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: aalcmc@aal.org




C-50176AR  6/99