1933 Act Registration No. 33-12911
                                              1940 Act Registration No. 811-5075

                   As filed with the Securities and Exchange
                          Commission on June 29, 1999.
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM N-1A

                        REGISTRATION STATEMENT UNDER THE
                             SECURITIES ACT OF 1933

                       Pre-Effective Amendment No.
                       Post-Effective Amendment No. 34           X

                                     and/or

                        REGISTRATION STATEMENT UNDER THE
                         INVESTMENT COMPANY ACT OF 1940

                               Amendment No. 36                  X

                              THE AAL MUTUAL FUNDS
               (Exact name of registrant as specified in charter)


                             222 WEST COLLEGE AVENUE
                         APPLETON, WISCONSIN 54919-0007
               (Address of Principal Executive Offices)(Zip Code)

       Registrant's Telephone Number, including Area Code: (920) 734-5721

                                 ROBERT G. SAME
                                    Secretary
                              THE AAL MUTUAL FUNDS
                             222 WEST COLLEGE AVENUE
                         APPLETON, WISCONSIN 54919-0007
                     (Name and Address of Agent for Service)

Approximate Date of Proposed Public Offerings:  Continuous

It is proposed that this filing will become effective:

               immediately upon filing pursuant to paragraph (b):
          X    on July 1, 1999 pursuant to paragraph (b)
               60 days after filing pursuant to paragraph  (a)(1)
               on July 1, 1999  pursuant to  paragraph  (a)(1)
               75 days after filing pursuant to paragraph  (a)(2)
               on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

           this post-effective  amendment  designates a new effective date for a
previously filed post-effective amendment.


<PAGE>

                              THE AAL MUTUAL FUNDS
                THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUNDS
                           Series 2001 and Series 2006
                              222 West College Ave.
                             Appleton, WI 54919-0007

                  800-553-6319 or 920-734-7633 TDD 800-684-3416

                                   PROSPECTUS

                                  July 1, 1999


The AAL U.S. Government Zero Coupon Target Funds invest primarily in zero coupon
bonds.  The Funds are designed for  investors  seeking high future  returns from
U.S. government  securities with a reasonable  assurance of receiving a targeted
dollar amount,  predictable at the time of  investment,  on a specific  maturity
date.  Series 2001  matures on November  15,  2001,  and Series 2006  matures on
November 15, 2006.

PLEASE TAKE NOTICE

The Funds  closed sales of The AAL U.S.  Government  Zero Coupon  Target  Funds,
Series  2001 and  2006 to new  shareholders  and to  existing  shareholders  for
additional purchases effective May 31, 1993. Existing shareholders may purchases
additional  shares by reinvesting  dividends and capital gains, if any, received
on their existing accounts at net asset value.  Although the Funds do not intend
to do so, they may open sales in the future.






THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED  BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES  COMMISSION,  NOR HAS THE SECURITIES
AND  EXCHANGE  COMMISSION  OR ANY  STATE  SECURITIES  COMMISSION  PASSED  ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.



<PAGE>


Table of Contents

RISK/RETURN SUMMARY
Investment Objectives/Goals
Principal Investment Strategies
Principal Risks
Risk/Return Bar Chart and Table
Fee Table

INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
Investment Objectives
Investment Policies
Risks

MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
Investment Adviser
Advisory Fee
Portfolio Manager

SHAREHOLDER INFORMATION
Pricing of Funds' Shares
How to Buy Shares
How to Redeem (sell) Shares
Dividends, Distributions and Taxes

DISTRIBUTION ARRANGEMENTS
Sales Charges (Loads)

FINANCIAL HIGHLIGHTS
Series 2001
Series 2006


<PAGE>


RISK/RETURN SUMMARY
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.

Principal Investment Strategy

The Funds invest in a variety of U.S. government  securities primarily (at least
80%) consisting of zero coupon bonds,  50% of which will mature within two years
of the Funds' target dates.

Principal Risk

Interest  Rate Risk:  Changes in interest  rate  levels  affect the value of the
bonds in the portfolio and the value of the Fund as a whole.  During  periods of
higher  interest  rates,  the value of the bonds in the portfolios  will tend to
fall.  Zero coupon  bonds tend to  fluctuate  in value to a greater  degree than
bonds with fixed coupons.  The Funds cannot assure that you will be able to sell
your shares for more than you paid for them.  You could lose money  investing in
the Funds.

Risk/Performance


The following bar charts and table  illustrate the Funds' risks and performances
for Series 2001 and 2006,  respectively.  The charts  show  changes in the total
returns from calendar  year to calendar year and the table  compares the average
annual returns for one, five and eight calendar year periods since inception for
Series  2001 and 2006 to those of a broad  market  index  for the same  periods.
However, please note that the past performance indicated in the charts and table
do not indicate future performance for the Funds.


Charts


The chart below shows Series 2001's  calendar  year,  total returns for the past
eight calendar years.


                 The AAL U.S. Government Zero Coupon Target Fund
                                   Series 2001
                              Annual Total Returns

[Bar chart with following data:]


12/31/91  19.95%         12/31/92  7.03%          12/31/93  16.99%
12/30/94  (8.62)%        12/29/95  22.82%         12/31/96  0.89%
12/31/97  7.25%          12/31/98  8.07%

The bar chart does not  reflect  the 4.75%  maximum  sales  loads.  If the chart
reflected  sales  loads,  returns  would be less than  those  shown.  The Fund's
year-to-date  return as of March 31,  1999 was  (0.22)%.  During the  eight-year
period  reflected in the bar chart,  the best quarterly return was 9.00% and the
worst quarterly return was (7.47)%.

The chart below shows Series 2006's  calendar  year,  total returns for the past
eight calendar years.


                 The AAL U.S. Government Zero Coupon Target Fund
                                   Series 2006
                              Annual Total Returns

[Bar chart with the following data:]


12/31/91  19.32%         12/31/92  8.58%          12/31/93  22.78%
12/30/94  (11.47)%       12/29/95  35.08%         12/31/96  (2.31)%
12/31/97  11.93%         12/31/98  14.51%

The bar chart does not  reflect  the 4.75%  maximum  sales  loads.  If the chart
reflected  sales  loads,  returns  would be less than  those  shown.  The Fund's
year-to-date  return as of March 31,  1999 was  (3.86)%.  During the  eight-year
period  reflected in the bar chart, the best quarterly return was 11.48% and the
worst quarterly return was (11.59)%.


Table


The table below  compares the Funds'  average  annual total returns for the one,
five and eight  calendar year periods  ended  December 31, 1998, to those of the
Lehman Brothers  Aggregate Bond Index.  Performance  reflects the payment of the
4.75%  maximum  sales loads  charged by the Funds on the  purchase of new shares
(currently, the Funds are closed to new investors).


Risk/Return Table

                             Average Annual Returns

                         for the Periods Ended 12/31/98


---------------------------------- ----------------- --------------- -----------

                                   One-Year          Five-Year       Inception

---------------------------------- ----------------- --------------- -----------
---------------------------------- ----------------- --------------- -----------

Series 2001                        2.93%             4.57%           8.55%

---------------------------------- ----------------- --------------- -----------
---------------------------------- ----------------- --------------- -----------

Series 2006                        9.03%             7.35%           11.29%

---------------------------------- ----------------- --------------- -----------
---------------------------------- ----------------- --------------- -----------

Lehman Brothers Aggregate*         8.69%             7.27%           8.82%

---------------------------------- ----------------- --------------- -----------

*    The index covers four major classes of fixed-income securities in the U.S.:
     U.S.  Treasury  and  U.S.  government  agency  securities,  corporate  debt
     obligations, mortgage-backed securities and asset-backed securities.

Expenses

Fee Table

This table  describes  the fees and expenses you may pay if you buy and hold the
Funds' shares:

<TABLE>
<CAPTION>
<S>                                                       <C>                      <C>
--------------------------------------------------------- ------------------------ --------------------------
Shareholder Fees                                          Target Fund              Target Fund
(fees paid directly from your investment)                 Series 2001              Series 2006
--------------------------------------------------------- ------------------------ --------------------------
--------------------------------------------------------- ------------------------ --------------------------

--------------------------------------------------------- ------------------------ --------------------------
--------------------------------------------------------- ------------------------ --------------------------
Maximum sales charge (load) imposed on purchases (as a    4.75%                    4.75%
percentage of offering price)
--------------------------------------------------------- ------------------------ --------------------------
--------------------------------------------------------- ------------------------ --------------------------

--------------------------------------------------------- ------------------------ --------------------------
--------------------------------------------------------- ------------------------ --------------------------
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)             Target Fund              Target Fund
                                                          Series 2001              Series 2006
                                                          -----------              -----------
--------------------------------------------------------- ------------------------ --------------------------
--------------------------------------------------------- ------------------------ --------------------------

--------------------------------------------------------- ------------------------ --------------------------
--------------------------------------------------------- ------------------------ --------------------------

Management fees*                                          0.50%                    0.50%

--------------------------------------------------------- ------------------------ --------------------------
--------------------------------------------------------- ------------------------ --------------------------

--------------------------------------------------------- ------------------------ --------------------------
--------------------------------------------------------- ------------------------ --------------------------

Distribution (12b_1) fees*                                0.10%                    0.10%

--------------------------------------------------------- ------------------------ --------------------------
--------------------------------------------------------- ------------------------ --------------------------

--------------------------------------------------------- ------------------------ --------------------------
--------------------------------------------------------- ------------------------ --------------------------

Other expenses**                                          1.00%                    0.97%

--------------------------------------------------------- ------------------------ --------------------------
--------------------------------------------------------- ------------------------ --------------------------

--------------------------------------------------------- ------------------------ --------------------------
--------------------------------------------------------- ------------------------ --------------------------

Total Fund operating expenses**                           1.60%                    1.57%

--------------------------------------------------------- ------------------------ --------------------------
</TABLE>

*    AAL  Capital  Management  Corporation  (AAL CMC),  the Funds'  adviser  and
     distributor,  voluntarily  reimburses  the  Funds  for its  management  and
     distribution  (12b-1)  fees.  Although  AAL CMC has no  intention to do so,
     these  reimbursements are voluntary and AAL CMC may reinstate these fees in
     the future.


**   AAL CMC will pay all expenses of the Funds in excess of 1.00%. After giving
     effect to these voluntary expense reimbursements,  the total Fund operating
     expenses were 1.00% and 0.97% for Series 2001 and 2006,  respectively.  AAL
     CMC makes  monthly  expense  reimbursements  to the  Funds  based on yearly
     projections.  Sometime these forecasted monthly expense  reimbursements are
     larger than the actual expense reimbursements required,  resulting in lower
     total Fund operating expenses.


Example

This Example is intended to help you compare the costs of investing in the Funds
with the cost of investing in other mutual funds.

The Example  assumes  that you invest  $10,000 in the Funds for the time periods
indicated.  The Example also assumes that your  investment  has a 5% return each
year and that the  Funds'  operating  expenses  remain the same.  Although  your
actual costs may be higher or lower, based on these assumptions your costs would
be:

------------------------- ----------------------------------- ------------------
Time Period               Target Fund                         Target Fund
                          Series 2001                         Series 2006
------------------------- ----------------------------------- ------------------
------------------------- ----------------------------------- ------------------

------------------------- ----------------------------------- ------------------
------------------------- ----------------------------------- ------------------

1 year                    $574                                $571

------------------------- ----------------------------------- ------------------
------------------------- ----------------------------------- ------------------

------------------------- ----------------------------------- ------------------
------------------------- ----------------------------------- ------------------

3 years                   $784                                $775

------------------------- ----------------------------------- ------------------
------------------------- ----------------------------------- ------------------

------------------------- ----------------------------------- ------------------
------------------------- ----------------------------------- ------------------

5 years                   $1,012                              $996

------------------------- ----------------------------------- ------------------
------------------------- ----------------------------------- ------------------

------------------------- ----------------------------------- ------------------
------------------------- ----------------------------------- ------------------

10 years                  $1,664                              $1,631

------------------------- ----------------------------------- ------------------
------------------------- ----------------------------------- ------------------

------------------------- ----------------------------------- ------------------


You should use the expense  example for  comparison  purposes  only. It does not
represent the Fund's actual expenses and returns,  either past or future. Actual
expenses may be greater or less than those shown.

INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS

Investment Objective

The Funds have an objective of providing a high investment  return over selected
periods of time, consistent with investment in U.S. government  securities.  The
Funds offer two  series,  Series 2001 and Series  2006.  The series  mature on a
specified  target date in each of those  years.  On the target date, a Fund will
convert its assets to cash and  distribute  the  proceeds to  shareholders.  The
shareholders  may chose to reinvest their proceeds,  without a sales charge,  in
another  series of The AAL  Mutual  Funds,  which are  described  in a  separate
prospectus.

The Funds seek to return to  investors  a  reasonably  assured  targeted  dollar
amount,  predictable at the time of investment,  on the specific  target date in
the future.  To realize  this  return,  you should plan to hold a Fund's  shares
until maturity and reinvest all dividends and distributions.  However, the Funds
cannot assure you that they will meet their investment objectives.

Implementation of Investment Objectives

The Funds  invest at least 80% of their  assets in U.S.  government  zero coupon
securities.  U.S. Government zero coupon securities include: U.S. Treasury notes
and bonds, and U.S.  Treasury Bills that have no coupons and are not entitled to
income;

 The Funds  invest at least 50% of their  assets in zero coupon U.S.  government
securities  maturing  within two years of the Fund's target date.  However,  the
Funds  expect that under  normal  circumstances  they will invest a much greater
amount than 50%. The Funds may invest up to 20% in interest-paying U.S. Treasury
notes and bonds and in repurchase  agreements on interest  paying U.S.  Treasury
notes and bonds. These  interest-paying  securities provide income for expenses,
redemption payments and cash dividends of each Fund.

What Are Zero Coupon Securities?

Zero coupon securities are non-interest  (non-cash) paying debt obligations that
are payable in full  (principal  or par amount) at  maturity.  These  securities
include  U.S.  Treasury  notes and bonds that do not have coupons and do not pay
cash  income,  U.S.  Treasury  bills,  individual  interest  coupons  that trade
separately  and  evidences  of  receipt  of  such  securities.  Unlike  Treasury
securities with coupons attached that generate periodic interest payments to the
holders,  zero coupon  securities  pay no cash income until their maturity date.
Zero coupon securities are purchased at a substantial  discount from their value
at their  maturity  date.  The discount is amortized  over the life of the zero.
When a zero is held to maturity,  the entire  return  comes from the  difference
between the purchase price and the maturity  value.  Because this  difference is
known at the time of purchase,  investors  holding zero coupon  securities until
maturity  know  the  amount  of  their  investment  return  at the time of their
investment.

Why Invest in Zero Coupon Securities?

You invest in zero coupon securities  because you can predict the return (dollar
amount) you will receive at maturity. An investment in zeros enables you to plan
to meet future financial  goals,  such as your  retirement,  future  anticipated
expenses such as college  education of children or grandchildren or the purchase
of a home.

Due to the nature of zero  coupon  securities,  the Funds can  estimate  daily a
targeted  dollar amount per share the Funds will receive on the target dates for
each Fund.  The difference  between the targeted  amount and the net asset value
per  share  at the  time of  purchase  is the  projected  return  and is  called
anticipated  growth.  Anticipated growth will consist primarily of the estimated
accretion  (accumulation)  of discount on the zero coupon  securities in a Fund,
and  to a much  lesser  degree,  of  projected  cash  flow  in  income-producing
securities in excess of estimated expenses.

On each business day, each Fund  calculates its  anticipated  growth rate.  This
growth rate is the  annualized  growth rate  investors  can expect from the time
they  purchase a Fund's share until that Fund's  target  date.  The Funds cannot
guarantee  this  growth  rate  because it  involves  certain  assumptions  about
variable  factors such as  reinvestment  of  dividends  and  distributions,  the
expense ratio and composition of a Fund's portfolio.

Quality

The Treasury  obligations in which the Funds invest are backed by the full faith
and  credit  of the  U.S.  government.  The  Funds  may  enter  into  repurchase
agreements  with member banks of the Federal Reserve System with respect to such
securities.

Risks

Interest Rate Risk

 Interest rate risk is the risk that a rise in the level of interest  rates will
reduce the market value (price) of securities  held,  particularly  bonds,  in a
Fund's  portfolio.  Typically,  a bond pays a fixed rate of interest (called the
"coupon").  When interest rates rise in the economy the value of the coupon (the
amount received on the bond periodically) falls in comparison.  As a result, the
price of the bond  declines.  The price of zero  coupon  bonds tend to fall even
more  dramatically  because  they  do not  pay  periodic  coupons.  Zero  coupon
securities usually trade at a deep discount from their face or par value and are
subject to greater market value  fluctuations  from changing interest rates than
debt obligations of comparable  maturities  which make current  distributions of
interest.

Because the Funds  invest  primarily  in zero coupon  securities,  the net asset
value per share may fluctuate substantially prior to the maturity date. Although
investors  may  redeem  shares  on  any  business  day  at net  asset  value,  a
shareholder  who  redeems  prior to  maturity  may  experience  a  significantly
different  investment  return  than was  anticipated  at the  time of  purchase.
Redemptions prior to maturity may result in capital gains or losses which may be
substantial.

