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Semi-Annual Report
October 31, 1997
The AAL U. S. Government
Zero Coupon Target Funds
Series 2001 and 2006
[AAL Logo]
THE AAL MUTUAL FUNDS
<PAGE>
BOARD OF TRUSTEES John H. Pender--Chairman of the Board
F. Gregory Campbell
Richard L. Gady
D.W. Russler
Lawrence M. Woods
Richard L. Gunderson
Ronald G. Anderson
OFFICERS Ronald G. Anderson--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
Suite 1500
100 East Wisconsin Avenue
Milwaukee, WI 53202
[AAL Logo]
THE AAL MUTUAL FUNDS
222 West College Avenue, Appleton, WI 54919-0007
800-553-6319
World Wide Web: http://www.aal.org
e-mail address: [email protected]
<PAGE>
[AAL logo]
THE AAL MUTUAL FUNDS
October 31, 1997
Dear Shareholder:
We are pleased to provide you with the updated semi-annual report for The
AAL U.S. Government Zero Coupon Target Funds. Overall, the financial markets
were profitable for our shareholders during 1997. As a result, The AAL Mutual
Funds will be distributing the estimated capital gains of $0.07 (2001) and $0.11
(2006) on December 15, 1997, to shareholders of record as of December 12, 1997.
In addition to the Target Funds, which are no longer open to investors, we also
offer nine other diverse portfolios (available in both Class A and B shares) to
help you plan for your financial future, including:
EQUITY-ORIENTED FUNDS
o The AAL Capital Growth Fund - Investing in Large Company Stocks
o The AAL Mid Cap Stock Fund - Investing in Mid-Sized Company Stocks
o The AAL Small Cap Stock Fund - Investing in Small Company Stocks
o The AAL International Fund - Investing in Foreign Securities
o The AAL Equity Income Fund - Investing in Income-Producing Equity
Securities
INCOME-ORIENTED FUNDS
o The AAL Bond Fund - Investing in Investment Grade Bonds
o The AAL Municipal Bond Fund - Investing in Tax-Exempt Municipal Securities
o The AAL High Yield Bond - Investing in Below Investment Grade Securities
o The AAL Money Market Fund - Investing in Money Market Securities
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 local 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/ Ronald G. Anderson
Ronald G. Anderson
President
<PAGE>
The 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 OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Principal Long-Term Yield to Maturity Market
Amount Obligations (100.0%) Maturity Date Value
- -----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT ZERO
COUPON BONDS
Separate Trading of Registered Interest
and Principal of Securities
$2,156,000 (amortized cost basis $1,628,334) 5.750% 11/15/2001 $1,714,729
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The AAL U.S. Government
Zero Coupon Target Fund:
Series 2006
SCHEDULE OF INVESTMENTS AS OF OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Principal Long-Term Yield to Maturity Market
Amount Obligations (100.0%) Maturity Date Value
- -----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT ZERO COUPON BONDS
Separate Trading of Registered Interest
and Principal of Securities
$2,748,000 (amortized cost basis $1,375,711) 6.020% 11/15/2006 $1,608,237
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
The AAL U.S. Government Zero Coupon Target Fund
Series Series
As of October 31, 1997 2001 2006
- --------------------------------------------------------------------------------------------------------------------------------
Assets
Investments, at value
(Cost: $1,628,334 and $1,375,711 respectively) $1,802,070 $1,539,950
Cash 612 614
Prepaid expenses 718 614
Receivable from affiliate --- ---
------------ ----------
Total Assets $1,716,059 $1,609,063
========== ==========
Liabilities
Income distributions payable $79,723 $62,975
Accrued expenses 13,527 8,468
------ ------
Total Liabilities 93,250 71,443
------- ------
Net Assets
Trust capital (beneficial interest) 1,529,270 1,293,693
Accumulated undistributed net income (loss) (3,984) (3,491)
Net unrealized appreciation on investments 86,395 232,526
Accumulated net realized gain on investments 11,128 14,892
------ -------
Total Net Assets 1,622,809 1,537,620
--------- ---------
Total Liabilities and Capital $1,716,059 $1,609,063
========== ==========
Shares of beneficial interest outstanding
(unlimited number of shares authorized) 151,609 126,795
======= =======
Net asset value per share $10.70 $12.13
====== ======
Maximum public offering price $11.23 $12.73
====== ======
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
The AAL U.S. Government Zero Coupon Target Fund
Series Series
For the Six Months Ended October 31, 1997 2001 2006
- -----------------------------------------------------------------------------------------------------------------------------
