ANNUAL
REPORT
April 30, 1996
THE AAL
U.S. GOVERNMENT
ZERO COUPON
TARGET FUNDS
Series 2001 and 2006
The
AAL
Mutual
Funds
Helping You Build A
Better Financial Future
<PAGE>
[AAL Mutual Funds Letterhead]
June 15, 1996
Dear AAL Target Funds Shareholder:
We are pleased to provide you with the updated annual report for The AAL U.S.
Government Zero Coupon Target Funds.
In addition to the Target Funds, which are no longer open to investors, we also
offer eight other diverse portfolios to help you plan for your financial future,
including:
o The AAL International Fund for long-term capital growth through a diversified
portfolio of foreign securities,
o The AAL Small Cap Fund for capital appreciation through investing in small
cap stocks, (effective July 1, 1996)
o The AAL Smaller Company Stock Fund for capital appreciation,
(The AAL Mid Cap Stock Fund as of July 1, 1996)
o The AAL Capital Growth Fund for capital appreciation with the potential for
some income,
o The AAL Utilities Fund for current income, long-term growth of income and
capital appreciation,
o The AAL Bond Fund for current income,
o The AAL Municipal Bond Fund for current income exempt from federal income
taxes and
o The AAL Money Market Fund for preservation of capital and liquidity.
To invest in these Funds, you can either use new dollars to purchase shares, or
you can use our exchange privilege to exchange your current Target Fund shares
for those of another Fund--at no additional cost to you.
For more information about these Funds and the exchange privilege, contact your
personal Registered Representative or call our Mutual Fund Service Center at
800-553-6319 for your complimentary prospectus kit.
Thank you again for your continued confidence in The AAL Mutual Funds. We look
forward to serving you again in the near future.
Sincerely,
/s/ H. Michael Spence
H. Michael Spence
President
AAL Capital Management Corporation
<PAGE>
PORTFOLIO MANAGER'S DISCUSSIONPORTFOLIO MANAGER'S DISCUSSION
The AAL U.S. Government Zero Coupon Fund Series 2001 and 2006 were affected in
1995 and 1996 by the same issues affecting the overall bond market. These funds
both enjoyed a very good year in 1995 due to investor perception that economic
growth was slowing, inflationary concerns were abating, and the Fed was easing.
So far in 1996 the bond market and the returns generated by these funds have
reversed course as interest rates have increased. At the beginning or 1996
investors believed that the economy would continue to slow, the Fed would
continue to ease, and that the Republican controlled Congress and President
Clinton would reach a balanced budget agreement. None of those things occurred,
and as a result interest rates have increased by approximately 100 basis points
from the end of 1995 through April 30, 1996.
Michael Hilt
Portfolio Manager
AAL Capital Management Corporation
- --------------------------------------------------------------------------------
RETURN ON A $10,000 INVESTMENT
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
[CHART APPEARS HERE]
TARGET 2001 - $15,991
TARGET 2006 - $16,441
LEHMAN BROS. AGGREGATE BOND INDEX - $15,511
Average Annual Total Return -- Based on the Gross Amount Invested
<TABLE>
<CAPTION>
1 year 5 year From Inception (December 1, 1990)
------ ------ ---------------------------------
<S> <C> <C> <C>
Target Fund 2001 4.02% 8.48% 8.98%
Target Fund 2006 6.45% 9.99% 10.51%
</TABLE>
<PAGE>
The AAL U.S. Government Zero Coupon Target Funds are no longer open to
investments. However, we will continue to provide you with annual financial
statements for these Funds. We are also providing you with a copy of the annual
financial statements for The AAL Smaller Company Stock Fund (The AAL Mid Cap
Stock Fund as of July 1, 1996), The AAL Capital Growth Fund, The AAL Utilities
Fund, The AAL Bond Fund, The AAL Municipal Bond Fund and The AAL Money Market
Fund.
These Funds Seek: High investment return from U.S. Government securities that
provide investors with a reasonable assurance that they will receive a target
dollar amount predictable at the time of investment.