Longer-term  bonds are more sensitive to interest rate changes than shorter-term
bonds, reflecting the greater risk of holding these bonds for a longer period of
time. As the Funds move towards their  maturity  dates,  the  variability in the
price of the securities in their  portfolios  should  decline.  The main risk is
when you do not hold zero coupons until maturity. Because zero coupon securities
do not make  periodic  interest  payments,  their  market  values  decline  more
dramatically  when interest rates rise than bonds that pays interest (coupon) on
a  current  basis.  The  market  value  of zero  coupon  bonds  also  rise  more
dramatically than other bonds as interest rates fall.

To obtain the predicted  return and reduce your exposure to the price volatility
caused by changing  interest  rates,  you should plan to hold the Funds'  shares
until maturity.  You also should elect  automatic  reinvestment of dividends and
distributions.  If you hold  shares  to  maturity  and  reinvest  dividends  and
distributions  you  should  experience  a  return  consisting  primarily  of the
accretion  (or  accumulation)  of discount on the  underlying  securities in the
Fund.  The Funds,  however,  may invest up to 20% of its  portfolio  in interest
paying U.S. government securities.  As a result, the Funds cannot guarantee your
total return, even if all shares are held until maturity and you have reinvested
all dividends and distributions.

Reinvestment Risk

A portion of the total realized return from  traditional  interest-paying  bonds
comes from the reinvestment of periodic interest. Since the rate to be earned on
these  reinvestments  may be  higher  or  lower  than  the  rate  quoted  on the
interest-paying  bonds at the time of the original  purchase,  the  investment's
total  return  is  uncertain  even for  investors  holding  the  security  until
maturity. This uncertainty is commonly referred to as reinvestment risk, and can
have a significant impact on total realized  investment return. With zero coupon
securities,  however,  there are no cash distributions to reinvest, so investors
bear no reinvestment risk if they hold the zero coupon security to maturity.

The  Funds  may  invest  up to 20% of  their  assets  in  interest  paying  U.S.
government securities and repurchase agreements on such securities. As a result,
the Funds will have some reinvestment  risk. To reduce this risk, each Fund must
invest  at  least  half  the  market  value  of its net  assets  in zero  coupon
securities maturing within two years of the Fund's target date.

Portfolio Turnover

Because the Funds  objective  is to return a  reasonably  predictable  return at
maturity by purchasing  predominantly  zero coupon bonds, they should not have a
high rate of turnover.  Therefore,  the Funds should not  experience  the higher
transactional  and potential tax  consequences of frequent buying and selling of
securities in their portfolios.

MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE

Investment Adviser


 AAL CMC serves as investment  adviser and distributor to the Funds. AAL CMC was
organized in 1986 as a Delaware  corporation.  AAL Holdings Inc., a wholly owned
subsidiary of Aid  Association for Lutherans (AAL) owns all of AAL CMC's shares.
AAL is a non-profit,  non-stock, membership organization licensed to do business
as a fraternal benefit society in all states.  AAL has approximately 1.7 million
members and is one of the world's largest  fraternal  benefit societies in terms
of assets and life  insurance in force.  AAL ranks in the top two percent of all
life  insurers  in the U.S.  in terms of  ordinary  life  insurance  (nearly $82
billion in force).  Membership  is open to  Lutherans  and their  families.  AAL
offers life,  health, and disability income insurance and fixed annuities to its
members  and all  members  are  part of one of  approximately  9,500  local  AAL
branches throughout the U.S. Through AAL CMC, AAL offers The AAL Mutual Funds to
Lutherans  and their  families.  AAL CMC has served as adviser to The AAL Mutual
Funds since the  commencement  of  operations.  As of June 7, 1999,  AAL Capital
Management Corporation managed over $6.6 billion for The AAL Mutual Funds.


 The adviser's principal address is:

         AAL Capital Management Corporation
         222 West College Avenue
         Appleton, Wisconsin 54919-0007.

AAL's principal address is:

         AAL
         4321 North Ballard Road
         Appleton, Wisconsin 54919-0001.

Pursuant to an investment  advisory agreement with The AAL Mutual Funds, AAL CMC
manages the investment and reinvestment of the Funds' assets, provides the Funds
with  personnel,  facilities  and  administrative  services,  and supervises the
Funds' daily business affairs,  all subject to the supervision of The AAL Mutual
Funds'  Board of  Trustees.  AAL CMC  formulates  and  implements  a  continuous
investment  program  for  the  Funds  consistent  with  each  Fund's  investment
objectives, policies and restrictions.

Year 2000

Year 2000 is approaching and AAL CMC is addressing potential problems that could
affect its systems and those of The AAL Mutual Funds' other  service  providers,
such as the Funds' transfer agent, Firstar Trust Company. Many computer software
systems in use today cannot distinguish the year 2000 from the year 1900 because
of the way the  software  encodes  and  calculates  dates.  AAL CMC has formed a
committee that is reviewing its systems as well as actively working with The AAL
Mutual Funds' other service providers to address the Year 2000 problem.  At this
time, however, we cannot assure that these steps will be sufficient to avoid any
adverse impact on the Funds.

Advisory Fee


The Adviser  receives an investment  advisory fee computed  separately  and paid
monthly  for each Fund at the annual  rate of 0.50 of 1% of the  Fund's  average
daily net assets.  At this time,  the Adviser  voluntary  reimburses  the Funds'
advisory fee.


Portfolio Manager

Michael R. Hilt, CFA, has managed the day-to-day investments for the Funds since
November  1, 1995.  From April 1994  through  August  1995,  Mr.  Hilt served as
portfolio manager and quantitative analyst for Conseco Capital Management,  Inc.
From  August 1992  through  April  1994,  he served as a  portfolio  manager and
quantitative analyst for PPM America, Inc.

SHAREHOLDER INFORMATION

                               PLEASE TAKE NOTICE

Sales of The AAL U.S.  Government Zero Coupon Target Funds, Series 2001 and 2006
were  closed  to new  shareholders  and to  additional  purchases  of  shares by
existing   shareholders   effective  May  31,  1993.   Purchases  of  shares  by
reinvestment  of dividends and capital  gains,  if any, in existing  shareholder
accounts will  continue to be allowed and will be at net asset values.  Although
there is no intent to do so, sales of the Funds could be reopened in the future.
The  discussion  elsewhere  herein as to the  purchase of shares of the Funds is
qualified by the foregoing limitations.

Pricing of Funds' Shares

The price of a Fund's  share is based on the Fund's net asset  value.  The Funds
determine the net asset value (NAV) per share once daily at the close of trading
on the New York Stock Exchange  (NYSE)  (normally 3:00 p.m.  Central Time).  The
Funds do not determine  NAV on holidays  observed by NYSE. To determine the NAV,
the Funds value their securities at current market value using readily available
market quotations. The Funds value securities that do not have readily available
market  quotations  at fair  value as  determined  in good faith by or under the
direction of The AAL Mutual Funds' Board of Trustees.  The Funds may use pricing
services as approved by the Board of Trustees to  determine  the net asset value
of their securities.

The price at which you  purchase  or redeem  shares of the Funds is based on the
NAV as next  determined  after the Funds  have  received  your  payment  or your
redemption request.

How to Buy Shares

Initial Purchases in New Accounts

The Funds offer the sales of their shares  through AAL CMC, as the  distributor,
and your AAL CMC registered  representative.  You may make initial  purchases of
the Funds' shares by mail (including private mail delivery services) or by wire.

The Funds require a separate account  registration for each individual  account,
joint account, fiduciary account, custodial accounts for minors and tax-deferred
accounts (for example, IRA, 403(b)(7) custodial accounts, and pension and profit
sharing plans). The Funds may require additional documentation for some of these
accounts.  You should consult your legal adviser if you have questions regarding
the  type of  registration  best  suited  for  your  needs.  All  accounts,  but
especially  fiduciary accounts,  custodial accounts for minors, and tax-deferred
accounts,  may impose legal requirements,  and result in income, gift and estate
tax  consequences  which are the sole  responsibility  of shareholders and their
professional  advisers.  Neither  the  Funds  nor AAL  CMC  and  its  registered
representatives  provide  legal or tax  advice to  shareholders.  You may obtain
further  information  on the  documents  required to open your account from your
registered  representative  or AAL CMC through the Mutual Fund Service Center at
800-553-6319.

Initial Purchases by Mail

Initial  purchases  by mail may be made by sending a check,  made payable to The
AAL Target Fund Series  2001 or The AAL Target  Fund Series  2006,  along with a
completed shareholder application and new account form to:

AAL  Capital  Management  Corporation  222  West  College  Avenue  Appleton,  WI
54919-0007 Attention: New Accounts

You must complete a separate application and new account form for each different
account  registration  in the Funds.  A separate  check  should  accompany  each
application.  You should make the check payable to the name of the Fund in which
you are investing,  or if you are  purchasing  more than one Fund using a single
application,  you may send one check  payable to "The AAL Mutual  Funds" for the
total amount invested.

Initial Purchase by Wire

You may make Initial  purchases of the Funds'  shares by wire transfer by taking
the following three steps:

(1) Telephone the AAL CMC through the Mutual Fund Service Center at 800-553-6319
or 414-734- 7633 and provide your account registration, address, social security
or tax  identification  number,  the amount being wired,  the name of the wiring
bank and the name and  telephone  number of the person to be  contacted  at your
bank in connection with the purchase;

(2)  Instruct  your bank  (which  must be a member  of, or have a  corresponding
relationship  with a member of the Federal Reserve System) to wire federal funds
as follows:

         Firstar National Bank
         ABA No. 0750-00022
         For Credit to Firstar Trust Co.
         Acct. No 112-950-027

         For Further Credit to The AAL U.S. Government Zero Coupon
         Target Fund (specify target year)
         Account Registration (name(s) of shareholder); and

(3) Complete the application form and mail it immediately to:

         AAL Capital Management Corporation
         222 West College Ave.
         Appleton, WI 54919-0007

Additional Purchases in Existing Accounts

After you have opened an account  with The AAL Mutual  Funds,  you may  purchase
additional shares in your account by mail or wire.

Additional Purchase by Mail

Payment for  additional  purchases  in  existing  Fund  accounts  should be sent
directly to the Funds' transfer agent at the following address:

         The AAL Mutual Funds
         c/o Firstar Trust Company
         615 E. Michigan Street
         P. O. Box 2981
         Milwaukee, WI 53201-2981

Please  indicate  your  AAL  Mutual  Fund  account  number  on the  face  of all
subsequent investment checks and make your check payable to the specific Fund in
which you are investing.  If you have more than one account,  always verify that
you are  investing  in the proper  account.  This will help to ensure the proper
handling of the transaction.

Additional Purchase by Wire

You may make  additional wire purchases in an existing Fund account by following
Step (2) of the wire transfer  instructions shown for "Initial Purchase by Wire"
above, and in addition, by providing your existing Fund account number.

The Funds' transfer agent,  Firstar Trust Company,  must receive your wire order
funds in its offices prior to the close of the NYSE (normally 3:00 p.m.  Central
Time),  to purchase  shares on that day.  Funds  received after the close of the
NYSE will purchase shares on the following day at the following day's price.

Minimum Purchase Amounts

The following minimum amounts apply to purchases of shares of each Fund:

Minimum Purchase Amount per Account per Transaction*
----------------------------------------- ----------------- -------------------
Account                                   Initial Purchase  Additional Purchase
----------------------------------------- ----------------- -------------------
----------------------------------------- ----------------- -------------------
Regular Account                                     $1,000                 $50
----------------------------------------- ----------------- -------------------
----------------------------------------- ----------------- -------------------
IRA or other Retirement Plan Account                   250                  50
----------------------------------------- ----------------- -------------------
----------------------------------------- ----------------- -------------------
Automatic Investment Plan                                0                  25
----------------------------------------- ----------------- -------------------

*    Minimum  amounts may be waived for  qualified  group  retirement  plans and
     payroll deduction plans with prior approval or when required by law.

Other Purchase Information

Shareholders  begin  earning  income on the business day following the date that
payment for the purchase is received by the Funds' transfer agent. All purchases
must be made in U.S.  dollars and checks must be drawn on U.S. banks.  The Funds
do not accept  cash and  travelers  checks.  If your check does not clear,  your
purchase  will  be  canceled  and you  will be  liable  for any  losses  or fees
incurred.  When you purchase  shares by check,  the Funds may delay  payment for
redemption requests for the shares purchased for 12 days or until your check has
cleared,  if later.  The Funds will mail a written  confirmation  of purchase to
you, usually within two business days following your purchase date.

The Funds only issue share  certificates  upon written request and then only for
full, not fractional shares. The Funds require a new written request for a share
certificate for each subsequent purchase. There is no charge for the issuance of
share  certificates.  If share  certificates  have  been  requested  or  issued,
certificates must be delivered to the transfer agent,  Firstar Trust Company, in
negotiable form prior to redemptions, transfers or exchanges.

The deposit in the mail or with a delivery services, or receipt at a Post Office
Box, of purchase  applications or redemption requests, do not constitute receipt
by the Funds, the distributor or the transfer agent. The legal effect of posting
for other purposes, such as the April 15th IRA deadline,  shall be determined by
the applicable laws then in effect.

The Funds  reserve the right to suspend  the  offering of shares for a period of
time. They also reserve the right to reject any specific purchase of shares.

Automatic Investment Plans

The AAL Mutual Funds offer several Automatic  Investment Plans available to make
periodic  investing  more  convenient.  These  Plans  do  not  need  an  initial
investment.  It takes 12 days from the time you invest for the transfer agent to
validate any electronic transfer.  This will cause some delay in your ability to
write checks on an AAL Money  Market Fund Account or to redeem or transfer  from
your account.

The Bank Draft Plan

Investors who wish to make regular  additional  investments  in an existing Fund
Account may do so through the Funds' Bank Draft Plan.  Under this Plan the Funds
will  draft an  investor's  bank  checking  or  savings  account  in the  amount
specified -- which may not be less than $25 per account -- on  specified  dates,
up to two transactions per month (at least 10 days apart), and have the proceeds
invested  in shares  of the  specified  Fund at the  applicable  offering  price
determined  on the date of the draft.  To use this Plan you must  authorize  the
Plan on your application form, or subsequently in writing, and submit additional
documents.  Your  instructions  to  establish a Bank Draft Plan or to change the
Bank on an existing Plan, must be received by the Funds' transfer agent at least
13 business days prior to the transaction date. Your instructions for stopping a
Bank  Draft  Plan or  changing  the dollar  amount on an  existing  Plan must be
received  by the Funds'  transfer  agent at least 5  business  days prior to the
transaction  date.  For  further  information  contact  AAL  Capital  Management
Corporation  (Mutual Fund Service  Center --  800-553-6319)  or your  Registered
Representative.  Instructions  for changes,  additions or  termination of a Bank
Draft Plan must be in writing and signed by all bank account owners.

The Capital Builder Plan

The  Capital  Builder  Plan also  allows  investors  to make  regular  automatic
investments  in an existing  account in The AAL Capital  Growth,  Mid Cap Stock,
Small Cap Stock, International, Utilities, Bond, Municipal Bond, High Yield Bond
or U.S.  Government Zero Coupon Target Funds, Series 2001 and 2006 by redemption
of shares from their AAL Money  Market  Fund.  The Capital  Builder  Plan Allows
investors to select the transaction date. If you do not select the date, it will
automatically  be drawn from your  account  on the 15th of the  month.  All such
investments will be subject to the applicable sales charge.  These  transactions
must meet the minimum purchase amounts described above. To start, stop or change
the plan,  you must notify The Funds at least 24 hours prior to the  transaction
date.

Payroll Deduction Savings and Investment Plan


The Payroll  Deduction  Savings and  Investment  Plan allows  employees  of AAL,
employees of  Lutheran-affiliated  institutions,  and Lutheran  employees  whose
employers agree to participate , to invest in The Funds through direct deduction
from their paychecks or commission checks.


Prestige Account

Investors  who  maintain a  significant  share  balance  will be  provided  with
additional   benefits,   including  personal  attention  from  Prestige  Account
Representatives,   an  exclusive   toll-free   telephone  number,   personalized
investment analysis,  complimentary  financial  information,  a Prestige Account
organizer  and  more.  Your  AAL  Capital  Management   Corporation   Registered
Representative can provide more detailed information.

Retirement Plans

AAL members and their enterprises and Lutheran organizations may establish their
own individual or business  retirement  plans,  with assets  invested in The AAL
Mutual Funds.

