Annual Report
April 30, 1999
The AAL U.S. Government Zero
Coupon Target Fund Series 2001
The AAL U.S. Government Zero
Coupon Target Fund Series 2006
<PAGE>
President's Letter
[AAL LOGO]
THE AAL MUTUAL FUNDS
April 30, 1999
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 Funds (available in
Class A, B and I shares) to help you plan for your financial future, including:
EQUITY-ORIENTED FUNDS
* The AAL Small Cap Stock Fund-Investing in Small Company Stocks
* The AAL Mid Cap Stock Fund-Investing in Mid-Sized Company Stocks
* The AAL International Fund-Investing in Foreign Stocks
* The AAL Capital Growth Fund-Investing in Large Company Stocks
* The AAL Equity Income Fund-Investing in Income-Producing Equity Securities
* The AAL Balanced Fund-Investing in Stocks, Bonds and Money Market Instruments
INCOME-ORIENTED FUNDS
* The AAL High Yield Bond Fund-Investing in Below Investment Grade Bonds
* The AAL Municipal Bond Fund-Investing in Investment Grade Municipal Bonds
* The AAL Bond Fund-Investing in Investment Grade Bonds
* 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
AAL Capital Management Corporation
<PAGE>
Portfolio Perspectives
The year ending April 30, 1999 was an uncertain one for bonds. With a slight
increase in short-term interest rates and a stronger than expected U.S. economy,
the bond market was in a difficult environment in late 1998 and early in 1999.
Difficulties began with the Russian debt default, spread to the Southeast Asia
crisis and later were impacted somewhat by the developments in Brazil.
Here in the United States, growing inflationary fears prompted an increase in
long-term interest rates toward the end of the first quarter of 1999. Investors
are anticipating that the Federal Reserve may raise interest rates to guard
against rising inflation. The strong economy, higher oil prices and the
declining jobless rates are fueling inflationary concerns. Increasing pressure
on the labor markets could drive up wages which could, in turn, increase the
costs for goods and services. The Federal Reserve says it will monitor the
situation closely and if inflationary imbalances become more pronounced, it may
need to raise interest rates in the coming months.
Michael R. Hilt
Portfolio Manager
Value of a $10,000 Investment
Including 4.75% Sales Charge
[LINE GRAPH APPEARS HERE]
THE AAL U.S. GOVERNMENT THE AAL U.S. GOVERNMENT LEHMAN BROTHERS
TARGET FUND SERIES 2001 TARGET FUND SERIES 2006 AGGREGATE BOND INDEX
14-Nov-90 9,523.81 14-Nov-90 9,523.81 11/14/90 10,000.00
30-Nov-90 9,676.19 30-Nov-90 9,733.33 11/30/90 10,078.55
31-Dec-90 9,894.55 31-Dec-90 10,021.66 12/31/90 10,235.78
31-Jan-91 9,913.78 31-Jan-91 9,915.87 1/31/91 10,362.70
28-Feb-91 9,904.17 28-Feb-91 9,944.72 2/28/91 10,450.78
29-Mar-91 9,856.09 29-Mar-91 9,887.01 3/29/91 10,522.89
