Prospectus
                                 January 8, 1997
    
                                 
The AAL  Mutual  Funds  (The  "Funds")  are a series  of  separate  mutual  fund
portfolios within a single Trust, each with a specific investment objective. The
Funds offer  investment  opportunities  to eligible  Lutherans  (including their
families  and  their  enterprises)  and  to  AAL  members  and  employees.  This
prospectus describes the following Funds:

   
     THE AAL CAPITAL GROWTH FUND:  INVESTING IN LARGE COMPANY STOCKS THE AAL MID
CAP STOCK FUND:  INVESTING IN MID-SIZED  COMPANY  STOCKS THE AAL SMALL CAP STOCK
FUND: INVESTING IN SMALL COMPANY STOCKS THE AAL INTERNATIONAL FUND: INVESTING IN
FOREIGN  SECURITIES  THE AAL  UTILITIES  FUND:  INVESTING  IN  PUBLIC  UTILITIES
SECURITIES  THE AAL BOND  FUND:  INVESTING  IN  INVESTMENT  GRADE  BONDS THE AAL
MUNICIPAL BOND FUND:  INVESTING IN TAX-EXEMPT  MUNICIPAL SECURITIES THE AAL HIGH
YIELD BOND FUND:  INVESTING IN NON-INVESTMENT GRADE SECURITIES THIS FUND INVESTS
PRIMARILY IN LOWER-RATED BONDS,  COMMONLY KNOWN AS "JUNK BONDS."  INVESTMENTS OF
THIS  TYPE ARE  SUBJECT  TO  GREATER  RISK OF LOSS OF  PRINCIPAL  AND  INTEREST.
PURCHASERS  SHOULD  CAREFULLY  ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN
THIS FUND. SEE "THE AAL HIGH YIELD BOND FUND - INVESTMENT  FACTORS AND THE RISKS
INVOLVED."  THE AAL MONEY  MARKET FUND:  INVESTING  IN MONEY MARKET  INSTrUMENTS
INVESTMENTS  IN THE AAL MONEY MARKET FUND ARE NEITHER  INSURED NOR GUARANTEED BY
THE U.S.  GOVERNMENT.  THERE IS NO  ASSURANCE  THAT  THIS  FUND  WILL BE ABLE TO
MAINTAIN A NET ASSET VALUE OF $1.00 PER SHARE.

THIS  PROSPECTUS  SETS  FORTH  CONCISELY  THE  INFORMATION  ABOUT THE FUNDS THAT
PROSPECTIVE INVESTORS OUGHT TO KNOW BEFORE INVESTING. READ IT CAREFULLY AND KEEP
IT FOR  FUTURE  REFERENCE.  You can find more  detailed  information,  including
investment  policies,  techniques,  restrictions,  and the risks associated with
them, in the Statement of Additional Information ("SAI"), dated January 8, 1997.
The SAI has been filed with the Securities and Exchange Commission ("SEC").  The
SAI  along  with the  most  recent  Fund  Annual  and  Semi-annual  Reports  are
incorporated  in this  prospectus  by reference  (which means that it is legally
considered part of this prospectus even though it is not printed here).  You can
get a copy of the SAI, and a copy of the annual and semi-annual reports, free by
calling  800-553-6319,  or by writing The AAL Mutual  Funds at 222 West  College
Avenue, Appleton,  Wisconsin 54919-0007.  The Telecommunications  Device for the
Deaf ("TDD") number is 800-684- 3416. The AAL U.S. Government Zero Coupon Target
Fund,  Series 2001 and 2006,  are  described  in a separate  prospectus  and are
closed to additional investments.

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 UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
    


<PAGE>


TABLE OF CONTENTS
General
The AAL Capital Growth Fund............................................
Summary of Expenses....................................................
Financial Highlights
The AAL Mid Cap Stock Fund.............................................
Summary of Expenses....................................................
Financial Highlights
The AAL Small Cap Stock Fund...........................................
Summary of Expenses....................................................
Financial Highlights
The AAL International Fund.................................................
Summary of Expenses....................................................
Financial Highlights
The AAL Utilities Fund.................................................
Summary of Expenses....................................................
Financial Highlights
The AAL Bond Fund......................................................
Summary of Expenses....................................................
Financial Highlights
The AAL Municipal Bond Fund............................................
Summary of Expenses....................................................
Financial Highlights
The AAL High Yield Bond Fund..............................................
Summary of Expenses....................................................
Financial Highlights
The AAL Money Market Fund..............................................
Summary of Expenses....................................................
Financial Highlights
Additional Investment Factors and Risks................................
Investment Restrictions................................................
Board of Trustees......................................................
Management of the Trust................................................
Buying Shares in the Funds.............................................
Buying Additional Shares...............................................
Additional Information About Buying Shares.............................
Selling (Redeeming) Your Shares........................................
The AAL Money Market Fund Checks ......................................
Closing Small Accounts.................................................
Reinstatement Privilege................................................
Exchange Privilege.....................................................
Net Asset Value (NAV)..................................................
Dividends, Distributions, and Taxes....................................
Shareholder Maintenance Agreement......................................
Yield and Performance Information......................................
Custodian, Transfer Agent, and Independent Accountants.................
Organization and Description of Shares.................................
Asset Allocation.......................................................
Questions..............................................................
Glossary of Important Terms...........................................



<PAGE>

   
Prospectus Summary

AAL Capital Management  Corporation is a Delaware corporation  organized in 1986
and is owned by Aid Associaton for Luthereans ("AAL"). It acts as the investment
adviser  ("Adviser")  and is  responsible  making  investment  decisions for the
Funds. It also acts as distributor  ("Distributor") for the Funds selling shares
of the Funds to the investors.  As of September 30, 1996, AAL Capital Management
Corporation  managed  over $3.2  billion  for the  Funds.  AAL is a  non-profit,
non-stock  membership  organization,  licensed  to do  business  as a  fraternal
benefit society. AAL's mission is to bring Lutherans and their families together
to pursue quality living through financial  security,  volunteer action and help
for others.  AAL has about 1.7 million members and is one of the world's largest
fraternal  benefit  societies  in terms of assets and life  insurance  in force,
ranking it in the top two  percent of all life  insurers in the U.S. in terms of
ordinary  life  insurance ( nearly $78 billion in force).  It also offers  life,
health and disability  income insurance and fixed and variable  annuities to its
members.  Members belong to one of over 9,400 local AAL branches  throughout the
U.S.

The AAL Mutual Funds
<TABLE>
<CAPTION>
<S>                            <C>                          <C>                         <C>

------------------------------ ---------------------------- --------------------------- ----------------------------
The AAL Fund                   Primary Objective            Primary Investments         Primary Risk(s)
------------------------------ ---------------------------- --------------------------- ----------------------------
Capital Growth                 Long-term capital growth     Diversified portfolio of    Economic, Market, See pages
                                                            dividend paying stocks of
                                                            large companies
------------------------------ ---------------------------- --------------------------- ----------------------------
Mid Cap Stock                  Long-term capital growth     Diversified portfolio of    Economic, Market, See pages
                                                            stocks of mid-sized
                                                            companies
------------------------------ ---------------------------- --------------------------- ----------------------------
Small Cap Stock                Long-term capital growth     Diversified portfolio of    Economic, Market, See pages
                                                            stocks of small companies
------------------------------ ---------------------------- --------------------------- ----------------------------
International                  Long-term capital growth     Diversified portfolio of    Currency, Liquidity,
                                                            foreign stocks              Political, Economic and
                                                                                        Market See pages
------------------------------ ---------------------------- --------------------------- ----------------------------
Utilities                      Current income, long-term    Diversified portfolio of    Market, Interest Rate, Financial 
                               income and capital growth    stocks and bonds of         See pages
                                                            public utilities companies
------------------------------ ---------------------------- --------------------------- ----------------------------
Bond                           High current income          Investment grade bonds --   Economic, Interest Rate, Financial
                               consistent with capital      BBB or higher               See pages
                               preservation
------------------------------ ---------------------------- --------------------------- ----------------------------
Municipal Bond                 High current income exempt   Investment grade            Economic, Interest Rate, Financial 
                               from Federal taxes           municipal bonds -- at       See pages
                               consistent with capital      least 75% in A or higher
                               preservation                 and 0-25% in BBB or higher
------------------------------ ---------------------------- --------------------------- ----------------------------
High Yield Bond                High current income and      High risk, high yield       Economic, Interest rate, Financial
                               secondarily capital growth   bonds -- BB or lower        See pages
------------------------------ ---------------------------- --------------------------- ----------------------------
Money Market                   High level of current        Money Market instruments    Interest Rate See pages
                               income consistent with       in two highest rating
                               liquidity and capital        categories -- A-1 and A-2
                               preservation
------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>


<PAGE>


    
   
This  prospectus  describes  two  classes of shares,  Class A Shares and Class B
Shares. You pay a sales charge immediately when you purchase Class A Shares. You
only pay a sales  charge when you redeem  Class B Shares held for less than five
years.  However,  Class B Share  12b-1  fees are  higher  than those for Class A
Shares.  The choice as to which class you should purchase primarily depends upon
how long you intend to own the shares  and the size of your  investment.  If you
intend  to own  shares  for more than  five  years and plan to invest  less than
$100,000,  then you should consider Class B Shares.  If you may redeem shares in
less than five years or invest  $100,000 or more,  you should  consider  Class A
Shares.
    

The following Table shows some of the differences:
<TABLE>
<CAPTION>
<S>                                                <C>
   
Class A Shares                                     Class B Shares
--------------                                     --------------
Maximum 4.00% Front-End Sales Charge               No Front End Sales Charges
------------------------------------               --------------------------
No Contingent Deferred Sales Charge                Maximum Contingent Deferred Sales Charge 5%
-----------------------------------                -------------------------------------------
Lower annual expenses than Class B Shares          Higher annual expenses than Class A Shares
-----------------------------------------          ------------------------------------------
No conversion to Class B Shares                    Automatic conversion to Class A Shares after 5 years
-------------------------------                    ----------------------------------------------------
</TABLE>
    

   
READING THIS PROSPECTUS. We have placed a glossary defining important
terms at the end of this prospectus. If you are unsure of the meaning of any
term in the prospectus, please check the glossary.

