ANNUAL
REPORT
April 30, 1997
THE AAL
U.S. GOVERNMENT
ZERO COUPON
TARGET FUNDS
Series 2001 and 2006
<PAGE>
[AAL Mutual Funds Letterhead]
June 15, 1997
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 nine other diverse portfolios (available in both class A and B shares) to
help you plan for your financial future, including:
GROWTH
o The AAL Capital Growth Fund for long term capital growth
o The AAL Mid Cap Stock Fund for long term capital growth
o The AAL Small Cap Stock Fund for long term capital growth
o The AAL International Fund for long-term capital growth
o The AAL Utilities Fund for current income, long-term growth of income and
capital growth
INCOME
o The AAL Bond Fund for high current income
o The AAL Municipal Bond Fund for high current income exempt from federal
income taxes
o The AAL High Yield Bond Fund for high current income and secondarily capital
growth
o The AAL Money Market Fund for high current income, liquidity and
preservation of capital
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
AAL Capital Management Corporation
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION
The year ended April 30, 1997 was a non-event for investors who held The AAL
U.S. Government Zero Coupon Target Funds because interest rates ended up near
where they started. However, rates, as measured by the 10-year U.S. Treasury
note, fluctuated from a high of 7.10% to a low of nearly 6.00%. April 1996 began
with interest rates yielding 6.70%. The next few months were filled with
economic reports giving mixed signals about the direction of the economy and
Federal Reserve monetary policy, and rates stayed fairly constant. During the
months of September, October and November, market participants believed the
economy was slowing down and that the Fed would decrease rates, or, at worst,
leave present rates unchanged. This belief contributed to a decline in the yield
on the 10-year U.S. Treasury note to almost 6.00%. Since that time, the economy
seems to have accelerated. In the first quarter of 1997, the Gross Domestic
Product showed an annualized growth of 5.60%. This, combined with April's low
4.9% unemployment rate, helped drive rates back up to 6.70% by the end of April.
Michael Hilt Portfolio Manager AAL Capital Management Corporation
- --------------------------------------------------------------------------------
VALUE OF A $10,000 INVESTMENT
[CHART APPEARS HERE]
TARGET FUND SERIES 2001 - $16,843
TARGET FUND SERIES 2006 - $18,418
LEHMAN BROS. AGGREGATE BOND INDEX - $16,884
Average Annual Total Returns -- Based on the Gross Amount Invested
As of April 30, 1997
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
The AAL U.S. Government Zero Coupon
Target Fund Target Fund
Series 2001 Series 2006
------------ -------------
1-year .38% 1.73%
5-year 7.49% 9.64%
From Inception 8.40% 9.91%
<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 APRIL 30, 1997
- --------------------------------------------
<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
$2,345,000 (amortized cost basis $1,708,177) 6.53% 11/15/2001 $1,751,033
</TABLE>
The AAL U.S. Government
Zero Coupon Target Fund:
Series 2006
-----------
SCHEDULE OF INVESTMENTS AS OF APRIL 30, 1997
- --------------------------------------------
<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
$2,832,000 (amortized cost basis $1,362,394) 6.86% 11/15/2006 $1,488,241
</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 Fund Target Fund
April 30, 1997 Series 2001 Series 2006
------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at value (Cost: $1,708,177 and $1,362,394 respectively)
............................................................ $1,751,033 $1,488,241
Prepaid expenses ........................................... 309 310
Receivable from Affiliate .................................. 3,510 2,866
Cash ....................................................... 4,894 229
--------- ---------
Total Assets ............................................... $1,759,746 $1,491,646
========= =========
LIABILITIES
Income distributions payable ............................... $34,396 $ 28,871
Accrued expenses ........................................... 14,536 9,905
--------- ---------
Total Liabilities .......................................... 48,932 38,776
--------- ---------
NET ASSETS
Trust capital (beneficial interest) ........................ 1,663,493 1,318,292
Accumulated undistributed net income (loss) ................ 309 805
Net unrealized appreciation on investments ................. 42,856 125,847