30-Apr-91 9,856.09 30-Apr-91 9,915.87 4/30/91 10,636.54
31-May-91 9,740.70 31-May-91 9,704.28 5/31/91 10,698.23
28-Jun-91 9,586.85 28-Jun-91 9,473.45 6/28/91 10,692.88
31-Jul-91 9,683.01 31-Jul-91 9,579.25 7/31/91 10,841.51
30-Aug-91 10,000.32 30-Aug-91 9,983.19 8/30/91 11,075.69
30-Sep-91 10,365.72 30-Sep-91 10,406.37 9/30/91 11,300.53
31-Oct-91 10,317.64 31-Oct-91 10,319.81 10/31/91 11,425.96
30-Nov-91 10,413.80 30-Nov-91 10,310.19 11/30/91 11,531.08
31-Dec-91 11,868.69 27-Dec-91 10,893.42 12/31/91 11,873.55
31-Jan-92 11,247.84 31-Dec-91 11,957.50 1/31/92 11,712.07
28-Feb-92 11,216.80 31-Jan-92 11,270.64 2/28/92 11,788.20
31-Mar-92 10,989.15 28-Feb-92 11,176.98 3/31/92 11,722.19
30-Apr-92 10,978.80 31-Mar-92 11,000.07 4/30/92 11,806.59
31-May-92 11,175.41 30-Apr-92 10,843.96 5/31/92 12,029.73
30-Jun-92 11,413.40 29-May-92 11,218.61 6/30/92 12,195.74
31-Jul-92 11,879.04 30-Jun-92 11,301.86 7/31/92 12,444.54
31-Aug-92 11,972.17 31-Jul-92 11,978.31 8/31/92 12,570.23
30-Sep-92 12,282.60 31-Aug-92 12,019.94 9/30/92 12,719.81
30-Oct-92 11,848.00 30-Sep-92 12,311.33 10/30/92 12,550.64
30-Nov-92 11,641.05 30-Oct-92 11,666.11 11/30/92 12,553.15
31-Dec-92 11,929.62 30-Nov-92 11,697.33 12/31/92 12,752.74
31-Dec-92 12,702.84 31-Dec-92 12,149.47 1/29/93 12,997.60
29-Jan-93 13,023.45 31-Dec-92 12,983.71 2/26/93 13,225.05
26-Feb-93 13,532.01 29-Jan-93 13,328.91 3/31/93 13,280.60
31-Mar-93 13,520.95 26-Feb-93 14,041.56 4/30/93 13,373.56
30-Apr-93 13,543.06 31-Mar-93 13,919.08 5/28/93 13,390.95
28-May-93 13,443.56 30-Apr-93 13,941.35 6/30/93 13,633.33
30-Jun-93 13,841.56 28-May-93 13,907.94 7/30/93 13,711.04
01-Jul-93 13,889.93 30-Jun-93 14,553.79 8/31/93 13,950.98
30-Jul-93 14,033.81 01-Jul-93 14,544.37 9/30/93 13,988.65
31-Aug-93 14,421.18 30-Jul-93 15,025.08 10/29/93 14,040.40
30-Sep-93 14,520.79 31-Aug-93 15,572.87 11/30/93 13,921.06
29-Oct-93 14,498.66 30-Sep-93 15,762.92 12/31/93 13,996.23
30-Nov-93 14,000.61 29-Oct-93 15,762.92 1/31/94 14,185.18
31-Dec-93 14,059.39 30-Nov-93 14,958.01 2/28/94 13,938.36
31-Dec-93 14,861.31 31-Dec-93 15,082.35 3/31/94 13,594.08
31-Jan-94 15,052.99 31-Dec-93 15,941.32 4/29/94 13,485.33
28-Feb-94 14,362.96 31-Jan-94 16,373.19 5/31/94 13,483.98
31-Mar-94 13,724.03 28-Feb-94 15,268.10 6/30/94 13,454.32
29-Apr-94 13,468.47 31-Mar-94 14,251.92 7/29/94 13,722.06
31-May-94 13,379.02 29-Apr-94 13,921.66 8/31/94 13,738.53
30-Jun-94 13,225.68 31-May-94 13,832.75 9/30/94 13,536.57
29-Jul-94 13,468.47 30-Jun-94 13,515.19 10/31/94 13,524.39
31-Aug-94 13,353.46 29-Jul-94 13,959.77 11/30/94 13,494.63
30-Sep-94 12,982.89 31-Aug-94 13,769.23 12/30/94 13,587.75
31-Oct-94 12,803.99 30-Sep-94 13,108.72 1/31/95 13,856.78
30-Nov-94 12,688.98 31-Oct-94 12,918.18 2/28/95 14,186.57
