SEMI-ANNUAL
REPORT
October 30, 1998
THE AAL
U.S. GOVERNMENT
ZERO COUPON
TARGET FUNDS
Series 2001
THE AAL
U.S. GOVERNMENT
ZERO COUPON
TARGET FUNDS
Series 2006
[AAL MUTUAL FUNDS LOGO]
<PAGE>
[AAL Mutual Funds Letterhead]
October 30, 1998
Dear 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 ten 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 Small Cap Stock Fund -- Investing in Small Company Stocks
o The AAL Mid Cap Stock Fund -- Investing in Mid-Sized Company Stocks
o The AAL International Fund -- Investing in Foreign Stocks
o The AAL Capital Growth Fund -- Investing in Large Company Stocks
o The AAL Equity Income Fund -- Investing in Income-Producing Equity Securities
o The AAL Balanced Fund -- Investing in Stocks, Bonds and Money Market
Instruments
INCOME-ORIENTED FUNDS
o The AAL High Yield Bond Fund -- Investing in Below Investment Grade Bonds
o The AAL Municipal Bond Fund -- Investing in Investment Grade Municipal Bonds
o The AAL Bond Fund -- Investing in Investment Grade Bonds
o The AAL Money Market Fund -- Investing in Money Market Instruments
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 without additional sales charge. For more information
about these Funds and the exchange privilege, contact your local Registered
Representative or call Capital Connection(R) 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>
PORTFOLIO PERSPECTIVES
The six-month period ending October 30, 1998 was a good one for bonds,
particularly for U.S. Treasury bonds and the coupon and principal strips off
those bonds. The highlight for the six-month period was the August bond default
by the Russian government. The troubles in the Russian bond market, coupled with
the continued decline in bond, currency and equity markets in Southeast Asia,
caused investors to re-examine the risks associated with financial assets in
those countries. Many investors concluded that higher returns were not worth the
risk, and they began to look for safer investments. One of the few markets to
benefit from this was the U.S. Treasury note and bond market, because they are
considered the safest investments in the world. U.S. Treasury notes having five
years to maturity had their yields decline from 5.6% at the end of April 1998 to
4.2% six months later. No other class of bonds kept pace with the price
appreciation of U.S. Treasuries during the period, including investment grade
corporate bonds, mortgage-backed bonds and high-yield bonds. Even U.S. Agency
debenture bonds such as those issued by the Federal National Mortgage
Association carrying a AAA (the highest rating given by the Nationally
Recognized Statistical Rating Agencies such as Moody's and Standard & Poor's)
under-performed U.S. Treasuries.
Michael R. Hilt
Portfolio Manager
- --------------------------------------------------------------------------------
VALUE OF A $10,000 INVESTMENT
Including 4.75% Sales Charge
[LINE CHART APPEARS HERE]
<TABLE>
<CAPTION>
TARGET FUND SERIES 2001 TARGET FUND SERIES 2006
FROM INCEPTION FROM INCEPTION
DATE ENDING DOLLARS DATE ENDING DOLLARS
- ------------------------ -------------------------
<S> <C> <C> <C>
14-Nov-90 9,523.81 14-Nov-90 9,523.81
30-Nov-90 9,676.19 30-Nov-90 9,733.33
31-Dec-90 9,894.55 31-Dec-90 10,021.66
31-Jan-91 9,913.78 31-Jan-91 9,915.87
28-Feb-91 9,904.17 28-Feb-91 9,944.72
29-Mar-91 9,856.09 29-Mar-91 9,887.01
30-Apr-91 9,856.09 30-Apr-91 9,915.87
31-May-91 9,740.70 31-May-91 9,704.28
28-Jun-91 9,586.85 28-Jun-91 9,473.45
31-Jul-91 9,683.01 31-Jul-91 9,579.25
30-Aug-91 10,000.32 30-Aug-91 9,983.19
30-Sep-91 10,365.72 30-Sep-91 10,406.37
31-Oct-91 10,317.64 31-Oct-91 10,319.81
30-Nov-91 10,413.80 30-Nov-91 10,310.19
31-Dec-91 11,868.69 27-Dec-91 10,893.42
31-Jan-92 11,247.84 31-Dec-91 11,957.50