References to "you" and "your" in this prospectus refer to prospective investors
or shareholders,  while references to "we," "us," or "our" refer to the Trust or
the Funds generally. Please refer to "Summary of Expenses and Expense Example."
    



<PAGE>


THE AAL CAPITAL GROWTH FUND

INVESTMENT OBJECTIVE

The AAL  Capital  Growth  Fund  seeks  long-term  capital  growth  by  investing
primarily in common  stock and  securities  convertible  into common  stock.  We
designed this Fund for people who want to invest for the long term.  There is no
assurance that the Fund will achieve its investment objective.

INVESTMENT POLICIES

To achieve our  investment  objective,  we focus on  purchasing  dividend-paying
securities  issued by  companies  that have growth in earnings per share that is
higher than the growth in earnings  per share of the S&P  500(R).  In  selecting
stocks, we look for quality,  predictability of operating growth,  and financial
strength.

We also may invest in preferred stocks and bonds;  however,  we do not invest in
bonds for capital  growth or for long periods of time. We limit our  investments
in convertible securities to no more than 5% of the Fund's net assets.

   
ANNUAL ADVISORY FEE

0.70 of 1% on the first $250 million; 0.65 of 1% on the next $250 million; 0.575
of 1% on the next $500 million; and 0.50 of 1% on assets over $1 billion.
    

PORTFOLIO MANAGER

Frederick L. Plautz has managed the  day-to-day  investments  for the Fund since
November  1,  1995.  Prior to  managing  the  Fund,  Mr.  Plautz  served as vice
president  and  portfolio  manager for  Federated  Investors  from 1990  through
October 1995.

INVESTMENT FACTORS AND THE RISKS INVOLVED

The value of the Fund's  investments  may increase  and  decrease  more than the
stock  market in general,  as  measured  by the S&P 500(R).  There is a risk you
could lose  money  investing  in the Fund,  especially  if you sell your  shares
during a time when the Fund is declining in value.

For more  information  on risks see Additional  Investment  Factors and Risks on
page --.


<PAGE>


SUMMARY OF EXPENSES AND EXPENSE EXAMPLE

   
The purpose of this  information is to assist you in  understanding  the various
costs  and  expenses  that you may  directly  and  indirectly  incur  with  your
investment  in the Fund.  The  tables  show  recurring  and  non-recurring  Fund
expenses.  Shareholder  Transaction  Expenses  are based upon the maximum  4.00%
sales  charge for Class A Shares  which is reduced for  purchases  of $25,000 or
more, and the maximum 5.00% contingent  deferred sales charge for Class B Shares
which is reduced by 1.00% for each year the Class B Shares are owned.
    

<TABLE>
<CAPTION>
    <S>                                                                                              <C>           <C>
   
     ------------------------------------------------------------------------------------------------ ------------- ------------
     Shareholder Transaction Expenses                                                                 Class A       Class B
     ------------------------------------------------------------------------------------------------ ------------- ------------
     Maximum sales charge imposed on purchases (as a percentage of offering price)                    4.00%         none
     Maximum sales charge imposed on reinvested dividends                                             none          none
     Maximum deferred sales charge                                                                    none          5.00%
     Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.)              none          none
     Exchange fee                                                                                     none          none
     Total                                                                                            4.00%         5.00%
     ------------------------------------------------------------------------------------------------ ------------- ------------
</TABLE>
    

Operating  expenses  are  expressed  as a  percentage  of  average  net  assets.
Percentages  shown  for  management  fees and  12b-1  distribution  fees are the
maximum fees permitted under The AAL Mutual Funds Investment  Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts  incurred  in the prior  fiscal  year.  The  Expense  Example  shows the
cumulative  expenses  attributable to a hypothetical  $1,000  investment with an
annual return of 5% compounded annually, in each class for the years shown.

<TABLE>
<CAPTION>
     <S>                                                  <C>        <C>        <C>               <C>         <C>         <C>

   
     -------------------------------------------------------------------------- ----------------------------------------------------
     Annual Fund Operating Expenses (as a percentage of average net assets)                       Expense Example
     -------------------------------------------------------------------------- ----------------------------------------------------
     ---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
                                                          Class A    Class B                      Class A     Class B     Class B No
                                                                                                                          Redemption
     ---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
     ---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
     Management Fee                                       .70%       .70%       After 1 year      $51         $69         $19
     ---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
     ---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
     12b-1 Distribution and Service Fees                  .25%       1.00%      After 3 Years     $75         $90         $60
     ---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
     ---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
     Other Expenses                                       .17%       .17%       After 5 Years     $100        $103        $103
     ---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
     ---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
     Total Fund Operating Expenses                        1.12%      1.87%      After 10 years    $173        -
     ---------------------------------------------------- ---------- ---------- ----------------- ----------- ----------- ----------
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
</TABLE>
    


<PAGE>


FINANCIAL HIGHLIGHTS

The audited  Financial  Highlights  Table covers The AAL Capital Growth Fund for
the periods  shown and is based on a share of  beneficial  interest  outstanding
throughout the applicable  period. You should read the Table in conjunction with
the  Fund's  financial  statements  and  related  notes,  all of which have been
audited  by Price  Waterhouse  LLP,  independent  accountants.  These  documents
together with a more detailed discussion and analysis of the Fund's performance,
are  contained  in the Funds' April 30, 1996 Annual  Report.  Copies of the 1996
Annual Report are available from the Distributor without charge.


<TABLE>
<CAPTION>
    <S>        <C>    <C>        <C>      <C>        <C>        <C>          <C>       <C>     <C>     <C>
               INCOME FROM INVESTMENT                           LESS DISTRIBUTIONS
               OPERATIONS
               NAV    Net        Net      Total from Dividends  Distribution Total     NAV:    Total   Net Assets
               Start  Investment Realized Investment from Net   from net     Dividends End of  return  at end of
               of     Income     and un-  Operations Investment realized     and       Period  for     Period
               Period (loss)     realized            Income     Gain on      Distributions     Period
                                 gain(loss)on                   investment                     (1)
                                 investments



    July 16,   10     0.112      -1.709   -1.597     -0.043                  -0.043    $8.36   -15.95% $23,672,346
    1987 April 30,
    1988
     30-Apr-89 8.36   0.218      1.466    1.684      -0.204                  -0.204    $9.84   20.46%  $48,915,003
     30-Apr-90 9.84   0.233      0.889    1.122      -0.242                  -0.242    $10.72  11.45%  $119,731,099
     30-Apr-91 10.72  0.271      1.726    1.997      -0.269     -0.028       -0.297    $12.42  18.93%  $209,055,868
     30-Apr-92 12.42  0.276      1.659    1.935      -0.28      -0.015       -0.295    $14.06  15.77%  $423,231,713
     30-Apr-93 14.06  0.284      0.761    1.045      -0.274     -0.001       -0.275    $14.83  7.52%   $714,184,330
     30-Apr-94 14.83  0.296      -0.287   0.009      -0.286     -0.063       -0.349    $14.49  0.00%   $868,850,190
     30-Apr-95 14.49  0.274      1.699    1.973      -0.298     -0.605       -0.903    $15.56  14.37%  $1,032,168,121
     30-Apr-96 15.56  0.201      3.756    3.957      -0.217     -0.51        -0.727    $18.79  25.85%  $1,381,352,222
    May 1, 1996
    October 31, 1996  18.79      0.072    1.413      -0.085     0.00         -0.085    $20.19  7.93    $1,544,718,439
    UNAUDITIED       
<CAPTION>
<S>                   <C>        <C>                 <C>        <C>


                      SUPPLEMENTAL DATA
                      AND RATIOS

                      Ratio      Ratio of            Portfolio  Average
                      of Net     investment          Turnover   Commission
                      operating  income(loss)        Rate Paid
                      expenses   to average net
                      to Average assets*(2)
                      Net
                      Assets*
                      (2)

July 16,              1.50%      2.61%               1.36%
1987 April 30,
1988
 30-Apr-89            1.50%      2.80%               2.78%
 30-Apr-90            1.44%      2.56%               1.43%
 30-Apr-91            1.41%      2.59%               2.26$
 30-Apr-92            1.28%      2.27%               1.11%
 30-Apr-93            1.20%      2.15%               2.99%
 30-Apr-94            1.18%      2.07%               40.60%
 30-Apr-95            1.17%      1.89%               33.34%
 30-Apr-96            1.12%      1.16%               44.26%     0.053
May 1, 1996
October 31, 1996      1.07       0.76                12.15%     0.058
UNAUDITED             
</TABLE>



<PAGE>


   
*If the Fund had paid all of its expenses the ratios would be as follows:  Ratio
of Net operating expenses to Average Net Assets (2), 1.91%, 1.77%, 1.49%, 1.41%,
1.28%,  1.20%,  1.18%,  1.17%,  1.12%, and 1.07%, Ratio of net investment income
(loss) to average net assets (2), 2.21%,  2.54%,  2.51%,  2.59%,  2.27%,  2.15%,
2.07%,  1.89%,  1.16% and 0.76%,  (1) Total return assumes  reinvestment  of all
dividends  and  distributions  but does not  reflect  any  deductions  for sales
charges.  The aggregate (not annualized)  total return is shown for periods less
than one  year.  (2) For  periods  less  than one  year,  both the  ratio of net
operating  expenses to average net assets and the ratio of net investment income
(loss) are calculated on an annualized basis
    



<PAGE>



THE AAL MID CAP STOCK FUND

   
    

INVESTMENT OBJECTIVE

The AAL Mid Cap Stock Fund seeks  capital  growth by  investing  primarily  in a
diversified  portfolio of common stocks, and securities  convertible into common
stocks,  of  mid-sized  companies.  By mid-sized  companies,  we mean those with
market  capitalization's  ranging from $100  million to $5 billion.  We designed
this Fund for people  who want to invest for the long term,  and who are able to
accept the risks  involved in  investing  in  mid-sized  companies.  There is no
assurance that the Fund will achieve its investment objective.