The AAL U.S. Government
Zero Coupon Target Fund:
Series 2001
-----------
SCHEDULE OF INVESTMENTS AS OF APRIL 30, 1996
- --------------------------------------------
<TABLE>
<CAPTION>
Principal Yield to Maturity Market
Amount Long-Term Obligations (100.0%) Maturity Date Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT ZERO COUPON BONDS
Separate Trading of Registered Interest
and Principal of Securities
$2,645,000 (amortized cost basis $1,789,188) 6.49% 11/15/2001 $1,856,946
</TABLE>
The AAL U.S. Government
Zero Coupon Target Fund:
Series 2006
-----------
SCHEDULE OF INVESTMENTS AS OF APRIL 30, 1996
- --------------------------------------------
<TABLE>
<CAPTION>
Principal Yield to Maturity Market
Amount Long-Term Obligations (100.0%) Maturity Date Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT ZERO COUPON BONDS
Separate Trading of Registered Interest
and Principal of Securities
$3,109,000 (amortized cost basis $1,376,057) 6.92% 11/15/2006 $1,517,966
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
The AAL U.S. Government
-----------------------
Target Target
Fund Fund
April 30, 1996 2001 2006
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at value (Cost: $1,789,188 and $1,376,057 respectively)
............................................................ $ 1,856,946 $ 1,517,966
Prepaid expenses ........................................... 1,405 1,106
Receivable from Affiliate .................................. 788 25
Cash ....................................................... 795 373
--------- ---------
Total Assets ............................................... $ 1,859,934 $ 1,519,470
========= =========
LIABILITIES
Income distributions payable ............................... $ 36,065 $ 30,152
Accrued expenses ........................................... 12,835 9,615
--------- ---------
Total Liabilities .......................................... 48,900 39,767
--------- ---------
NET ASSETS
Trust capital (beneficial interest) ........................ 1,739,830 1,333,823
Accumulated undistributed net income (loss) ................ (3,985) (3,491)
Net unrealized appreciation on investments ................. 67,758 141,909
Accumulated net realized gain on investments ............... 7,431 7,462
--------- ---------
Total Net Assets ................................... $ 1,811,034 $ 1,479,703
--------- ---------
Total Liabilities and Capital ...................... $ 1,859,934 $ 1,519,470
========= =========
Shares of beneficial interest outstanding (unlimited number of
shares authorized) ......................................... 171,709 130,544
========= =========
Net Asset Value Per Share .................................. $ 10.55 $ 11.33
========= =========
Maximum Public Offering Price .............................. $ 11.08 $ 11.90
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
The AAL U.S. Government
-----------------------
Target Target
Fund Fund
For the Year Ended April 30, 1996 2001 2006
- -------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Taxable interest ................................... $ 127,708 $ 105,779
------- -------
EXPENSES
Audit and legal fees ............................... 8,553 8,553
Custodian fees ..................................... 409 370
Administrative service fees ........................ 5,383 5,384
Amortization of organization & registration expense 3,632 3,632
Printing and postage expense ....................... 3,476 2,882
S.E.C. and state registration fees ................. 2,652 2,610
Transfer agent fees ................................ 1,528 1,573
Trustees fees and expenses ......................... 5,851 5,851
Shareholder maintenance fee ........................ 889 901
Other expenses ..................................... 197 276
------- -------
Total expenses ................................... 32,570 32,032
------- -------
Less reimbursement from Adviser .................. (13,924) (16,542)
------- -------
Total net expenses ............................... 18,646 15,490
------- -------
Net Investment Income ................................ 109,062 90,289
------- -------
Realized and Unrealized Gain on Investments
Net realized gain on investments ................... 11,450 16,358
Decrease in unrealized appreciation on investments . 40,152 59,474
------- -------
Net Realized and Unrealized Gains on Investments ..... 51,602 75,832
------- -------