28-Feb-92 11,216.80 31-Jan-92 11,270.64
31-Mar-92 10,989.15 28-Feb-92 11,176.98
30-Apr-92 10,978.80 31-Mar-92 11,000.07
31-May-92 11,175.41 30-Apr-92 10,843.96
30-Jun-92 11,413.40 29-May-92 11,218.61
31-Jul-92 11,879.04 30-Jun-92 11,301.86
31-Aug-92 11,972.17 31-Jul-92 11,978.31
30-Sep-92 12,282.60 31-Aug-92 12,019.94
30-Oct-92 11,848.00 30-Sep-92 12,311.33
30-Nov-92 11,641.05 30-Oct-92 11,666.11
31-Dec-92 11,929.62 30-Nov-92 11,697.33
31-Dec-92 12,702.84 31-Dec-92 12,149.47
29-Jan-93 13,023.45 31-Dec-92 12,983.71
26-Feb-93 13,532.01 29-Jan-93 13,328.91
31-Mar-93 13,520.95 26-Feb-93 14,041.56
30-Apr-93 13,543.06 31-Mar-93 13,919.08
28-May-93 13,443.56 30-Apr-93 13,941.35
30-Jun-93 13,841.56 28-May-93 13,907.94
01-Jul-93 13,889.93 30-Jun-93 14,553.79
30-Jul-93 14,033.81 01-Jul-93 14,544.37
31-Aug-93 14,421.18 30-Jul-93 15,025.08
30-Sep-93 14,520.79 31-Aug-93 15,572.87
29-Oct-93 14,498.66 30-Sep-93 15,762.92
30-Nov-93 14,000.61 29-Oct-93 15,762.92
31-Dec-93 14,059.39 30-Nov-93 14,958.01
31-Dec-93 14,861.31 31-Dec-93 15,941.32
31-Jan-94 15,052.99 31-Jan-94 16,373.19
28-Feb-94 14,362.96 28-Feb-94 15,268.10
31-Mar-94 13,724.03 31-Mar-94 14,251.92
29-Apr-94 13,468.47 29-Apr-94 13,921.66
31-May-94 13,379.02 31-May-94 13,832.75
30-Jun-94 13,225.68 30-Jun-94 13,515.19
29-Jul-94 13,468.47 29-Jul-94 13,959.77
31-Aug-94 13,353.46 31-Aug-94 13,769.23
30-Sep-94 12,982.89 30-Sep-94 13,108.72
31-Oct-94 12,803.99 31-Oct-94 12,918.18
30-Nov-94 12,688.98 30-Nov-94 12,956.29
30-Dec-94 13,362.06 30-Dec-94 13,840.93
30-Dec-94 13,580.66 30-Dec-94 14,112.16
31-Jan-95 13,788.74 31-Jan-95 14,431.63
28-Feb-95 14,260.38 28-Feb-95 14,945.56
31-Mar-95 14,232.64 31-Mar-95 14,959.45
28-Apr-95 14,385.23 30-Apr-95 15,181.68
31-May-95 15,148.19 31-May-95 16,542.90
30-Jun-95 15,217.55 30-Jun-95 16,681.80
31-Jul-95 14,981.73 31-Jul-95 16,237.32
31-Aug-95 15,106.57 31-Aug-95 16,529.01
29-Sep-95 15,175.93 29-Sep-95 16,779.03
31-Oct-95 15,384.01 31-Oct-95 17,181.83
30-Nov-95 15,605.96 30-Nov-95 17,626.31
28-Dec-95 15,732.09 28-Dec-95 17,964.82
29-Dec-95 16,679.50 29-Dec-95 19,063.04
31-Jan-96 16,753.83 31-Jan-96 18,958.46
29-Feb-96 16,248.39 29-Feb-96 17,837.98
29-Mar-96 15,951.07 29-Mar-96 17,389.79
30-Apr-96 15,683.48 30-Apr-96 16,926.66
31-May-96 15,490.23 31-May-96 16,672.69
28-Jun-96 15,638.89 28-Jun-96 16,971.48
31-Jul-96 15,564.56 31-Jul-96 16,851.96
30-Aug-96 15,445.63 30-Aug-96 16,538.23
30-Sep-96 15,638.89 30-Sep-96 16,941.60
31-Oct-96 15,965.94 31-Oct-96 17,584.01
29-Nov-96 16,174.06 29-Nov-96 18,106.90
30-Dec-96 15,953.65 30-Dec-96 17,725.83
31-Dec-96 16,828.07 31-Dec-96 18,622.52
31-Jan-97 16,780.31 31-Jan-97 18,413.45
28-Feb-97 16,684.79 28-Feb-97 18,284.80
31-Mar-97 16,398.22 31-Mar-97 17,721.95
30-Apr-97 16,525.58 30-Apr-97 18,075.74
30-May-97 16,589.26 30-May-97 18,156.15
30-Jun-97 16,652.95 30-Jun-97 18,349.13
31-Jul-97 17,003.20 31-Jul-97 19,281.86
29-Aug-97 16,748.47 29-Aug-97 18,654.68
30-Sep-97 16,875.83 30-Sep-97 19,040.64
31-Oct-97 17,035.04 31-Oct-97 19,507.01
28-Nov-97 16,971.36 28-Nov-97 19,507.01
15-Dec-97 17,008.61 15-Dec-97 19,674.12
31-Dec-97 18,041.22 31-Dec-97 20,844.65
30-Jan-98 18,245.08 30-Jan-98 21,222.40
27-Feb-98 18,092.19 27-Feb-98 20,982.01
31-Mar-98 18,024.23 31-Mar-98 20,878.99
30-Apr-98 18,024.23 30-Apr-98 20,827.48
29-May-98 18,075.20 29-May-98 21,119.37
30-Jun-98 18,092.19 30-Jun-98 21,308.25
31-Jul-98 18,041.22 31-Jul-98 21,170.88
31-Aug-98 18,347.01 31-Aug-98 21,995.06
30-Sep-98 18,703.75 30-Sep-98 23,042.44
30-Oct-98 19,539.87 30-Oct-98 23,912.85
</TABLE>
Average Annual Total Returns -- Based on the Net Amount Invested
As of October 30, 1998
The AAL U.S. Government Zero Coupon
Target Fund Target Fund
Series 2001 Series 2006
------------ -------------
1-year 9.36% 17.05%
5-year 5.20% 7.71%
