ANNUAL REPORT
April 30, 2000
THE AAL U.S. GOVERNMENT ZERO
COUPON TARGET FUND SERIES 2001
THE AAL U.S. GOVERNMENT ZERO
COUPON TARGET FUND SERIES 2006
[AAL MUTUAL FUNDS LOGO]
<PAGE>
PRESIDENT'S LETTER June 30, 2000
Dear shareholder:
We are pleased to provide you with The AAL U.S. Government Zero Coupon Target
Funds Annual Report dated April 30, 2000. In addition to the Target Funds, which
are no longer open to investors, we offer 15 other Funds in class A and B
shares, with diverse investment objectives to help you build a better financial
future. A listing of our Funds and the securities in which they invest is
included below.
EQUITY-ORIENTED FUNDS
o The AAL Technology Stock Fund*--technology-related company stocks.
o The AAL Aggressive Growth Fund*--growth stocks.
o The AAL Small Cap Stock Fund--small company stocks.
o The AAL Mid Cap Stock Fund--mid-sized company stocks.
o The AAL International Fund--foreign stocks.
o The AAL Capital Growth Fund--large company stocks.
o The AAL Equity Income Fund--income-producing equity securities.
o The AAL Balanced Fund--stocks, bonds and money market instruments.
INCOME-ORIENTED FUNDS
o The AAL High Yield Bond Fund--below-investment-grade bonds.
o The AAL Municipal Bond Fund--investment-grade municipal bonds.
o The AAL Bond Fund--investment-grade corporate and government bonds.
o The AAL Money Market Fund--money market instruments.
INDEX FUNDS(1)
o The AAL Small Cap Index Fund II*--stocks comprising the S&P SmallCap 600
Index.
o The AAL Mid Cap Index Fund II*--stocks comprising the S&P MidCap 400
Index.
o The AAL Large Company Index Fund II*--stocks comprising the S&P 500(R)
Index.
To invest in any of these Funds, you can either use new dollars to purchase
shares or exchange your current Target Fund shares for those of another Fund--at
no additional sales charge. For more information about these Funds, contact your
AAL representative to receive current prospectuses. Or call Capital
Connection(R) at (800) 553-6319 to learn about using the exchange privilege or
to order your complimentary prospectus kit. Please read the prospectuses
carefully before you invest or send money.
Thank you for your continued confidence in The AAL Mutual Funds.
Sincerely,
/s/Robert G. Same
Robert G. Same
President, AAL Capital Management Corporation
*A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but is not anticipated to become effective
until July 1, 2000. These securities may not be sold prior to the effective date
of the registration statement. This letter does not constitute an offer to sell
this security. Any sale must be preceded or accompanied by current prospectuses
for The AAL Mutual Funds.
(1)Standard & Poor's(R) 500 Composite Stock Price Index, S&P 500(R), Standard &
Poor's(R) MidCap 400 Index, S&P MidCap 400 Index, Standard & Poor's(R) 600 Index
and S&P 600 Index are trademarks of The McGraw-Hill Companies, Inc. and have
been licensed for use by Aid Association for Lutherans. The product is not
sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's
makes no representation regarding the advisability of investing in the product.
Individuals may not invest directly in any index.
<PAGE>
PORTFOLIO PERSPECTIVES
The year ended April 30, 2000, has not been an easy one for bonds. With a string
of interest rate increases by the Federal Reserve (Fed) that began in mid-1999,
the bond market has not seen positive results.
Typically, when interest rates are increasing, the values of existing bonds
decline, as investors are less inclined to buy lower interest rate bonds when
new, higher interest rate bonds are available. Since June 30 of last year, the
Fed has increased rates five times, the most recent, as of the time of this
Annual Report, being a quarter-point increase on March 22.