Investment Income
Taxable interest 58,276 $52,364
------ -------
Expenses
Audit and legal fees 778 778
Custodian fees 124 75
Administrative service fees 1,323 1,323
Printing and postage expense 1,537 1,592
S.E.C. and state registration fees 487 411
Transfer agent fees 727 716
Trustees fees and expenses 1,332 1,332
Other expenses 107 107
--- ---
Total Expenses 6,415 6,334
----- -----
Less reimbursement from adviser --- ---
------- -------
Total Net Expenses 6,415 6,334
----- -----
Net Investment Income 51,861 46,030
------ ------
Realized and Unrealized Gain on Investments
Net realized gains on investments 6,972 6,966
Decrease in unrealized appreciation on investments 43,539 106,679
------ ------
Net Realized and Unrealized Gains on Investments 50,511 113,645
------ ------
Net Increase in Net Assets Resulting from Operations $102,372 $159,675
======== ========
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
The AAL U.S. Government Zero Coupon Target Fund
Series 2001 Series 2006
Year Six Months Year Six Months
Ended Ended Ended Ended
4/30/97 10/31/97 4/30/97 10/31/97
Operations
Net investment income $105,517 $51,861 $90,693 $46,030
Net realized gains on investments 12,745 6,972 20,903 6,966
Increase (decrease) in unrealized
appreciation on investments (24,902) 43,539 (16,062) 106,679
------ ------ ------ ------
Net Increase in Net Assets
Resulting from Operations 93,360 102,372 95,534 159,675
------- ------ ------- -------
Distributions to Shareholders
Dividends from net investment income (105,517) (51,861) (90,693) (46,030)
Capital gains distributions (16,021) --- (20,439) ---
------- -------- -------- --------
Total Distributions
to Shareholders (121,538) (51,861) (111,132) (46,030)
--------- -------- --------- --------
Trust Shares Transactions
Income dividends reinvested 92,532 636 88,242 7,616
Capital gains distributions reinvested 14,602 --- 20,277 ---
Redemption of trust shares (179,176) (139,152) (119,754) (36,511)
-------- --------- -------- --------
Net Increase (Decrease)
in Trust Capital (72,042) (138,516) 11,235 (28,895)
------ --------- ------ --------
Net Increase (Decrease)
in Net Assets (100,220) (88,005) (26,833) 84,750
Net Assets Beginning of Period 1,811,034 1,710,814 1,479,703 1,452,870
--------- --------- --------- ---------
Net Assets End of Period $1,710,814 $1,622,809 $1,452,870 $1,537,620
========== ========== ========== ==========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
As of October 1, 1997
(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 Capital Growth, Mid Cap
Stock, Small Cap Stock, International, Equity Income, Bond, Municipal Bond,
Money Market and U.S. Government Zero Coupon Target Funds. The eleven 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. In
accordance with generally accepted accounting principles, the Funds met the
requirements of Statement of Position 93-2 which requires 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
As of October 31, 1997
(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 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
As of October 31, 1997
(D) SECURITY TRANSACTIONS
During the year ended April 30, 1997, and six-month period ended October 31,
1997, purchases and sales of securities other than short-term obligations were
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Purchases Sales
Year Six Months Year Six Months
Ended Ended Ended Ended
4/30/97 10/31/97 4/30/97 10/31/97
Target Fund 2001 -- -- $216,105 71,765
Target Fund 2006 -- -- 139,852 10,727
</TABLE>
All purchases and sales of The AAL U.S. Government Target Funds 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, 1996, and April
30, 1997, were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
4/30/97 10/31/97
Net Unrealized Net Unrealized
Appreciation (Depreciation) Appreciation Appreciation (Depreciation) Appreciation
Target Fund 2001 $47,476 (4,620) $42,856 $86,945 (550) $86,395
Target Fund 2006 126,592 (745) 125,847 232,530 (4) 232,526
</TABLE>
<PAGE>
(E) TRUST TRANSACTIONS
Transactions in trust shares for the year ended April 30, 1997, and the
six-month period ended October 31, 1997, were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Series 2001 Series 2006
---------------- ----------------
4/30/97 10/31/97 4/30/97 10/31/97
Shares purchased -- -- -- --
Income dividends reinvested 8,754 61 7,626 644
Capital gains reinvested 1,374 -- 1,734 --
Shares redeemed (17,084) (13,205) (10,601) (3,152)
------- -------- -------- -------
Net increase (decrease)
of trust shares (6,956) (13,144) (1,241) (2,508)
======= ======== ======= =======
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