INVESTMENT POLICIES

Under  normal  circumstances,  we invest  at least  65% of our  total  assets in
stocks, not including convertible securities, of mid-sized companies. Generally,
we focus on companies with market capitalization's  ranging from $400 million to
$3.5 billion.  Mid-sized  companies  tend to be smaller and  less-seasoned  than
companies  listed  in  the  S&P  500(R).   These  companies  may  trade  on  the
over-the-counter market as well as on U.S. national securities exchanges.

We may  invest  the  remaining  35% of our total  assets in any  combination  of
additional  mid  cap  stocks,  larger  capitalization   stocks,  and  securities
convertible into such stocks.

We look for mid-sized  companies  (including  companies initially offering their
stock to the public) that, in our opinion: 1) have prospects for growth in their
sales and earnings;  2) are in an industry with a good economic outlook; 3) have
higher quality management and more management depth than small companies; and 4)
are in a strong financial position. The Fund tends to invest in companies in the
middle stages of their  development.  These companies tend to have established a
record of  profitability  and may possess a new technology,  unique product,  or
market niche.

We tend to sell the stock of  companies  when we think other  investments  offer
better  opportunities.  Due to this policy,  the Fund may from time to time have
short-term gains or losses.

We also may invest in foreign  securities  listed and traded on a U.S.  national
securities exchange.

   
ANNUAL ADVISORY FEE

0.75 of 1% on the  first  $200  million;  and  0.65 of 1% on  assets  over  $200
million.
    



<PAGE>


PORTFOLIO MANAGER

Kevin Schmitting, CFA, has managed the day-to-day investments for the Fund since
November  1,  1995.  Prior to  managing  the  Fund,  Mr.  Schmitting  served  as
investment  director  and in  other  investment  capacities  for  the  State  of
Wisconsin  Investment Board from 1984 through October 1995. Mr.  Schmitting also
manages The AAL Small Cap Stock Fund.

INVESTMENT FACTORS AND THE RISKS INVOLVED

Stocks of mid-sized  companies may present  greater risks than stocks of larger,
more  established  companies,  but may present  less risk than stocks of smaller
companies.  Mid-sized  companies  tend  to  have  relatively  smaller  revenues,
narrower product lines,  less management depth, and smaller shares of the market
for their products or services than large companies.

The value of the Fund's  investments  may increase  and  decrease  more than the
stock market in general, as measured by the S&P 500(R). There is a risk that you
could lose  money  investing  in the Fund,  especially  if you sell your  shares
during a time when the Fund is declining in value.

Over time,  the stock  market  tends to move in cycles,  with periods when stock
prices rise generally and periods when stock prices decline generally.

For more  information  on risks see Additional  Investment  Factors and Risks on
page --.


<PAGE>


SUMMARY OF EXPENSES AND EXPENSE EXAMPLE

   
The purpose of this  information is to assist you in  understanding  the various
costs  and  expenses  that you may  directly  and  indirectly  incur  with  your
investment  in the Fund.  The  tables  show  recurring  and  non-recurring  Fund
expenses.  Shareholder  Transaction  Expenses  are based upon the maximum  4.00%
sales  charge for Class A Shares  which is reduced for  purchases  of $25,000 or
more, and the maximum 5.00% contingent  deferred sales charge for Class B Shares
which is reduced by 1% for each year the Class B Shares are owned.
    

<TABLE>
<CAPTION>
<S>                                                                                                  <C>           <C>
   
---------------------------------------------------------------------------------------------------- ------------- -------------
Shareholder Transaction Expenses                                                                     Class A       Class B
---------------------------------------------------------------------------------------------------- ------------- -------------
Maximum sales charge imposed on purchases (as a percentage of offering price)                        4.00%         none
Maximum sales charge imposed on reinvested dividends                                                 none          none
Maximum deferred sales charge                                                                        none          5.00%
Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.)                  none          none
Exchange fee                                                                                         none          none
Total                                                                                                4.00%         5.00%
---------------------------------------------------------------------------------------------------- ------------- -------------
</TABLE>
    

Operating  expenses  are  expressed  as a  percentage  of  average  net  assets.
Percentages  shown  for  management  fees and  12b-1  distribution  fees are the
maximum fees permitted under The AAL Mutual Funds Investment  Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts  incurred  in the prior  fiscal  year.  The  Expense  Example  shows the
cumulative  expenses  attributable to a hypothetical  $1,000  investment with an
annual return of 5% compounded annually, in each class for the years shown.

<TABLE>
<CAPTION>
     <S>                                              <C>            <C>            <C>               <C>        <C>      <C>
   
     ------------------------------------------------------------------------------ ------------------------------------------------
     Annual Fund Operating Expenses (as a percentage of average net assets)                           Expense Example
     ------------------------------------------------------------------------------ ------------------------------------------------
     ------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
                                                      Class A        Class B                          Class A    Class B  Class B No
                                                                                                                          Redemption
     ------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
     ------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
     Management Fee                                   .75%           .75%           After 1 year      $54        $72      $22
     ------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
     ------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
     12b-1 Distribution and Service Fees              .25%           1.00%          After 3 Years     $83        $98      $68
     ------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
     ------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
     Other Expenses                                   .39%           .39%           After 5 Years     $114       $117     $117
     ------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
     ------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
     Total Fund Operating Expenses                    1.39%%         2.14%%         After 10 years    $203       -
     ------------------------------------------------ -------------- -------------- ----------------- ---------- -------- ----------
</TABLE>
    

This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.




<PAGE>


Financial Highlights

The audited Financial Highlights Table covers The AAL Mid Cap Stock Fund for the
periods  shown  and is  based  on a share  of  beneficial  interest  outstanding
throughout the applicable  period. You should read the Table in conjunction with
the  Fund's  financial  statements  and  related  notes,  all of which have been
audited by Price Waterhouse LLP, independent accountants. These, together with a
more detailed discussion and analysis of the Fund's  performance,  are contained
in the Funds' April 30, 1996 Annual  Report,  copies of which are available from
the Distributor without charge.

<TABLE>
<CAPTION>
  <S>              <C>    <C>        <C>        <C>        <C>        <C>          <C>           <C>     <C>       <C>

                   INCOME FROM INVESTMENT                  LESS DISTRIBUTIONS
                   OPERATIONS
                   NAV    Net        Net        Total      Dividends  Distribution Total         NAV:    Total     Net Assets
                   Start  Investment Realized   from       from       from         Dividends     End of  return    at end of
                   of     Income     and un-    Investment Net        net          and           Period  for       Period
                   Period (loss)     realized   Operations Investment realized     Distributions         Period
                                     gain(loss)            Income     Gain on                            (1)
                                     on                               investment
                                     investments

  June 30, 1993 to 10.00  -.044      0.424      0.380      0          0            0             10.38   3.80%     $142,529,469
    30-Apr-94
    30-Apr-95      10.38  -0.054     0.594      0.540      0          0            0             10.92   5.20%     $220,792,070
    30-Apr-96      10.92  -0.100     6.290      6.190      0          0            0             17.11   56.59%    $424,974,828
    May 1, 1996
    October 31,
    1996           17.11  -0.089     -1.381     -1.470     0          0            0             15.64   -8.54     $452,415,007
    UNAUDITED      

<CAPTION>
  <S>              <C>               <C>                   <C>        <C>

                   SUPPLEMENTAL DATA
                   AND RATIOS
                   Ratio             Ratio of              Portfolio  Average
                   of Net            net                   Turnover   Commission
                   operating         investment                       Rate
                   expenses          income                           Paid
                   to Average        (loss) to
                   Net Assets*       average net*
                   (1)               assets(1)

  June 30, 1993 to 1.72%             -1.14%                55.49%
    30-Apr-94
    30-Apr-95      1.54%             -0.77%                88.18%
    30-Apr-96      1.39%             -0.82%                90.14%     0.055
    May 1, 1996
    October 31
    1996           1.36              -1.17                 56.49      0.058
    UNAUDITED      
</TABLE>

   
If the Fund had paid all of its expenses,  the ratios would be as follows: Ratio
of Net operating  expenses to Average Net Assets (2), 1.73%,  1.54%,  1.39%, and
1.36% Ratio of net investment  income (loss) to average net assets (2), (1.14%),
(0.77%),  (0.82%) and (1.17%),  (1) Total  return  assumes  reinvestment  of all
dividends  and  distributions  but does not  reflect  any  deductions  for sales
charges.  The aggregate (not annualized)  total return is shown for periods less
than one  year.  (2) For  periods  less  than one  year,  both the  ratio of net
operating  expenses to average net assets and the ratio of net investment income
(loss) are calculated on an annualized basis
    



<PAGE>


THE AAL SMALL CAP STOCK FUND

INVESTMENT OBJECTIVE

The AAL Small Cap Stock Fund seeks  capital  growth by investing  primarily in a
diversified  portfolio of common stocks, and securities  convertible into common
stocks  of small  companies.  By small  companies,  we mean  those  with  market
capitalization's  of less than $1 billion.  We designed this Fund for people who
want to invest for the long term,  and who are able to accept the risks involved
in  investing  in small  companies.  There is no  assurance  that the Fund  will
achieve its investment objective.

INVESTMENT POLICIES

Under  normal  circumstances,  we invest  at least  65% of our  total  assets in
stocks, not including convertible securities,  of small companies.  Generally we
focus on companies with market capitalization's ranging from $30 million to $600
million.  Small companies tend to be substantially  less-seasoned than companies
listed in the Standard & Poor's 500 Index(R)  ("S&P  500(R)") or The S&P Mid Cap
400 Index(R).  These companies may trade on the over-the-counter  market as well
as on U.S. securities exchanges such as the New York Stock Exchange ("NYSE").

We may  invest  the  remaining  35% of our total  assets in any  combination  of
additional  small cap  stocks,  larger  capitalization  stocks,  and  securities
convertible into such stocks.

We look for small companies (including companies initially offering their stocks
to the public) that, in our opinion: 1) are in their early stages of development
or positioned in new and emerging  industries;  2) have an opportunity for rapid
growth; 3) have capable  management;  and 4) are financially  sound. These small
companies  generally are not as well known to the investing public and have less
of an investor  following  than larger  companies.  Therefore,  they may provide
greater  opportunities  for  long-term  capital  growth as a result of  relative
inefficiencies in the marketplace.