The record-breaking economy, now in its longest-ever streak of uninterrupted
growth, continues to forge ahead despite the efforts of the Fed to cool things
down. Their concern is that too-rapid economic growth could spark inflation down
the road. Economists view the declining unemployment rate as a sign that demand
for goods and services is exceeding supply, laying the groundwork for increased
prices.
Further increases in interest rates are expected to continue until the Fed feels
the economy has slowed to a more sustainable pace.
Michael R. Hilt
Portfolio Manager
VALUE OF A $10,000 INVESTMENT
INCLUDING 4.75% SALES CHARGE
Lehman
2001 2006 Brothers
Date Value Value Value
========================================================
14-Nov-90 9,523.81 9,523.81 10,000.00
30-Nov-90 9,676.19 9,733.33 10,078.55
31-Dec-90 9,894.55 10,021.66 10,235.78
31-Jan-91 9,913.78 9,915.87 10,362.70
28-Feb-91 9,904.17 9,944.72 10,450.78
29-Mar-91 9,856.09 9,887.01 10,522.89
30-Apr-91 9,856.09 9,915.87 10,636.54
31-May-91 9,740.70 9,704.28 10,698.23
28-Jun-91 9,586.85 9,473.45 10,692.88
31-Jul-91 9,683.01 9,579.25 10,841.51
30-Aug-91 10,000.32 9,983.19 11,075.69
30-Sep-91 10,365.72 10,406.37 11,300.53
31-Oct-91 10,317.64 10,319.81 11,425.96
30-Nov-91 10,413.80 10,310.19 11,531.08
31-Dec-91 11,868.69 11,957.50 11,873.55
31-Jan-92 11,247.84 11,270.64 11,712.07
28-Feb-92 11,216.80 11,176.98 11,788.28
31-Mar-92 10,989.15 11,000.07 11,721.87
30-Apr-92 10,978.80 10,843.96 11,806.44
31-May-92 11,175.41 11,218.61 12,029.24
30-Jun-92 11,413.40 11,301.86 12,194.76
31-Jul-92 11,879.04 11,978.31 12,443.67
31-Aug-92 11,972.17 12,019.94 12,569.62
30-Sep-92 12,282.60 12,311.33 12,718.75
30-Oct-92 11,848.00 11,666.11 12,550.01
30-Nov-92 11,641.05 11,697.33 12,552.88
31-Dec-92 12,702.84 12,983.71 12,752.51
29-Jan-93 13,023.45 13,328.91 12,997.07
26-Feb-93 13,532.01 14,041.56 13,224.41
31-Mar-93 13,520.95 13,919.08 13,279.73
30-Apr-93 13,543.06 13,941.35 13,372.09
28-May-93 13,443.56 13,907.94 13,389.04
30-Jun-93 13,896.84 14,553.79 13,631.67
30-Jul-93 14,033.81 15,025.08 13,708.75
31-Aug-93 14,421.18 15,572.87 13,949.18
30-Sep-93 14,520.79 15,762.92 13,987.48
29-Oct-93 14,498.66 15,762.92 14,039.68
30-Nov-93 14,000.61 14,958.01 13,920.32
31-Dec-93 14,861.31 15,941.32 13,995.77
31-Jan-94 15,052.99 16,373.19 14,184.73
28-Feb-94 14,362.96 15,268.10 13,938.29
31-Mar-94 13,724.03 14,251.92 13,594.61
29-Apr-94 13,468.47 13,921.66 13,486.07
31-May-94 13,379.02 13,832.75 13,484.20
30-Jun-94 13,225.68 13,515.19 13,454.37
29-Jul-94 13,468.47 13,959.77 13,721.68
31-Aug-94 13,353.46 13,769.23 13,738.62
30-Sep-94 12,982.89 13,108.72 13,536.43
31-Oct-94 12,803.99 12,918.18 13,524.31
30-Nov-94 12,688.98 12,956.29 13,494.32
30-Dec-94 13,580.66 14,112.16 13,587.63
31-Jan-95 13,788.74 14,431.63 13,856.54
28-Feb-95 14,260.38 14,945.56 14,185.95