     IRA (Individual Retirement Account)

     "rollover" IRA

     Roth IRA (annual contributions are not tax deductible but distributions may
     not be subject to income tax)

     Education  IRA  (annual   contributions   are  not  tax   deductible,   but
     distributions may not be subject to income tax)

     SEP-IRA (Simplified  Employee Pension Plan) -- No new plans may start after
     1996, but existing plans may continue

     SARSEP-IRA  (Salary Reduction  Simplified  Employee Pension Plan) -- No new
     plans may start after 1996, but existing plans may continue

     SIMPLE-IRA (Savings Incentive Match Plan for Employees)

     403(b)(7)  Custodial  Account (for  employees of public schools and certain
     non-profit organizations)

     Money Purchase Pension Plan

     Profit Sharing Plan

     401(k) Plan

Changes to Your Account

After opening your AAL Mutual Fund account, you may wish to make changes to your
account.  Certain types of changes, such as moving to a new address or getting a
new telephone  number,  do not have any other effect on an account.  Any feature
such as telephone  exchange or  participation  in an automatic  investment  plan
would continue uninterrupted. Other changes, such as exchanging from one Fund to
another  or  transferring  shares  from a regular  account to an IRA or adding a
joint owner,  will affect your account options because a new account is actually
created.  Account options such as an automatic  investment plan are discontinued
unless  additional  action  is  taken.  These  changes  may  require  additional
instructions  and specific  forms.  If you are not sure whether a change affects
your account, please contact your local Registered  Representative or the Mutual
Fund Service Center at 800-553-6319.  When making these types of changes, please
use The AAL Mutual Funds Account  Change  Request,  which is available from your
local Registered Representative or from the Mutual Fund Service Center.

How to Redeem (Sell) Shares

Because the Funds  invest  primarily  in zero coupon  securities,  the net asset
value per share may fluctuate substantially prior to the maturity date. Although
investors  may  redeem  shares  on  any  business  day  at net  asset  value,  a
shareholder  who  redeems  prior to  maturity  may  experience  a  significantly
different investment return than was anticipated at the time of purchase.

Redemption by Mail

Shareholders  of any of the Funds may have their shares  redeemed at any time at
the net asset value per share next  determined  after a written  request and all
additional  documents,  if  required,  are received in proper form by the Funds'
transfer agent.

The Funds base payment for shares presented for redemption at a Fund's net asset
value next  computed  after a request is received in proper form by the transfer
agent.  Shareholders earn income and receive dividends paid on funds through the
date of  redemption.  The Funds will mail  payment  proceeds  within  seven days
following receipt of all required  documents.  The Funds may postpone payment or
suspend the right of  redemption  in unusual  circumstances.  When you  purchase
shares by check,  The Funds may delay  payment for  redemption  requests for the
shares purchased for 12 days or until your check has cleared, if later.

You may redeem shares of any of the Funds by mail, by sending a written  request
for redemption to:

         The AAL Mutual Funds
         c/o Firstar Trust Company
         615 East Michigan Street
         P. O. Box 2981
         Milwaukee, Wisconsin 53201-2981

In your redemption  request,  you must include your shareholder  account number,
specify the dollar or share amount you wish to redeem. You and any other persons
registered as shareholders on the account must sign your redemption request. You
must sign the  request  exactly  as the  account is  registered.  If you wish to
redeem shares with a value in excess of $25,000, you must have your signature(s)
guaranteed.  The  transfer  agent  will  accept  signature  guarantees  from all
institutions that are eligible to provide signature  guarantees under federal or
state law,  provided  that the  individual  giving the  signature  guarantee  is
authorized to do so. Institutions that usually are eligible to provide signature
guarantees include commercial banks, trust companies, brokers, dealers, national
securities  exchanges,  savings and loan institutions and credit unions.  Please
note that a signature  guarantee  is not the same as a notarized  signature.  If
shares  are held in the name of a  corporation,  trust,  estate,  custodianship,
guardianship,  partnership  or pension and profit  sharing  plan, or if you have
requested  and received  share  certificates,  additional  documentation  may be
necessary.  If you  wish to  redeem  an IRA or  other  retirement  plan you must
indicate on the redemption  request  whether or not federal income tax should be
withheld.  Redemption  requests  that fail to indicate  an election  not to have
federal tax withheld will be subject to withholding.

Telephone Redemptions

The  privilege to redeem  shares by telephone is  automatically  extended to all
accounts,  unless the option is  specifically  declined.  If you do not want the
telephone  redemption option,  please call the AAL Mutual Fund Service Center at
800-553-6319.   By  accepting  this   privilege,   you  assume  some  risks  for
unauthorized  transaction.  Once a telephone request has been made, it cannot be
canceled  or  modified!  See  Telephone  Transactions.  AAL  Capital  Management
Corporation  has  implemented  procedures  designed  to  reasonably  ensure that
telephone instructions are genuine. These procedures include recording telephone
conversations,   requesting   verification  of  certain  personal   information,
restricting  transmittal of redemption  proceeds to pre-authorized  designations
and supplying transaction verification information.

Telephone Redemptions and Checks Mailed

The following conditions apply to telephone redemptions described above:

a)   Telephone  redemption  checks  will be issued to the same  payee(s)  as the
     account registration and sent only to the address of record;

b)   There has been no change of address in the preceding 60 days;

c)   The request is for $25,000 or less;

d)   Retirement plan accounts are not eligible;

e)   Shares to be redeemed cannot be in certificate form; and

f)   Only one telephone  redemption is permitted within any 30 day period for
     each authorized account.

Telephone Redemptions by Bank Wire

a)   Existing  shareholders  must send The AAL Mutual Funds  Application  or
     Account  Change Request with the  appropriate  section  completed  prior to
     exercising the privilege of wire redemption to:

                  Firstar Trust Company
                  615 E. Michigan Street
                  P. O. Box 2981
                  Milwaukee, WI 53201-2981.

b)   Wire redemptions can be made for any amount.

c)   A $12.00 fee is assessed for redemptions by wire.

d)   Requests  received in good order before the close of the NYSE (usually 3:00
     p.m. Central time) receive that day's price.

If an account has multiple owners, AAL Capital  Management  Corporation may rely
on the  instructions  of any  one  account  owner.  This  privilege  may  not be
available on all retirement plan accounts.

Reinstatement Privilege

So long as sales of the Funds are closed, the following  reinstatement privilege
does not apply.

A shareholder  who redeems  shares in a Fund on which a commission has been paid
may,  within 60 days after the date of redemption,  reinstate any portion or all
of a  redemption  in  shares  of a Fund  (in the  same  Fund  and  with the same
registration)  without  sales charges at net asset value next  determined  after
receipt by the transfer agent of a written  request for  reinstatement  together
with a check for the amount to be reinstated.  This  reinstatement  privilege is
available  only once with  respect to any one  shareholder  account.  Reinvested
funds must be provided by a single check.  In order to receive the  reinvestment
privilege,  shareholders  must clearly  state in writing at the time of purchase
that they qualify for the privilege.

Any gain  recognized on a redemption is taxable despite the  reinstatement  in a
Fund.  Any loss  realized  as a result of a  redemption  may not be allowed as a
deduction for federal income tax purposes, but may be applied,  depending on the
amount  reinstated,  to  adjust  the  cost  basis  of  the  shares  acquired  on
reinstatement.

Involuntary Redemption

Because all account owners share the high cost of maintaining  accounts with low
balances,  the Funds reserve the right to  involuntarily  redeem a shareholder's
account,  other than a  retirement  plan  account,  at any time the value of the
account  falls  below  $250 as a  result  of  redemption.  Shareholders  will be
notified in writing of any planned involuntary redemption and will be allowed 30
days to  increase  the  account  balance  above the  stated  minimum  before the
redemption is processed.

Exchange Privilege

Exchanges by Mail

Shares of the Funds held for at least 12 days may be exchanged for shares of any
other AAL Mutual Fund (Class A shares only) with the same registration,  without
additional  sales charge,  at the net asset value per share next computed  after
receipt of a written exchange request in proper form by the transfer agent.

An exchange  constitutes  a redemption  of the shares of one mutual fund and the
purchase of shares of another. Because the Funds invest primarily in zero coupon
securities,  the net asset value per share may fluctuate  substantially prior to
the maturity date. Therefore, a shareholder who exchanges shares of a Fund prior
to maturity may experience a significantly  different investment return than was
anticipated at the time of purchase.

In addition  to the two series of The AAL U.S.  Government  Zero  Coupon  Target
Funds, ten other AAL Mutual Funds currently are offered. They are: The AAL Small
Cap  Stock,  Mid  Cap  Stock,  International,  Capital  Growth,  Equity  Income,
Balanced,  High  Yield  Bond,  Municipal  Bond,  Bond and  Money  Market  Funds.
Shareholders interested in exchanging into any of these Funds should contact the
Mutual Fund  Service  Center at  800-553-6319,  or their AAL Capital  Management
Corporation  Registered  Representative for a current prospectus prior to making
an exchange.

 Shareholders  of a Fund may only  exchange into such other Funds as are legally
available  for  sale  in  any  state.  If  shares  are  held  in the  name  of a
corporation, trust, estate, custodianship,  guardianship, partnership or pension
and  profit   sharing  plan,  or  if  you  have  requested  and  received  share
certificates, additional documentation may be necessary.

Exchanges  are  sales  for tax  purposes  and  could  result  in a gain or loss,
depending on the original cost of shares exchanged.

An excessive number of exchanges may be disadvantageous to the Funds. Therefore,
the  Funds  reserve  the  right  to  terminate  the  exchange  privilege  of any
shareholder who makes more than twelve exchanges in a year.  Further,  the Funds
reserve the right to modify or terminate the exchange privilege at any time with
respect to any Fund,  if the  Funds'  Trustees  determine  that  continuing  the
privilege may be detrimental to shareholders.

Telephone Transactions

You can sell or exchange shares by phone. By doing so, you assume some risks for
unauthorized  transactions.  AAL Capital Management  Corporation has implemented
procedures  designed  to  reasonably  assure  that  telephone  instructions  are
genuine. These procedures include recording telephone conversations,  requesting
verification of various pieces of personal information,  restricting transmittal
of   redemption   proceeds  to   pre-authorized   designations,   and  supplying
transaction/taping  identification numbers and/or symbols. Please note, however,
that The AAL Mutual Funds, AAL Capital  Management  Corporation,  the custodian,
the  transfer  agent or any of their  employees  will not be liable  for  losses
suffered by a  shareholder  that result from  following  telephone  instructions
reasonably  believed  to be  authentic  after  verification  pursuant  to  these
procedures.

Exchanges by Telephone

Telephone exchanges (transactions in which the registration does not change) are
subject to the  requirements  described  above,  and additional  requirements as
follows.

Shareholders may exchange shares for which  certificates have not been issued by
telephoning  the Mutual Fund Service  Center at  800-553-6319  or  920-734-7633.
Telephone  exchange  requests  received  prior to the close of the NYSE (usually
3:00  p.m.  Central  Time)  will be made at the net asset  value per share  next
determined that day.

Telephone  exchanges  will be  permitted  only  if the  shareholder  elects  the
telephone exchange option on his initial purchase  application,  or requests the
telephone  exchange  privilege in a subsequent  written  request,  signed by all
registered owners, with all signatures guaranteed.

During  periods of extreme  volume  caused by dramatic  economic or stock market
changes,  shareholders  may have  difficulty  reaching  the Mutual Fund  Service
Center by phone, and a telephone exchange may be difficult to implement at those
times.  The Funds  reserve the right to  temporarily  discontinue  the telephone
exchange privilege during such periods of extreme volume.

Dividends, Distributions and Taxes

As with all funds distributing taxable income, you as a tax-paying investor will
be subject  to income  taxes on all  dividends  and  distributions.  You will be
subject to taxes on all  dividends and  distributions  whether you elect to take
them in cash or have them reinvested.

Each Fund intends to distribute  in December  and, if  necessary,  at such other
times as the Fund may determine,  its net investment income and any net realized
capital gains  resulting from  investment  activity.  Any dividend  (including a
capital gains dividend) declared in October,  November or December with a record
date in such a month and paid during the  following  January  will be treated by
shareholders  for federal  income tax  purposes as if received on December 31 of
the calendar year declared.  Cumulative  statements  showing all activity in the
account for the prior year will be mailed annually to all shareholders.

All income and capital gains distributions are reinvested in full and fractional
shares of a Fund at net asset value,  without sales  charges,  on a payment date
unless  a  shareholder  has  requested   payment  in  cash  on  the  shareholder
application or by separate written request.

A shareholder's  projected  return at maturity  assumes the  reinvestment of all
income and capital gains distributions. If a shareholder elects to receive these
distributions  in cash, the return at maturity will be  substantially  less than
was anticipated at the time of purchase.

Each Fund  intends to  qualify as a  "regulated  investment  company"  under the
Internal Revenue Code (the "Code") and to take all other action required so that
no federal income tax will be payable by the Funds themselves. Each Fund will be
treated as a separate regulated investment company under the Code.  Shareholders
are  provided  annually  with full  information  on  income  and  capital  gains
distributions for tax purposes.  Shareholders  should consult their tax advisers
regarding  the   applicability  of  state  and  local  taxes  to  dividends  and
distributions.

Under federal income tax laws, a portion of the difference  between the purchase
price of zero coupon  securities and their face value is considered to be income
to a Fund each year,  even  though the Fund will not in each year  receive  cash
interest payments from these securities.

 The Funds must distribute  substantially  all their net investment  income each
year,  including the imputed income (the accrued interest for that year from the
discount  on  purchases)  from their  zero  coupon  investments.  Because of its
imputed income,  each Fund may be required to pay out as an income  distribution
each  year an amount  greater  than the total  amount  of cash  interest  a Fund
actually  received.  Such  distributions  may  come  from  cash  assets  or from
liquidating some portfolio securities.  If securities are liquidated, a Fund may
realize  a gain or loss from the sale.  As with all funds  distributing  taxable
income,  tax-paying  investors  in the Fund will be subject  to income  taxes on
income and capital gain distributions whether they elect to take them in cash or
have them reinvested.

If the Funds hold zero  coupon  bonds  until  maturity,  they should not realize
capital gains on these  securities.  However,  if a Fund has to sell zero coupon
securities to meet  redemptions  prior to their maturity (and the target date of
the Fund) the value the Fund  receives  for the  securities  sold may  reflect a
premium over the  principal  and  interest.  This may happen  particularly  when
interest rates are lower at the time of redemption. As a result,  redemptions of
shares prior to the target date may result in greater capital gains to the Fund,
which would be distributed to the  shareholders,  than would otherwise have been
realized. Capital gains distributed to shareholders result in a taxable event in
the year of distribution.

Other Tax Information

The Funds are  required by federal law to withhold  31% of  reportable  payments
(which include dividends,  capital gain  distributions and redemption  proceeds)
paid to certain  shareholders  who have not properly  certified  that the Social
Security or other taxpayer  identification number provided by the shareholder is
correct and that he or she is not otherwise subject to backup  withholding.  The
Funds' shareholder application includes the required certification.

No  attempt  is made  herein to  provide  information  as to state and local tax
consequences of ownership of shares of the Funds. Investors should consult their
personal tax adviser to determine the consequences of state and local taxes.

DISTRIBUTION ARRANGEMENTS

Sales Charges (Loads)

The public  offering price of the shares of the Funds is the net asset value per
share  next  computed  after  receipt  of an order in proper  form by the Funds'
transfer  agent plus a sales charge  received by the  distributor,  AAL CMC. The
sales charge is expressed as a percentage of the public offering price,  and the
net amount invested, in the table below:



<TABLE>
<CAPTION>
<S>                                                         <C>                            <C>
----------------------------------------------------------- ------------------------------ -----------------------------
                                                            Sales Charge as a % of         Sales Charge as a % of Net
Amount of Purchase                                          Public Offering Price          Amount Invested
----------------------------------------------------------- ------------------------------ -----------------------------
----------------------------------------------------------- ------------------------------ -----------------------------

----------------------------------------------------------- ------------------------------ -----------------------------
----------------------------------------------------------- ------------------------------ -----------------------------
Less than $25,000                                           4.75%                          4.99%
----------------------------------------------------------- ------------------------------ -----------------------------
----------------------------------------------------------- ------------------------------ -----------------------------

----------------------------------------------------------- ------------------------------ -----------------------------
----------------------------------------------------------- ------------------------------ -----------------------------
$25,000 or more, but less than $100,000                     4.50%                          4.71%
----------------------------------------------------------- ------------------------------ -----------------------------
----------------------------------------------------------- ------------------------------ -----------------------------

----------------------------------------------------------- ------------------------------ -----------------------------
----------------------------------------------------------- ------------------------------ -----------------------------
$100,000 or more, but less than $250,000                    3.50%                          3.63%
----------------------------------------------------------- ------------------------------ -----------------------------
----------------------------------------------------------- ------------------------------ -----------------------------

----------------------------------------------------------- ------------------------------ -----------------------------
----------------------------------------------------------- ------------------------------ -----------------------------
$250,000 or more, but less than $500,000                    2.00%                          2.04%
----------------------------------------------------------- ------------------------------ -----------------------------
----------------------------------------------------------- ------------------------------ -----------------------------

----------------------------------------------------------- ------------------------------ -----------------------------
----------------------------------------------------------- ------------------------------ -----------------------------
$500,000 or more, but less than $,1,000,000                 0.50%                          0.50%
----------------------------------------------------------- ------------------------------ -----------------------------
----------------------------------------------------------- ------------------------------ -----------------------------

----------------------------------------------------------- ------------------------------ -----------------------------
----------------------------------------------------------- ------------------------------ -----------------------------
$1,000,000 or more*                                         No Load                        No Load
----------------------------------------------------------- ------------------------------ -----------------------------
</TABLE>

*    Registered Representatives may receive, from the distributor,  compensation
     not exceeding 0.25 of 1% of amounts invested at this purchase level.