From Inception 9.44% 12.25%
Past performance is not an indication of future results. Investment return and
principal value will fluctuate, and shares, when redeemed, may be worth more or
less than their original cost.
<PAGE>
Investment Objective
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 30, 1998
- ----------------------------------------------
<TABLE>
<CAPTION>
Principal Yield to Maturity Market
Amount Long-Term Obligations (100%) Maturity Date Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT ZERO COUPON BONDS
Separate Trading of Registered Interest
and Principal of Securities
$1,856,000 (amortized cost basis $1,496,145) 4.38% 11/15/2001 $1,626,799
TOTAL LONG-TERM INVESTMENTS
(amortized cost basis $1,496,145) $1,626,799
OTHER ASSETS, LESS LIABILITIES (-5.5%) (85,215)
NET ASSETS (100.0%) $1,541,584
</TABLE>
The AAL U.S. Government
Zero Coupon Target Fund
Series 2006
-----------
SCHEDULE OF INVESTMENTS AS OF OCTOBER 30, 1998
- --------------------------------------------
<TABLE>
<CAPTION>
Principal Yield to Maturity Market
Amount Long-Term Obligations (104.6%) Maturity Date Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT ZERO COUPON BONDS
Separate Trading of Registered Interest
and Principal of Securities
$2,516,000 (amortized cost basis $1,405,407) 4.66% 11/15/2006 $1,737,620
TOTAL LONG-TERM INVESTMENTS
(amortized cost basis $1,350,890) $1,737,620
OTHER ASSETS, LESS LIABILITIES (-5.5%) (76,562)
NET ASSETS (100.0%) $1,661,058
</TABLE>
The accompanying notes to the financial statements are an integral part of
this schedule.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
(unaudited)
<TABLE>
<CAPTION>
The AAL U.S. Government Zero Coupon Target Funds
October 30, 1998 Series 2001 Series 2006
------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at value (Cost: $1,496,145 and $1,350,890, respectively)
............................................................ $1,626,799 $1,737,620
Cash ....................................................... 429 1,111
Prepaid expenses ........................................... 863 936
Receivable from affiliate .................................. -- --
--------- ---------
Total Assets ............................................... $1,628,091 $1,739,667
========= =========
LIABILITIES
Income distributions payable ............................... $76,029 $ 71,206
Accrued expenses ........................................... 10,478 7,403
Redemptions payable ........................................ -- --
--------- ---------
Total Liabilities .......................................... 86,507 78,609
--------- ---------
NET ASSETS
Trust capital (beneficial interest) ........................ 1,405,103 1,260,203
Accumulated undistributed net income (loss) ................ 309 805
Net unrealized appreciation on investments ................. 130,654 386,730
Accumulated net realized gain on investments ............... 5,518 13,320
--------- ---------
Total Net Assets ........................................... $1,541,584 $1,661,058
--------- ---------
Total Liabilities and Capital .............................. $1,628,091 $1,739,667
========= =========
Shares of beneficial interest outstanding (unlimited number of
shares authorized) ......................................... 140,433 124,452
========= =========
Net asset value per share .................................. $ 10.98 $ 13.35
========= =========
Maximum public offering price .............................. $ 11.53 $ 14.02
========= =========
</TABLE>
The accompanying notes to the financial statements are an integral part of
this statement.
<PAGE>
STATEMENT OF OPERATIONS
(unaudited)
The AAL U.S. Government Zero Coupon Target Funds
Series Series
For the Period Ended October 30, 1998 2001 2006