30-Dec-94 13,362.06 30-Nov-94 12,956.29 3/31/95 14,273.11
30-Dec-94 13,580.66 30-Dec-94 13,840.93 4/28/95 14,472.94
31-Jan-95 13,788.74 30-Dec-94 14,112.16 5/31/95 15,033.04
28-Feb-95 14,260.38 31-Jan-95 14,431.63 6/30/95 15,142.78
31-Mar-95 14,232.64 28-Feb-95 14,945.56 7/31/95 15,109.47
28-Apr-95 14,385.23 31-Mar-95 14,959.45 8/31/95 15,292.29
31-May-95 15,148.19 30-Apr-95 15,181.68 9/29/95 15,440.63
30-Jun-95 15,217.55 31-May-95 16,542.90 10/31/95 15,641.35
31-Jul-95 14,981.73 30-Jun-95 16,681.80 11/30/95 15,875.97
31-Aug-95 15,106.57 31-Jul-95 16,237.32 12/29/95 16,098.24
29-Sep-95 15,175.93 31-Aug-95 16,529.01 1/31/96 16,204.49
31-Oct-95 15,384.01 29-Sep-95 16,779.03 2/29/96 15,922.53
30-Nov-95 15,605.96 31-Oct-95 17,181.83 3/29/96 15,811.07
28-Dec-95 15,732.09 30-Nov-95 17,626.31 4/30/96 15,722.53
29-Dec-95 16,679.50 28-Dec-95 17,964.82 5/31/96 15,691.08
31-Jan-96 16,753.83 29-Dec-95 19,063.04 6/28/96 15,901.34
29-Feb-96 16,248.39 31-Jan-96 18,958.46 7/31/96 15,944.28
29-Mar-96 15,951.07 29-Feb-96 17,837.98 8/30/96 15,917.17
30-Apr-96 15,683.48 29-Mar-96 17,389.79 9/30/96 16,194.13
31-May-96 15,490.23 30-Apr-96 16,926.66 10/31/96 16,553.64
28-Jun-96 15,638.89 31-May-96 16,672.69 11/29/96 16,836.71
31-Jul-96 15,564.56 28-Jun-96 16,971.48 12/31/96 16,680.13
30-Aug-96 15,445.63 31-Jul-96 16,851.96 1/31/97 16,731.83
30-Sep-96 15,638.89 30-Aug-96 16,538.23 2/28/97 16,773.66
31-Oct-96 15,965.94 30-Sep-96 16,941.60 3/31/97 16,587.48
29-Nov-96 16,174.06 31-Oct-96 17,584.01 4/30/97 16,836.29
30-Dec-96 15,953.65 29-Nov-96 18,106.90 5/30/97 16,996.23
31-Dec-96 16,828.07 30-Dec-96 17,725.83 6/30/97 17,198.49
31-Jan-97 16,780.31 31-Dec-96 18,622.52 7/31/97 17,662.85
28-Feb-97 16,684.79 31-Jan-97 18,413.45 8/29/97 17,512.71
31-Mar-97 16,398.22 28-Feb-97 18,284.80 9/30/97 17,771.90
30-Apr-97 16,525.58 31-Mar-97 17,721.95 10/31/97 18,029.59
30-May-97 16,589.26 30-Apr-97 18,075.74 11/28/97 18,112.53
30-Jun-97 16,652.95 30-May-97 18,156.15 12/31/97 18,295.47
31-Jul-97 17,003.20 30-Jun-97 18,349.13 1/30/98 18,529.65
29-Aug-97 16,748.47 31-Jul-97 19,281.86 2/27/98 18,514.83
30-Sep-97 16,875.83 29-Aug-97 18,654.68 3/31/98 18,577.78
31-Oct-97 17,035.04 30-Sep-97 19,040.64 4/30/98 18,674.38
28-Nov-97 16,971.36 31-Oct-97 19,507.01 5/29/98 18,851.79
15-Dec-97 17,008.61 28-Nov-97 19,507.01 6/30/98 19,012.03
31-Dec-97 18,041.22 15-Dec-97 19,674.12 7/31/98 19,051.95
30-Jan-98 18,245.08 31-Dec-97 20,844.65 8/31/98 19,362.50
27-Feb-98 18,092.19 30-Jan-98 21,222.40 9/30/98 19,815.58
31-Mar-98 18,024.23 27-Feb-98 20,982.01 10/30/98 19,710.56
30-Apr-98 18,024.23 31-Mar-98 20,878.99 11/30/98 19,822.91
29-May-98 18,075.20 30-Apr-98 20,827.48 12/31/98 19,882.38
30-Jun-98 18,092.19 29-May-98 21,119.37 1/29/99 20,023.54
31-Jul-98 18,041.22 30-Jun-98 21,308.25 2/26/99 19,673.13