We tend to sell the stock of  companies  when we think  that  other  investments
offer better  opportunities.  Because of this policy,  the Fund may from time to
time have short-term gains or losses.

We also may invest in foreign securities that are listed and traded on a U.S.
national securities exchange.

   
ANNUAL ADVISORY FEE

0.75 of 1% on the  first  $200  million;  and  0.65 of 1% on  assets  over  $200
million.
    


<PAGE>


PORTFOLIO MANAGER

Kevin Schmitting, CFA, manages the day-to-day investments for the Fund. Prior to
November 1, 1995,  Mr.  Schmitting  served as  investment  director and in other
investment  capacities for the State of Wisconsin  Investment Board beginning in
1984 through  October 1995.  Mr.  Schmitting  also manages The AAL Mid Cap Stock
Fund (formerly The AAL Smaller Company Stock Fund).

INVESTMENT FACTORS AND THE RISKS INVOLVED

Small,  less-established  companies may have relatively small revenues,  limited
product  lines,  lack of management  depth,  and a small share of the market for
their products or services. Stocks of these companies present greater risks than
stocks of larger, more established companies.

Historically,  small  capitalization  stocks have experienced more volatility in
price than mid-size and large  capitalization  stocks.  Some of the reasons they
have greater volatility  include:  1) the less certain growth prospects of small
firms;  2) the lower degree of liquidity in the markets for such stocks;  and 3)
the greater sensitivity of small companies to changing economic conditions.

In the short term, the value of the Fund's investments may increase and decrease
substantially  more than the stock  market in  general,  as  measured by the S&P
500(R).  There may be greater risks that you could lose your money  investing in
the  Fund,  especially  if you sell your  shares  during a time when the Fund is
declining in value.

Over time,  the stock  market  tends to move in cycles,  with periods when stock
prices rise  generally  and periods when stock  prices  decline  generally.  The
prices for stocks in small companies tend to have more volatility than stocks in
larger  companies.  In other words, they tend to rise and fall more dramatically
than those for larger companies.

For more  information  on risks see Additional  Investment  Factors and Risks on
page --.


<PAGE>


SUMMARY OF EXPENSES AND EXPENSE EXAMPLE

   
The purpose of this  information is to assist you in  understanding  the various
costs  and  expenses  that you may  directly  and  indirectly  incur  with  your
investment  in the Fund.  The  tables  show  recurring  and  non-recurring  Fund
expenses.  Shareholder  Transaction  Expenses  are based upon the maximum  4.00%
sales  charge for Class A Shares  which is reduced for  purchases  of $25,000 or
more, and the maximum 5.00% contingent  deferred sales charge for Class B Shares
which is reduced by 1% for each year the Class B Shares are owned.
    

<TABLE>
<CAPTION>
<S>                                                                                                  <C>           <C>
   
---------------------------------------------------------------------------------------------------- ------------- -------------
Shareholder Transaction Expenses                                                                     Class A       Class B
---------------------------------------------------------------------------------------------------- ------------- -------------
Maximum sales charge imposed on purchases (as a percentage of offering price)                        4.00%         none
Maximum sales charge imposed on reinvested dividends                                                 none          none
Maximum deferred sales charge                                                                        none          5.00%
Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.)                  none          none
Exchange fee                                                                                         none          none
Total                                                                                                4.00%         5.00%
---------------------------------------------------------------------------------------------------- ------------- -------------
</TABLE>

Operating  expenses  are  expressed  as a  percentage  of  average  net  assets.
Percentages  shown  for  management  fees and  12b-1  distribution  fees are the
maximum fees permitted under The AAL Mutual Funds Investment  Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
management's  estimates of amounts  expected to be incurred in this fiscal year.
The Expense Example shows the cumulative expenses attributable to a hypothetical
$1,000 investment with an annual return of 5% compounded annually, in each class
for the years shown.
    


<TABLE>
<CAPTION>
     <S>                                        <C>             <C>            <C>                <C>       <C>          <C>
   
     ------------------------------------------------------------------------- -----------------------------------------------------
     Annual Fund Operating Expenses (as a percentage of average net assets)                       Expense Example
     ------------------------------------------------------------------------- -----------------------------------------------------
     ------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
                                                Class A         Class B                           Class A   Class B      Class B No
                                                                                                                         Redemption
     ------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
     ------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
     Management Fee                             .75%            .75%           After 1 year       $60       $78          $28
     ------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
     ------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
     Rule 12b-1 Distribution and Service Fees   .25%            1.00%          After 3 Years      $101      $116         $86
     ------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
     ------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
     Other Expenses                             1.00            1.00           After 5 Years      NA        NA           NA
     ------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
     ------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
     Total Fund Operating Expenses              2.00%           2.75%          After 10 years     NA        NA           NA
     ------------------------------------------ --------------- -------------- ------------------ --------- ------------ -----------
</TABLE>
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
    


<PAGE>


FINANCIAL HIGHLIGHTS

The unaudited Financial Highlights Table covers The AAL Small Cap Stock Fund for
the period from July 1, 1996 through  October 31, 1996. The information is based
on a share of beneficial interest outstanding  throughout the applicable period.
The Funds'  financial  statements and related notes, are contained in the Fund's
October 31, 1996  Semi-Annual  Report,  copies of which are  available  from the
Distributor without charge.


                      INCOME FROM INVESTMENT    LESS DISTRIBUTIONS
                      OPERATIONS
<TABLE>
<CAPTION>
    <S>               <C>    <C>        <C>            <C>        <C>        <C>          <C>          <C>        <C>
                      NAV    Net        Net            Total      Dividends  Distribution Total        NAV: End   Total return
                      Start  Investment Realized       from       from Net   from net     Dividends    of Period  for Period
                      of     Income     and            Investment Investment realized     and                     (1)
                      Period (loss)     unrealized     Operations Income     Gain on      Distribution
                                        gain(loss) on                        investments
                                        investments


    July 1, 1996 to   $10.00 -0.029     $0.909         $0.880     0          0            0            $10.88     8.80%
    October 31, 1996

<CAPTION>
    <S>               <C>               <C>            <C>                   <C>          <C>

                                        SUPPLEMENTAL DATA
                                        AND RATIOS
                      Net Assets at     Ratio of       Ratio of net          Portfolio    Average
                      end of Period     Net            investment            Turnover     Commission
                                        operating      income(loss)to                     Rate Paid
                                        expenses       average net
                                        to Average     assets*(2)
                                        Net Assets*
                                        (2)


    July 1, 1996 to
    October 31, 1996  $21,818,553       2.67%          -1.61%                52.27        $0.049
UNAUDITED             
</TABLE>


*If the Fund had paid all of its expenses, the ratios would be as follows: Ratio
of Net  operating  expenses to Average Net Assets(2)2.73%.  Ratio of net  
investment income (loss) to average net assets (2)(1.67)%. 
(1) Total return assumes  reinvestment of all dividends and distributions but 
does not reflect any deductions for sales charges.  The aggregate (not 
annualized)  total return is shown for periods less than one  year.  
(2) For  periods  less  than one year,  both the  ratio of net operating  
expenses to average net assets and the ratio of net investment income (loss) 
are calculated on an annualized basis.

<PAGE>


THE AAL INTERNATIONAL FUND:

INVESTMENT OBJECTIVE

The Fund's primary  investment  objective is long-term growth of capital through
investing in a diversified portfolio of non-U.S. securities.

INVESTMENT POLICIES
   
Under normal circumstances, we invest at least 65% of the Fund's total assets in
foreign stocks primarily  traded in at least three countries,  not including the
United States. However, we may not invest more than 25% of the Fund's net assets
in any one  country.  We have no other  limitations  on how  much of the  Fund's
assets we may invest in securities primarily traded in any one country.

We tend to invest in stocks  primarily  trading in the United  Kingdom,  Western
Europe, Australia, Far East, Latin America and Canada. Many of these markets are
mature, while others are emerging (for example,  Indonesia and Argentina). We do
not have any  limits on the extent to which we will  invest in either  mature or
emerging  markets,  and may  invest  up to 100% of the  Fund's  total  assets in
emerging  markets.  We have listed the  countries and their  classifications  as
mature or emerging in the  Statement  of  Additional  Information.  From time to
time, we may invest in securities  trading in other countries not listed here or
in the Statement of Additional Information.

Typically, we consider an issuer as domiciled in a particular country if it:

(1) is incorporated under the laws of that country;

(2) has at least 50% of the value of its assets located in that country; and

(3) derives at least 50% of its income from operations or sales in that country.

For  issuers  that do not meet the  above  domicile  criterion,  we will  make a
good-faith  determination  based on such  factors as the location of its assets,
personnel, sales and earnings.

We also may invest in: additional foreign stocks; U.S. stocks;  structured notes
and/or preferred stocks;  and up to 20% in U.S. and foreign bonds and other debt
obligations,  including  lower-rated debt,  commonly referred to as "junk bonds"
(i.e.,  securities  rated BB or lower by Standard & Poor's  Corporation or Ba or
lower by Moody's Investor  Services,  Inc.) and unrated  securities.  Structured
notes and/or preferred stocks involve



<PAGE>


additional  risk,  including  structures  that may  reduce  the  coupons  and/or
dividends  amounts to zero or the  redemption  amounts  payable at maturity as a
result of declines in the value of the underlying  instrument.  Also, structured
securities may have more volatility than the price of the underlying instrument.
We have no restrictions  on the ratings of debt securities  acquired by the Fund
or the  portion  of the  Fund's  assets  that we invest in a  particular  rating
category. We have provided a description of the ratings assigned by D&P, Moody's
and S&P in the Appendix to this  Prospectus.  For more information on structured
securities,  please see the  Statement of Additional  Information,  and for high
yield  bonds,  please see "The AAL High Yield  Bond Fund" and the  Statement  of
Additional Information.

In  addition,  pending our  investment  of cash  received  from new sales of the
Fund's shares or to meet ordinary daily cash needs, we may temporarily hold cash
(U.S. dollars,  foreign currencies or multinational  foreign currency units) and
invest any portion the Fund's total assets in money market instruments. The Fund
may temporarily hold cash (U.S. dollars,  foreign  currencies,  or multinational
foreign  currency  units) and may invest a portion of its assets in money market
intruments.