Net Increase in Net Assets Resulting From Operations.. $ 160,664 $ 166,121
======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
The AAL U.S. Government Zero Coupon
-----------------------------------
Target Fund 2001 Target Fund 2006
--------------------------------------------
Year Year Year Year
Ended Ended Ended Ended
4/30/95 4/30/96 4/30/95 4/30/96
-------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income ................... $ 111,844 $ 109,062 $ 91,231 $ 90,289
Net realized gain on investments ........ 10,895 11,450 9,677 16,358
Increase (decrease) in unrealized
appreciation on investments ............ (9,839) 40,152 18,370 59,474
------- ------ ------ ------
Net increase in net assets
resulting from operations ................ 112,900 160,664 119,278 166,121
------- ------- ------- -------
Distributions to Shareholders
Dividends from net investment income .... (111,844) (128,425) (91,231) (110,055)
Capital gains distributions ............. (27,312) (6,784) (25,359) (11,663)
--------- --------- -------- ---------
Total distributions to shareholders ....... (139,156) (135,209) (116,590) (121,718)
--------- --------- --------- ---------
Trust Shares Transactions
Income dividends reinvested ............. 106,973 123,680 88,160 107,009
Capital gains distributions reinvested... 27,008 6,654 25,152 11,579
Redemption of trust shares .............. (177,690) (99,272) (80,729) (83,449)
--------- -------- -------- --------
Net increase (decrease) in trust capital... (43,709) 31,062 32,583 35,139
-------- ------ ------ ------
Net increase (decrease) in net assets ..... (69,965) 56,517 35,271 79,542
Net assets beginning of period ............ 1,824,482 1,754,517 1,364,890 1,400,161
--------- --------- --------- ---------
Net assets end of period .................. $ 1,754,517 $ 1,811,034 $ 1,400,161 $ 1,479,703
========= ========= ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(A) ORGANIZATION
The AAL Mutual Funds (the "Trust") was organized as a Massachusetts
Business Trust on March 31, 1987, and is registered as an open-end diversified
management company under the Investment Company Act of 1940. The Trust commenced
operations on July 16, 1987, and currently consists of The AAL International
Fund, The AAL Smaller Company Stock Fund, The AAL Capital Growth Fund, The AAL
Utilities Fund, The AAL Bond Fund, The AAL Municipal Bond Fund, The AAL Money
Market Fund and The AAL U.S. Government Zero Coupon Target Funds, Series 2001
and 2006. The nine AAL Mutual Funds are collectively referred to as the "Funds".
On November 14, 1990, The AAL U.S. Government Zero Coupon Target Funds,
Series 2001 and 2006, commenced operations. Effective June 1, 1993, the Board of
Trustees of The AAL Mutual Funds closed The AAL U.S. Government Zero Coupon
Target Funds, Series 2001 and 2006, to new shareholders and to additional
purchases of shares by existing shareholders.
(B) SIGNIFICANT ACCOUNTING POLICIES
The Funds' principal accounting policies are:
Valuation - Securities traded on national securities exchanges are
valued at last reported sales prices. All other securities are valued at the
latest bid quotation if such quotations are readily available. Otherwise, such
securities are valued at a fair value as determined in good faith by the
Investment Adviser under supervision of the Board of Trustees.
Federal Income Taxes - The Funds' policy is to comply with the
requirements of the Internal Revenue Code which are applicable to regulated
investment companies and to distribute substantially all of their taxable income
to their shareholders. The Funds accordingly paid no Federal income taxes and no
Federal income tax provision was required.
Distributions to Shareholders - Net investment income is distributed
to each shareholder as a dividend. Dividends from the Target Funds are declared
daily and distributed annually. Net realized gains from securities transactions,
if any, are distributed at least annually in the calendar year.
Other - For financial statement purposes, investment security
transactions are accounted for on trade date. Interest income is recognized on
an accrual basis. Discount is amortized over the life of the respective Bonds.
Realized gains or losses on sales are determined on a specific cost
identification basis.
Generally Accepted Accounting Principles require (that permanent
financial reporting and tax differences be reclassified to trust capital.)