Accumulated net realized gain on investments ............... 4,156 7,926
--------- ---------
Total Net Assets ................................... $1,710,814 $1,452,870
--------- ---------
Total Liabilities and Capital ...................... $1,759,746 $1,491,646
========= =========
Shares of beneficial interest outstanding (unlimited number of
shares authorized) ......................................... 164,753 129,303
========= =========
Net Asset Value Per Share .................................. $ 10.38 $ 11.24
========= =========
Maximum Public Offering Price .............................. $ 10.90 $ 11.80
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
STATEMENT OF OPERATIONS
The AAL U.S. Government
-----------------------
Target Target
Fund Fund
Series Series
For the Year Ended April 30, 1997 2001 2006
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Taxable interest ................................... $ 122,349 $ 105,286
------- -------
Total Investment Income $ 122,349 $ 105,286
EXPENSES
Audit and legal fees ............................... 5,316 5,267
Custodian fees ..................................... 263 179
Administrative service fees ........................ 2,905 2,924
Printing and postage expense ....................... 1,168 1,129
S.E.C. and state registration fees ................. 2,107 2,207
Transfer agent fees ................................ 1,545 1,585
Trustees fees and expenses ......................... 3,580 3,580
Shareholder maintenance fee ........................ 58 59
Other expenses ..................................... 170 166
------- -------
Total expenses ................................... 17,112 17,096
------- -------
Less reimbursement from Adviser .................. (280) (2,503)
------- -------
Total net expenses ............................... 16,832 14,593
------- -------
Net Investment Income ................................ 105,517 90,693
------- -------
Realized and Unrealized Gain on Investments
Net realized gain on investments ................... 12,745 20,903
Decrease in unrealized appreciation on investments . (24,902) (16,062)
------- -------
Net Realized and Unrealized Gains on Investments ..... (12,157) 4,841
------- -------
Net Increase in Net Assets Resulting From Operations.. $ 93,360 $ 95,534
======= =======
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 Series 2001 Target Fund Series 2006
-----==--------------------------------------------
Year Year Year Year
Ended Ended Ended Ended
4/30/96 4/30/97 4/30/96 4/30/97
---------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income ................... $ 109,062 $ 105,517 $ 90,289 $ 90,693
Net realized gain on investments ........ 11,450 12,745 16,358 20,903
Increase (decrease) in unrealized
appreciation on investments ............ 40,152 (24,902) 59,474 (16,062)
------- ------ ------ ------
Net increase in net assets
resulting from operations ................ 160,664 93,360 166,121 95,534
------- ------- ------- -------
Distributions to Shareholders
Dividends from net investment income .... (128,425) (105,517) (110,055) (90,693)
Capital gains distributions ............. (6,784) (16,021) (11,663) (20,439)
--------- --------- -------- ---------
Total distributions to shareholders ....... (135,209) (121,538) (121,718) (111,132)
--------- --------- --------- ---------
Trust Shares Transactions
Income dividends reinvested ............. 123,680 92,532 107,009 88,242
Capital gains distributions reinvested... 6,654 14,602 11,579 20,277
Redemption of trust shares .............. (99,272) (179,176) (83,449) (119,754)
--------- -------- -------- --------
Net increase (decrease) in trust capital... 31,062 (72,042) 35,139 (11,235)
-------- ------ ------ ------
Net increase (decrease) in net assets ..... 56,517 (100,220) 79,542 (26,833)
Net assets beginning of period ............ 1,754,517 1,811,034 1,400,161 1,479,703
--------- --------- --------- ---------
Net assets end of period .................. $ 1,811,034 $ 1,710,814 $ 1,479,703 $ 1,452,870
========= ========= ========= =========
</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 Capital Growth, Mid Cap
Stock, Small Cap Stock, International, Utilities, Bond, Municipal Bond, High
Yield 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)
(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 U.S. Government Zero Coupon 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, 1997, the Adviser received $2,500 from
both 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 approximated
$4.08 per shareholder account for the year ended April 30, 1997.