31-Mar-95 14,232.64 14,959.45 14,272.93
28-Apr-95 14,385.23 15,181.68 14,472.37
31-May-95 15,148.19 16,542.90 15,032.41
30-Jun-95 15,217.55 16,681.80 15,142.58
31-Jul-95 14,981.73 16,237.32 15,108.80
31-Aug-95 15,106.57 16,529.01 15,291.01
29-Sep-95 15,175.93 16,779.03 15,439.95
31-Oct-95 15,384.01 17,181.83 15,640.67
30-Nov-95 15,605.96 17,626.31 15,874.96
29-Dec-95 16,679.50 19,063.04 16,097.85
31-Jan-96 16,753.83 18,958.46 16,204.58
29-Feb-96 16,248.39 17,837.98 15,922.94
29-Mar-96 15,951.07 17,389.79 15,812.28
30-Apr-96 15,683.48 16,926.66 15,723.41
31-May-96 15,490.23 16,672.69 15,691.49
28-Jun-96 15,638.89 16,971.48 15,902.23
31-Jul-96 15,564.56 16,851.96 15,945.80
30-Aug-96 15,445.63 16,538.23 15,919.17
30-Sep-96 15,638.89 16,941.60 16,196.32
31-Oct-96 15,965.94 17,584.01 16,555.24
29-Nov-96 16,174.06 18,106.90 16,838.83
31-Dec-96 16,828.07 18,622.52 16,682.23
31-Jan-97 16,780.31 18,413.45 16,733.27
28-Feb-97 16,684.79 18,284.80 16,774.77
31-Mar-97 16,398.22 17,721.95 16,588.91
30-Apr-97 16,525.58 18,075.74 16,837.41
30-May-97 16,589.26 18,156.15 16,996.52
30-Jun-97 16,652.95 18,349.13 17,198.27
31-Jul-97 17,003.20 19,281.86 17,661.76
29-Aug-97 16,748.47 18,654.68 17,511.29
30-Sep-97 16,875.83 19,040.64 17,769.58
31-Oct-97 17,035.04 19,507.01 18,027.41
28-Nov-97 16,971.36 19,507.01 18,110.34
31-Dec-97 18,041.22 20,844.65 18,292.53
30-Jan-98 18,245.08 21,222.40 18,527.41
27-Feb-98 18,092.19 20,982.01 18,513.51
31-Mar-98 18,024.23 20,878.99 18,577.20
30-Apr-98 18,024.23 20,827.48 18,674.17
29-May-98 18,075.20 21,119.37 18,851.20
30-Jun-98 18,092.19 21,308.25 19,011.06
31-Jul-98 18,041.22 21,170.88 19,051.36
31-Aug-98 18,347.01 21,995.06 19,361.52
30-Sep-98 18,703.75 23,042.44 19,814.77
30-Oct-98 18,652.79 22,922.25 19,710.15
30-Nov-98 18,465.92 22,596.01 19,821.71
31-Dec-98 19,497.42 23,868.68 19,881.37
29-Jan-99 19,479.37 23,777.51 20,023.33
26-Feb-99 19,172.47 22,683.46 19,673.72
31-Mar-99 19,172.47 22,628.75 19,782.91
30-Apr-99 19,118.31 22,592.28 19,845.62
28-May-99 18,919.72 21,899.38 19,671.77
30-Jun-99 18,847.51 21,607.63 19,609.02
30-Jul-99 18,793.35 21,352.35 19,525.68
31-Aug-99 18,721.14 21,170.01 19,515.72
30-Sep-99 18,757.24 21,279.42 19,742.11
29-Oct-99 18,703.08 21,170.01 19,814.95
30-Nov-99 18,594.77 20,969.43 19,813.57
31-Dec-99 19,684.15 21,914.42 19,718.07
31-Jan-00 19,549.46 21,679.63 19,653.59
29-Feb-00 19,568.70 21,757.89 19,891.20
31-Mar-00 19,568.70 22,227.49 20,153.17
30-Apr-00 19,957.46 22,515.55 20,095.73
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
Based on Net Amount Invested
============================================================
The AAL U.S. Government Zero Coupon Target Funds As of
April 30, 2000
1-Year 5-Year From Inception
----------------- ----------- ---------- -------------------
Series 2001 2.38% 6.40% 8.13%
................. ........... .......... ...................