Trustees,  directors,  and  employees of the Funds and the  adviser,  as well as
persons  licensed to receive  commissions for sales of The AAL Mutual Funds, may
not pay a sales  charge on their  purchases or on the  purchases  made by family
members  residing  with  them.  We  reserve  the right to  change or stop  these
reductions at any time. We will notify you in advance of any changes.

Reduced Sales Charges

Investors  may benefit from a reduction of the sales  charges shown in the above
table through several  purchase plans which are described  below. To receive the
benefit of a reduced sales charge, a shareholder must inform the Funds' transfer
agent in writing at the time of the new purchase that the purchase qualifies for
a reduced  sales charge and provide  substantiating  information.  Reduced sales
charge  provisions  may be  modified  or  terminated  at any time on  notice  to
shareholders.

AAL  branches,   Lutheran  congregations,   Lutheran  charitable  organizations,
charitable remainder unitrusts and other charitable  organizations  sponsored by
or affiliated with Lutheran congregations, which qualify for tax exemption under
Section 501(c)(3) or (13) of the Internal Revenue Code, will be charged one-half
of the standard sales charge for purchase of the Funds, except that no reduction
will be given  in  connection  with  403(b)(7)  custodial  accounts,  which  are
individual custodial accounts.  Qualifying charitable  non-profit  organizations
will generally include churches, schools, colleges, seminaries,  cemetery funds,
and  foundations  organized  for  charitable  purposes.  Lutheran  organizations
qualified  to receive  the reduced  sales  charge  must  include  substantiating
information at the time of purchase.  The reduced sales charges,  expressed as a
percentage of the public  offering price and the net amount  invested,  for this
exception to the standard sales charges are as follows:

<TABLE>
<CAPTION>
<S>                                         <C>                            <C>                      <C>
------------------------------------------- ------------------------------ ------------------------ --------------------------
                                                                           Sales Charge as a % of    50% Sales Charge as a %
                                            Sales Charge as a % of         Net Amount Invested       of Public Offering Price
Amount of Purchase                          Public Offering Price
------------------------------------------- ------------------------------ ------------------------ --------------------------
------------------------------------------- ------------------------------ ------------------------ --------------------------

------------------------------------------- ------------------------------ ------------------------ --------------------------
------------------------------------------- ------------------------------ ------------------------ --------------------------
Less than $25,000                           2.375%                         2.430%                   1.187%
------------------------------------------- ------------------------------ ------------------------ --------------------------
------------------------------------------- ------------------------------ ------------------------ --------------------------

------------------------------------------- ------------------------------ ------------------------ --------------------------
------------------------------------------- ------------------------------ ------------------------ --------------------------
$25,000 or more, but less than $100,000     2.250%                         2.302%                   1.125%
------------------------------------------- ------------------------------ ------------------------ --------------------------
------------------------------------------- ------------------------------ ------------------------ --------------------------

------------------------------------------- ------------------------------ ------------------------ --------------------------
------------------------------------------- ------------------------------ ------------------------ --------------------------
$100,000 or more, but less than $250,000    1.750%                         1.781%                   0.875%
------------------------------------------- ------------------------------ ------------------------ --------------------------
------------------------------------------- ------------------------------ ------------------------ --------------------------

------------------------------------------- ------------------------------ ------------------------ --------------------------
------------------------------------------- ------------------------------ ------------------------ --------------------------
$250,000 or more, but less than $500,000    1.000%                         1.010%                   0.500%
------------------------------------------- ------------------------------ ------------------------ --------------------------
------------------------------------------- ------------------------------ ------------------------ --------------------------

------------------------------------------- ------------------------------ ------------------------ --------------------------
------------------------------------------- ------------------------------ ------------------------ --------------------------
$500,000 or more, but less than             0.250%                         0.250%                   0.125%
$,1,000,000
------------------------------------------- ------------------------------ ------------------------ --------------------------
------------------------------------------- ------------------------------ ------------------------ --------------------------

------------------------------------------- ------------------------------ ------------------------ --------------------------
------------------------------------------- ------------------------------ ------------------------ --------------------------
$1,000,000 or more                          No Load                        No Load                  No Load
------------------------------------------- ------------------------------ ------------------------ --------------------------
</TABLE>

Right of Accumulation.


An investor  with  multiple  accounts and  investors  who are related and living
within the same  household  may "link"  their  accounts  in the Funds and in the
other AAL Mutual Funds so they are eligible for a reduced  sales charge based on
the current value of shares owned,  computed at the public offering price,  plus
the  amount of the new  investment.  The AAL Money  Market  Fund  shares  may be
included if they were acquired in a simultaneous  transaction (i.e. exchange) in
which  shares of another  AAL Mutual  Fund on which a sales  charge was paid are
redeemed  and the  proceeds of sale were used to purchase  AAL Money Market Fund
shares.  SEPs, SARSEPs and 403(b)(7) custodial accounts (except individual IRAs)
are linked with all other  accounts in the plan and  therefore may not be linked
with individual accounts. Accounts of institutional trustees will not be linked,
except within  individual  trusts.  Please refer to the table on page 25 for the
sales  charges,  expressed as a percentage of the public  offering price and the
net amount invested, at the different breakpoint levels.


Letter of Intent

Investors  who  establish  a total  investment  goal in shares of any of The AAL
Mutual  Funds  (except The AAL Money  Market Fund) of $25,000 or more to be made
over a 13-month  period may  purchase  shares  during this period at the reduced
sales charge  applicable to the goal amount.  To meet the Letter of Intent goal,
the  investment  amount must be fully  invested at some point in time during the
13-month  period.  The effective date of a Letter of Intent may be back-dated up
to 90 days, in order that any investment made during this 90-day period,  valued
at the  purchaser's  cost,  can be applied to the  fulfillment  of the Letter of
Intent  goal.  Sales  charges on prior  purchases  will not be  recalculated  or
refunded.  All  shares of the Funds  with the same  registration,  and shares in
accounts  which have been "linked"  under the Right of  Accumulation,  which are
purchased during the 13-month period,  and still owned,  will be included at the
purchaser's cost in determining the applicable sales charge, provided,  however,
that AAL Money  Market Fund shares may be included  only to the extent they were
acquired  in a  simultaneous  transaction  (i.e.  exchange)  in which  shares of
another AAL Mutual Fund, on which a sales charge was paid,  are redeemed and the
proceeds of sale were used to purchase the Money Market Fund shares.  The Letter
of Intent option is not available on 403(b)(7) custodial  accounts,  SEP-IRAs or
SARSEP-IRAs.  Please  refer  to the  table  on page 19 for  the  sales  charges,
expressed  as a  percentage  of the  public  offering  price and the net  amount
invested, at the different breakpoint levels above $25,000.

A Letter  of Intent  does not  obligate  the  investor  to buy any Fund  shares.
However,  if the goal amount is not  purchased  during the term of the Letter of
Intent, the sales charge will be recalculated and charged at the rate applicable
to the shares actually  purchased,  and the difference  between the sales charge
paid and the sales charge due will be charged  against the  account.  During the
term of the Letter of Intent,  the transfer agent will escrow shares totaling 5%
of the investment goal indicated in the Letter of Intent to cover any additional
sales  charge  which  may  become  due,  and will  redeem  the  number of shares
necessary to pay the  additional  sales charge after  expiration  of a Letter of
Intent if the goal amount is not met. A Letter of Intent will be  considered  in
default and the additional sales charges will be recovered if redemptions reduce
the account value below 5% of the investment goal during the 13-month period.

Distribution (12b-1) Fees

In addition to the sales charge  deducted at the time of  purchase,  each of the
Funds is  authorized  under a  distribution  plan (the "Plan")  pursuant to Rule
12b-1 under the Investment Company Act of 1940 to use a portion of its assets to
finance  certain  activities  relating  to the  distribution  of its  shares  to
investors.  The Plan  permits  payments  to be made by each of the  Funds to the
distributor to reimburse it for  expenditures  incurred by it in connection with
the  distribution  of each of the Funds'  shares to  investors.  These  payments
include,  but are not  limited  to,  the  payment  of  compensation  to  selling
representatives (excluding the initial sales charge),  advertising,  preparation
and distribution of sales literature and prospectuses to prospective  investors,
implementing  and  operating  the Plan,  and  performing  other  promotional  or
advertising activities on behalf of each of the Funds. Plan payments may also be
made  to  reimburse  the  distributor  for  its  overhead  expenses  related  to
distribution of the Funds' shares.  No reimbursement  may be made under the Plan
for  expenses of past fiscal  years or in  contemplation  of expenses for future
fiscal  years.  Distribution  fees  paid by one Fund may not be used to  finance
distribution  of shares of another  Fund.  Under the Plan,  the payments may not
exceed an amount  computed at an annual rate of 0.10 of 1% of the average  daily
net assets of each Fund.  The Plan is subject to review and annual  approval  by
the Board of Trustees.

Because the Funds' shares are no longer being sold,  the  distributor is waiving
its distribution  (12b-1) fees under the distribution plan. The distributor will
not  reinstate the receipt of such fees as long as the Funds remain closed to no
new sales.

FINANCIAL HIGHLIGHTS

Series 2001

The financial  highlights  table is intended to help you understand The AAL U.S.
Government  Zero Coupon Target Fund,  Series 2001's  performance  for the past 5
years.  Certain information  reflects financial results for a single Fund share.
The total returns in the table  represent  the rate that an investor  would have
earned  or lost on an  investment  in the  Fund  (assuming  reinvestment  of all
dividends   and   distributions).   This   information   has  been   audited  by
PricewaterhouseCoopers,  LLP,  whose  report,  along with the  Fund's  financial
statements,  are included in the annual report.  You may obtain an annual report
free by calling 800-553-6319.

<TABLE>
<CAPTION>
                                                     Year     Year     Year     Year    Year
                                                     Ended    Ended    Ended    Ended   Ended
                                                     4/30/99  4/30/98  4/30/97  4/30/96 4/30/95
Per-Share Data [in $ dollars]
<S>                                                  <C>      <C>      <C>      <C>     <C>
Net Asset Value - Start of Period                    $10.61   $10.38   $10.55   $10.37  $10.54
Income from Investment Operations
     Net Investment Income (Loss)                    0.64     0.63     0.64     0.65    0.66
     Net Realized and Unrealized Gain (Loss)         0.02     0.30     (0.07)   0.33       -
                                                     --------------------------------------------
Total From Investment Operations                     0.66     0.93     0.57     0.98    0.66
Distributions
     Dividends from Investment Income - Net          (0.64)   (0.63)   (0.64)   (0.76)  (0.66)
     Distributions from Capital Gains                (0.04)   (0.07)   (0.10)   (0.04)  (0.17)
                                                     -----------------------------------------
Total Dividends and Distributions                    (0.68)   (0.70)   (0.74)   (0.80)  (0.83)
Net Asset Value - End of Period                      $10.59   $10.61   $10.38   $10.55  $10.37
Total Return(1)                                      6.23%    9.17%     5.42%   9.23%   6.82%

Supplemental Data and Ratios
Net Assets at End of Period (in millions)            $1,546   $1,525   $1,711   $1,811  $1,755
Ratio of Expenses to Average Net Assets(2)           1.00%    0.77%    0.97%    1.00%   1.00%
Ratio of Investment Income (Loss)   to
     Average Net Assets(3)                           5.88%    6.16%    6.08%    5.84%   6.50%
Portfolio Turnover Rate                              0.00%    0.00%    0.00%    0.00%   0.00%
</TABLE>

(1)  Total Returns are based on net amount invested for a one-year period.
(2)  Computed   after  giving  effect  to  the  adviser's   expense   limitation
     undertaking. If the Fund had paid all of its expenses, the ratio would have
     been as follows: 1.00% 0.84% 0.99% 1.74% 2.00%
(3)  If the Funds had paid all of their  expenses,  the ratio of net  investment
     income to average net assets would have been as follows:  5.88% 6.10% 6.07%
     5.10% 5.51%

Series 2006
The financial  highlights  table is intended to help you understand The AAL U.S.
Government  Zero Coupon Target Fund,  Series 2001's  performance  for the past 5
years.  Certain information  reflects financial results for a single Fund share.
The total returns in the table  represent  the rate that an investor  would have
earned  or lost on an  investment  in the  Fund  (assuming  reinvestment  of all
dividends   and   distributions).   This   information   has  been   audited  by
PricewaterhouseCoopers,  LLP,  whose  report,  along with the  Fund's  financial
statements,  are included in the annual report.  You may obtain an annual report
free by calling 800-553-6319.

<TABLE>
<CAPTION>
                                                     Year     Year     Year     Year    Year
                                                     Ended    Ended    Ended    Ended   Ended
                                                     4/30/99  4/30/98  4/30/97  4/30/96 4/30/95
Per-Share Data [in $ dollars]
<S>                                                  <C>      <C>      <C>      <C>     <C>
Net Asset Value - Start of Period                    $12.13   $11.24   $11.33   $10.93  $10.96
Income from Investment Operations
     Net Investment Income (Loss)                    0.71     0.70     0.71     0.71    0.73
     Net Realized and Unrealized Gain (Loss)         0.36     1.00     0.08     0.65     0.18
                                                     ----------------------------------------
Total From Investment Operations                     1.07     1.70     0.79     1.36    0.91
Distributions
     Dividends from Investment Income - Net (0.71)   (0.70)   (0.71)   (0.87)   (0.73)
     Distributions from Capital Gains                (0.10)   (0.11)   (0.17)   (0.09)  (0.21)
                                                     -----------------------------------------
Total Dividends and Distributions                    (0.81)   (0.81)   (0.88)   (0.96)  (0.94)
Net Asset Value - End of Period                      $12.39   $12.13   $11.24   $11.33  $10.93
Total Return(1)                                      8.69%    15.30%    6.84%   11.80%  9.05%

Supplemental Data and Ratios
Net Assets at End of Period (in millions)            $1,575   $1,616   $1,453   $1,480  $1,400
Ratio of Expenses to Average Net Assets(2)           0.97%    0.82%    1.00%    1.00%   1.00%
Ratio of Investment Income (Loss)   to
     Average Net Assets(3)                           5.51%    6.03%    6.22%    5.83%   6.95%
Portfolio Turnover Rate                              0.00%    0.00%    0.00%    0.00%   0.00%
</TABLE>

(1)  Total Returns are based on net amount invested for a one-year period.
(2)  Computed   after  giving  effect  to  the  adviser's   expense   limitation
     undertaking. If the Fund had paid all of its expenses, the ratio would have
     been as follows: 0.97% 0.90% 1.17% 2.07% 2.49%
(3)  If the Funds had paid all of their  expenses,  the ratio of net  investment
     income to average net assets would have been as follows:  5.51% 5.96% 6.04%
     4.76% 5.46%




You  will  find  additional   information   about  the  Funds  that  supplements
information in the prospectus in the statement of additional information.  Also,
you will find additional  information about the Funds' investments in the Funds'
annual and semi-annual reports to shareholders. In the Funds' annual report, you
will find a discussion of the market  conditions and investment  strategies that
significantly  affected the Funds'  performances  during their last fiscal year.
The Funds'  statement  of  additional  information  and  annual and  semi-annual
reports are available,  without charge,  upon request.  To request this or other
information about the Funds, please call 800-553-6319 (TDD-800-684-3416).

You  also may  review  and copy  information  about  the  Funds  (including  the
statement of additional information) at the Securities and Exchange Commission's
Public  Reference Room in Washington,  D. C. For information on the operation of
the Public Reference Room call  1-800-SEC-0330.  You also may obtain reports and
other  information  about the Funds on the Securities and Exchange  Commission's
Internet site at  http://www.sec.gov.  You may obtain copies of this information
upon payment of a duplication fee by writing the Public Reference Section of the
Securities and Exchange  Commission at 405 5th Street, N. W., Washington,  D. C.
20549 - 6009.


Investment Company Act File No. 811-5075



<PAGE>



                              THE AAL MUTUAL FUNDS
                 THE AAL U.S.GOVERNMENT ZERO COUPON TARGET FUNDS
                           Series 2001 and Series 2006
                              222 West College Ave.
                             Appleton, WI 54919-0007
                   Telephone: (800) 553-6319 TDD: 800-684-3416

                       STATEMENT OF ADDITIONAL INFORMATION

                               Dated July 1, 1999

This  statement of  additional  Information  is not a  prospectus,  but provides
additional  information to supplement the prospectus for The AAL U.S. Government
Zero Coupon Target Funds,  Series 2001 and 2006,  dated July 1, 1999. You should
read the statement of additional information in conjunction with the prospectus,
and any supplements  thereto.  You may obtain the Funds' prospectus at no charge
by writing or telephoning the Funds at the address and telephone number above.


In this Statement of Additional  Information,  The AAL Mutual Funds are referred
to as the "Trust," and The AAL U.S.  Government Zero Coupon Target Funds, Series
2001 and 2006 are referred to  collectively  as the "Funds" or individually as a
"Fund."