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 U.S. Government Zero Coupon 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, 1996, and April 30, 1997, purchases
and sales of securities other than short-term obligations were as follows:
Purchases Sales
--------- -----
4/30/96 4/30/97 4/30/96 4/30/97
------- ------- ------- -------
Target Fund 2001 -- -- $117,412 $ 216,105
Target Fund 2006 -- -- 105,398 139,852
All purchases and sales of The AAL U.S. Government Zero Coupon 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>
4/30/96 4/30/97
------- -------
Net Unrealized
Appreciation (Depreciation) Appreciation Appreciation (Depreciation) Appreciation
------------ -------------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Target Fund 2001 $ 67,758 -- $ 67,758 $ 47,476 (4,620) $ 42,856
Target Fund 2006 141,909 -- 141,909 126,592 (745) 125,847
</TABLE>
(E) TRUST TRANSACTIONS
Transactions in trust shares for the years ended April 30, 1996 and
April 30, 1997 were as follows:
<TABLE>
<CAPTION>
Target Fund 2001 Target Fund 2006
----------------- -----------------
4/30/96 4/30/97 4/30/96 4/30/97
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shares Purchased -- -- -- --
Income dividends reinvested 11,023 8,754 8,386 7,626
Capital gains reinvested 589 1,374 902 1,734
Shares redeemed (9,140) (17,084) (6,842) (10,601)
------- ------- ------- -------
Net increase (decrease) of trust shares 2,472 (6,956) 2,446 (1,241)
====== ====== ====== ======
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Target Fund 2001
----------------------------------------------------
Period Year Year Year Year Year Year
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
- --------------------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value: $10.00 $10.25 $10.61 $12.25 $10.54 $10.37 $10.55
Beginning of Period
Income from Investment
Operations
Net investment income 0.444 0.772 0.741 0.700 0.663 0.647 0.639
Net realized and unrealized gain
(loss) on investments 0.250 0.360 1.679 (0.623) 0.000 0.335 (0.068)
----- ----- ----- ------ ----- -----
Total from Investment
Operations 0.694 1.132 2.420 0.077 0.663 0.982 0.571
Distributions from:
----- ----- ----- ----- ----- -----
Net investment income (0.444) (0.772) (0.741) (0.700) (0.663) (0.761) (0.639)
Net realized
capital gains(d) -- -- (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)
------ ------ ------ ------ ------ ------
Net increase (decrease) in net
asset value 0.250 0.360 1.640 (1.710) (0.170) 0.180 (0.170)
Net asset value:
End of period $10.25 $10.61 $12.25 $10.54 $10.37 $10.55 $10.38
====== ====== ====== ====== ====== ====== ======
Total Return(e) 6.97% 10.76% 23.27% (0.34%) 6.82% 9.23% 5.42%
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
Ratio of expenses to average
net assets(a)(b) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.97%
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%
Portfolio Turnover Rate 0.00% 2.93% 2.79% 1.65% 0.00% 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 Year
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
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
The AAL U.S. Government Zero Coupon
Target Fund Series 2001 13.27% 7.32% 4.60% 2.33% 2.00% 1.74% 0.99
The AAL U.S. Government Zero Coupon
Target Fund Series 2006 17.44% 10.36% 6.19% 6.19% 2.49% 2.07% 1.17%
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
Target Fund 2006
----------------------------------------------------
Period Year Year Year Year Year Year
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
- --------------------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value: Beginning of Period $10.00 $10.31 $10.42 $12.52 $10.96 $10.93 11.33
Income from Investment
Operations
Net investment income 0.473 0.824 0.795 0.740 0.734 0.711 0.708
Net realized and unrealized gain
(loss) on investments 0.310 0.116 2.114 (0.567) 0.184 0.648 0.075
----- ----- ----- ------ ----- ----- -----
Total from Investment Operations 0.783 0.940 2.909 0.173 0.918 1.359 0.783
Distributions from:
----- ----- ----- ----- ----- -----
Net investment income (0.473) (0.824) (0.795) (0.740) (0.734) (0.865) (0.708)
Net realized
capital gains(d) -- (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)
------ ------ ------ ------ ------ ------
Net increase (decrease) in net
asset value 0.310 0.110 2.100 (1.560) (0.030) 0.400 (0.090)
Net asset value:
End of period $10.31 $10.42 $12.52 $10.96 $10.93 $11.33 $11.24
====== ====== ====== ====== ====== ====== ======
Total Return(e) 7.86% 8.73% 28.44% 0 .18% 9.05% 11.80% 6.84%
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 $1,452,870
Ratio of expenses to average
net assets(a)(b) 1.00% 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% 6.22%
Portfolio Turnover Rate 2.78% 2.31% 5.44% 1.05% 0.00% 0.00% 0.00%
</TABLE>
(c) If the Funds had paid all of their expenses the ratio would have been as
follows:
<PAGE>
<TABLE>
Year Year Year Year Year Year Year
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
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
The AAL U.S. Government Zero Coupon
Target Fund Series 2001 (2.06%) 0.87% 2.78% 4.41% 5.51% 5.10% 6.07%
The AAL U.S. Government Zero Coupon
Target Fund Series 2006 (5.75%) (1.68%) 1.60% 3.72% 5.46% 4.76% 6.04%
</TABLE>
(d) 100% of distributions from net realized capital gains during the fiscal year
ended April 30, 1997, were long term.
(e) Total returns are based on net amount invested for a one year period.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
100 East Wisconsin Avenue
Suite 1500
Milwaukee, WI 53202
Telephone 414-276-9500
[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 Fund 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, 1997, 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,
1997, and the other periods indicated, 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, 1997, by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
May 22, 1997
<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
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
100 East Wisconsin Avenue, Suite 1500
Milwaukee, WI 53202