ADVISORY AND SUB-ADVISORY FEES
    

We pay the Adviser a fee based on the average daily net assets of the Fund. This
annual fee is at the rate of 1% and is paid monthly:

   
For its services,  the  Sub-Adviser  Societe  Generale  Asset  Management  Corp.
receives a fee from the fees paid to the Adviser, at an annual rate of .75 of 1%
of The AAL International Fund's average daily net assets.
    


<PAGE>


PORTFOLIO MANAGER

   
Jean-Marie  Eveillard,  President and Director of the Sub-Adviser,  is primarily
responsible for the day-to-day  management of the Fund's  investment  portfolio.
Mr. Eveillard has been President and Director since April,  1990.
    

OTHER INVESTMENT FACTORS AND THE RISKS INVOLVED

Investment  in the Fund requires  consideration  of a number of factors that are
usually not important when investing in domestic securities.  Some or all of the
described risks may affect  securities  held by the Fund. In addition,  the Fund
may  invest  from 0% to 100% of its net  assets in  emerging  growth  countries.
Investments  in  emerging  growth  countries  may be  subject  to more risk than
investments in mature countries. These risks, described in Additional Investment
Factors and Risks on page --. include currency,  liquidity,  political, economic
and market risks, as well as risks associated with  governmental  regulation and
nonuniform  corporate  disclosure  standards.  The greater the percentage of the
Fund's net assets  that are  invested  in  emerging  countries,  the greater the
investment risks.

EXPENSES

The cost of investing in foreign securities is higher than the cost of investing
in U.S. securities. Investing in the Fund is an efficient way for an investor to
participate  in  foreign  markets  but  its  expenses,  including  advisory  and
custodial  fees,  are  higher  than the  expenses  of a typical  domestic  fund,
although not  necessarily  higher than for other funds with  similar  investment
policies.

   
    

<PAGE>


SUMMARY OF EXPENSES AND EXPENSE EXAMPLE

   
The purpose of this  information is to assist you in  understanding  the various
costs  and  expenses  that you may  directly  and  indirectly  incur  with  your
investment  in the Fund.  The  tables  show  recurring  and  non-recurring  Fund
expenses.  Shareholder  Transaction  Expenses  are based upon the maximum  4.00%
sales  charge for Class A Shares  which is reduced for  purchases  of $25,000 or
more, and the maximum 5.00% contingent  deferred sales charge for Class B Shares
which is reduced by 1% for each year the Class B Shares are owned.
    

<TABLE>
<CAPTION>
<S>                                                                                                  <C>           <C>
   
---------------------------------------------------------------------------------------------------- ------------- -------------
Shareholder Transaction Expenses                                                                     Class A       Class B
---------------------------------------------------------------------------------------------------- ------------- -------------
Maximum sales charge imposed on purchases (as a percentage of offering price)                        4.00%         none
Maximum sales charge imposed on reinvested dividends                                                 none          none
Maximum deferred sales charge                                                                        none          5.00%
Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.)                  none          none
Exchange fee                                                                                         none          none
Total                                                                                                4.00%         5.00%
---------------------------------------------------------------------------------------------------- ------------- -------------
</TABLE>
    

Operating  expenses  are  expressed  as a  percentage  of  average  net  assets.
Percentages  shown  for  management  fees and  12b-1  distribution  fees are the
maximum fees permitted under The AAL Mutual Funds Investment  Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts  incurred  in the prior  fiscal  year.  The  Expense  Example  shows the
cumulative  expenses  attributable to a hypothetical  $1,000  investment with an
annual return of 5% compounded annually, in each class for the years shown.

<TABLE>
<CAPTION>
      <S>                                  <C>             <C>              <C>               <C>         <C>        <C>
   
      --------------------------------------------------------------------- --------------------------------------------------------
      Annual Fund Operating Expenses (as a percentage of average net                          Expense Example
      assets)
      --------------------------------------------------------------------- --------------------------------------------------------
      ------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
                                           Class A         Class B                             Class A    Class B    Class B No
                                                                                                                     Redemption
      ------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
      ------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
      Management Fee                       1.00%           1.00%            After 1 year       $61        $80        $30
      ------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
      ------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
      12b-1 Distribution and Service Fees  .25%            1.00%            After 3 Years      $106       $121       $91
      ------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
      ------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
      Other Expenses                       .90%            .90%             After 5 Years      152        154        154
      ------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
      ------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
      Total Fund Operating Expenses        2.15%%          2.90%%           After 10 years     282        NA         NA
      ------------------------------------ --------------- ---------------- ------------------ ---------- ---------- ---------------
</TABLE>
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
    


<PAGE>


FINANCIAL  HIGHLIGHTS

The audited Financial Highlights Table covers The AAL International Fund for the
periods  shown  and is  based  on a share  of  beneficial  interest  outstanding
throughout the applicable  period. You should read the Table in conjunction with
the  Fund's  financial  statements  and  related  notes,  all of which have been
audited by Price Waterhouse LLP, independent accountants. These, together with a
more detailed discussion and analysis of the Fund's  performance,  are contained
in the Funds' April 30, 1996 Annual  Report,  copies of which are available from
the Distributor without charge.
<TABLE>
<CAPTION>
    <S>       <C>    <C>        <C>        <C>        <C>         <C>          <C>           <C>     <C>     <C>
              INCOME FROM INVESTMENT                  LESS DISTRIBUTIONS
              OPERATIONS
              NAV    Net        Net        Total      Dividends   Distribution Total         NAV:    Total   Net Assets
              Start  Investment Realized   from       from        from         Dividend      End of  return  at end of
              of     Income     and        Investment Net         net          and           Period  for     Period
              Period (loss)     unrealized Operations Investment  realized     Distributions         Period
                                gain(loss)            Income      Gain on                            (1)
                                on                    investments investments
                                Investments


    August 1, 10.00  0.046      1.058       1.104     -0.024      0            -0.024        11.08   11.07%  $57,117,185
    1995 to
    April 30,
    1996
    May 1,
    1996 to
    October
    31, 1996  11.08  -0.022     -0.028      -0.050    0           0            0             11.03   -0.45   $86,755,029
    UNAUDITED

<CAPTION>
    <S>       <C>               <C>         <C>       <C>


              SUPPLEMENTAL DATA
              AND RATIOS
              Ratio             Ratio of    Portfolio Average
              of Net            net         Turnove   Commission
              operating         investment            Rate
              expenses          income                Paid
              to                (loss) to
              Average           average
              Net               net
              Assets*           assets*
              (2)               (2)
              2.15%             0.94%       1.30%     0.018


    August 1,
    1995 to
    April 30,
    1996
    May 1,
    1996 to
    October
    31, 1996  2.19              1.13        3.89      0.017
    UNAUDITED
</TABLE>

   
*If the Fund had paid all of its expenses, the ratios would be as follows: Ratio
of Net operating  expenses to Average Net Assets (2), 2.32%, and 2.19%, Ratio of
net  investment  income  (loss) to average net assets (2),  .77%,  and 1.13% (1)
Total return assumes  reinvestment of all dividends and  distributions  but does
not reflect any  deductions for sales  charges.  The aggregate (not  annualized)
total return is shown for periods less than one year.  (2) For periods less than
one year, both the ratio of net operating expenses to average net assets and the
ratio of net investment income (loss) are calculated on an annualized basis
    



<PAGE>


THE AAL UTILITIES FUND

INVESTMENT OBJECTIVE

The AAL Utilities  Fund seeks  current  income,  long-term  growth of income and
capital  growth by  investing  primarily  in a  diversified  portfolio of public
utility securities.  We designed this Fund for people who want to invest for the
long term and who are able to accept  the risks  involved  in  investing  in the
public  utility  industry.  There is no assurance that the Fund will achieve its
investment objective.

INVESTMENT POLICIES

   
As a matter of fundamental investment policy, normal circumstances, we invest at
least 65% of our total  assets in the  securities  (stocks  and bonds) of public
utility  companies.  Examples of public  utility  companies  include those that:
manufacture,  produce, generate,  transmit and sell water, gas, electric, energy
and  telephone,   telegraph,   satellite,   microwave  and  other  communication
facilities for public benefit.
    

We may invest the  remainder  of the Fund's total  assets in the  securities  of
companies in other industries.

We look for public  utility  companies  that:  (1) have a good  growth  rate and
return on capital; (2) are financially sound; (3) have high-quality  management;
and (4) are in a favorable regulatory and competitive environment.

We buy bonds only if, at the time of purchase,  they are rated  investment grade
by at least two Nationally Recognized  Statistical Rating Organizations (NRSRO).
Any commercial paper we buy must be rated in the top two categories by an NRSRO,
or if unrated, the Adviser must determine they are of investment grade.

FOREIGN SECURITIES

Although  we have no  present  intention  to do so, The AAL  Utilities  Fund may
invest  up to 15% of its net  assets  in the  securities  of  utility  companies
located outside the United States.  We also may invest in foreign  securities in
domestic markets through depository  receipts (i.e. American Depository Receipts
("ADRs")) and securities of foreign  issuers that are traded on a U.S.  national
securities  exchange or the NASDAQ  National Market System without regard to the
15% limitation.

   
ANNUAL ADVISORY FEE

0.50 of 1% on the  first  $250  million;  and  0.45 of 1% on  assets  over  $250
million.
    



<PAGE>


PORTFOLIO MANAGER

Lewis Alexander Bohannon, CFA, has managed the day-to-day Fund investments since
November 1, 1995. From 1980 through 1994, Mr. Bohannon was at Cigna Corporation,
serving as managing director and portfolio manager from 1990 to 1994.

INVESTMENT FACTORS AND THE RISKS INVOLVED

Although we attempt to diversify  our  investments  within the public  utilities
industry in terms of the types of issuers and securities (stocks and bonds), due
to the fact that we concentrate our investments in a single industry, the public
utilities  industry,   you  should  not  consider  investment  in  this  Fund  a
diversified  investment  program.  These  investments  are  subject to the risks
associated with the public utilities industry. These risks may include increased
operating  expenses,  high  interest  costs,  environmental   regulations,   and
regulatory  changes.  Some public  utilities are facing  increased  competition,
which may affect utility companies  independently from the securities markets as
a whole.

