Code. After the reorganization, the AAL Capital Growth Fund intends to continue to qualify as a regulated investment company, if such qualification is in the best interest of its shareholders, by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of taxable income sufficient to relieve it from all or substantially all Federal income tax. The identified cost of investments for the Portfolios is substantially the same for both financial accounting and Federal income tax purposes. The tax cost of investments will remain unchanged for the combined fund. 7). Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. 5. (Lutheran Brotherhood Money Market into AAL Money Market Fund) 1). Description of the Fund The AAL Money Market Fund is a fund within The AAL Mutual Fund ("Fund"), which is registered under the Investment Company Act of 1940, as amended, as an open-ended, diversified investment company. The Fund offers three classes of shares: Class A, Class B and Institutional shares. All shareholders bear the common expenses of the Fund based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. 2). Basis of Combination The accompanying pro-forma financial statements are presented to show the effects of the proposed reorganization of the Lutheran Brotherhood Money Market Fund, a series of the Lutheran Brotherhood Family of Funds, into the AAL Money Market Fund as if the reorganization had taken place as of November 1, 2003. Under the terms of the Plan of Reorganization, the reorganization of the Lutheran Brotherhood Money Market Fund into the AAL Money Market Fund would be accounted for as a tax free mergers of investment companies. The reorganization would be accomplished by the acquisition of the net assets of the Lutheran Brotherhood Money Market Fund in exchange for shares of the AAL Money Market Fund at net asset value. The Statement of Assets and Liabilities and the related Statement of Operations of the Lutheran Brotherhood Money Market Fund and the AAL Money Market Fund have been combined as of and for the twelve months ended October 31, 2003. Following the reorganization, the AAL Money Market Fund will be the accounting survivor. In accordance with accounting principles generally accepted in the United States of America, the historical cost of investment securities will be carried forward to the surviving fund and the results of operations for pre-combination periods of the surviving fund will not be restated. The accompanying pro-forma financial statements should be read in conjunction with the financial statements of the Lutheran Brotherhood Money Market Fund and the AAL Money Market Fund included in their respective annual reports October 31, 2003. The following notes refer to the accompanying pro-forma financial statements as if the above mentioned reorganization of the Lutheran Brotherhood Money Market Fund into the AAL Money Market Fund had taken place as of November 1, 2003. 3). Statement of Operations - pro-forma The pro-forma expenses reflect a management fee of 0.44%. Certain fixed expenses (audit, legal and fund accounting) have been reduced to reflect expense savings as a result of the proposed reorganization. 4). Portfolio Valuation Securities are valued on the basis of amortized cost (which approximates market value), whereby a portfolio security is valued at its cost initially, and thereafter valued to reflect a constant amortization to maturity of any discount or premium. The AAL Money Market Fund follows procedures necessary to maintain a constant net asset value of $1.00 per share. 5). Capital Shares The pro-forma net asset value per share assumes the issuance of shares of the AAL Money Market Fund that would have been issued at October 31, 2003 in connection with the proposed reorganization. The number of shares assumed to be issued is equal to the net asset value of shares of the Lutheran Brotherhood Money Market Fund as of October 31, 2003, divided by the net asset value per share of the shares of the AAL Money Market Fund as of October 31, 2003. The pro-forma number of shares outstanding for the combined fund consists of the following at October 31, 2003. - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Shares of AAL Money Market Additional Shares Assumed Total Outstanding Fund Before Reorganization Issued In Reorganization Shares After Reorganization - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Class A Shares 301,766,074 500,265,347 802,031,421 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Class B Shares 2,278,123 1,095,202 3,373,325 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Institutional Shares 112,412,495 18,738,130 131,150,625 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- 6). Federal Income Taxes Each Fund has elected to be taxed as a "regulated investment company" under the Internal Revenue Code. After the reorganization, the AAL Money Market Fund intends to continue to qualify as a regulated investment company, if such qualification is in the best interest of its shareholders, by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of taxable income sufficient to relieve it from all or substantially all Federal income tax. The identified cost of investments for the Funds is substantially the same for both financial accounting and Federal income tax purposes. The tax cost of investments will remain unchanged for the combined fund. 7). Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. 