Series 2006 (2.29%) 7.83% 9.52%
================= =========== ========== ===================
============================================================
SEC Quarterly Standardized Returns As of
March 31, 2000
1-Year 5-Year From Inception
----------------- ----------- ---------- -------------------
Series 2001 2.18% 6.63% 8.16%
................. ........... .......... ...................
Series 2006 (1.69%) 8.30% 9.64%
================= =========== ========== ===================
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, relatively predictable investment returns from U.S.
government securities over selected periods of time from two portfolios maturing
in 2001 and 2006, assuming investors reinvest the dividends and capital gains
distributed by the Funds.
THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUND SERIES 2001
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SCHEDULE OF INVESTMENTS AS OF APRIL 30, 2000
================== =============================================== =============== ================= ================
YIELD TO
PRINCIPAL AMOUNT LONG-TERM OBLIGATIONS (102.4%) MATURITY MATURITY DATE MARKET VALUE
================== =============================================== =============== ================= ================
U.S. GOVERNMENT ZERO COUPON BONDS
$1,611,000 Separate Trading of Registered Interest and 6.41% 11/15/2001 $1,461,528
Principal of Securities
TOTAL LONG-TERM INVESTMENTS 1,461,528
(amortized cost basis $1,442,531)
OTHER ASSETS, LESS LIABILITIES (-2.4%) (33,568)
NET ASSETS (100.0%) $1,427,960
================== =============================================================== ================= ================
THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUND SERIES 2006
SCHEDULE OF INVESTMENTS AS OF APRIL 30, 2000
================== ============================================== ================ ================ =================
YIELD TO
PRINCIPAL AMOUNT LONG-TERM OBLIGATIONS (102.0%) MATURITY MATURITY DATE MARKET VALUE
================== ============================================== ================ ================ =================
U.S. GOVERNMENT ZERO COUPON BONDS
$2,273,000 Separate Trading of Registered Interest and 6.49% 11/15/2006 $1,497,038
Principal of Securities
TOTAL LONG-TERM INVESTMENTS 1,497,038
(amortized cost basis $1,365,830)
OTHER ASSETS, LESS LIABILITIES (-2.0%) (29,545)
NET ASSETS (100.0%) $1,467,493
================== =============================================================== ================ =================
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
AS OF APRIL 30, 2000
THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUNDS
<TABLE>
<CAPTION>
<S> <C> <C>
================================================================== ==================== ===================
SERIES 2001 SERIES 2006
================================================================== ==================== ===================
ASSETS
Investments, at value $1,461,528 $1,497,038
(Cost: $1,442,531 and $1,365,830 respectively)
Cash 3,273 5,588
Prepaid expenses 370 359
TOTAL ASSETS $1,465,171 $1,502,985
LIABILITIES
Income distributions payable $29,100 $30,628
Accrued expenses 8,111 4,864
TOTAL LIABILITIES $37,211 $35,492
NET ASSETS
Trust capital (beneficial interest) $1,407,696 $1,331,257
Accumulated undistributed net income 309 805
Net unrealized appreciation on investments 18,997 131,208
Accumulated net realized gain on investments 958 4,223
TOTAL NET ASSETS $1,427,960 $1,467,493
TOTAL LIABILITIES AND CAPITAL $1,465,171 $1,502,985
Shares of beneficial interest outstanding
(unlimited number of shares authorized) 140,540 130,189
Net asset value per share $10.16 $11.27
Maximum public offering price $10.67 $11.83
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 2000
THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUNDS
<TABLE>
<CAPTION>
<S> <C> <C>
============================================================================= =================== ====================
SERIES 2001 SERIES 2006
============================================================================= =================== ====================
INVESTMENT INCOME
Taxable interest $104,259 $106,643
TOTAL INVESTMENT INCOME 104,259 106,643
EXPENSES
Audit and legal fees 3,575 3,249