Target Fund 2001
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Period Year Year Year Year Year Year Six Months
Ended Ended 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 4/30/97 10/31/97
- --------------------- ------- ------- ------- ------- ------- ------- ------- --------
Net asset value:
Beginning of period $10.00 $10.25 $10.61 $12.25 $10.54 $10.37 $10.55 $10.38
Income from Investment Operations
Net investment income 0.444 0.772 0.741 0.700 0.663 0.647 0.639 0.320
Net realized and unrealized
gain (loss) on investments 0.250 0.360 1.679 (0.623) 0.000 0.335 (0.068) 0.320
----- ----- ----- ------- ----- ----- ----- -----
Total from Investment Operations 0.694 1.132 2.420 0.077 0.663 0.982 0.571 0.643
----- ----- ----- ----- ----- ----- ----- -----
Distributions from:
Net investment income (0.444) (0.772) (0.741) (0.700) (0.663) (0.761) (0.639) (0.320)
Net realized capital gains --- --- (0.039) (1.087) (0.170) (0.041) (0.102) ---
--------- --------- ------- ------- ------- ------- ------- ------
Total Distributions (0.444) (0.772) (0.780) (1.787) (0.833) (0.802) (0.741) (0.320)
------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease)
in net asset value 0.250 0.360 1.640 (1.710) (0.170) 0.180 (0.170) 0.320
Net asset value:
End of period $10.25 $10.61 $12.25 $10.54 $10.37 $10.55 $10.38 $10.70
Total return (d) 6.97% 10.76% 23.27% (0.34%) 6.82% 9.23% 5.42% 8.18%
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 $1,710,814 $1,622,809
Ratio of expenses to
average net assets (a)(b) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.97% 0.73%
Ratio of net investment income
to average net assets (a) (c) 10.21% 7.19% 6.38% 5.74% 6.50% 5.84% 6.08% 5.89%
Portfolio turnover rate 0.00% 2.93% 2.79% 1.65% 0.00% 0.00% 0.00% 0.00%
</TABLE>
(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>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Period Year Year Year Year Year Year Six Months
Ended Ended Ended Ended Ended Ended Ended Ended
4/30/91 4/30/92 4/30/93 4/30/94 4/30/95 4/30/96 4/30/97 10/31/97
Series 2001 13.27% 7.32% 4.60% 2.33% 2.00% 1.74% 0.99% 0.73%
Series 2006 17.44% 10.36% 6.19% 6.19% 2.49% 2.07% 1.17% 0.85%
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
Series 2006
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Period Year Year Year Year Year Year Period
Ended Ended 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 4/30/97 10/31/97
- --------------------- ------- ------- ------- ------- ------- ------- ------- --------
Net asset value:
Beginning of period $10.00 $10.31 $10.42 $12.52 $10.96 $10.93 $11.33 $11.24
Income from Investment Operations
Net investment income 0.473 0.824 0.795 0.740 0.734 0.711 0.708 0.319
Net realized and unrealized
gain (loss) on investments 0.310 0.116 2.114 (0.567) 0.184 0.648 0.075 0.890
----- ----- ----- ------- ----- ----- ----- -----
Total from Investment Operations 0.783 0.940 2.909 0.173 0.918 1.359 0.783 1.210
----- ----- ----- ----- ----- ----- ----- -----
Distributions from:
Net investment income (0.473) (0.824) (0.795) (0.740) (0.734) (0.865) (0.708) (0.319)
Net realized capital gains --- (0.006) (0.014) (0.993) (0.214) (0.094) (0.165) ---
------- ------- ------- ------- ------- ------- ------- ---
Total Distributions (0.473) (0.830) (0.809) (1.733) (0.948) (0.959) (0.873) (0.319)
------- ------- ------- ------- ------- ------- ------- -------
Net increase (decrease)
in net asset value 0.310 0.110 2.100 (1.560) (0.030) 0.400 (0.090) 0.890
Net asset value:
End of period $10.31 $10.42 $12.52 $10.96 $10.93 $11.33 $11.24 $12.13
------ ------ ------ ------ ------ ------ ------ ------
Total return (d) 7.86% 8.73% 28.44% 0.18% 9.05% 11.80% 6.84% 13.08%
Supplemental Data & Ratios
Net assets: end of period $451,758 $1,066,226 $1,951,566 $1,364,890 $1,400,161 $1,479,703 $1,452,870 $1,537,620
Ratio of expenses to
average net assets (a)(b) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.85%
Ratio of net investment income
to average net assets (a)(c) 10.70% 7.68% 6.79% 5.86% 6.95% 5.83% 6.22% 6.18%
Portfolio turnover rate 2.78% 2.31% 5.44% 1.05% 0.00% 0.00% 0.00% 0.00%
</TABLE>
(c) If the Funds had paid all of their expenses the ratio would have been as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Year Year Year Year Year Year Six Months
Ended Ended Ended Ended Ended Ended Ended Ended
4/30/91 4/30/92 4/30/93 4/30/94 4/30/95 4/30/96 4/30/97 10/31/97
Series 2001 (2.06)% 0.87% 2.78% 4.41% 5.51% 5.10% 6.07% 5.89%
Series 2006 (5.75)% (1.68%) 1.60% 3.72% 5.46% 4.76% 6.04% 6.18%
</TABLE>
(d) Total returns are based on net amount invested for six months.
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