The  Funds  have  incorporated  by  reference  financial  statements,  notes  to
financial  statements  and  report  of  independent  accountants  for the  Funds
included in the Annual Report to Shareholders  of the Trust,  for the year ended
April 30, 1999.




<PAGE>


Table of Contents

                                                                           Page
Prospectus Page

Fund History

Description of the Fund and Its Investments and Risks

Management of the Fund

Control Persons and Principal Holders of Securities

Investment Advisory and Other Services

Brokerage Allocation and Other Practices

Capital Stock and Other Securities

Purchases, Redemptions and Pricing of Shares

Taxation of the Fund

Underwriters

Calculation of Performance Data

Financial Statements



<PAGE>


HISTORY OF THE FUNDS

The AAL U.S.  Government  Zero Coupon Target Funds (the Funds) are two series of
The AAL Mutual Funds (the Trust).  The Trust is a Massachusetts  Business Trust,
which was organized on June 9, 1987.  The Trust has different  series of shares.
The  Trust  refers  to  each  series  as a fund.  In  addition  to The AAL  U.S.
Government  Zero Coupon Target Funds,  ten other AAL Mutual Funds (series) exist
(available  in both Class A, Class B and  Institutional  shares).  The following
other series are  described in separate  prospectuses:  The AAL Small Cap Stock,
Mid Cap Stock, International, Capital Growth Fund, Equity Income, Balanced, High
Yield Bond, Municipal Bond, Bond and Money Market Funds.

Shares of The AAL U.S.  Government  Zero Coupon  Target  Funds,  Series 2001 and
2006,  became  available to the public on November  14,  1991.  The Funds closed
sales to new shareholders and to additional  purchases by existing  shareholders
on May 31, 1993,  except for  automatic  investment  plan  purchases.  The Funds
allowed  automatic  investment plan purchases to continue through June 30, 1993.
The Funds allow existing  shareholders  to continue their purchases of shares by
reinvesting  dividends  and capital  gains,  if any, at net asset value in their
existing shareholder accounts.

The AAL Mutual  Funds  offer  investment  opportunities  to  eligible  Lutherans
(including  their families and their  enterprises),  and to Aid  Association for
Lutherans  (AAL)  members  and  employees.   The  Funds  also  offer  investment
opportunities  to AAL  branches,  Lutheran  congregations  and trusts,  employee
benefit  plans  and  organizations  sponsored  by or  affiliated  with  Lutheran
congregations.  Lutheran  investors  in The AAL Mutual  Funds are  eligible  for
associate  membership in Aid Association for Lutherans  ("AAL"),  which entitles
them  to  become  a part  of one  of  approximately  9,750  local  AAL  branches
throughout the U.S. Through these branches and AAL, members help each other, aid
Lutheran congregations and their institutions and reach out to their communities
through charitable,  educational,  social,  benevolent,  fraternal and patriotic
programs.

FUNDS' ORGANIZATION AND DESCRIPTION AND THEIR INVESTMENTS AND RISKS

The Funds' Classification

The U.S.  Government Zero Coupon Funds, Series 2001 and 2006 are open-end mutual
funds,  meaning that they  continuously  issue  redeemable  shares  representing
interests in the Funds' underlying portfolio of U.S. government securities.

Other Investment Strategies and Risks

The following information supplements the information provided in the prospectus
on the Funds' principal investment strategies and risks.

Zero Coupon Securities

The Funds  invest at least 80% of a Fund's  net assets in U.S.  government  zero
coupon  securities.  At least 50% of each  Fund's net assets will be invested in
U.S.  government zero coupon securities  maturing within two years of the Fund's
target date.

In addition to the types of U.S. government zero coupon securities  discussed in
the prospectus,  zero coupon securities may include U.S. Treasury bonds or notes
and their unmatured  interest coupons which have been separated by their holder,
typically a custodian bank or investment  brokerage firm. A holder will separate
the interest  coupons from the  underlying  principal (the "corpus") of the U.S.
Treasury  security.  A number of  securities  firms and banks have  stripped the
interest coupons and resold them in custodial  receipt programs with a number of
different  names,  including  "Treasury  Income Growth  Receipts"  ("TIGRS") and
Certificate  of Accrual on Treasuries  ("CATS").  The underlying  U.S.  Treasury
bonds and notes  themselves are held in book-entry  form at the Federal  Reserve
Bank or, in the case of bearer securities,  (i.e.,  unregistered securities that
are owned ostensibly by the bearer or holder thereof), in trust on behalf of the
owners  thereof.  The staff of the Securities and Exchange  Commission no longer
considers "TIGRS" and "CATS" government securities.

The Treasury has facilitated transfers of ownership of zero coupon securities by
accounting separately for the beneficial ownership of particular interest coupon
and  corpus  payments  on  Treasury   securities  through  the  Federal  Reserve
book-entry  record-keeping system. The Federal Reserve program as established by
the Treasury  Department is known as "STRIPS" or "Separate Trading of Registered
Interest and Principal of Securities."  Under the STRIPS program, a Fund will be
able  to have  its  beneficial  ownership  of zero  coupon  securities  recorded
directly  in the  book-entry  record-keeping  system  in lieu of  having to hold
certificates  or other  evidences of ownership of the underlying  U.S.  Treasury
securities.

When U.S.  Treasury  obligations have been stripped of their unmatured  interest
coupons by the holder,  the stripped coupons are sold separately.  The principal
or corpus is sold at a deep discount  because the buyer  receives only the right
to receive a future  fixed  payment on the  security  and does not  receive  any
rights to periodic  interest (cash)  payments.  Once stripped or separated,  the
corpus and  coupons  may be sold  separately.  Typically,  the  coupons are sold
separately or grouped with other  coupons with like  maturity  dates and sold in
bundled form.  Purchasers of stripped obligations  acquire, in effect,  discount
obligations that are economically  identical to the zero coupon  securities that
the Treasury sells itself.

Repurchase Agreements

The Funds may from time to time enter  into  repurchase  agreements.  Repurchase
agreements  involve the sale of securities to a Fund with the current  agreement
of the seller (a bank or securities  dealer) to repurchase the securities at the
same  price  plus an  amount  equal to an agreed  upon  interest  rate  within a
specified  time.  The  specified  period of time is  usually  one  week,  but on
occasion  the period may be for a longer  period.  The Funds  require  continual
maintenance of collateral (in cash or U.S.  government  securities)  held by the
custodian  in an  amount  equal to, or in excess  of,  the  market  value of the
securities that are the subject of the repurchase agreement.

In the  event of a  bankruptcy  or other  default  of a seller  of a  repurchase
agreement,  there may be delays and  expenses  in  liquidating  the  securities,
declines in their value,  and losses of interest.  The Funds' adviser  maintains
procedures for evaluating  and  monitoring  the  creditworthiness  of firms with
which they enter into repurchase agreements. No Fund may invest more than 10% of
its total assets in repurchase agreements maturing in more than seven days or in
securities subject to legal or contractual restrictions on resale.

When-Issued and Delayed Delivery Securities

The Funds may purchase  securities on a when-issued or delayed  delivery  basis.
Although the payment and interest terms of these  securities are  established at
the  time the  purchaser  enters  into the  commitment,  the  securities  may be
delivered  and paid for a month or more after the date of  purchase,  when their
value may have  changed.  The Funds only  purchase on a  when-issued  or delayed
delivery  basis with the  intention of actually  acquiring the  securities.  The
Funds may sell the  securities  before  settlement  date if the adviser deems it
advisable for investment reasons.

At the time a Fund enters into a binding obligation to purchase  securities on a
when-issued  basis,  the Fund will have its  custodian  identify  liquid  assets
having a value at least as great as the purchase  price on its books  throughout
the period of the obligation.
The use of these investment strategies may increase net asset value fluctuation.

Short-term Trading

Although  there is no present  intention  to do so, the Funds,  consistent  with
their investment policies,  may engage in short-term trading (selling securities
for brief periods of time, usually less than three months).  The Funds will only
engage in short-term trading if the adviser believes that such transactions, net
of costs,  would further the  attainment  of their  investment  objectives.  For
example,  the needs of  different  classes of lenders  and  borrowers  and their
changing   preferences  and  circumstances   have  in  the  past  caused  market
dislocations  unrelated to fundamental  creditworthiness  and trends in interest
rates.  These market  dislocations have presented market trading  opportunities.
Such  market  dislocations  might  result  from a  broker  needing  to  cover  a
substantial  short  position in a security or an abnormal  demand for a security
created by an unusually  large  purchase or sale by an  institutional  portfolio
manager. The Funds cannot assure that such dislocations will occur in the future
or that they will be able to take  advantage of them. The Funds will limit their
voluntary  short-term  trading,  if any, to the extent necessary to qualify as a
"regulated investment company" under the Internal Revenue Code.

Lending Portfolio Securities

Although there is no present intention to do so, the Funds may from time to time
lend  securities  from  their  portfolios  to  brokers,  dealers  and  financial
institutions  such as banks and trust  companies.  The adviser  will monitor the
creditworthiness  of firms with  which the Funds  engage in  securities  lending
transactions.  In doing so, a Fund would  continue to receive the  equivalent of
the interest or dividends paid by the issuer on the securities loaned, and would
also receive an  additional  return which may be in the form of a fixed fee or a
percentage of the  collateral.  A Fund would have the right to call the loan and
obtain  the  securities  loaned  at any time on  notice  of not more  than  five
business days.

The  adviser  will  monitor the  creditworthiness  of firms with which the Funds
engage in securities  lending  transactions.  Collateral values are continuously
maintained  at 100%  and  marked  to  market  daily.  However,  in the  event of
bankruptcy or other default of the borrower, a Fund could experience both delays
in  liquidating  the  loan  collateral  or  recovering  the  loaned  securities,
including  possible  decline in value of the  collateral  or loaned  securities,
possible lack of access to income during this period,  and expenses of enforcing
its rights.

Other Fund Policies

The Funds'  investment  objective,  which is to provide a high investment return
over the selected  periods of time (2001 and 2006),  consistent with investments
in U.S. government  securities,  is a fundamental policy. This means that it may
not be changed  without the  approval of a "majority of the  outstanding  voting
securities"  of that Fund. A "majority  of the  outstanding  voting  securities"
means the approval of the lesser of: (i) 67% or more of the voting securities at
a meeting if the holders of more than 50% of the outstanding  voting  securities
of a Fund are  present  or  represented  by proxy;  or (ii) more than 50% of the
outstanding  voting  securities of a Fund. In addition to the Funds'  investment
objective,  the Fund's also have the following  policies,  which are fundamental
and cannot be changed  without a majority  vote of the  outstanding  shares of a
Fund.

1)   Senior  Securities:  A Fund may not issue senior securities (the Funds only
     issue one  security  class),  except to the extent that it is  necessary to
     borrow money in accordance with policy (2).

2)   Borrowing:  A Fund may borrow money, but not in amounts in excess of 10% of
     its total  assets  taken at current  value.  The Funds may only borrow from
     banks as a temporary measure for extraordinary or emergency  purposes.  The
     Funds  will not  borrow to  increase  income,  but only to meet  redemption
     requests that otherwise  might require  untimely  dispositions of portfolio
     securities.  Interest  paid on any  borrowings  will  reduce the Fund's net
     income. A Fund must repay any loan outstanding  before purchasing any other
     securities for its portfolio.

3)   Underwriting:  A Fund may not underwrite  securities of another  issuer.  A
     Fund,  however,  may purchase securities directly from an issuer thereof in
     accord with the Fund's investment  objectives and policies. A Fund also may
     dispose of portfolio securities even though the federal securities laws may
     deem such a distribution as an underwriting.

4)   Industry  Concentration:  A Fund may not invest  more than 25% of its total
     assets  (taken  at  current  value  at the  time  of  each  investment)  in
     securities of non-governmental  issuers whose principal business activities
     are in the same industry.

5)   Real Estate:  A Fund may not  purchase or sell real estate,  or real estate
     limited partnership interests.

6)   Lending: A Fund may not make loans to other persons. However, to the extent
     it is consistent  with a Fund's other  investment  policies a Fund may: (a)
     invest  in debt  obligations,  including  those  that are  either  publicly
     offered or of a type customarily purchased by institutional investors, even
     though the purchase of such debt obligations may be deemed loans; (b) enter
     into repurchase  agreements;  and (c) lend portfolio  securities,  provided
     that the Fund may not loan securities if, as a result,  the aggregate value
     of all  securities  loaned would  exceed 33% of its total assets  (taken at
     market value at the time of such loan).

7)   Issuer  Concentration:  A Fund may not  invest  more  than 5% of its  total
     assets in securities,  including repurchase agreements,  of any one issuer,
     except  that it may invest up to 25% of its assets  without  regard to this
     limitation.  This  limitation  does not  apply  to  obligations  issued  or
     guaranteed  by the U.S.  government  or a  federal  agency or  evidence  of
     receipts  of such  securities.  The Funds  expect to invest  solely in U.S.
     government securities.

8)   Margin: A Fund may not purchase securities on margin, except for the use of
     short-term   credit   necessary   for  purchases  and  sales  of  portfolio
     securities.

9)   Short  Sales,  Options  and  Futures:  A Fund may not make  short  sales of
     securities  or maintain  short  positions or write,  purchase or sell puts,
     calls, straddles, spreads or combinations thereof.

10)  Collateral: A Fund may not mortgage,  pledge,  hypothecate or in any manner
     transfer,  as  security  for  indebtedness,  any  securities  held  in  its
     portfolio  except as necessary in connection  with borrowings to the extent
     permitted by policy (2).

11)  Commodities:  A Fund may not  purchase  or sell  commodities  or  commodity
     contracts.

12)  Oil and Gas  Investments:  A Fund may not  invest  in oil,  gas or  mineral
     related programs or leases.

13)  Illiquid Securities: A Fund may invest in repurchase agreements maturing in
     more  than  seven  days  and  in  securities   with  legal  or  contractual
     restrictions  on resale,  but only to the extent that these  investments do
     not exceed 10% of the Fund's total assets at the time of purchase.

14)  Young  Companies:  A Fund may not invest in any security if as a result the
     Fund would have more than 5% of its total assets  invested in securities of
     companies  that have not been in  continuous  operation  for three years or
     more including any predecessors.

15)  Other  Investment  Companies:  A Fund  may  purchase  securities  of  other
     investment  companies,  but only to the extent of 10% of the  Fund's  total
     assets.  A Fund may not  purchase  more than 3% of the  outstanding  voting
     securities  of any one  investment  company.  A Fund also may not  purchase
     securities in any one  investment  company in an amount  greater than 5% of
     the  Fund's  total  assets.  These  restrictions  do not apply  when a Fund
     purchases  investment  company  securities  in  connection  with a  merger,
     consolidation, acquisition or reorganization.

16)  Control:  A Fund may not purchase more than 10% of the  outstanding  voting
     securities of an issuer or invest for the purpose of exercising  control or
     management.

Because the Funds intend to invest  solely in U.S.  government  securities,  the
Funds generally will not have to apply its policies on other types of issuers or
investments.

THE FUNDS' MANAGEMENT


Board of Trustees  and Executive Officers
The Trustees and Executive Officers of the Funds and their principal occupations
during the past five years are described below. Unless otherwise specified,  the
business  address of all  Trustees  and  Officers  is 222 West  College  Avenue,
Appleton, WI 54919-0007:

<TABLE>
<CAPTION>
<S>                           <C>                           <C>
Name, Address and Age         Position with the Funds       Principal Occupation

F. Gregory Campbell           Trustee                       President, Carthage College
d/o/b  2/16/39
2001 Alford Park Drive
Kenosha, WI 53140

Richard L. Gady               Trustee                       Vice-President of Public
d/o/b  2/28/43                                              Affairs and Chief Economist,
One ConAgra Drive                                           ConAagra, Inc. (agribusiness)
Omaha, NE 68102-5001


John O. Gilbert               Trustee*                      President and Chief
d/o/b  8/30/42                                              Executive Officer, Aid
                                                            Association for Lutherans

John H. Pender                Trustee                       Retired; formerly Senior
d/o/b  5/25/30                                              Vice-President and Chief
P.O. Box 250                                                Investment Officer, Aid
Dunbar, WV 25064-0250                                       Association for Lutherans

Edward W. Smeds               Trustee                       Retired; President, Customer
d/o/b  2/15/36                                              Service and Operations, Kraft
10 Regent Wood Road                                         Foods (food and agriculture)
Northfield, IL 60093

Lawrence M. Woods             Trustee                       Retired; formerly Executive
d/o/b  4/14/32                                              Vice-President and Director
524 Sunset Drive                                            Mobil Oil Corporation (oil
Worland, WY 82401                                           producer)

Robert G. Same                Vice-President and            Vice-President,
d/o/b  7/25/45                Secretary                     Chief Compliance Officer,
                                                            and Deputy General Counsel,
                                                            Aid Association for Lutherans; Assistant Secretary, AAL Capital
                                                            Management Corporation

Charles D. Gariboldi          Treasurer                     Assistant Vice-President,
d/o/b  2/15/56                                              Fund Accounting, Aid Association for Lutherans

Woodrow E. Eno                Assistant Secretary           Senior Vice-President,
d/o/b  4/5/46                                               Secretary and General Counsel, Aid Association for Lutherans

Steven J. Fredricks           Assistant Secretary           Attorney III, Securities and
d/o/b  7/25/70                                              Investment Law, Aid Association for Lutherans, Attorney, Azaria
                                                            Financial Services, LLP (financial
                                                            services)
</TABLE>

*    Denotes Directors who are "interested  persons" of the Funds, as defined in
     the Investment Company Act of 1940.