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Taxable interest ................................... $ 52,383 $ 51,678
------- -------
Total Investment Income $ 52,383 $ 51,678
EXPENSES
Audit and legal fees ............................... 1,415 1,515
Custodian fees ..................................... 70 43
Administrative service fees ........................ 1,289 1,289
Printing and postage expense ....................... 331 491
SEC and state registration fees .................... 804 808
Transfer agent fees ................................ 721 710
Trustees fees and expenses ......................... 2,249 2,249
Shareholder maintenance fees........................ -- --
Other Expenses...................................... 31 31
------- -------
Total Expenses ....................................... 6,910 7,136
------- -------
Less reimbursement from Adviser ...................... -- --
------- -------
Total Net Expenses ................................... 6,910 7,136
------- -------
Net Investment Income ................................ 45,473 44,542
------- -------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments ..................... 941 10,508
Increase in unrealized appreciation on investments ... 50,792 141,603
------- -------
Net Realized & Unrealized Gains on Investments ....... 51,733 152,111
------- -------
Net Increase in Net Assets Resulting from Operations.. $ 97,206 $ 196,653
======= =======
The accompanying notes to the financial statements are an integral part of
this statement.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(unaudited)
<TABLE>
<CAPTION>
The AAL U.S. Government Zero Coupon
---------------------------------------------------
Series 2001 Series 2006
---------------------------------------------------
Year Period Year Period
Ended Ended Ended Ended
4/30/98 10/30/98 4/30/98 10/30/98
---------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income ................... $ 101,780 $ 45,473 $ 93,063 $ 44,542
Net realized gains on investments........ 11,549 941 9,307 10,508
Increase (decrease) in unrealized
appreciation on investments ............ 37,006 50,792 119,280 141,603
------ ------ ------- -------
Net Increase in Net Assets
Resulting from Operations ................ 150,335 97,206 221,650 196,653
------- ------ ------- -------
Distributions to Shareholders
Dividends from net investment income ...... (101,780) (45,473) (93,063) (44,542)
Capital gains distributions ............... (11,128) -- (14,421) --
-------- -------- -------- -------
Total Distributions to Shareholders ....... (112,908) (45,473) (107,484) (44,542)
--------- -------- --------- -------
Trust Shares Transactions
Income dividends reinvested ............... 94,055 66 87,603 33
Capital gains distributions reinvested..... 10,811 -- 14,308 --
Redemption of trust shares ................ (328,111) (35,211) (53,002) (107,031)
-------- -------- -------- --------
Net Increase (Decrease) in Trust Capital... (223,245) (35,145) 48,909 (106,998)
------ -------- -------- --------
Net Increase (Decrease) in Net Assets ..... (185,818) 16,588 163,075 45,113
Net Assets Beginning of Period ............ 1,710,814 1,524,996 1,452,870 1,615,945
--------- --------- --------- ---------
Net Assets End of Period .................. 1,524,996 1,541,584 1,615,945 1,661,058
========= ========= ========= =========
</TABLE>
The accompanying notes to the financial statements are an integral part of
this statement.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
As of October 30, 1998
(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 Small Cap Stock, Mid Cap
Stock, International, Capital Growth, Equity Income, Balanced, High Yield Bond,
Municipal Bond, Bond, Money Market and U.S. Government Zero Coupon Target Funds.