Use of Estimates-The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (Continued)
(C) INVESTMENT ADVISORY MANAGEMENT FEES AND TRANSACTIONS WITH RELATED PARTIES
The Trust has entered into an Investment Advisory Agreement with AAL
Capital Management Corporation (the "Adviser") under which the two separate
Target Fund portfolios pay a fee for investment advisory services. The annual
rate of fees under the Investment Advisory Agreement are calculated at: .50 of
1% of the average daily net assets of The AAL U.S. Government Zero Coupon Target
Funds, Series 2001 and Series 2006. Payments under the Investment Advisory
Agreement were waived effective July 1, 1993. For the period May 1, 1995,
through October 31, 1995, the Adviser entered into a sub-advisory agreement with
Duff & Phelps Investment Management Co. (the "Sub-Adviser"). The sub-advisory
fee, which was paid by the Adviser, was equal to: .10 of 1% of the average daily
net assets for The AAL Target Funds. Effective November 1, 1995, the agreement
was terminated.
The Trust has entered into an Administrative Services Agreement with
the Adviser pursuant to which the Adviser provides certain administrative
services. For the year ended, April 30, 1996, the Adviser received $5,000 from
The AAL U.S. Government Zero Coupon Target Funds, Series 2001 and 2006. The
Trust has also contracted with AAL Capital Management Corporation for certain
shareholder maintenance services, effective April 1, 1995. These shareholder
services include, pre-processing and quality control of new accounts,
shareholder correspondence, account response and answering customer
inquiries regarding account status, options and facilitating shareholder
telephone transactions. Fees charged to the Funds under terms of the contract
approximate $3.58 per shareholder account for the year ended April 30, 1996.
The Trust has adopted a distribution plan ("The Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The Plan authorizes the Trust to
use a portion of its assets to finance certain sales activities relating to the
distribution of shares to investors. Payments under The Plan are equal to a
maximum of .10 of 1% of the average daily net assets. Payments under The Plan
were waived effective July 1, 1993.
Trustees of the Trust not affiliated with AAL or the Adviser receive an
annual fee of $1,000 and $250 from the Target Funds for each meeting of the
Board of Trustees or Committee thereof, attended. No remuneration has been paid
by the Trust to any of the officers or affiliated Trustees of the Trust. In
addition, the Trust reimbursed unaffiliated Trustees for reasonable expenses
incurred in relation to attendance at the meetings.
Each Fund is charged for those expenses that are directly attributable
to it, such as advisory, custodian and certain shareholder service fees, while
other expenses that cannot be directly attributable to a Fund are allocated
among the Funds in proportion to the net assets of the respective Fund.
The Adviser reimburses the Funds for annual expenses in excess of the
lowest expense limitation imposed by the states. In addition to the
reimbursement required under the Investment Advisory Agreement, the Adviser
voluntarily has reimbursed The AAL Target Funds for all expenses in excess of 1%
of average daily net assets since inception.
AAL is the ultimate parent company for AAL Capital Management
Corporation.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - (Continued)
(D) SECURITY TRANSACTIONS
During the years ended April 30, 1995, and April 30, 1996, purchases
and sales of securities other than short-term obligations were as follows:
Purchases Sales
--------- -----
Year Year Year Year
Ended Ended Ended Ended
4/30/95 4/30/96 4/30/95 4/30/96
------- ------- ------- -------
Target Fund 2001 -- -- $210,068 $ 117,412
Target Fund 2006 -- -- 97,604 105,398
All purchases and sales of The AAL U.S. Government Target Funds, Series
2001 and 2006 were in U.S. Government Obligations.
Cost of investments is substantially the same for financial reporting
purposes and Federal income tax purposes.