Compensation


The Funds do not make payments to any of the officers for services to the Trust.
The Funds,  however, pay the independent Trustees (those who are not officers or
employees of AAL CMC or Aid Association for Lutherans) an annual fee of $25,000.
The Funds assess these fees ratably to each series of the AAL Mutual Funds.  The
Funds  reimburse  the  Trustees  for any  expenses  they may  incur by reason of
attending such meetings or in connection  with services they may perform for The
AAL Mutual  Funds.  For the fiscal year ended April 30, 1999,  the Funds paid an
aggregate of $106,214 in Trustees' fees and expenses.


                                                                Total
                         Capacities
                                                                Compensation
                         In Which
                                            Aggregate           From Funds and
                         Remuneration
                                            Compensation        Fund Complex*
Name, Position           Received           from
                                            Funds               Paid to Trustees


F. Gregory Campbell      Trustee            $25,000             $30,000

Richard L. Gady          Trustee            $25,000             $30,000

John O Gilbert           Trustee            - 0 -               - 0 -

John H. Pender           Trustee            $25,000             $30,000

D.W. Russler**           Trustee            $18,750             $22,500

Edward W. Smeds**        Trustee            $6,250              $7,500

Lawrence M. Woods        Trustee            $25,000             $30,000

*    The Fund Complex includes the AAL Variable Product Series Fund, Inc.

**   As of December 31, 1998, Mr. Russler retired from the Board of Trustees and
     Mr. Smeds joined the Board of Trustees


CONTROL PERSONS AND PRINCIPAL
HOLDERS OF SECURITIES
---------------------------------

Control Persons


As of April 30, 1999,  no one was  considered a control  person of the Funds.  A
control person is one who has beneficial interest in more than 25% of the voting
securities of a Fund or one who asserts or is  adjudicated  to have control of a
Fund.


Principal Holders


As of April 30, 1999, there were two principal holders of the Funds' securities.
Principal holders are those who own (either of record or beneficially) in excess
of 5% of a Fund's outstanding shares.


Name                                                    % of Ownership
Series 2001
S. W. Heriot,Guardian                                   7.09%
9118 Little Sweden Rd.
Cook, MN 55723-8814




Management Ownership


As of April 30, 1999, the officers and Trustees owned less than 1% of the Funds'
shares.


INVESTMENT ADVISORY AND OTHER SERVICES

Control


AAL CMC is the  investment  adviser for the Funds under an  investment  advisory
agreement with the Trust. AAL Holdings,  Inc. owns all of the shares of AAL CMC.
AAL  Holdings,  Inc. is a wholly owned  subsidiary  of the Aid  Association  for
Lutherans  (AAL).  AAL  is  a  non-profit,  non-stock,  membership  organization
licensed to do business as a fraternal  benefit  society in all states.  AAL was
formed in 1902 for the purpose of having  Lutherans  join together for financial
security and for helping others.  AAL has  approximately 1.7 million members and
is the world's  largest  fraternal  benefit  society in terms of assets and life
insurance in force. AAL ranks in the top two percent of all life insurers in the
U.S.  in terms of  ordinary  life  insurance  (nearly  $82  billion  in  force).
Membership is open to Lutherans and their families. AAL offers life, health, and
disability  income  insurance and fixed annuities to its members and all members
are part of one of  approximately  9,500 local AAL branches  throughout the U.S.
Through AAL CMC,  AAL offers  mutual  funds and other  investment  products  and
services.  AAL CMC has  served as  adviser  to Funds  from the  commencement  of
operations. As of June 7, 1999, AAL CMC managed over $6.6 billion for the Trust.


Advisory Fees

The Funds pay the adviser an  investment  advisory fee computed  separately  and
paid monthly for each Fund.  Each Fund pays an advisory fee of 0.50 of 1% of the
Fund's  average  daily net  assets.  Since  1995,  however,  the adviser has not
charged the Funds an investment  advisory  fee. The adviser is also  reimbursing
each  Fund's  expenses  in  excess of 1.0%.  Although  the Funds do not have any
intention  to  do  so,  they  may   discontinue   or  modify  these  waivers  or
reimbursements at any time.

The  Funds  have  paid  the  following   advisory  fees  to  the  adviser  since
commencement of operations:

                  The AAL U.S. Government Zero     The AAL U.S. Government Zero
                             Coupon                           Coupon
Period Ended        Target Fund Series 2001          Target Fund Series 2006
-------------       -----------------------          -----------------------
April 30, 1991*               $920                             $692
April 30, 1992               5,559                            3,815
April 30, 1993               10,418                           7,430
April 30, 1994               1,175                             833
April 30, 1995                 0                                0
April 30, 1996                 0                                0
April 30, 1997                 0                                0
April 30, 1998                 0                                0
April 30, 1999                 0                                0

-------------------------------------------------------------------------------
*    The Funds became available to the public on November 14, 1991.

Affiliated Principal Underwriter

In addition to being the adviser for The AAL Mutual  Funds  (Trust),  AAL CMC is
the principal  underwriter for the Trust under a written distribution  agreement
with the Trust.

AAL CMC's address is:

         AAL Capital Management Corporation
         222 West College Avenue
         Appleton, Wisconsin 54919-0007.


The Trust's executive  officers;  Robert G. Same and Charles D. Gariboldi,  also
serve as officers and directors of AAL CMC, the adviser and  distributor  of The
AAL Mutual Funds.


Advisory Services and Expenses

The adviser  furnishes  the Trust,  at its expense,  pursuant to the  investment
advisory agreement, with all office space and facilities, equipment and clerical
personnel  necessary  for carrying out its duties under the advisory  agreement.
The adviser also pays all  compensation  of Trustees,  officers and employees of
the Trust who are affiliated persons of the adviser. The advisory duties include
trading  in any  stocks,  bonds  or  other  securities  or  assets  for a Fund's
portfolio and placing orders and negotiating commission for these trades.

Except for the specific transfer agent and custodial activities, AAL CMC, as the
adviser and distributor for the Trust, handles the other management functions of
the Trust,  including its investment advisory duties. All costs and expenses not
expressly  assumed by the adviser  under the advisory  agreement are paid by the
Trust, including, but not limited to:

1)   interest and taxes;

2)   brokerage commissions;

3)   insurance premiums;

4)   compensation  and expenses of its Trustees other than those affiliated with
     the adviser;

5)   legal and audit expenses;

6)   fees and expenses of the Trust's custodian and transfer agent;

7)   expenses  incident to the issuance of the Trust's  shares,  including stock
     certificates  and issuance of shares on the payment of, or reinvestment of,
     dividends;

8)   fees and  expenses  incident  to the  registration  under  Federal or state
     securities laws of the Trust or its shares;

9)   expenses of preparing,  printing and mailing  reports and notices and proxy
     material to shareholders of the Trust;

10)  all  other  expenses   incidental  to  holding   meetings  of  the  Trust's
     shareholders;

11)  dues or assessments of or contributions to the Investment Company Institute
     or its successor, or other industry organizations;

12)  such non-recurring  expenses as may arise,  including  litigation affecting
     the Trust and the legal  obligations  which the Trust may have to indemnify
     its officers and Trustees with respect thereto; and

13)  all expenses which the Trust agrees to bear in any  distribution  agreement
     or in any plan  adopted  by the  Trust  pursuant  to Rule  12b-1  under the
     Investment Company Act of 1940.

The advisory  agreement  provides  that subject to Section 36 of the  Investment
Company Act of 1940,  the adviser shall not be liable to the Trust for any error
of judgment or mistake of law or for any loss arising out of any  investment  or
for any act or omission in the  management of the Trust and the  performance  of
its duties  under the  agreement  except for willful  misfeasance,  bad faith or
gross  negligence  in the  performance  of its  duties or by reason of  reckless
disregard of its obligations and duties under the agreements.

As to the Funds,  the Board of  Trustees  approved  the  advisory  agreement  on
February 27, 1990. The Funds'  shareholders  approved the advisory  agreement on
November 12, 1991. The advisory agreement  continues in effect from year to year
so long as such  continuance is  specifically  approved at least annually by the
Board of Trustees,  including a majority of the Trustees who are not  Interested
Persons (as defined in the Act.)

The advisory  agreement is  terminable  upon  assignment  or at any time without
penalty by the Board of  Trustees or by vote of the holders of a majority of the
outstanding voting securities of the Trust, with respect to any Fund by the vote
of a majority of the  outstanding  shares of such Fund,  or by the adviser on 60
days' written notice to the Trust.

Other Services

Administrative Services

Pursuant  to an  administrative  services  agreement  with  the  Trust,  AAL CMC
provides certain  administrative,  accounting and pricing services to the Funds.
These  services  include:  calculating  the  daily net  asset  value per  share;
maintaining  original entry  documents and books of record and general  ledgers;
posting  cash  receipts and  disbursements;  reconciling  bank  account  balance
monthly;  recording  purchases  and  sales;  and  preparing  monthly  and annual
summaries  to  assist  in  the  preparation  of  financial  statements  of,  and
regulatory  reports  for,  the Funds.  The Adviser  has agreed to provide  these
services  at rates  which  would not  exceed the rates  charged by  unaffiliated
vendors for similar  services.  The present  agreement  provides  that the Trust
shall pay to the Funds the annual rates of payment as follows:

    The AAL U.S. Government Zero Coupon Target Fund Series 2001 - $2,500
    The AAL U.S. Government Zero Coupon Target Fund Series 2006 - $2,500

The administrative services agreement will continue in effect from year to year,
as long as it is  approved  at least  annually  by the Board of Trustees or by a
vote of the outstanding  voting  securities of the Funds and in either case by a
majority  of the  Trustees  who are not  parties to the  agreement  or  interest
persons of any such party.  The  agreement  terminates  automatically  if either
party assigns the agreement.  The agreement also terminates without penalty upon
60 days notice by either party. The agreement  provides that neither the advisor
nor its personnel shall be liable for any error of judgment or mistake of law or
for  any  loss  arising  out of any act or  omission  in the  execution  and the
discharge of its obligations  under the agreement,  except willful  misfeasance,
bad faith or gross  negligence in the performance of their duties or by reckless
disregard of their obligations and duties under the agreement.

Shareholder Maintenance Agreement

The  Trust  has  entered  into  a  contract  with  AAL  CMC to  provide  certain
shareholder  maintenance  services,  effective April 1, 1995. These  shareholder
services  include  answering  customer   inquiries   regarding  account  status,
explaining and assisting  customers  with the exercise of their account  options
and facilitating shareholder telephone transaction requests.


The annual fee the Trust pays for AAL CMC to provide such  shareholder  services
is based upon, and limited by, the difference  between the current  account fees
actually charged by Firstar Trust Company,  as transfer and dividend  disbursing
agent,  and the normal  full-service  fee schedule  published  by Firstar  Trust
Company.  The annual  fee is also  based on  reimbursement  for  certain  actual
out-of-pocket  costs  including  postage and  telephone  charges.  This  account
differential,  including reimbursement for expenses, is at an annualized rate of
$4.80  per  account,   effective  April30,  1999.  The  shareholder  maintenance
agreement  continues  in effect from year to year,  as long as it is approved at
least  annually by the Funds' Board of Trustees or by a vote of the  outstanding
voting  securities of the Funds.  In either case, the agreement must be approved
annually by a majority of the Trustees  who are not parties to the  agreement or
interested persons of any such party. The agreement terminates  automatically if
either party  assigns the  agreement.  The  agreement  also  terminates  without
penalty by either party on 60-days notice.  The agreement  provides that neither
the  adviser  nor its  personnel  shall be liable for any error of  judgment  or
mistake  of law or for  any  loss  arising  out of any  act or  omission  in the
execution and the discharge of its obligations  under the agreement,  except for
willful  misfeasance,  bad faith or gross negligence in the performance of their
duties or by reason of reckless  disregard of their obligations and duties under
the agreement.  These fees are not currently  assessed against the Funds but may
be in the future.


Rule 12b-1 (Distribution) Plan

Because the Funds are no longer being sold, the distributor is waiving the 12b-1
fees under the distribution plan. The Funds will not reinstate the 12b-1 fees as
they are not open to investors for new sales. The following  description applies
to the plan when such fees were paid.

The Trust's  distribution  plan (Plan) is written in contemplation of Rule 12b-1
(Rule)  under  the  Investment  Company  Act of 1940.  The Plan  authorizes  the
distributor  to  make  payments  to any  qualified  person  (recipient)  who has
rendered  assistance  in the  distribution  of a Fund's  shares (such as sale or
placement of a Fund's shares, or administrative assistance,  such as maintenance
of sub-accounting or other records). The Plan also authorizes the distributor to
purchase  advertising for shares of the Funds,  to pay for sales  literature and
other  promotional  material,  and to make payments to its sales personnel.  Any
such payments to qualified  recipients or expenses will be reimbursed or paid by
the  Funds,  up to a limit of 0.10 of 1% of the  average  net  assets in a given
fiscal year. No reimbursement or payment may be made for expenses of past fiscal
years or in contemplation of expenses for future fiscal years.

The Plan states that if and to the extent that any of the following  payments by
the Funds are  considered  to be  "primarily  intended  to result in the sale of
shares" issued by a Fund within the meaning of the Rule, such payments by a Fund
are  authorized  without  limit  under the Plan and shall not be included in the
limitations contained in the Plan. Such costs include:

a)   the costs of the preparation, printing, and mailing of all required reports
     and  notices  to  shareholders,  irrespective  of whether  such  reports or
     notices  contain or are  accompanied by material  intended to result in the
     sale of shares of a fund or other funds or other investments;

b)   the  costs of  preparing,  printing  and  mailing  of all  prospectuses  to
     shareholders;

c)   the costs of preparing,  printing and mailing of any proxy  statements  and
     proxies, irrespective of whether any such proxy statement includes any item
     relating to, or directed toward, the sale of the Funds' shares;

d)   all legal and  accounting  fees  relating  to the  preparation  of any such
     reports,  prospectuses,  proxies  and  proxy  statements;  e) all  fees and
     expenses  relating to the  qualification  of the Funds and or their  shares
     under the securities or "Blue Sky" laws of any jurisdiction;

f)   all fees under the Act and the  Securities  Act of 1933,  including fees in
     connection  with any  application  for  exemption  relating  to or directed
     toward the sale of the Funds' shares;

g)   all  fees  and  assessments  of the  Investment  Company  Institute  or any
     successor organization or industry association irrespective of whether some
     of its activities are designed to provide sales assistance;

h)   all costs of preparing and mailing confirmations of shares sold or redeemed
     or share certificates and reports of share balances; and

i)   all costs of responding to telephone or mail inquiries of shareholders.

The Plan also has  recognized  that the  costs of  distribution  of the  Trust's
shares are expected to exceed the sum of permitted payments, permitted expenses,
and the portion of the sales charge  retained by the  distributor,  and that the
profits,  if any, of the adviser are  dependent  primarily on the advisory  fees
paid by the  Funds to the  Adviser.  If and to the  extent  that any  investment
advisory fees paid by the Funds might, in view of any excess  distribution costs
and the common  ownership  of the  adviser and  distributor,  be  considered  as
indirectly  financing any activity  that is primarily  intended to result in the
sale of shares issued by the Funds, the payment of such fees is authorized under
the Plan. The Plan states that in taking any action  contemplated  by Section 15
of the Act as to any investment advisory contract to which the Trust is a party,
the Board of Trustees,  including its Trustees who are not "interested  persons"
as defined in the Act, and who have no direct or indirect  financial interest in
the  operation  of the Plan or any  agreements  related to the Plan  ("Qualified
Trustees"),  shall,  in  acting  on the  terms of any such  contract,  apply the
"fiduciary duty" standard contained in Sections 36(a) and (b) of the Act.

The Plan  requires  that while it is in effect the  distributor  shall report in
writing at least quarterly to the Trustees,  and the Trustees shall review,  the
following:

a)   the  amounts of all  payments,  the  identity  of  recipients  of each such
     payment, the basis on which each such recipient was chosen and the basis on
     which the amount of the payment was made;

b)   the amounts of expenses and the purpose of each such expense; and

c)   all costs of the other payments  specified in the Plan (making estimates of
     such costs where  necessary or desirable) in each case during the preceding
     calendar or fiscal quarter.