6. (Lutheran Brotherhood Value Fund into AAL Equity Income Fund) 1). Description of the Fund The AAL Equity Income Fund is a fund within The AAL Mutual Fund ("Fund"), which is registered under the Investment Company Act of 1940, as amended, as an open-ended, diversified investment company. The Fund offers three classes of shares: Class A, Class B and Institutional shares. All shareholders bear the common expenses of the Fund based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. 2). Basis of Combination The accompanying pro-forma financial statements are presented to show the effects of the proposed reorganization of the Lutheran Brotherhood Value Fund, a series of the Lutheran Brotherhood Family of Funds, into the AAL Equity Income Fund as if the reorganization had taken place as of November 1, 2003. Under the terms of the Plan of Reorganization, the reorganization of the Lutheran Brotherhood Value Fund into the AAL Equity Income Fund would be accounted for as a tax free mergers of investment companies. The reorganization would be accomplished by the acquisition of the net assets of the Lutheran Brotherhood Value Fund in exchange for shares of the AAL Equity Income Fund at net asset value. The Statement of Assets and Liabilities and the related Statement of Operations of the Lutheran Brotherhood Value Fund and the AAL Equity Income Fund have been combined as of and for the twelve months ended October 31, 2003. Following the reorganization, the Lutheran Brotherhood Value Fund will be the accounting survivor. In accordance with accounting principles generally accepted in the United States of America, the historical cost of investment securities will be carried forward to the surviving fund and the results of operations for pre-combination periods of the surviving fund will not be restated. The accompanying pro-forma financial statements should be read in conjunction with the financial statements of the Lutheran Brotherhood Value Fund and the AAL Equity Income Fund included in their respective annual and semi-annual reports dated October 31, 2003. The following notes refer to the accompanying pro-forma financial statements as if the above mentioned reorganization of the Lutheran Brotherhood Value Fund into the AAL Equity Income Fund had taken place as of November 1, 2003. 3). Statement of Operations - pro-forma The pro-forma expenses reflect a management fee of 0.45%. Certain fixed expenses (audit, legal and fund accounting) have been reduced to reflect expense savings as a result of the proposed reorganization. 4). Portfolio Valuation Securities traded on U.S. or foreign securities exchanges or included in a national market system are valued at the official closing price at the close of each business day. Over-the-counter securities and listed securities for which no price is readily available are valued at the current bid price considered best to represent the value at that time. Security prices are based on quotes that are obtained from an independent pricing service approved by the Board of Directors. Securities which cannot be valued by the approved pricing service are valued using valuations obtained from dealers that make markets in the securities. Exchange listed options and futures contracts are valued at the last quoted sales price. 5). Capital Shares The pro-forma net asset value per share assumes the issuance of shares of the AAL Equity Income Fund that would have been issued at October 31, 2003 in connection with the proposed reorganization. The number of shares assumed to be issued is equal to the net asset value of shares of the Lutheran Brotherhood Value Fund as of October 31, 2003, divided by the net asset value per share of the shares of the AAL Equity Income Fund as of October 31, 2003. The pro-forma number of shares outstanding for the combined fund consists of the following at October 31, 2003. - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Shares of AAL Equity Income Additional Shares Assumed Total Outstanding Fund Before Reorganization Shares In Reorganization Shares After Reorganization - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Class A Shares 19,460,579 2,425,870 21,886,449 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Class B Shares 681,098 782,299 1,463,397 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Institutional Shares 1,023,897 261,218 1,285,115 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- 6). Federal Income Taxes Each Fund has elected to be taxed as a "regulated investment company" under the Internal Revenue Code. After the reorganization, the AAL Equity Income Fund intends to continue to qualify as a regulated investment company, if such qualification is in the best interest of its shareholders, by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of taxable income sufficient to relieve it from all or substantially all Federal income tax. The identified cost of investments for the Funds is substantially the same for both financial accounting and Federal income tax purposes. The tax cost of investments will remain unchanged for the combined fund. 7). Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. 7. Lutheran Brotherhood Opportunity Growth Fund into Lutheran Brotherhood Mid Cap Growth Fund) 1). Description of the Fund The Lutheran Brotherhood Mid Cap Growth Fund is a fund within the series of the Lutheran Brotherhood Family of Funds ("Fund"), which is registered under the Investment Company Act of 1940, as amended, as an open-ended, diversified investment company. The Lutheran Brotherhood Mid Cap Growth Fund offers three classes of shares: Class A, Class B and Institutional shares. All shareholders bear the common expenses of the Fund based on the daily net assets of each class. Dividends are declared separately for each class. Differences in per share dividend rates are generally due to differences in separate class expenses. 