The twelve 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 -- Each Fund intends 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 anticipate paying 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 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 30, 1998
(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: 0.50 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 discontinued 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: 0.10 of 1% of the average daily net
assets for The AAL U.S. Government Zero Coupon Target Funds. Effective November
1, 1995, the sub-advisory 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 0.10 of 1% of average daily net assets. Payments under the Plan were
discontinued effective July 1, 1993.
Trustees of the Trust not affiliated with AAL or the Adviser received $8,555 in
fees for fiscal 1997-98 from the Target Funds. 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 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)
AS OF OCTOBER 30, 1998
(D) SECURITY TRANSACTIONS
During the year ended April 30, 1998, and the period ended October 30,
1998, purchases and sales of securities other than short-term obligations were
as follows:
Purchases Sales
--------- -----
4/30/98 10/30/98 4/30/98 10/30/98
------- ------- ------- -------
Series 2001 -- -- $ 352,146 $ 39,242
Series 2006 -- -- 72,054 116,705
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, 1998, and October
30, 1998, were as follows:
<TABLE>
<CAPTION>
4/30/98 10/30/98
------- --------
Net Unrealized Net Unrealized
Appreciation (Depreciation) Appreciation Appreciation (Depreciation) Appreciation
------------ -------------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Series 2001 $ 79,862 $ -- $ 79,862 $130,654 -- $130,654
Series 2006 245,127 -- 245,127 386,730 -- 386,730
</TABLE>
(E) TRUST TRANSACTIONS
Transactions in trust shares for the years ended April 30, 1998, and October 30,
1998, were as follows:
<TABLE>
<CAPTION>
Series 2001 Series 2006
----------------- -----------------
4/30/98 10/30/98 4/30/98 10/30/98
------- -------- ------- --------
<S> <C> <C> <C> <C>
Shares purchased -- -- -- --
Income dividends reinvested 8,857 6 7,232 3
Capital gains reinvested 1,019 -- 1,181 --
Shares redeemed (30,893) (3,309) (4,504) (8,763)
------- ------- ------- -------
Net Increase (Decrease) of Trust Shares (21,017) (3,303) 3,909 (8,760)
======= ======= ======= =======
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Series 2001
---------------------------------------------------------------
Year Year Year Year Period
Ended Ended Ended Ended Ended
Per Share Information 4/30/95 4/30/96 4/30/97 4/30/98 10/30/98
- --------------------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value: $10.54 $10.37 $10.55 $10.38 $10.61
beginning of period
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.66 0.65 0.64 0.64 0.32
Net realized and
unrealized gain
(loss) on investments -- 0.33 (0.07) 0.30 0.37
----- ----- ------ ------ ------
Total from Investment
Operations 0.66 0.98 0.57 0.94 0.69
DISTRIBUTIONS FROM:
----- ----- ----- ----- -----
Net investment income (0.66) (0.76) (0.64) (0.64) (0.32)
Net realized
capital gains (0.17) (0.04) (0.10) (0.07) --
------ ------ ----- ----- ------
Total Distributions (0.83) (0.80) (0.74) (0.71) (0.32)
------ ------ ----- ----- ------
Net increase (decrease)
in net
asset value (0.17) 0.18 (0.17) 0.23 0.37
Net asset value:
end of period $10.37 $10.55 $10.38 $10.61 $10.98
====== ====== ====== ===== ======
Total return(d) 6.82% 9.23% 5.42% 9.17% 6.98%
Net assets:
end of period $1,754,517 $1,811,034 $1,710,814 $1,524,996 $1,541,584
Ratio of expenses to
average
net assets(a)(b) 1.00% 1.00% 0.97% 0.77% 0.91%
Ratio of net investment
income to average
net assets(a)(c) 6.50% 5.84% 6.08% 6.16% 5.96%
Portfolio turnover rate 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
(a) Calculated on an annualized basis
(b) Computed after giving effect to Advisor's expense limitation undertaking.