The gross unrealized appreciation on investments at April 30, 1995, and
April 30, 1996, were as follows:
<TABLE>
<CAPTION>
4/30/95 4/30/96
------- -------
Net Unrealized
Appreciation (Depreciation) Appreciation Appreciation (Depreciation) Appreciation
------------ -------------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Target Fund 2001 $27,606 -- $27,606 $ 67,758 -- $ 67,758
Target Fund 2006 82,434 -- 82,434 141,909 -- 141,909
</TABLE>
(E) TRUST TRANSACTIONS
Transactions in trust shares were as follows:
<TABLE>
<CAPTION>
Target Fund 2001 Target Fund 2006
----------------- -----------------
Year Year Year Year
Ended Ended Ended Ended
4/30/95 4/30/96 4/30/95 4/30/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income dividends reinvested 10,917 11,023 10,943 8,386
Capital gains reinvested 2,759 589 207 902
Shares redeemed (17,557) (9,140) (7,591) (6,842)
-------- ------- ------- -------
Net increase (decrease) of trust shares (3,881) 2,472 3,559 2,446
====== ===== ===== =====
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Target Fund 2001
----------------------------------------------------
Period Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
Per Share Information 4/30/91 4/30/92 4/30/93 4/30/94 4/30/95 4/30/96
- --------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value: $10.00 $10.25 $10.61 $12.25 $10.54 $10.37
Beginning of Period
Income from Investment
Operations
Net investment income 0.444 0.772 0.741 0.700 0.663 0.647
Net realized and unrealized gain
(loss) on investments 0.250 0.360 1.679 (0.623) 0.000 0.335
----- ----- ----- ------ ----- -----
Total from Investment Operations
Distributions from: 0.694 1.132 2.420 0.077 0.663 0.982
----- ----- ----- ----- ----- -----
Net investment income (0.444) (0.772) (0.741) (0.700) (0.663) (0.761)
Net realized
capital gains(d) -- -- (0.039) (1.087) (0.170) (0.041)
------ ------ ------ ----- ------ ------
Total distributions (0.444) (0.772) (0.780) (1.787) (0.833) (0.802)
------ ------ ------ ------ ------ ------
Net increase (decrease) in net
asset value 0.250 0.360 1.640 (1.710) (0.170) 0.180
Net asset value:
End of period $10.25 $10.61 $12.25 $10.54 $10.37 $10.55
====== ====== ====== ====== ====== ======
Total Return(e) 6.97% 10.76% 23.27% (0.34%) 6.82% 9.23%
Supplemental Data & Ratios
Net Assets,
End of Period $668,211 $1,494,818 $2,760,499 $1,824,482 $1,754,517 $1,811,034
Ratio of expenses to average
net assets(a)(b) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment
income to average
net assets(a)(c) 10.21% 7.19% 6.38% 5.74% 6.50% 5.84%
Portfolio Turnover Rate 0.00% 2.93% 2.79% 1.65% 0.00% 0.00%
</TABLE>
<PAGE>
(a) Calculated on an annualized basis.
(b) Computed after giving effect to Adviser's expense limitation undertaking.
If the Funds had paid all of their expenses, the ratio would have been as
follows:
<TABLE>
<CAPTION>
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
4/30/91 4/30/92 4/30/93 4/30/94 4/30/95 4/30/96
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
The AAL U.S. Government Target Fund Series 2001 13.27% 7.32% 4.60% 2.33% 2.00% 1.74%
</TABLE>
(c) If the Funds had paid all of their expenses the ratio would have been as
follows:
<TABLE>
<CAPTION>
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
4/30/91 4/30/92 4/30/93 4/30/94 4/30/95 4/30/96
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
The AAL U.S. Government Target Fund Series 2001 (2.06%) 0.87% 2.78% 4.41% 5.51% 5.10%
</TABLE>
(d) 100% of distributions from net realized capital gains during the fiscal year
ended April 30, 1996, were long term.
(e) Total returns are based on net amount invested.