Custodian fees 634 594
Administrative service fees 2,320 2,320
Printing and postage expense 998 1,006
SEC and state registration fees 784 777
Transfer agent fees 1,410 1,455
Trustees fees and expenses 5,009 5,009
Other expenses 66 66
TOTAL EXPENSES 14,796 14,476
Less reimbursement from Adviser (288) ----
TOTAL NET EXPENSES 14,508 14,476
NET INVESTMENT INCOME 89,751 92,167
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains on investments 2,818 5,745
Change in unrealized depreciation on investments (60,021) (134,565)
NET REALIZED AND UNREALIZED GAINS/(LOSSES) ON INVESTMENTS (57,203) (128,820)
NET INCREASE/DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $32,548 ($36,653)
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
THE U.S. GOVERNMENT ZERO COUPON TARGET FUNDS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SERIES 2001 SERIES 2006
============================================================ =============== ================ ============== ===============
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
4/30/2000 4/30/1999 4/30/2000 4/30/1999
============================================================ =============== ================ ============== ===============
OPERATIONS
Net investment income $89,751 $90,363 $92,167 $88,775
Net realized gains on investments 2,818 2,875 5,745 20,752
Increase (decrease) in unrealized (60,021) (844) (134,565) 20,646
appreciation on investments
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM 32,548 92,394 (36,653) 130,173
OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (89,751) (90,363) (92,167) (88,775)
Capital gains distributions (3,794) (5,518) (12,236) (12,850)
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (93,545) (95,881) (104,403) (101,625)
TRUST SHARES TRANSACTIONS
Income dividends reinvested 87,753 90,282 90,293 85,754
Capital gains distributions reinvested 3,732 5,483 12,139 12,747
Redemption of trust shares (148,371) (71,431) (68,643) (168,234)
NET INCREASE (DECREASE) IN TRUST CAPITAL (56,886) 24,334 33,789 (69,733)
NET INCREASE (DECREASE) IN NET ASSETS (117,883) 20,847 (107,267) (41,185)
NET ASSETS BEGINNING OF PERIOD 1,545,843 1,524,996 1,574,760 1,615,945
NET ASSETS END OF PERIOD $1,427,960 $1,545,843 $1,467,493 $1,574,760
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AS OF APRIL 30, 2000
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, Mid Cap Index, Balanced, High Yield Bond, Municipal Bond,
Bond, Bond Index, Money Market, Large Company Index, U.S. Government Zero
Coupon Target Funds 2001 and 2006. The 15 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 of 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.
DISTRIBUTION 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 STATMENTS - CONTINUTED
AS OF APRIL 30, 2000
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.
Each Trustee who is not affiliated with AAL or the Adviser receives an
annual fee from the Funds for services as a Trustee and is eligible to
participate in a deferred compensation plan with respect to these fees.
Each participant's deferred compensation account will increase or decrease
as if it were invested in shares of the selected Funds.
Trustees not participating in the above plan received $5,484 in fees for
fiscal 1999-2000 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 2000, shareholders received information regarding all
distributions paid to them by the Fund during the calendar year 1999, The
Fund hereby designates the following as long-term capital gains:
Series 2001.........$3,794
Series 2006........$12,236
<PAGE>
NOTES TO FINANCIAL STATMENTS - CONTINUTED
AS OF APRIL 30, 2000
E: SECURITY TRANSACTIONS
During the years ended April 30, 2000, and April 30, 1999, purchases and
sales of securities other than short-term obligations were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
====================================== =============================== ===============================
PURCHASES SALES
4/30/2000 4/30/1999 4/30/2000 4/30/1999
====================================== =============== =============== ================ ==============
Series 2001 $-- $-- $163,678 $91,650
...................................... ............... ............... ................ ..............