If the Funds had paid all of their expenses, the ratio would have been as
follows:
Year Year Year Year Period
Ended Ended Ended Ended Ended
4/30/95 4/30/96 4/30/97 4/30/98 10/30/98
------- ------- ------- -------- --------
Series 2001 2.00% 1.74% 0.99% 0.84% 0.91%
Series 2006 2.49% 2.07% 1.17% 0.90% 0.90%
<PAGE>
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
Series 2006
-----------------------------------------------------------
Year Year Year Year Period
Ended Ended Ended Ended Ended
Per Share Information 4/30/95 4/30/96 4/30/97 4/30/98 10/30/98
- --------------------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value: beginning of period $10.96 $10.93 11.33 $11.24 $12.13
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.73 0.71 0.71 0.70 0.35
Net realized and unrealized gain
(loss) on investments 0.18 0.65 0.07 1.00 1.22
----- ----- ----- ----- ------
Total from Investment Operations 0.91 1.36 0.78 1.70 1.57
DISTRIBUTIONS FROM:
----- ----- ----- ----- ------
Net investment income (0.73) (0.87) (0.71) (0.70) (0.35)
Net realized
capital gains (0.21) (0.09) (0.16) (0.11) --
------ ------ ----- ----- ------
Total Distributions (0.94) (0.96) (0.87) (0.81) (0.35)
------ ------ ----- ----- ------
Net increase (decrease) in net
asset value (0.03) 0.40 (0.09) 0.89 1.22
Net asset value:
end of period $10.93 $11.33 $11.24 $12.13 $13.35
====== ====== ====== ===== ======
Total return(d) 9.05% 11.80% 6.84% 15.30% 12.94%
Net assets:
end of period $1,400,161 $1,479,703 $1,452,870 $1,615,945 $1,661,058
Ratio of expenses to average
net assets(a)(b) 1.00% 1.00% 1.00% 0.82% 0.90%
Ratio of net investment
income to average
net assets(a)(c) 6.95% 5.83% 6.22% 6.03% 5.61%
Portfolio turnover rate 0.00% 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>
Year Year Year Year Period
Ended Ended Ended Ended Ended
4/30/95 4/30/96 4/30/97 4/30/98 10/30/98
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Series 2001 5.51% 5.10% 6.07% 6.10% 5.96%
Series 2006 5.46% 4.76% 6.04% 5.96% 5.61%
</TABLE>
(d) Total returns are based on net amount invested for a six-month period.
<PAGE>
[AAL Mutual Funds Letterhead]
BOARD OF TRUSTEES
John H. Pender -- Chairman of the Board
Ronald G. Anderson
F. Gregory Campbell
Richard L. Gady
John O. Gilbert
D.W. Russler
Lawrence M. Woods
OFFICERS
Ronald G. Anderson -- President
Charles D. Gariboldi, Jr. -- Treasurer
Robert G. Same -- Vice President & Secretary
Joseph F. Wreschnig -- Assistant Secretary
INVESTMENT ADVISER & DISTRIBUTOR
AAL Capital Management Corporation
222 West College Avenue
Appleton, WI 54919-0007
CUSTODIAN
Citibank, N.A.
111 Wall Street
New York, NY 10043
TRANSFER AGENT
& 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
PricewaterhouseCoopers 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]