The aggregate amount paid by the Funds to the distributor under the Plan for the
fiscal  year ended  April 30, 1999 and the manner in which this amount was spent
is as follows:


Gross 12b-1 fees paid by the Funds                            $0

         Expenditures

Compensation to Registered Representatives                    $0
Other                                                         $0

The Plan as it  affects  the  Funds'  shareholders  was  approved  by the Funds'
shareholders  on November  12, 1991.  The Plan  continues in effect from year to
year only so long as such continuance is specifically approved at least annually
by the Board of Trustees  and the  Qualified  Trustees  (as defined in the Plan)
cast  in  person  at a  meeting  called  for  the  purpose  of  voting  on  such
continuance. The Plan may be terminated at any time without penalty by a vote of
a majority of the Qualified Trustees or by the vote of the holders of a majority
of the outstanding voting securities of the Trust, and with respect to any Fund,
by the vote of a majority of the  outstanding  shares of such Fund. The Plan may
not be amended to increase  materially the amount of payments to be made without
shareholder approval.  While the Plan is in effect, the selection and nomination
of those  Trustees who are not  interested  persons of the Trust is committed to
the discretion of such disinterested Trustees.  Nothing in the Plan will prevent
the involvement of others in such selection and nomination if the final decision
on any  such  selection  and  nomination  is  approved  by a  majority  of  such
disinterested Trustees.

Other Service Providers

Transfer and Dividend Paying Agent

         Firstar Trust Company
         P.O. Box 2981
         615 E. Michigan Street
         Milwaukee, Wisconsin 53201-2981

As the transfer agent,  Firstar handles the  recordkeeping for the Funds' shares
and is authorized to make the transfers of and distributions for a Fund's shares
in accordance with instructions from the Funds.


Custodian

         Citibank, N.A.
         111 Wall Street
         New York, NY 10043

As  the  custodian,  Citibank  holds  the  assets  of  each  Fund  and  provides
safekeeping, clearing and other services for the Funds' portfolios.


Independent Accountants


         PricewaterhouseCoopers LLP
         100 East Wisconsin Avenue

         Suite 1500
         Milwaukee, Wisconsin 53202


The Trust's  independent  accountants,  PricewaterhouseCoopers  LLP, examine the
Funds' annual financial statements, assist in the preparation of certain reports
to the  Securities  and Exchange  Commission  and prepare the Trust's  state and
Funds' federal tax returns.


BROKERAGE ALLOCATION AND OTHER PRACTICES

Brokerage Transactions

The adviser  directs the  placement  or orders for the  purchase and sale of the
Funds' portfolio securities.  Generally,  the adviser places purchases and sales
of  portfolio   securities  with  primary  market  makers  (dealers)  for  these
securities on a net (principal) basis, without paying any brokerage commissions.
Trading does,  however,  involve  transaction  costs.  Transactions with dealers
serving as primary  market makers  reflect the spread  between the bid and asked
prices.  Purchases  of  portfolio  securities  from the  dealers of zero  coupon
securities,  in  particular,  may  include a mark-up  which may be included in a
spread between the bid and asked price.  Purchases of underwritten issues may be
made which will include an underwriting fee paid to the underwriter.

Commissions


Because the Target Funds portfolios invest in U.S. government securities,  which
generally  trade  on a  principal  basis  through  a  dealer  rather  than  on a
commission basis through a broker,  the Target Funds did not pay any commissions
for the past three years. The Trust,  which includes all of The AAL Mutual Funds
series,  paid a total of  $3,685,438,  $3,143,251,  and  $4,205,263 in brokerage
commissions  in each of the past three  fiscal  years  ending on April 30, 1999,
1998, and 1997, respectively.


Brokerage Selection

In placing  portfolio  transactions,  the adviser seeks the best  combination of
price and execution.  In determining  which dealers provide best execution,  the
adviser looks primarily to the price quoted.  The adviser normally places orders
with the  dealer  through  which it can  obtain the most  favorable  price.  The
adviser will normally purchase securities in their primary markets. In assessing
the best net price and execution  available to a Fund, the adviser will consider
all factors it deems relevant. These factors include:

(1)  the breadth of the market in the security;

(2)  the price of the security;

(3)  the financial condition and execution capability of the dealer; and

(4)  the reasonableness of the commission,  if any (for the specific transaction
     and on a continuing basis).

Although it is  expected  that sales of shares of the Funds will be made only by
the  distributor,  the adviser may in the future  consider  the  willingness  of
particular  dealers to sell shares of the Funds as a factor in the  selection of
dealers for the Funds' portfolio transactions, subject to the overall best price
and execution standard.

Assuming equal execution  capabilities,  the adviser may take into account other
factors in selecting brokers or dealers to execute  particular  transactions and
in  evaluating  the best net price and  execution  available.  The  Adviser  may
consider  "brokerage  and  research  services"  (as those  terms are  defined in
Section 28(e) of the Securities Exchange Act of 1934),  statistical  quotations,
specifically the quotations  necessary to determine the Funds' net asset values,
and other  information  provided to the Funds, to the adviser or its affiliates.
The adviser may also cause a Fund to pay to a broker or dealer who provides such
brokerage  or  research   services  a  commission   for  executing  a  portfolio
transaction  that is in excess of the  amount of  commission  another  broker or
dealer  would have  charged for  effecting  that  transaction.  The adviser must
determine,  in good faith,  however,  that such  commission  was  reasonable  in
relation to the value of the brokerage and research services provided, viewed in
terms of that particular  transaction or in terms of all the accounts over which
the adviser exercises investment discretion.  It is possible that certain of the
services received by the adviser  attributable to a particular  transaction will
benefit one or more other accounts for which investment  discretion is exercised
by the adviser.

CAPITAL STOCK AND OTHER SECURITIES

The Funds are separate series of a Massachusetts  Business Trust organized under
a  Declaration  of  Trust  dated  March  13,  1987,  which  provides  that  each
shareholder shall be deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either its  shareholders or its
Board of Trustees.  The Trust may issue an unlimited number of shares, in one or
more series as the Board of Trustees  may  authorize.  Currently,  the Board has
authorized eleven series which bear the name of The AAL Mutual Funds (Trust).

Each share of a Fund is entitled to  participate  pro rata in any  dividends  or
other  distributions  declared by the Board with  respect to that Fund,  and all
shares of a Fund have equal rights in the event of liquidation of that Fund.

Each share of each Fund is  entitled  to one vote on each  matter  presented  to
shareholders  of that Fund.  As a business  trust,  the Trust is not required to
hold annual shareholder  meetings.  However,  special meetings may be called for
purposes such as electing or removing Trustees,  changing fundamental  policies,
or approving an investment advisory contract. On matters affecting an individual
Fund (such as approval of advisory  and  sub-advisory  contracts  and changes in
fundamental  policies  of a Fund) a separate  vote of the shares of that Fund is
required.  Shares of a Fund are not entitled to vote on any matter not affecting
that Fund. All shares of each Fund vote together in the election of Trustees.

Under  Massachusetts  law,  shareholders  of a business trust may, under certain
circumstances,  be held  personally  liable  for the  obligations  of the Trust.
However,  the Declaration of Trust disclaims liability of the shareholders,  the
Trustees,  or officers of the Trust for acts or obligations of the Trust,  which
are  binding  only on the  assets  and  property  of the  Trust.  Notice of such
disclaimer is given in each agreement,  obligation,  or contract entered into or
executed  by the Trust or the  Board.  The  Declaration  of Trust  provides  for
indemnification  out of the  Trust's  assets for all losses and  expenses of any
shareholder held personally  liable for the obligations of the Trust.  Thus, the
risk of a  shareholder  incurring  financial  loss  on  account  of  shareholder
liability  is remote  because  it is limited  to  circumstances  where the Trust
itself is unable to meet its obligations.

Regarding the Target Funds,  Series 2001 and Series 2006,  they contain only one
class of shares, which are untitled but are considered to be Class A shares. The
Funds' shares,  when open to investors for new sales, were sold with a front-end
sales  charge  (load).  The  Funds'  shareholders  have the right to retain  and
dispose of their shares freely.  Each share of the Funds  represents an interest
in a Fund  proportionately  equal to the  interest  of each  other  share.  As a
result, if the Target Funds (and any other Funds in the Trust's series of Funds)
were to liquidate,  all  shareholders  of a Fund would share pro rata in its net
assets  available for  distributions  to shareholders of its class. In addition,
each share of a Fund has a proportionate  interest in any Fund  distributions of
interest or capital gains and a proportionate  interest upon  redemption  (which
equals the net asset value per share at the time). Shareholders may redeem their
shares at any time, subject to any rights a Fund may have to suspend redemptions
under the Investment Company Act of 1940.

PURCHASES, REDEMPTIONS AND PRICING OF SHARES

Net Asset Value

The Funds offer their shares to the public through their  distributor,  AAL CMC.
You can contact your AAL registered  representative  for information or call The
AAL Mutual  Funds  directly  at  800-553-6319.  When the Funds were open for new
investments, the Funds sold their shares at the public offering price (POP). The
POP is based on a Fund's net asset  value  (NAV) per share  plus a sales  charge
(load):

         NAV + Sales charge = Offering Price.

A Fund  determines  the POP of a share by  dividing  its net asset value by 100%
minus the sales charge percentage :

         NAV/(100%- Sales charge %)  =  Public Offering Price.

For  example if a Fund's NAV is $10 per share and the  maximum  sales  charge is
4.75%, the POP would equal $10.49 per share.

The Funds  calculate the net asset value of their shares once daily on days when
the New York Stock Exchange is open for business.  The NYSE regularly  closes on
Saturdays and Sundays and on New Years' Day, the third Monday in February,  Good
Friday, the last Monday in May, Independence Day, Labor Day,  Thanksgiving,  and
Christmas.  If one of these holidays falls on a Saturday or Sunday, the exchange
will be closed on the preceding  Friday or the following  Monday,  respectively.
The Funds wait until after the close of the NYSE (3:00 p.m. Central Time) before
calculating the value of their shares.

Net asset value is  determined  by dividing the total  assets of the  particular
Fund,  less all its  liabilities,  by the  total  number  of shares of that Fund
outstanding:

         NAV = (Assets - Liabilities) / No. Shares

Where:

         Assets     = Cash + Current Value of Securities in the Fund
         No. Shares = Number of Shares Outstanding for the Fund
         NAV        = Net Asset Value per Share for the Fund

Each Fund determines the value of securities in its portfolio through the use of
pricing  services  approved  by  the  Trustees.  The  pricing  services  utilize
information  with respect to bond and note  transactions,  quotations  from bond
dealers,  market transactions in comparable securities and various relationships
between  securities.  Money market  instruments with remaining  maturities of 60
days or less are valued by the amortized cost method, which the Trustees believe
approximates  fair value.  Because of the large number of zero coupon securities
available,  many  may not  trade  each  day;  therefore,  bid and  asked  prices
frequently  are not  available.  In valuing such  securities,  then, the pricing
services  generally  take into account  institutional  size,  trading in similar
groups of securities and any developments related to specific securities.  Other
securities  and assets are  valued in good  faith at fair  value  using  methods
(including  pricing  services)  determined  by the  Trustees  and  applied  on a
consistent  basis.  The Trustees  review the valuation of each Fund's  portfolio
securities through receipt of regular reports from the Adviser.

Generally,  trading  in  U.S.  government  securities  and  other  fixed  income
securities  is  substantially  completed  each day at various times prior to the
close of the NYSE. The values of such  securities  used in  determining  the net
asset value of a Fund's  shares are  computed  as of such  times.  Occasionally,
events  affecting the value of such  securities may occur between such times and
the close of the NYSE,  which events will not be reflected in the computation of
a Fund's  net asset  value.  If  events  materially  affecting  the value of the
Trust's  securities  occur during such a period,  then these  securities will be
valued at their fair value as determined in good faith by the Trustees.

The difference between the POP and the NAV (net amount invested in the Funds) is
paid to the distributor,  AAL CMC, the principal  underwriter for The AAL Mutual
Funds.

To provide an additional  benefit to those who work for the Funds, the Trustees,
directors  and  employees  of the  Funds  and the  adviser,  as well as  persons
licensed to receive commissions for sales of The AAL Mutual Funds, may not pay a
sales  charge on their  purchases  or on the  purchases  made by family  members
residing  with them.  Also, to promote  Lutheranism,  the Funds reduce the sales
charges on shares sold to Lutheran congregations and charitable organizations.

The Funds  intend to pay all  redemptions  in cash and are  obligated  to redeem
shares  solely in cash up to the lesser of  $250,000  or one  percent of the net
assets of the Fund during any 90-day  period for any one  shareholder.  However,
redemptions  in  excess  of  such  limit  may be  paid  wholly  or  partly  by a
distribution  in kind of  securities.  If  redemptions  were  made in kind,  the
redeeming  shareholders  might incur  brokerage  fees in selling the  securities
received in the redemptions.

Each Fund  reserves  the right to suspend  or  postpone  redemptions  during any
period when:

a)   trading on the NYSE is  restricted,  as  determined by the  Securities  and
     Exchange  Commission,  or that exchange is closed for other than  customary
     weekend and holiday closings;

b)   the  Securities  and  Exchange  Commission  has  by  order  permitted  such
     suspension; or

c)   an  emergency,  as determined by the  Securities  and Exchange  Commission,
     exists,  making disposal of portfolio securities or valuation of net assets
     of the Fund not reasonably practicable.

TAXATION OF THE FUNDS

Each of the Funds has  elected to be treated as a regulated  investment  company
under  Subchapter  M of the  Internal  Revenue  Code of 1986,  as  amended  (the
"Code").

A regulated  investment  company  qualifying  under  Subchapter M of the Code is
required to distribute to its shareholders at least 90 percent of its investment
company  taxable  income  (including  net  short-term  capital gains) and is not
subject to federal  income tax to the extent that it  distributes  annually  its
investment  company taxable income and net realized  capital gains in the manner
required under the Code.

Each Fund is subject to a 4% nondeductible  excise tax on amounts required to be
distributed,  but not  actually  distributed  under a  prescribed  formula.  The
formula requires each Fund to distribute to shareholders  during a calendar year
an amount  equal to at least 98% of a Fund's  ordinary  income for the  calendar
year,  at least 98% of the  excess of its  capital  gains  over  capital  losses
(adjusted for certain ordinary losses as prescribed in the Code) realized during
the one-year  period ending October 31 during such year, and all ordinary income
and capital gains for prior years that were not previously distributed.

Investment  company  taxable  income  includes  dividends,  interest  (including
original issue discount amortization) and net short-term capital gains in excess
of net long-term capital losses, less expenses.  Net realized capital gains of a
Fund for a fiscal  year are  computed by taking  into  account any capital  loss
carryforward of such Fund to the extent allowed by the Internal Revenue Code.

If any net realized long-term capital gains in excess of net realized short-term
capital losses are not distributed by a Fund for reinvestment, requiring federal
income taxes to be paid thereon by the Fund,  the Fund intends to elect to treat
such capital  gains as having been  distributed  to  shareholders.  As a result,
shareholders  will report such capital gains as long-term capital gains, will be
able to claim their share of federal income taxes paid by the Fund on such gains
as a credit against their own federal income tax liability, and will be entitled
to increase the adjusted  tax basis of their  shares by the  difference  between
their pro rata share of such gains and their tax credit.

Distributions  of investment  company taxable income are taxable to shareholders
as  ordinary  income.  Under  the  federal  income  tax law,  a  portion  of the
difference  between  the  purchase  price  and the face  amount  of zero  coupon
securities  ("original  issue  discount")  will be treated as income to any Fund
holding  securities with original issue discount each year,  although no current
payments  will be  received  by such  Fund with  respect  to such  income.  This
original issue  discount  amortization  will comprise a part of that  investment
company  taxable income of such Fund that must be distributed to shareholders in
order to maintain its  qualification  as a regulated  investment  company and to
avoid federal income tax at the Fund level.  Taxable shareholders of such a Fund
will be subject  to income tax on such  original  issue  discount  amortization,
whether or not they elect to receive their  distributions  in cash. In the event
that a Fund acquires a debt instrument at a market discount, it is possible that
a portion of any gain  recognized on the  disposition of such  instrument may be
treated as ordinary income.

Since the Funds invest primarily in zero coupon  securities upon which they will
not receive cash payments of interest,  to the extent  shareholders of the Funds
elect to take their  distributions in cash, these Funds may have to generate the
required  cash from  interest  earned on  non-zero  coupon  securities  from the
disposition  of such  securities,  or possibly from the  disposition  of some of
their zero coupon securities.

Distributions  of the excess of net long-term  capital gain over net  short-term
capital loss are taxable to shareholders as long-term  capital gain,  regardless
of the  length of time the  shares of the  relevant  Fund have been held by such
shareholders.  Such  distributions  are not eligible for the  dividends-received
deduction.  Any loss realized upon the  redemption of shares held at the time of
redemption for six months or less will be treated as a long-term capital loss to
the extent of any amounts  treated as  distributions  of long-term  capital gain
during such six-month period.

Distributions  of investment  company  taxable  income and net realized  capital
gains will be taxable whether received in shares or in cash.

The  foregoing  is  only a  summary  of  certain  tax  considerations  generally
affecting the Funds and their shareholders. Investors are urged to consult their
tax advisors  with  specific  reference to their own tax  situations,  including
state and local tax liability.