2). Basis of Combination The accompanying pro forma financial statements are presented to show the effects of the proposed reorganization of the Lutheran Brotherhood Opportunity Growth Fund, a series of the Lutheran Brotherhood Family of Funds, into the Lutheran Brotherhood Mid Cap Growth Fund as if the reorganization had taken place as of November 1, 2003. Under the terms of the Plan of Reorganization, the reorganization of the Lutheran Brotherhood Opportunity Growth Fund into the Lutheran Brotherhood Mid Cap Growth Fund would be accounted for as a tax free mergers of investment companies. The reorganization would be accomplished by the acquisition of the net assets of the Lutheran Brotherhood Opportunity Growth Fund in exchange for shares of the Lutheran Brotherhood Mid Cap Growth Fund at net asset value. The Statement of Asset and Liabilities and the related Statement of Operations of the Lutheran Brotherhood Opportunity Growth Fund and the Lutheran Brotherhood Mid Cap Growth Fund have been combined as of and for the twelve months ended October 31, 2003. Following the reorganization, the LB Mid Cap Growth Fund will be the accounting survivor. In accordance with accounting principles generally accepted in the United States of America, the historical cost of investment securities will be carried forward to the surviving fund and the results of operations for pre-combination periods of the surviving fund will not be restated. The accompanying pro-forma financial statements should be read in conjunction with the financial statements of the Lutheran Brotherhood Opportunity Growth Fund and the Lutheran Brotherhood Mid Cap Growth Fund included in their respective annual reports dated October 31, 2003. The following notes refer to the accompanying pro forma financial statements as if the above mentioned reorganization of the Lutheran Brotherhood Opportunity Growth Fund into the Lutheran Brotherhood Mid Cap Growth Fund had taken place as of November 1, 2003. 3). Statement of Operations - pro-forma The pro-forma expenses reflect a management fee of 0.42%. Certain fixed expenses (audit, legal and fund accounting) have been reduced to reflect expense savings as a result of the proposed reorganization. 4). Portfolio Valuation Securities traded on U.S. or foreign securities exchanges or included in a national market system are valued at the official closing price at the close of each business day. Over-the-counter securities and listed securities for which no price is readily available are valued at the current bid price considered best to represent the value at that time. Security prices are based on quotes that are obtained from an independent pricing service approved by the Board of Trustees. Securities which cannot be valued by the approved pricing service are valued using valuations obtained from dealers that make markets in the securities. Exchange listed options and futures contracts are valued at the last quoted sales price. 5). Capital Shares The pro-forma net asset value per share assumes the issuance of shares of the Lutheran Brotherhood Mid Cap Growth Fund that would have been issued at October 31, 2003 in connection with the proposed reorganization. The number of shares assumed to be issued is equal to the net asset value of shares of the Lutheran Brotherhood Opportunity Growth Fund as of October 31, 2003, divided by the net asset value per share of the shares of the Lutheran Brotherhood Mid Cap Growth Fund as of October 31, 2003. The pro-forma number of shares outstanding for the combined fund consists of the following at October 31, 2003. - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Shares of Lutheran Additional Shares Assumed Total Outstanding Brotherhood Mid Cap Growth Issued Shares Fund Before Reorganization In Reorganization After Reorganization - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Class A Shares 9,156,225 11,073,958 20,230,183 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Class B Shares 3,160,935 986,164 4,147,099 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- - --------------------------------- ------------------------------- -------------------------------- ----------------------------- Institutional Shares 563,722 53,129 616,851 - --------------------------------- ------------------------------- -------------------------------- ----------------------------- 6). Federal Income Taxes Each Fund has elected to be taxed as a "regulated investment company" under the Internal Revenue Code. After the reorganization, the Lutheran Brotherhood Mid Cap Growth Fund intends to continue to qualify as a regulated investment company, if such qualification is in the best interest of its shareholders, by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of taxable income sufficient to relieve it from all or substantially all Federal income tax. The identified cost of investments for the Portfolios is substantially the same for both financial accounting and Federal income tax purposes. The tax cost of investments will remain unchanged for the combined fund. 7). Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. PART C - OTHER INFORMATION Item 15. 