Series 2006 -- -- 87,927 189,275
====================================== =============== =============== ================ ==============
</TABLE>
All purchases and sales of The 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, 2000, and
April 30, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
================ =================================================== ===================================================
4/30/2000 4/30/1999
NET NET
UNREALIZED UNREALIZED
APPRECIATION (DEPRECIATION) APPRECIATION APPRECIATION (DEPRECIATION) APPRECIATION
================ ================ ================== =============== ================ ================== ===============
Series 2001 $18,997 $-- $ 18,997 $79,018 $-- $79,018
................ ................ .................. ............... ................ .................. ...............
Series 2006 131,208 -- 131,208 265,773 -- 265,773
================ ================ ================== =============== ================ ================== ===============
</TABLE>
F: TRUST TRANSACTIONS
Transactions in trust shares for the years ended April 30, 2000, and April
30, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
====================================== =============================== ================================
SERIES 2001 SERIES 2006
4/30/2000 4/30/1999 4/30/2000 4/30/1999
====================================== =============== =============== ================ ===============
Shares purchased -- -- -- --
...................................... ............... ............... ................ ...............
Income dividends reinvested 8,578 8,359 8,057 6,551
...................................... ............... ............... ................ ...............
Capital gains reinvested 364 505 1,071 968
...................................... ............... ............... ................ ...............
Shares redeemed (14,310) (6,692) (6,039) (13,631)
-------------------------------------- --------------- --------------- ---------------- ---------------
NET INCREASE (DECREASE) OF TRUST
SHARES (5,368) 2,172 3,089 (6,112)
====================================== =============== =============== ================ ===============
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
PER SHARE INFORMATION
SERIES 2001
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
===================================================== ============= ============== ============= ============= =============
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
4/30/2000 4/30/1999 4/30/1998 4/30/1997 4/30/1996
===================================================== ============= ============== ============= ============= =============
Net asset value: beginning of period $10.59 $10.61 $10.38 $10.55 $10.37
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.65 0.64 0.63 0.64 0.65
Net realized and unrealized gain (loss)
on Investments (0.40) 0.02 0.30 (0.07) 0.33
TOTAL FROM INVESTMENT OPERATIONS 0.25 0.66 0.93 0.57 0.98
DISTRIBUTIONS FROM:
Net investment income (0.65) (0.64) (0.63) (0.64) (0.76)
Net realized capital gains (0.03) (0.04) (0.07) (0.10) (0.04)
TOTAL DISTRIBUTIONS (0.68) (0.68) (0.70) (0.74) (0.80)
Net increase (decrease) in net asset value (0.43) (0.02) 0.23 (0.17) 0.18
Net asset value: end of period $10.16 $10.59 $10.61 $10.38 $10.55
Total return (c) 2.38% 6.23% 9.17% 5.42% 9.23%
Net assets: end of period (in thousands) $1,428 $1,546 $1,525 $1,711 $1,811
Ratio of expenses to average net assets(a) 1.00% 1.00% 0.77% 0.97% 1.00%
Ratio of net investment income to average net
assets (b) 6.20% 5.88% 6.16% 6.08% 5.84%
Portfolio turnover rate 0.00% 0.00% 0.00% 0.00% 0.00%
===================================================== ============= ============== ============= ============= =============
(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 ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
4/30/2000 4/30/1999 4/30/1998 4/30/1997 4/30/1996