Public  utility   company   securities   are  sensitive  to  interest   changes,
particularly with respect to bonds. A decline in interest rates may increase the
value of the securities in the Fund's  portfolio,  while an increase in interest
rates may reduce their value.

With regard to stock investments,  over time the market tends to move in cycles,
with  periods  when stock  prices rise  generally  and periods when stock prices
decline generally.  Likewise,  general changes in the prices of utilities stocks
will  affect  the net asset  value of the Fund.  There is a risk you could  lose
money  investing in the Fund,  especially  if you sell your shares during a time
when the Fund is declining in value.

For more  information  on risks see Additional  Investment  Factors and Risks on
page --.


<PAGE>


SUMMARY OF EXPENSES AND EXPENSE EXAMPLE

   
The purpose of this  information is to assist you in  understanding  the various
costs  and  expenses  that you may  directly  and  indirectly  incur  with  your
investment  in the Fund.  The  tables  show  recurring  and  non-recurring  Fund
expenses.  Shareholder  Transaction  Expenses  are based upon the maximum  4.00%
sales  charge for Class A Shares  which is reduced for  purchases  of $25,000 or
more, and the maximum 5.00% contingent  deferred sales charge for Class B Shares
which is reduced by 1% for each year the Class B Shares are owned.
    

<TABLE>
<CAPTION>
<S>                                                                                                  <C>           <C>
   
---------------------------------------------------------------------------------------------------- ------------- -------------
Shareholder Transaction Expenses                                                                     Class A       Class B
---------------------------------------------------------------------------------------------------- ------------- -------------
Maximum sales charge imposed on purchases (as a percentage of offering price)                        4.00%         none
Maximum sales charge imposed on reinvested dividends                                                 none          none
Maximum deferred sales charge                                                                        none          5.00%
Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.)                  none          none
Exchange fee                                                                                         none          none
Total                                                                                                4.00%         5.00%
---------------------------------------------------------------------------------------------------- ------------- -------------
</TABLE>
    

Operating  expenses  are  expressed  as a  percentage  of  average  net  assets.
Percentages  shown  for  management  fees and  12b-1  distribution  fees are the
maximum fees permitted under The AAL Mutual Funds Investment  Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts  incurred  in the prior  fiscal  year.  The  Expense  Example  shows the
cumulative  expenses  attributable to a hypothetical  $1,000  investment with an
annual return of 5% compounded annually, in each class for the years shown.
<TABLE>
<CAPTION>
 <S>                                   <C>             <C>              <C>                    <C>       <C>        <C>
   
 ---------------------------------------------------------------------- --------------------------------------------------------
 Annual Fund Operating Expenses (as a percentage of average net                                Expense Example
 assets)
 ---------------------------------------------------------------------- --------------------------------------------------------
 ------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
                                       Class A         Class B                                 Class A   Class B    Class B No
                                                                                                                    Redemption
 ------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
 ------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
 Management Fee                        .50%            .50%             After 1 year           $52       $70        $20
 ------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
 ------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
 12b-1 Distribution and Service Fees   .25%            1.00%            After 3 Years          $77       $92        $62
 ------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
 ------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
 Other Expenses**                      .45%            .45%             After 5 Years           $105     $107       $107
 ------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
 ------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
 Total Fund Operating Expenses         1.20%           1.95%            After 10 years          $182
 ------------------------------------- --------------- ---------------- ---------------------- --------- ---------- ------------
</TABLE>
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
    


<PAGE>


FINANCIAL  HIGHLIGHTS

The audited  Financial  Highlights  Table covers The AAL Utilities  Fund for the
periods  shown  and is  based  on a share  of  beneficial  interest  outstanding
throughout the applicable  period. You should read the Table in conjunction with
the  Fund's  financial  statements  and  related  notes,  all of which have been
audited by Price Waterhouse LLP, independent accountants. These, together with a
more detailed discussion and analysis of the Fund's  performance,  are contained
in the Funds' April 30, 1996 Annual  Report,  copies of which are available from
the Distributor without charge.

<TABLE>
<CAPTION>
    <S>        <C>    <C>        <C>        <C>        <C>        <C>          <C>       <C>     <C>     <C>
               INCOME FROM INVESTMENT                  LESS DISTRIBUTIONS
               OPERATIONS
               NAV    Net        Net        Total      Dividends  Distribution Total     NAV:    Total   Net Assets
               Start  Investment Realized   from       from       from         Dividends End of  return  at end of
               of     Income     and        Investment Net        net          and       Period  for     Period
               Period (loss)     unrealized Operations Investment realized     Distributions     Period
                                 gain(loss)            Income     Gain on                        (1)
                                 on                               investments
                                 investments


   March 18,
   1994 to
   April 10,
   1994        10.00   0.002     (0.072)    (0.050)    -          -            -         9.95    -50%    $15,423,661
   April 30,
   1995        9.95    0.338     (0.498)    (0.160)    (0.320)    -            (0.320)   9.47    -151%   $70,861,404
   April 30,
   1996        9.47    0.360     1.420      1.780      (0.350)    -            (0.350    10.90   18.90%  $114,460,386
   May 1, 1996
   to October
   31, 1996    10.90   0.216     0.084      0.300      -0.200     0            (0.200)   11.00   2.78    $129,377,650
   UNAUDITED
<CAPTION>
<S>            <C>               <C>        <C>        <C>

               SUPPLEMENTAL DATA
               AND RATIOS
               Ratio             Ratio of   Portfolio  Average
               of Net            net        Turnover   Commission
               operating         investment            Rate
               expenses          income                Paid
               to                (loss) to
               Average           average
               Net               net
               Assets*           assets*
               (2)               (2)
 March 18,
 1994 to
 April 10,
 1994          1.60%             5.12%      0.00%
 April 30,
 1995          1.19%             4.08%      24.65%
 April 30,
 1996          1.20%             3.58%      21.79%     0.056
 May 1, 1996
 to October
 31, 1996      1.17%             4.06%      1.26%      0.059
 UNAUDITED
</TABLE>
   
*If the Fund had paid all of its expenses, the ratios would be as follows: Ratio
of Net operating  expenses to Average Net Assets (), 2.91%,  1.19%,  1.20%,  and
1.17%,  Ratio of net investment  income (loss) to average net assets (2), 3.81%,
4.08%, 3.58%, and 4.06%, (1) Total return assumes  reinvestment of all dividends
and  distributions  but does not reflect any deductions  for sales charges.  The
aggregate (not annualized) total return is shown for periods less than one year.
(2) For periods less than one year, both the ratio of net operating  expenses to
average net assets and the ratio of net investment  income (loss) are calculated
on an annualized basis
    



<PAGE>


THE AAL BOND FUND

INVESTMENT OBJECTIVE

The AAL Bond Fund  seeks a high  level of current  income,  consistent  with the
preservation  of  capital,  by  investing  primarily  in  investment  grade debt
securities.  There is no  assurance  that the Fund will  achieve its  investment
objectives.

INVESTMENT POLICIES

Under normal circumstances,  we will invest at least 65% of our total assets in:
(1) the debt  securities  of U.S.  issuers,  and the debt  securities of foreign
issuers payable in U.S. dollars,  which are rated within the four highest rating
categories   by  at  least  two   Nationally   Recognized   Statistical   Rating
Organizations  ("NRSROs")  when  we buy  them;  and  (2)  securities  issued  or
guaranteed by the U.S. government, its agencies or instrumentalities,  primarily
those securities supported by the full faith and credit of the U.S. Treasury. We
may also invest in:

   
(1) privately issued or guaranteed  mortgage-related  securities that are in the
four highest  categories  of at least two NRSROs or, if unrated,  equal to these
ratings as determined by the Adviser at the time of purchase;

(2) commercial  paper in the  highest  rating  category  by an  NRSRO,  or 
issued or guaranteed  by a  corporation  whose  outstanding  debt  is in the  
two  highest categories by an NRSRO at the time of purchase;

(3) bank obligations,  including repurchase agreements, of banks having total 
assets in excess of $1 billion; and

(4) corporate obligations,  including variable rate master notes, which are 
rated in the two  highest  categories  by an  NRSRO,  or issued  by a  
corporation  whose outstanding debt has an equal or better rating at the time 
of purchase.
    

Although  there are no  restrictions  on the maturity of the debt  securities in
which  we may  invest,  we will  generally  have a  weighted  average  effective
maturity  of between 5 and 10 years.  We use the  effective  maturity  of a debt
security in calculating  weighted average effective  maturity,  which takes into
account projected prepayments,  call dates, put dates and sinking funds, if any,
that reduce the stated maturity date on the bond.

We  anticipate  that during  normal  market  conditions  the  average  portfolio
maturity of the Fund will not exceed 20 years.  We use the stated final maturity
date of a security in calculating average maturity, notwithstanding earlier call
dates and possible prepayments.

   
ANNUAL ADVISORY FEE

0.55 of 1% on the first $250 million;  0.50 of 1% on the next $250 million;  and
0.45 of 1% on assets over $500 million.
    


<PAGE>


PORTFOLIO MANAGER

Michael R. Hilt, CFA, has managed the day-to-day Fund investments 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.  From June 1988 to August 1992,  he
served  as a  portfolio  analyst  and  trader  for Sears  Investment  Management
Company, Inc. Mr. Hilt also manages The AAL Money Market Fund.

INVESTMENT FACTORS AND THE RISKS INVOLVED

The primary risk to your  investment  is the impact of interest  rate changes on
the value of your investment. Interest rates are influenced by supply and demand
as well as economic monetary policies. If interest rates increase,  the value of
your  investment  may  decline.  In periods of  declining  interest  rates,  the
opposite may be true.

For more  information  on risks see Additional  Investment  Factors and Risks on
page --.