31-Aug-98 18,347.01 31-Jul-98 21,170.88 3/31/99 19,781.33
30-Sep-98 18,703.75 31-Aug-98 21,995.06 4/30/99 19,844.63
30-Oct-98 18,652.79 30-Sep-98 23,042.44
30-Nov-98 18,465.92 30-Oct-98 22,922.25
15-Dec-98 18,515.98 30-Nov-98 22,596.01
31-Dec-98 19,497.42 15-Dec-98 22,790.47
29-Jan-99 19,479.37 31-Dec-98 23,868.68
26-Feb-99 19,172.47 29-Jan-99 23,777.51
31-Mar-99 19,172.47 26-Feb-99 22,683.46
30-Apr-99 19,495.65 31-Mar-99 22,628.75
30-Apr-99 23,017.32
Average Annual Total Returns
Based on Net Amount Invested
The AAL U.S. Government Zero Coupon Target
Funds As of April 30, 1999
1-Year 5-Year From Inception
Series 2001 6.23% 7.25% 8.83%
Series 2006 8.69% 10.11% 10.99%
SEC Standardized Returns
As of March 31, 1999
1-Year 5-Year From Inception
Series 2001 6.49% 6.91% 8.90%
Series 2006 8.55% 9.65% 11.06%
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>
Schedule of Investments
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 APRIL 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Principal Yield to Maturity Market
Amount Long-Term Obligations (100%) Maturity Date Value
U.S. GOVERNMENT ZERO COUPON BONDS
$1,796,000 Separate Trading of Registered Interest and
Principal of Securities (amortized cost basis
$1,499,142)................................... 5.15% 11/15/2001 $1,578,160
The AAL U.S. Government Zero Coupon Target Fund
Series 2006
SCHEDULE OF INVESTMENTS AS OF APRIL 30, 1999
Principal Yield to Maturity Market
Amount Long-Term Obligations (100%) Maturity Date Value
U.S. GOVERNMENT ZERO COUPON BONDS
$2,408,000 Separate Trading of Registered Interest and
Principal of Securities (amortized cost basis
$1,341,370).............................. 5.43% 11/15/2006 $1,607,143
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
Statement of Assets and Liabilities
AS OF APRIL 30, 1999
The AAL U.S. Government Zero Coupon Target Funds
Series 2001 Series 2006
Assets
Investments, at value $1,578,160 $1,607,143
(Cost: $1,499,142 and $1,341,370, respectively)
Cash 6,031 2,196
Prepaid expenses 518 544
Total Assets $1,584,709 $1,609,883
Liabilities
Income distributions payable $29,410 $29,055
Accrued expenses 9,456 6,068
Total Liabilities $38,866 $35,123
Net Assets
Trust capital (beneficial interest) $1,464,582 $1,297,468
Accumulated undistributed net income 309 805
Net unrealized appreciation on investments 79,018 265,773
Accumulated net realized gain on investments 1,934 10,714
Total Net Assets $1,545,843 $1,574,760
Total Liabilities and Capital $1,584,709 $1,609,883
Shares of beneficial interest outstanding
(unlimited number of shares authorized) 145,908 127,100
Net asset value per share $10.59 $12.39
Maximum public offering price $11.12 $13.01
The accompanying notes to the financial statements are an integral part of this
statement.