===================================================== ============= ============== ============= ============= =============
Series 2001 1.02% 1.00% 0.84% 0.99% 1.74%
Series 2006 0.98% 0.97% 0.90% 1.17% 2.07%
===================================================== ============= ============== ============= ============= =============
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATMENTS - CONTINUTED
PER SHARE INFORMATION
SERIES 2006
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
================= =============== ============== ============== =============
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
4/30/2000 4/30/1999 4/30/1998 4/30/1997 4/30/1996
================= =============== ============== ============== =============
Net asset value: beginning of period $12.39 $12.13 $11.24 $11.33 $10.93
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.72 0.71 0.70 0.71 0.71
Net realized and unrealized gain (loss)
on Investments (1.02) 0.36 1.00 0.08 0.65
TOTAL FROM INVESTMENT OPERATIONS (0.30) 1.07 1.70 0.79 1.36
DISTRIBUTIONS FROM:
Net investment income (0.72) (0.71) (0.70) (0.71) (0.87)
Net realized capital gains (0.10) (0.10) (0.11) (0.17) (0.09)
TOTAL DISTRIBUTIONS (0.82) (0.81) (0.81) (0.88) (0.96)
Net increase (decrease) in net asset value (1.12) 0.26 0.89 (0.09) 0.40
Net asset value: end of period $11.27 $12.39 $12.13 $11.24 $11.33
Total return (c) (2.29%) 8.69% 15.30% 6.84% 11.80%
Net assets: end of period (in thousands) $1,467 $1,575 $1,616 $1,453 $1,480
Ratio of expenses to average net assets(a) 0.98% 0.97% 0.82% 1.00% 1.00%
Ratio of net investment income to average net
assets (b) 6.21% 5.51% 6.03% 6.22% 5.83%
Portfolio turnover rate 0.00% 0.00% 0.00% 0.00% 0.00%
========================= ==================== ================ ============= ===============
</TABLE>
(b)If the Funds had paid all of their expenses, the ratio of net investment
income to average assets would have been as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
================== =================== =================== ================= ================= =================
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
4/30/2000 4/30/1999 4/30/1998 4/30/1997 4/30/1996
================== =================== =================== ================= ================= =================
Series 2001 6.18% 5.88% 6.10% 6.07% 5.10%
Series 2006 6.21% 5.51% 5.96% 6.04% 4.76%
================== =================== =================== ================= ================= =================
</TABLE>
(c)Total returns are based on net amount invested for a one-year period.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[PRICEWATERHOUSECOOPERS LETTERHEAD] 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, 2000, 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,
2000, and the other periods indicated, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's 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 auditing standards
generally accepted in the United States, 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,
2000, by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
/s/PricewaterhouseCoopers
May 19, 2000
<PAGE>
BOARD John O. Gilbert--Chairman of the Board
OF F. Gregory Campbell
TRUSTEES Woodrow E. Eno
Richard L. Gady
John H. Pender
Edward W. Smeds
Lawrence M. Woods
OFFICERS Robert G. Same--President
James H. Abitz--Vice-President
Woodrow E. Eno--Vice-President
Charles D. Gariboldi--Treasurer
Frederick D. Kelsven--Secretary
INVESTMENT AAL Capital Management Corporation
ADVISER & 222 West College Avenue
DISTRIBUTOR Appleton, WI 54919-0007
CUSTODIAN Citibank, N.A.
111 Wall Street
New York, NY 10043
TRANSFER AGENT & Firstar Mutual Fund Services, LLC
DISBURSING AGENT 615 East Michigan Street
P.O. Box 2981
Milwaukee, WI 53201-2981
LEGAL Quarles & Brady LLP
COUNSEL 411 East Wisconsin Avenue
Milwaukee, WI 53202
INDEPENDENT PricewaterhouseCoopers LLP
ACCOUNTANT Suite 1500
100 East Wisconsin Avenue
Milwaukee, WI 53202
[AAL MUTUAL FUND LOGO]
C-50176AR 6/00