   
    

<PAGE>


SUMMARY OF EXPENSES AND EXPENSE EXAMPLE

   
The purpose of this  information is to assist you in  understanding  the various
costs  and  expenses  that you may  directly  and  indirectly  incur  with  your
investment  in the Fund.  The  tables  show  recurring  and  non-recurring  Fund
expenses.  Shareholder  Transaction  Expenses  are based upon the maximum  4.00%
sales  charge for Class A Shares  which is reduced for  purchases  of $25,000 or
more, and the maximum 5.00% contingent  deferred sales charge for Class B Shares
which is reduced by 1% for each year the Class B Shares are owned.
    

<TABLE>
<CAPTION>
     <S>                                                                                              <C>           <C>
   
     ------------------------------------------------------------------------------------------------ ------------- ------------
     Shareholder Transaction Expenses                                                                 Class A       Class B
     ------------------------------------------------------------------------------------------------ ------------- ------------
     Maximum sales charge imposed on purchases (as a percentage of offering price)                    4.00%         none
     Maximum sales charge imposed on reinvested dividends                                             none          none
     Maximum deferred sales charge                                                                    none          5.00%
     Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.)              none          none
     Exchange fee                                                                                     none          none
     Total                                                                                            4.00%         5.00%
     ------------------------------------------------------------------------------------------------ ------------- ------------
</TABLE>
    

Operating  expenses  are  expressed  as a  percentage  of  average  net  assets.
Percentages  shown  for  management  fees and  12b-1  distribution  fees are the
maximum fees permitted under The AAL Mutual Funds Investment  Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts  incurred  in the prior  fiscal  year.  The  Expense  Example  shows the
cumulative  expenses  attributable to a hypothetical  $1,000  investment with an
annual return of 5% compounded annually, in each class for the years shown.

<TABLE>
<CAPTION>
     <S>                                           <C>            <C>         <C>           <C>             <C>         <C>
   
     ------------------------------------------------------------------------ ------------------------------------------------------
     Annual Fund Operating Expenses (as a percentage of average net assets)                  Expense Example
     ------------------------------------------------------------------------ ------------------------------------------------------
     --------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
                                                   Class A        Class B                    Class A        Class B     Class B No
                                                                                                                        Redemption
     --------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
     --------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
     Management Fee                                .55%           .55%        After 1 year   $50            $68         $18
     --------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
     --------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
     12b-1 Distribution and Service Fees           .25%           1.00%       After 3 Years  $71            $86         $56
     --------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
     --------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
     Other Expenses                                .21%           .21%        After 5 Years  $95            $97         $97
     --------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
     --------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
     Total Fund Operating Expenses                 1.01%          1.76%%      After 10 years $161           -           -
     --------------------------------------------- -------------- ----------- -------------- -------------- ----------- ------------
</TABLE>
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
    



<PAGE>



FINANCIAL HIGHLIGHTS

The audited Financial  Highlights Table covers The AAL Bond Fund for the periods
shown and is based on a share of beneficial interest outstanding  throughout the
applicable  period.  You should  read the Table in  conjunction  with the Fund's
financial  statements and related notes, all of which have been audited by Price
Waterhouse LLP, independent  accountants.  These,  together with a more detailed
discussion and analysis of the Fund's  performance,  are contained in the Funds'
April 30, 1996 Annual Report, copies of which are available from the Distributor
without charge.

<TABLE>
<CAPTION>
     <S>         <C>     <C>        <C>         <C>        <C>        <C>           <C>        <C>        <C>     <C>
                 INCOME FROM INVESTMENT                    LESS DISTRIBUTIONS
                 OPERATIONS
                 NAV     Net        Net         Total      Dividends  Distribution  Total      NAV: End   Total   Net
                 Start   Investment Realized    from       from Net   from net      Dividends  of Period  return  Assets at
                 of      Income     and         Investment Investment realized      and                   for     end of
                 Period  (loss)     unrealized  Operations Income     Gain on       Distributions         Period  Period
                                    gain                              investments                         (1)
                                    (loss)
                                    on
                                    Investments


     July 116,   10      0.602      -0.36       0.242      -0.602 -                 -0.602     9.64       2.56%   $20,9388,63
     1987 to
     April 30,
           1988
     April 30,   9.64    0.826      -0.255      0.571      -0.826     -0.055        -0.881     9.33       6.21%   $54,006,123
           1989
     April 30,   9.33    0.806      -0.08       0.726      -0.806     0             -0.806     9.25       7.84%   $94,937,997
           1990
     April 30,   9.25    0.772      0.51        1.282      -0.772     0             -0.772     9.76       14.34%  $139,228,954
           1991
     April 30,   9.76    0.721      0.273       0.994      -0.721     -0.013        -0.734     10.02      10.47%  $229,309,955
           1992
     April 30,   10.02   0.661      0.627       1.288      -0.661     -0.037        -0.698     10.61      13.22%  $370,219,492
           1993
     April 30,   10.61   0.584      -0.66       -0.076     -0.584     -0.260        -0.844     9.69       -0.99%  $442,962,54
           1994
     April 30,   9.69    0.58       -0.078      0.502      -0.58      -0.002        -0.582     9.61       5.47%   $429,355,16
           1995
     April 30,   9.61    0.584      0.01        0.594      -0.584     0             -0.584     9.62       6.18%   $430,846,686
           1996
     May 1, to
     October
     31, 1996    9.62    0.298      0.160       0.458      -0.298     0             -0.298     9.78       4.85%   $427,052,396
     Unaudited

<CAPTION>
<S>              <C>                <C>         <C>

                 SUPPLEMENTAL DATA
                 AND RATIOS
                 Ratio of           Ratio       Portfolio
                 Net                of net      Turnover
                 operating          investment
                 expenses           income
                 to                 (loss)
                 Average            to
                 Net                average
                 Assets*            net
                 (2)                assets*

July 116,        0.75%              8.67%       85.88%
1987 to
April 30,
      1988
April 30,        0.83%              8.86%       54.49%
      1989
April 30,        0.98%              8.38%       38.00%
      1990
April 30,        1.00%              8.06%       6.39%
      1991
April 30,        1.03%              7.19%       12.18%
      1992
April 30,        1.03%              6.35%       26.12%
      1993
April 30,        1.02$              5.61%       27.75%
      1994
April 30,        1.03$              6.12%       44.57%
      1995
April 30,        1.01%              5.89%       125.77%
      1996
May 1, to
October
31, 1996         .097               6.09        78.10
Unaudited
</TABLE>

   
*If the Fund had paid all of its expenses, the ratios would be as follows: Ratio
of Net operating expenses to Average Net Assets (2), 1.83%, 1.37%, 1.22%, 1.17%,
1.08%,  1.03%, 1.02%, 1.03%, 1.01% and 0.97%, Ratio of net investment income 
(loss) to average net assets (2), 7.59%,  8.32%, 8.13%, 7.89%, 7.14%, 6.35%, 
5.61%, 6.12%, 5.89% and 6.09%,  (1)  Total  return  assumes   reinvestment  of
all  dividends  and distributions  but does not  reflect  any  deductions  for 
sales  charges.  The aggregate (not annualized) total return is shown for 
periods less than one year. (2) For periods less than one year, both the ratio 
of net operating  expenses to average net assets and the ratio of net investment
income (loss) are calculated on an annualized basis
    




<PAGE>


THE AAL MUNICIPAL BOND FUND

INVESTMENT OBJECTIVE

The AAL Municipal  Bond Fund seeks a high level of current income that is exempt
from federal  income taxes,  consistent  with the  preservation  of capital,  by
investing primarily in a diversified portfolio of municipal securities. There is
no assurance that the Fund will achieve its investment objective.

INVESTMENT POLICIES

Under  normal  circumstances,  we will  invest at least 80% of our net assets in
municipal  bonds,  the income from which is exempt from  federal  income tax. At
least 75% of our  investment  in  municipal  bonds will be in the three  highest
ratings assigned by at least one NRSRO when we buy them.

State and local  governments and  municipalities  issue municipal bonds to raise
money for a variety of public purposes,  including  general  financing for state
and local  governments  or  financing  for  projects or public  facilities.  The
municipality may issue such securities in anticipation of future revenues from a
specific  municipal  project (revenue bonds), or backed by the full taxing power
of a municipality (general obligation bonds), or from the revenues of a specific
project on the credit of a private organization (industrial development bonds).

The interest paid on these bonds generally is exempt from federal income taxes.

We may invest 25% or more of our total assets in industrial  development  bonds.
We try not to invest more than 25% of our total assets in  municipal  bonds that
we  feel  are so  closely  related  that an  economic,  business,  or  political
development   affecting  one  bond  could  also  affect  the  others.  For  more
information on municipal securities, refer to the SAI.

   
We can purchase certain bonds that are tax exempt but involve a private purpose.
These bonds are sometimes  called AMT paper because their interest is subject to
the alternative  minimum tax. We limit our purchases of this type of bond to 25%
of our total assets.

ANNUAL ADVISORY FEE

0.55 of 1% on the first $250 million;  0.50 of 1% on the next $250 million;  and
0.45 of 1% on assets over $500 million.
    


<PAGE>


PORTFOLIO MANAGER

Duane A.  McAllister,  CFA, has managed the  day-to-day  investments of the Fund
since  April  1994.  Prior to joining AAL  Capital  Management  Corporation,  on
November 1, 1995, he managed the Fund while serving as vice  president of Duff &
Phelps Investment  Management Co. For the five-year period prior to managing the
Fund, Mr. McAllister managed portfolios for the Northern Trust Company and First
National Bank and Trust in Rockford, Illinois.

INVESTMENT FACTORS AND THE RISKS INVOLVED

   
A primary risk to your  investment  is the impact of interest rate changes on
the value of your investment. Interest rates are influenced by supply and demand
as well as economic and monetary policies. If interest rates increase, the value
of your  investment may decline.  In periods of declining  interest  rates,  the
opposite may be true. Similarly,  when interest rates are falling, any new money
we invest may be in  investments  that produce  lower yields than the balance of
our portfolio,  thereby reducing our yield. In periods of rising interest rates,
the opposite will be likely true. An additional  risk to your  investment is the
creditworthiness of the issuer.
    

   
    

You should remember that changes in federal income tax rates may affect both the
net asset value and the taxable equivalent interest of the Fund.

For more  information  on risks see Additional  Investment  Factors and Risks on
page --.