<PAGE>
Statement of Operations
FOR THE YEAR ENDED APRIL 30, 1999
The AAL U.S. Government Zero Coupon Target Funds
Series 2001 Series 2006
Investment Income
Taxable interest $105,855 $104,485
Total Investment Income 105,855 104,485
Expenses
Audit and legal fees 3,806 3,805
Custodian fees 414 394
Administrative service fees 2,592 2,592
Printing and postage expense 631 770
SEC and state registration fees 1,969 2,034
Transfer agent fees 1,309 1,344
Trustees fees and expenses 4,710 4,710
Other expenses 61 61
Total Expenses 15,492 15,710
Net Investment Income 90,363 88,775
Realized and Unrealized Gains on Investments
Net realized gains on investments 2,875 20,752
Increase (Decrease) in unrealized
appreciation on investments (844) 20,646
Net Realized & Unrealized Gains on Investments 2,031 41,398
Net Increase in Net Assets Resulting
from Operations $92,394 $130,173
The accompanying notes to the financial statements are an integral part of this
statement.
<PAGE>
Statement of Changes in Net Assets
The AAL U.S. Government Zero Coupon Target Funds
<TABLE>
<CAPTION>
Series 2001 Series 2006
Year Year Year Year
Ended Ended Ended Ended
4/30/98 4/30/99 4/30/98 4/30/99
<S> <C> <C> <C> <C>
Operations
Net investment income $101,780 $90,363 $93,063 $88,775
Net realized gains on investments 11,549 2,875 9,307 20,752
Increase (decrease) in unrealized
appreciation on investments 37,006 (844) 119,280 20,646
Net Increase in Net Assets
Resulting from Operations 150,335 92,394 221,650 130,173
Distributions to Shareholders
Dividends from net investment income (101,780) (90,363) (93,063) (88,775)
Capital gains distributions (11,128) (5,518) (14,421) (12,850)
Total Distributions to Shareholders (112,908) (95,881) (107,484) (101,625)
Trust Shares Transactions
Income dividends reinvested 94,055 90,282 87,603 85,754
Capital gains distributions reinvested 10,811 5,483 14,308 12,747
Redemption of trust shares (328,111) (71,431) (53,002) (168,234)
Net Increase (Decrease) in Trust Capital (223,245) 24,334 48,909 (69,733)
Net Increase (Decrease) in Net Assets (185,818) 20,847 163,075 (41,185)
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 $1,545,843 $1,615,94 5$1,574,760
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
<PAGE>
Notes to Financial Statements
AS OF APRIL 30, 1999
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 APRIL 30, 1999
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 $9,420 in
fees for fiscal 1998-99 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, number of shareholder accounts, or other
reasonable basis 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.
D: Federal Income Tax Information (unaudited)
In early 1999, shareholders received information regarding all distributions
paid to them by the Funds during the calendar year 1998. The Funds hereby
designate the following as long-term capital gains:
Series 2001 $ 5,518
Series 2006 12,850
<PAGE>
Notes to Financial Statements - continued
AS OF APRIL 30, 1999
E: Security Transactions
During the years ended April 30, 1998, and April 30, 1999, purchases and sales
of securities other than short-term obligations were as follows:
Purchases Sales
4/30/98 4/30/99 4/30/98 4/30/99
Series 2001 $-- $-- $352,146 $91,650
Series 2006 -- -- 72,054 189,275
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 April
30, 1999, were as follows:
<TABLE>
<CAPTION>
4/30/98 4/30/99
Net Unrealized Net Unrealized
Appreciation (Depreciation) Appreciation Appreciation (Depreciation) Appreciation
<S> <C> <C> <C> <C> <C> <C>
Series 2001 $ 79,862 $-- $ 79,862 $ 79,018 $-- $ 79,018
Series 2006 245,127 -- 245,127 265,773 -- 265,773
</TABLE>
F: Trust Transactions