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 16. Exhibits. (1) Declaration of Trust (a) (2) Bylaws (a) (3) Not applicable (4) Forms of Agreements and Plans of Reorganization (b) (5) See (1) above (6)(a) Investment Advisory Agreement between Registrant and Thrivent Investment Management Inc. effective November 28, 1990 (c) (6)(b) Form of Amendment No. 16 to Investment Advisory Agreement between Registrant and Thrivent Investment Management Inc. (f) (6)(c) Form of Amendment No. 17 to Investment Advisory Agreement between Registrant and Thrivent Investment Management Inc. (h) (6)(d) Investment Subadvisory Agreement with Mercator Asset Management LP for The AAL International Fund (g) (6)(e) Investment Subadvisory Agreement with T. Rowe Price International, Inc. for The AAL International Fund (g) (7)(a) Distribution Agreement between Registrant and Thrivent Investment Management Inc. (c) (7)(b) Amendment No. 12 to Distribution Agreement between Registrant and Thrivent Investment Management Inc. (f) (8) Not applicable (9) Custodian Agreement between Registrant and State Street Bank and Trust Company (d) (10) (a) Rule 12b-1 Plan (f) (b) Rule 18f-3 Plan (h) (11) Opinion and consent of counsel as to the legality of the securities being registered * (12) Opinion and consent of counsel as to tax matters and consequences to shareholders ** (13)(a) Accounting Services Agreement effective January 1, 1999 between Registrant and Thrivent Financial for Lutherans (c) (13)(b) Amendment No. 1 to Accounting Services Agreement effective February 1, 2004 (f) (13)(c) Administration Contract effective January 1, 2004 between Registrant and Thrivent Investment Management Inc. (f) (13)(d) Letter Amendment dated January 30, 2004 to Administration Contract effective January 1, 2004 (f) (13)(e) Form of Transfer Agency Agreement between Registrant and Thrivent Financial Investor Services Inc. (f) (13)(f) Line of Credit Agreement with State Street Bank (d) (13)(g) Expense Reimbursement Letter Agreement (f) (14) Consent of Independent Accountants * (15) Not applicable (16) Powers of Attorney for Pamela J. Moret, Charles D. Gariboldi, F. Gregory Campbell, Herbert F. Eggerding Jr., Noel K. Estenson, Richard L. Gady, Jodi L. Harpstead, Connie M. Levi and Edward W. Smeds (f) (17)(a) Proxy Card * (17)(b) Outbound Phone Script * - ----------------- * Filed herewith ** To be filed by subsequent amendment (a) Incorporated by reference from Post-Effective Amendment No. 26 to the registration statement of The AAL Mutual Funds, file no. 33-12911, filed on June 25, 1998. (b) Included as Appendix A of the proxy statement and prospectus included in Part A of this Pre-Effective Amendment No. 1 to the registration statement on Form N-14 of The AAL Mutual Funds, file no. 333-113514. (c) Incorporated by reference from Post-Effective Amendment No. 36 to the registration statement of The AAL Mutual Funds, file no. 33-12911, filed on December 29, 1999. (d) Incorporated by reference from Post-Effective Amendment No. 44 to the registration statement of The AAL Mutual Funds, file no. 33-12911, filed on June 27, 2003. (e) Incorporated by reference from Post-Effective Amendment No. 48 to the registration statement of The AAL Mutual Funds, file no. 33-12911, filed on November 14, 2003. (f) Incorporated by reference from initial registration statement filed on Form N-14, file no. 333-113514, filed on March 11, 2004. (g) Included as Appendix D of the proxy statement and prospectus included in Part A of this Pre-Effective Amendment No. 1 to the registration statement on Form N-14 of The AAL Mutual Funds, file no. 333-113514. (h) Incorporated by reference from Post-Effective Amendment No. 50 to the registration statement of The AAL Mutual Funds, file no. 33-12911, filed on April 26, 2004. Item 17. Undertakings. (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. (3) The undersigned Registrant hereby undertakes to file by subsequent amendment to this Registration Statement on Form N-14, an opinion of tax counsel supporting the tax consequences of the Reorganizations within a reasonable time after receipt of such opinion. SIGNATURES As required by the Securities Act of 1933, this Registration Statement has been signed on behalf of the Registrant, in the city of Minneapolis, and the State of Minnesota on the 12th day of May, 2004. THE AAL MUTUAL FUNDS. By: /s/ Marlene J. Nogle --------------------------------------------- Marlene J. Nogle, Assistant Secretary As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated. Signature Title * President and Trustee - ---------------------------------------- Pamela J. Moret * Treasurer - ---------------------------------------- Charles D. Gariboldi * Trustee - ---------------------------------------- F. Gregory Campbell * Trustee - ---------------------------------------- Herbert F. Eggerding, Jr. * Trustee - ---------------------------------------- Noel K. Estenson * Trustee - ---------------------------------------- Richard L. Gady * Trustee - ---------------------------------------- Jodi L. Harpstead * Trustee - ---------------------------------------- Connie M. Levi * Trustee - ---------------------------------------- Edward W. Smeds * Marlene J. Nogle, by signing her name hereto, does hereby sign this document on behalf of each of the above-named trustees and officers of The AAL Mutual Funds pursuant to a power of attorney duly executed by such persons. Dated: May 12, 2004 *By: /s/ Marlene J. Nogle ------------------------------------------ Exhibit Index EX-99.11 Opinion and consent of counsel as to the legality of the securities being registered EX-99.14 Consent of Independent Accountants EX-99.17(a) Proxy Card EX-99.17(b) Outbound Phone Script