<PAGE>
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
Target Fund 2006
----------------------------------------------------
Period Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
Per Share Information 4/30/91 4/30/92 4/30/93 4/30/94 4/30/95 4/30/96
- --------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value: Beginning of Period $10.00 $10.31 $10.42 $12.52 $10.96 $10.93
Income from Investment
Operations
Net investment income 0.473 0.824 0.795 0.740 0.734 0.711
Net realized and unrealized gain
(loss) on investments 0.310 0.116 2.114 (0.567) 0.184 0.648
----- ----- ----- ------ ----- -----
Total from Investment Operations
Distributions from: 0.783 0.940 2.909 0.173 0.918 1.359
----- ----- ----- ----- ----- -----
Net investment income (0.473) (0.824) (0.795) (0.740) (0.734) (0.865)
Net realized
capital gains(d) -- (0.006) (0.014) (0.993) (0.214) (0.094)
------ ------ ------ ------ ------ ------
Total distributions (0.473) (0.830) (0.809) (1.733) (0.948) (0.959)
------ ------ ------ ------ ------ ------
Net increase (decrease) in net
asset value 0.310 0.110 2.100 (1.560) (0.030) 0.400
Net asset value:
End of period $10.31 $10.42 $12.52 $10.96 $10.93 $11.33
====== ====== ====== ====== ====== ======
Total Return(e) 7.86% 8.73% 28.44% 0 .18% 9.05% 11.80%
Supplemental Data & Ratios
Net Assets,
End of Period $451,758 $1,066,266 $1,951,566 $1,364,890 $1,400,161 $1,479,703
Ratio of expenses to average
net assets(a)(b) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment
income to average
net assets(a)(c) 10.70% 7.68% 6.79% 5.86% 6.95% 5.83%
Portfolio Turnover Rate 2.78% 2.31% 5.44% 1.05% 0.00% 0.00%
</TABLE>
<PAGE>
(a) Calculated on an annualized basis.
(b) Computed after giving effect to Adviser's expense limitation undertaking.
If the Funds had paid all of their expenses, the ratio would have been as
follows:
<TABLE>
<CAPTION>
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
4/30/91 4/30/92 4/30/93 4/30/94 4/30/95 4/30/96
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
The AAL U.S. Government Target Fund Series 2006 17.44% 10.36% 6.19% 6.19% 2.49% 2.07%
</TABLE>
(c) If the Funds had paid all of their expenses the ratio would have been as
follows:
<TABLE>
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
4/30/91 4/30/92 4/30/93 4/30/94 4/30/95 4/30/96
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
The AAL U.S. Government Target Fund Series 2006 (5.75%) (1.68%) 1.60% 3.72% 5.46% (4.76%)
</TABLE>
(d) 100% of distributions from net realized capital gains during the fiscal year
ended April 30, 1996, were long term.
(e) Total returns are based on net amount invested.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS REPORT OF INDEPENDENT ACCOUNTANTS
100 East Wisconsin Avenue Telephone 414-276-9500
Suite 1500
Milwaukee, WI 53202
[LOGO]
Price Waterhouse LLP
To the Shareholders and Trustees of The AAL Mutual Funds
In our opinion, the accompanying statement of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The AAL U.S. Government Zero Coupon
Target Funds, Series 2001 and The AAL U.S. Government Zero Coupon Target Fund,
Series 2006 (two of the portfolios constituting The AAL Mutual Funds, the
"Funds") at April 30, 1996, the results of each of their operations for the year
then ended, the changes in each of their net assets for each of the two years in
the period then ended and the financial highlights for the year ended April 30,
1996, and the other periods indicated, all in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at April 30, 1996, by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
May 24, 1996
<PAGE>
[AAL Mutual Funds Letterhead]
BOARD OF TRUSTEES
John H. Pender
Chairman of the Board
Richard L. Gady
Lawrence M. Woods
D.W. Russler
F. Gregory Campbell
Richard L. Gunderson
OFFICERS
H. Michael Spence
President
Robert G. Same
Vice President & Secretary
Terrance P. Gallagher
Treasurer
Charles D. Gariboldi, Jr.
Assistant Treasurer
Joseph F. Wreschnig
Assistant Secretary
INVESTMENT ADVISER AND DISTRIBUTOR
AAL Capital Management Corporation
222 West College Avenue
Appleton, WI 54919-0007
CUSTODIAN, TRANSFER AGENT
AND DISBURSING AGENT
Firstar Trust Company
615 East Michigan Street
P.O. Box 2981
Milwaukee, WI 53201-2981
LEGAL COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
100 East Wisconsin Avenue, Suite 1500
Milwaukee, WI 53202