UNDERWRITERS

Until May 31, 1993, AAL CMC, the principal  underwriter,  for the Funds, offered
the shares of the Funds for sale on a continuous  basis  through its field sales
force. The Funds paid the aggregate  underwriting  commissions  received and the
amount of commissions  retained by the underwriter for the last three years were
as follows:


Time Period                     Aggregate Commissions       Retained Commissions
-----------                     ---------------------       --------------------
Fiscal year ended 4/30/97               $0                          $0
Fiscal year ended 4/30/98                0                           0
Fiscal year ended 4/30/99                0                           0


With  respect  to all  commissions  and other  compensation,  AAL CMC,  the sole
distributor for the Funds,  does not receive any compensation in connection with
redemptions and repurchases, brokerage commissions or other compensation.

CALCULATION OF PERFORMANCE DATA

From time to time,  the Funds may  advertise  yield and total return for various
periods of investment.  Such information will always include uniform performance
calculations  based on  standardized  methods  established by the Securities and
Exchange Commission, and may also include other total return information.  Yield
is based  on  historical  earnings  and  total  return  is  based on  historical
calculated  earnings;  neither  is  intended  to  indicate  future  performance.
Performance  information  should be considered in light of the Funds' investment
objectives  and  policies,   characteristics  and  quality  of  their  portfolio
securities and the market conditions during the applicable period and should not
be  considered  as a  representation  of what  may be  achieved  in the  future.
Investors  should  consider  these  factors in  addition to  differences  in the
methods used in calculating performance information,  and the impact of taxes on
alternative  investments when comparing a particular  Fund's  performance to the
performance data published for alternative investments.

Standardized Performance Information

Average Annual Total Return

For each of the Funds,  standardized  average annual total return is computed by
finding the average annual  compounded rates of return over the 1, 5 and 10 year
periods (or the portion  thereof  during  which the Fund has been in  existence)
that would equate the initial  amount  invested to the ending  redeemable  value
according to the following formula:

         T = n/(ERV/P) - 1

Where:

T =   average annual total return;

n =   number of years and portion of a year;

ERV = ending redeemable value (of the hypothetical $1,000 payment) at the end of
      the 1,  5 and  10  year  periods,  or fractional  portion  thereof,  after
      deduction of all non-recurring charges to be deducted, assuming redemption
      at the end of the period; and

P =   $1,000 (the  hypothetical  initial payment before deduction of the maximum
      sales load).


----------------------------------- ------------------------ -------------------
Average Annual Total Return for the

Period Ended 4/30/99

                                    Series 2001              Series 2006
                                    -----------              -----------
----------------------------------- ------------------------ -------------------
----------------------------------- ------------------------ -------------------

1-Year (total return)                1.18%                   3.57%

----------------------------------- ------------------------ -------------------
----------------------------------- ------------------------ -------------------

5-year                              6.20%                    9.04%

----------------------------------- ------------------------ -------------------
----------------------------------- ------------------------ -------------------

From Inception                      8.21%                    10.35%

----------------------------------- ------------------------ -------------------

Current Yield

Current  yield  quotations  for the Funds are based on a 30-day  (or one  month)
period,  and are computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of the
period, according to the following formula:

         Yield = 2 [(((a-b)/cd)+1)^6-1]

a =   Dividends and interest earned during the period;

b =   Expenses accrued for the period (net of reimbursements);

c =   The average daily number of shares outstanding during the period that were
      entitled to receive dividends; and

d =   The maximum offering price per share on the last day of the period.


 For  purposes  of  this  calculation,  income  earned  on debt  obligations  is
determined  by  applying  a  calculated   yield-to-maturity  percentage  to  the
obligations  held during the period.  The yields for the Funds,  Series 2001 and
2006,  for the  30-day  period  ended  April 30,  1999,  were  4.20% and  4.49%,
respectively. When advertising yield, a Fund will not advertise a one-month or a
30-day  period  that  ends  more  than 45 days  before  the  date on  which  the
advertisement is published.


Other Performance Information

The Funds may,  from time to time,  include in their  advertisements  quotations
computed  for a time period,  or by a method that differs from the  computations
described in the foregoing section.

Average Annual Total Return

The Funds may  advertise  an average  annual total  return  calculation  for any
appropriate  time period,  based upon the value of a net investment in the Fund,
after deduction of the maximum sales charge according to the following formula:

         T = (ERV/P)^(1/n)-1

         Where:

     T =   average annual total return;

     n =   number of years and portion of a year;

     ERV = ending redeemable value (of the  hypothetical  $1,000 payment) at the
           end of any period, after deduction of all non-recurring charges to be
           deducted, assuming redemption at the end of the period;

     P =   $1,000 (the  hypothetical  initial net investment) after deduction of
           the sales load; and

     ^ =   raised to the power of.

----------------------------------- -------------------- -----------------------
Average Annual Total Return for the

Period Ended 4/30/99

                                    Series 2001          Series 2006
                                    -----------          -----------
----------------------------------- -------------------- -----------------------
----------------------------------- -------------------- -----------------------

1-Year (total return)               6.23%                8.69%

----------------------------------- -------------------- -----------------------
----------------------------------- -------------------- -----------------------

5-year                              7.25%                10.11%

----------------------------------- -------------------- -----------------------
----------------------------------- -------------------- -----------------------

From Inception (11/90)              8.83%                10.99%

----------------------------------- -------------------- -----------------------

Anticipated Growth Rate

The anticipated  growth rate is a calculation of predicted  return.  Anticipated
growth will consist  primarily of the estimated  amortization of discount on the
zero coupon securities in a Fund and, to a much lesser degree, of projected cash
flow on  income-producing  securities  in  excess  of  estimated  expenses.  The
anticipated  growth rate is the rate which,  when  compounded  on a  semi-annual
basis,  equates the current market value of a Zero Coupon Fund to the sum of the
present values of the payments to be received from  securities held in the Fund.
It is  calculated  net of  expenses  on a  bond-equivalent  basis  in  order  to
facilitate  comparison with returns  obtainable from U.S. Treasury notes,  bonds
and stripped  (zero coupon)  securities,  if held directly.  The  calculation is
based on certain  assumptions  (See  "Investment  Objectives and  Policies").  A
shareholder   who  redeems  prior  to  maturity  of  a  Fund  may  experience  a
significantly  different  investment  return  than  was  anticipated  at time of
purchase.

Performance  information  for the Funds may be  compared  to  various  unmanaged
indices,  such as the Dow Jones Industrial Average,  the S & P 500 or the Lehman
Brothers  Aggregate Bond Index, as well as indices of similar mutual funds.  The
Funds may also include in their  advertising  rankings  published by  recognized
statistical  services or publishers such as Lipper  Analytical  Services,  Inc.,
Wiesenberger  Investment  Companies  Services  or  rankings  published  by other
comparable national services which rank mutual funds.

FINANCIAL STATEMENTS


The AAL Mutual Funds ("Trust") has filed audited financial statements,  notes to
financial statements and report of independent accountants for the Trust for the
fiscal year ended April 30,  1999,  for The AAL U.S.  Government  Target  Funds,
Series  2001  and  2006,   which  are   incorporated   by  reference  into  this
Post-Effective  Amendment to this Registration  Statement.  Class A, Class B and
Institutional shares for The AAL Small Cap Stock, Mid Cap Stock,  International,
Capital Growth, Equity Income,  Balanced,  High Yield Bond, Municipal Bond, Bond
and Money Market Funds are contained in separate prospectuses.



<PAGE>



PART C: OTHER INFORMATION
Class A and Class B Shares


Item 23.          Exhibits

Except as noted below, all required  exhibits have been previously filed and are
incorporated by reference from the Funds' Registration  Statement on Form N-1(A)
(File No. 33-12911), as amended:

(d)(i) Investment Advisory Agreement, as amended
(i) Legal Opinion
(j) Consent of Independent Auditors
(n) Financial Data Schedule
(p) Powers of Attorney

Item 24.          Persons Controlled By or Under Common Control with the Fund

AAL is a  fraternal  benefit  society  organized  under the laws of the State of
Wisconsin and is owned by and operated for its members.  It has no  stockholders
and is not subject to the control of any  affiliated  persons.  AAL controls the
following  wholly-owned,  direct and indirect  subsidiaries:  (a) AAL  Holdings,
Inc., a Delaware  corporation  that is a holding company that has no independent
operations;  (b) AAL Capital Management Corporation, a Delaware corporation that
is  a  registered  investment  adviser  and  broker-dealer;  (c)  North  Meadows
Investment  Ltd., a Wisconsin  corporation  organized for the purpose of holding
and  investing  in real  estate;  and (d) AAL Trust  Company,  FSB, a  federally
chartered  thrift  institution.  Financial  statements  of AAL  are  filed  on a
consolidated basis with regard to each of the foregoing entities.


<TABLE>
<CAPTION>
<S>                   <C>                            <C>                             <C>
                                                     -------------------------------
Parent Company                                       AAL
                                                     (Wisconsin corp.)

Holding Company                                      AAL Holdings, Inc.
                                                     (Delaware corp.)
                                                     -------------------------------
                      ------------------------------ ------------------------------- ----------------------------
Wholly-owned          AAL Capital Management Corp.   AAL Trust Co., FSB              North Meadows Investment
Subsidiaries of       (Delaware corp.)               (Federal charter)               Ltd.
AAL Holdings, Inc.                                                                   (Wisconsin corp.)
                      ------------------------------ ------------------------------- ----------------------------
</TABLE>


Item 25.          Indemnification

Under Section 12 of Article Seven of the Funds'  Declaration of Trust, the Funds
may  not  indemnify  any  trustee,  officer  or  employee  for  expenses  (e.g.,
attorney's  fees,  judgments,  fines and  settlement  amounts)  incurred  in any
threatened,  pending or completed  action,  if there has been an adjudication of
liability  against  such person based on a finding of willful  misfeasance,  bad
faith,  gross negligence or reckless disregard of such person's duties of office
("disabling conduct").

The Funds  shall  indemnify  their  trustees,  officers  or  employees  for such
expenses  whether or not there is an adjudication of liability,  if, pursuant to
Investment  Company Act Release 11330, a determination  is made that such person
was not liable by reason of  disabling  conduct  by: (i) final  decision  of the
court before which the proceeding was brought;  or (ii) in the absence of such a
decision, a reasonable  determination,  based on factual review, that the person
was not liable for  reasons of such  conduct is made by: (a) a majority  vote of
disinterested,  independent  trustees;  or (b)  independent  legal  counsel in a
written opinion.

Advancement of expenses  incurred in defending such actions may be made pursuant
to Release  11330,  provided  that the person  undertakes  to repay the  advance
unless  it  is   ultimately   determined   that  such   person  is  entitled  to
indemnification  and one or more of the  following  conditions  is met:  (1) the
person provides security for the undertaking;  (2) the Funds are insured against
losses  arising  by  reason  of  any  lawful  advances;  or  (3) a  majority  of
disinterested  non-party  trustees  or  independent  legal  counsel in a written
opinion  determines,  based on review of readily  available facts, that there is
reason  to  believe   the  person   ultimately   will  be  found   entitled   to
indemnification.

Insofar as indemnification  for liabilities  arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of the Funds
pursuant to the foregoing provision,  or otherwise,  the Funds have been advised
that  in  the  opinion  of  the   Securities   and  Exchange   Commission   such
indemnification  is  against  public  policy  as  expressed  in that Act and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such  liabilities  (other than the payment by the Funds of expenses  incurred or
paid by a trustee,  officer or controlling person of the Funds in the successful
defense of any action, suit or proceeding) is asserted by such trustees, officer
or controlling  person in connection with the securities being  registered,  the
Funds will,  unless in the opinion of its counsel the matter has been settled by
controlling  precedent,  submit  to a  court  of  appropriate  jurisdiction  the
question  whether  such  indemnification  by  it is  against  public  policy  as
expressed  in the Act and will be  governed  by the final  adjudication  of such
issue.


Item 26.          Business and Other Connections of the Investment Adviser

AAL Capital Management  Corporation is the investment adviser ("Adviser") of the
Funds.  Oechsle  International  Advisers  LLC is the  sub-adviser  for  The  AAL
International Fund. For information as to the business, profession,  vocation or
employment of a substantial nature of the Adviser,  reference is made to Parts A
and B of this Registration  Statement and to Form ADV filed under the Investment
Advisers Act of 1940 by the Adviser.


Item 27.          Principal Underwriters

(a)  Not Applicable

(b)  AAL  Capital  Management   Corporation  ("AAL  CMC")  serves  as  principal
     underwriter/distributor shares of each of the Funds.

<TABLE>
<CAPTION>
<S>                                      <C>                                    <C>
Name and Principal                       Position and Offices                   Position and Offices
Business Address                         with AAL CMC                           with the Funds
---------------------------------------- -------------------------------------- --------------------------------------
Robert G. Same                           Asst. Secretary                        Secretary
222 W. College Ave.
Appleton, WI 54919

Charles D. Gariboldi, Jr.                Asst. Vice President                   Treasurer
222 W. College Ave.
Appleton, WI 54919

Woodrow E. Eno                           Vice President, General                Assistant Secretary
222 W. College Ave.                      Counsel, Secretary and Director
Appleton, WI 54919

James H. Abitz                           Sr. Vice President and Director        None
222 W. College Avenue
Appleton, WI 54919

Paul Gocker                              Regional Vice President                None
222 W. College Avenue
Appleton, WI 54919

Michael Woldt                            Regional Vice President                None
222 W. College Avenue
Appleton, WI 54919

Penny Hill                               Regional Vice President                None
222 W. College Avenue
Appleton, WI 54919

Larry Schluesner                         Regional Vice President                None
222 W. College Avenue
Appleton, WI 54919

Walter S. Rugland                        Director                               None
4321 N. Ballard Road
Appleton, WI 54919

Steve Weber                              Director                               None
4321 N. Ballard Road
Appleton, WI 54919

Paul Stadler                             Vice President                         None
222 W. College Avenue
Appleton, WI 54919

Lori Richardson                          Vice President                         None
222 W. College Avenue
Appleton, WI 54919

Jeffrey Verhagen                         Vice President                         None
222 W. College Avenue
Appleton, WI 54919

Charles Friedman                         Assistant Vice President               None
222 W. College Avenue
Appleton, WI 54919

Wendy Schmidt                            Assistant Vice President               None
4321 N. Ballard Road
Appleton, WI 54919

Carl Rudolph                             Treasurer, Director                    None
222 W. College Avenue
Appleton, WI 54919

Krien Ver Berkmoes, III                  Vice President, Chief Compliance       None
222 W. College Avenue                    Officer
Appleton, WI 54919

Stanley Herman                           Vice President, Director               None
4321 N. Ballard Road
Appleton, WI 54919

Thomas Mischka                           Vice President, Director               None
4321 N. Ballard Road
Appleton, WI 54919

Jon Stellmacher                          Vice President, Director               None
4321 N. Ballard Road
Appleton, WI 54919

Cindy Haas                               Assistant Vice President               None
4321 N. Ballard Road
Appleton, WI 54919
</TABLE>



Item 28.          Location of Accounts and Records

The accounts,  books and other documents  required to be maintained by the Funds
pursuant to Section  31(a) of The  Investment  Company Act of 1940 and the rules
promulgated  thereunder  are in the  possession  of the  Funds  and  the  Funds'
Custodian as follows:  all documents  required to be maintained by Rule 31a-1(b)
will  be  maintained  by  the  Funds,  (222  W.  College  Avenue,  Appleton,  WI
54919-0007)  except that records required to be maintained by paragraph  (2)(iv)
of Rule 31a-1(b) will be maintained by the Custodian  (Citibank,  N.A., 111 Wall
Street, New York, NY 10043)


Item 29.          Management Services

Not Applicable


Item 30.          Undertakings

The Registrant has elected to provide the information required under Item 5 from
the N1-A in the  Registrant's  latest Annual Report to  Shareholders  under Rule
30d-1 of the Investment Company Act of 1940.


SIGNATURES

Pursuant to the  requirements  of the  Securities Act of 1933 and the Investment
Company  Act of 1940,  as  amended,  the  Registrant  has  caused  this  amended
registration statement to be duly signed on its behalf by the undersigned,  duly
authorized,  in the City of Appleton and State of Wisconsin on this day of April
6, 1999.

                                        THE AAL MUTUAL FUNDS

                                   By:  /s/ Robert G. Same
                                        ----------------------------------------
                                        Robert G. Same
                                        Vice-President and Secretary;
                                        Acting President

Pursuant  to the  requirements  of the  Securities  Act of  1933,  this  amended
registration  statement  has been signed below by the  following  persons in the
capacities and on the dates indicated:

/s/ Robert G. Same              Vice-President and Secretary;      June 29, 1999
-----------------------------   Acting President
Robert G. Same




/s/ Charles D. Gariboldi        Treasurer                          June 29, 1999
-----------------------------   (Principal Accounting
Charles D. Gariboldi            Financial Officer)


All of the Board of Trustees:

       F. Gregory Campbell           John O. Gilbert
       Richard L. Gady               John H. Pender
       Edward W. Smeds               Lawrence M. Woods


Robert G. Same,  by signing his name hereto,  does hereby sign this  document on
behalf of himself and each of the other  above-named  Trustees of The AAL Mutual
Funds pursuant to the powers of attorney duly executed by such persons.


/s/ Robert G. Same                                                 June 29, 1999
-----------------------------
Robert G. Same
Attorney-in-Fact