Transactions in trust shares for the years ended April 30, 1998, and April 30,
1999, were as follows:
Series 2001 Series 2006
4/30/98 4/30/99 4/30/98 4/30/99
Shares purchased -- -- -- --
Income dividends reinvested 8,857 8,359 7,232 6,551
Capital gains reinvested. 1,019 505 1,181 968
Shares redeemed (30,893) (6,692) (4,504) (13,631)
Net Increase (Decrease)
of Trust Shares (21,017) 2,172 3,909 (6,112)
<PAGE>
Financial Highlights
PER SHARE INFORMATION
Series 2001
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
4/30/95 4/30/96 4/30/97 4/30/98 4/30/99
<S> <C> <C> <C> <C> <C>
Net asset value: beginning of period. $10.54 $10.37 $10.55 $10.38 $10.61
Income from Investment Operations
Net investment income 0.66 0.65 0.64 0.63 0.64
Net realized and unrealized gain (loss)
on investments -- 0.33 (0.07) 0.30 0.02
Total from Investment Operations 0.66 0.98 0.57 0.93 0.66
Distributions from:
Net investment income (0.66) (0.76) (0.64) (0.63) (0.64)
Net realized capital gains (0.17) (0.04) (0.10) (0.07) (0.04)
Total Distributions (0.83) (0.80) (0.74) (0.70) (0.68)
Net increase (decrease) in net asset value (0.17) 0.18) (0.17) 0.23 (0.02)
Net asset value: end of period $10.37 $10.55 $10.38 $10.61 $10.59
Total return (c) 6.82% 9.23% 5.42% 9.17% 6.23%
Net assets: end of period $1,754,517 $1,811,034 $1,710,814 $1,524,996 $1,545,843
Ratio of expenses to average net assets (a) 1.00% 1.00% 0.97% 0.77% 1.00%
Ratio of net investment income
to average net assets (b) 6.50% 5.84% 6.08% 6.16% 5.88%
Portfolio turnover rate 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
(a) 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:
Year Year Year Year Year
Ended Ended Ended Ended Ended
4/30/95 4/30/96 4/30/97 4/30/98 4/30/99
Series 2001 2.00% 1.74% 0.99% 0.84% 1.00%
Series 2006 2.49% 2.07% 1.17% 0.90% 0.97%
<PAGE>
Financial Highlights - continued
PER SHARE INFORMATION
Series 2006
Year Year Year Year Year
Ended Ended Ended Ended Ended
4/30/95 4/30/96 4/30/97 4/30/98 4/30/99
$10.96 $10.93 $11.33 $11.24 $12.13
0.73 0.71 0.71 0.70 0.71
0.18 0.65 0.08 1.00 0.36
0.91 1.36 0.79 1.70 1.07
(0.73) (0.87) (0.71) (0.70) (0.71)
(0.21) (0.09) (0.17) (0.11) (0.10)
(0.94) (0.96) (0.88) (0.81) (0.81)
(0.03) 0.40 (0.09) 0.89 0.26
$10.93 $11.33 $11.24 $12.13 $12.39
9.05% 11.80% 6.84% 15.30% 8.69%
$1,400,161 $1,479,703 $1,452,870 $1,615,945 $1,574,760
1.00% 1.00% 1.00% 0.82% 0.97%
6.95% 5.83% 6.22% 6.03% 5.51%
0.00% 0.00% 0.00% 0.00% 0.00%
(b) If the Funds had paid all of their expenses the ratio of net investment
income to average assets would have been as follows:
Year Year Year Year Year
Ended Ended Ended Ended Ended
4/30/95 4/30/96 4/30/97 4/30/98 4/30/99
Series 2001 5.51% 5.10% 6.07% 6.10% 5.88%
Series 2006 5.46% 4.76% 6.04% 5.96% 5.51%
(c) Total returns are based on net amount invested for a one-year period.
<PAGE>
Report of Independent Accountants
PricewaterhouseCoopers
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, WI 53202
Telephone (414) 212 1600
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, 1999, 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,
1999, 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, 1999, by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
May 22, 1999
<PAGE>
Board of Trustees
John H. Pender-Chairman of the Board
Ronald G. Anderson
F. Gregory Campbell
Richard L. Gady
John O. Gilbert
Edward W. Smeds
Lawrence M. Woods
Officers
Ronald G. Anderson-President
Robert G. Same-Vice President & Secretary
Charles D. Gariboldi-Treasurer
Steven J. Fredricks-Assistant Secretary
Woodrow E. Eno-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
www.aal.org email: [email protected]
C-50176AR 6/99