<PAGE>


SUMMARY OF EXPENSES AND EXPENSE EXAMPLE

   
The purpose of this  information is to assist you in  understanding  the various
costs  and  expenses  that you may  directly  and  indirectly  incur  with  your
investment  in the Fund.  The  tables  show  recurring  and  non-recurring  Fund
expenses.  Shareholder  Transaction  Expenses  are based upon the maximum  4.00%
sales  charge for Class A Shares  which is reduced for  purchases  of $25,000 or
more, and the maximum 5.00% contingent  deferred sales charge for Class B Shares
which is reduced by 1% for each year the Class B Shares are owned.
    

<TABLE>
<CAPTION>
      <S>                                                                                             <C>           <C>
   
      ----------------------------------------------------------------------------------------------- ------------- ------------
      Shareholder Transaction Expenses                                                                Class A       Class B
      ----------------------------------------------------------------------------------------------- ------------- ------------
      Maximum sales charge imposed on purchases (as a percentage of offering price)                   4.00%         none
      Maximum sales charge imposed on reinvested dividends                                            none          none
      Maximum deferred sales charge                                                                   none          5.00%
      Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.)             none          none
      Exchange fee                                                                                    none          none
      Total                                                                                           4.00%         5.00%
      ----------------------------------------------------------------------------------------------- ------------- ------------
</TABLE>
    

Operating  expenses  are  expressed  as a  percentage  of  average  net  assets.
Percentages  shown  for  management  fees and  12b-1  distribution  fees are the
maximum fees permitted under The AAL Mutual Funds Investment  Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts  incurred  in the prior  fiscal  year.  The  Expense  Example  shows the
cumulative  expenses  attributable to a hypothetical  $1,000  investment with an
annual return of 5% compounded annually, in each class for the years shown.

<TABLE>
<CAPTION>
     <S>                                <C>              <C>              <C>                    <C>        <C>       <C>
   
     -------------------------------------------------------------------- ----------------------------------------------------------
     Annual Fund Operating Expenses (as a percentage of average net                              Expense Example
     assets)
     -------------------------------------------------------------------- ----------------------------------------------------------
     ---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
                                        Class A          Class B                                 Class A    Class B   Class B No
                                                                                                                      Redemption
     ---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
     ---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
     Management Fee                     .55%             .55%             After 1 year           $49        $68       $18
     ---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
     ---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
     12b-1 Distribution and Service     .25%             1.00%            After 3 Years          $70        $84       $54
     Fees
     ---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
     ---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
     Other Expenses                     .15%             .15%             After 5 Years          $91        $94       $94
     ---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
     ---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
     Total Fund Operating Expenses      .95%             1.70%%           After 10 years         $154
     ---------------------------------- ---------------- ---------------- ---------------------- ---------- --------- --------------
</TABLE>
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
    


<PAGE>


FINANCIAL HIGHLIGHTS

The audited  Financial  Highlights  Table covers The AAL Municipal Bond Fund for
the periods  shown and is based on a share of  beneficial  interest  outstanding
throughout the applicable  period. You should read the Table in conjunction with
the  Fund's  financial  statements  and  related  notes,  all of which have been
audited by Price Waterhouse LLP, independent accountants. These, together with a
more detailed discussion and analysis of the Fund's  performance,  are contained
in the Funds' April 30, 1996 Annual  Report,  copies of which are available from
the Distributor without charge.

<TABLE>
<CAPTION>
     <S>        <C>     <C>        <C>          <C>         <C>         <C>           <C>        <C>     <C>     <C>
                INCOME FROM INVESTMENT                      LESS DISTRIBUTIONS
                OPERATIONS
                NAV     Net        Net          Total       Dividends   Distribution  Total      NAV:    Total   Net
                Start   Investment Realized     from        from        from net      Dividends  End of  return  Assets
                of      Income     and          Investment  Net         realized      and        Period  for     at end
                Period  (loss)     unrealized   Operations  Investment  Gain on       Distributions      Period  of Period
                                   gain (loss)              Income      investments                      (1)
                                   on
                                   Investments
     July 116,  10      0.398      -0.28        0.118       (0.3980  -                -0.398     9.72    1.29%   $10,031,478
     1987 to
     April 30,
     1988
     April 30,  9.72    0.599      0.02         0.619       -0.599 -                  -0.599     9.74    6.53%   $41,217,745
     1989
     April 30,  9.74    0.608      -0.035       0.573       -0.608      -0.005        -0.613     9.70    5.93%   $78,844,594
     1990
     April 30,  9.7     0.616      0.434        1.05        -0.616      -0.004        -0.62      10.13   11.12%  $114,953,939
     1991
     April 30,  10.13   0.598      0.234        0.832       -0.598      -0.004        -0.602     10.36   8.39%   $172,494,589
     1992
     April 30,  10.36   0.571      0.631        1.202       -0.571      -0.001        -0.572     10.99   11.84%  $271,319,546
     1993
     April 30,  10.99   0.539      -0.410       0.129       -0.539      -0.02         -0.559     10.56   1.04%   $370,568,847
     1994
     April 30,  10.56   0.523      0.186        0.709       -0.523      -0.56         -0.579     10.69   7.01%   $377,765,861
     1995
     April 30,  10.69   0.521      0.300        0.821       -0.521      -0.08         -0.601     10.91   7.74%   $412,777,320
     1996
     May 1, to
     October 31,
     1996       10.91   0.258      0.290        0.548       -0.258      0             -0.258     11.20   5.08%   $427,529,932
     Unaudited

<CAPTION>
<S>            <C>           <C>            <C>


               SUPPLEMENTAL DATA
               AND RATIOS
               Ratio of Net  Ratio of net   Portfolio
               operating     investment     Turnover
               expenses to   income (loss)
               Average Net   to average
               Assets *(2)   net assets*
                             (2)

July 116,      1.50%         5.724          20.83%
1987 to
April 30,
1988
April 30,      0.94%         6.30%          29.24%
1989
April 30,      0.90%         6.13%          30.835
1990
April 30,      0.90%         6.21%          13.63%
1991
April 30,      0.955         5.81%          0.74%
1992
April 30,      1.00%         5.32%          3.41%
1993
April 30,      0.99%         4.87%          10.15%
1994
April 30,      0.98%         5.01%          172.49%
1995
April 30,      0.95%         4.695          130.52%
1996
May 1, to
October 31,
1996           0.89          46.55          54.49
Unaudited


</TABLE>

   
*If the Fund had paid all of its expenses, the ratios would be as follows: Ratio
of Net operating expenses to Average Net Assets (2), 2.28%, 1.46%, 1.14%, 1.10%,
1.04%,  1.00%,  0.99%,  0.98%,  0.95% and 0.89%,  Ratio of net investment income
(loss) to average net assets (2), 4.95%,  5.79%,  5.89%,  6.01%,  5.72%,  5.32%,
4.87%,  5.01%,  4.69% and 4.65%,  (1) Total return assumes  reinvestment  of all
dividends  and  distributions  but does not  reflect  any  deductions  for sales
charges.  The aggregate (not annualized)  total return is shown for periods less
than one  year.  (2) For  periods  less  than one  year,  both the  ratio of net
operating  expenses to average net assets and the ratio of net investment income
(loss) are calculated on an annualized basis.
    


<PAGE>

   
THE AAL HIGH YIELD BOND FUND

INVESTMENT OBJECTIVE

The AAL High Yield Bond Fund seeks high current income and  secondarily  capital
growth by investing  primarily in high risk, high yield bonds commonly  referred
to as "Junk  Bonds." We actively  seek to achieve  the  secondary  objective  of
capital growth to the extent it is consistent with our primary objective of high
current income.

INVESTMENT POLICIES


    
   
Under normal circumstances, we invest at least 65% of the Fund's total assets in
a diversified  portfolio of high yield bonds.  By high yield bonds, we mean debt
securities rated below investment grade by a Nationally  Recognized  Statistical
Rating  Organization  ("NRSRO"),  such  as  Ba or  lower  by  Moody's  Investors
Services,  Inc.  ("Moody's")  or BB or lower by Standard & Poor's  Ratings Group
("S&P"), or, if unrated, of comparable quality as we determine.  Please refer to
the Appendix for information on NRSROs and their credit ratings.  We define high
yield bonds to include:  fixed,  variable,  floating rate, and deferred interest
debt   obligations;   zero   coupon   bonds;   pay-in-kind   bonds;   asset  and
mortgage-backed debt obligations;  structured debt obligations;  and convertible
bonds.  We may invest the remaining  35% of our total assets in any  combination
of:
    

(1)  additional  high yield bonds;  (2) investment  grade bonds;  (3) common and
preferred stocks  (including  structured  preferred  stock);  and (4) securities
issued or guaranteed by the U.S.  Government,  its agencies or instrumentalities
("U.S. Government Obligations").

We also invest up to 20% of our net assets in bonds of foreign issuers.

In evaluating the quality of a particular  high yield bond for investment in the
Fund,  we do  not  rely  exclusively  on  ratings  assigned  by the  NRSROs.  In
appropriate  circumstances,  we may perform our own credit  analysis as well. We
consider the issuer's:  (1) financial  resources;  (2)  operating  history;  (3)
sensitivity to economic conditions and trends; (4) management's  abilities;  (5)
debt maturity  schedules;  (6) borrowing  requirements;  and (7) relative values
based on  anticipated  cash flow,  interest  and asset  coverages,  and earnings
prospects.  We attempt to  identify  those  issuers  of high yield  bonds  whose
financial condition is adequate to meet future obligations,  has improved, or is
expected to improve in the  future.  However,  we do not use a minimum  level of
quality rating and may purchase and hold securities in default.

   
ANNUAL ADVISORY FEES

0.60 of 1% of average daily net assets
    

PORTFOLIO MANAGER

Dave Carroll,  CFA, manages the day-to-day Fund  investments.  Prior to managing
the Fund he served as an analyst and trader for Cargill Financial  Services from
August through September, 1996. From 1986 to August of 1996 he was a second vice
president and portfolio manager for Fortis Advisers, Inc.


<PAGE>

INVESTMENT FACTORS AND RISKS INVOLVED

Interest  rate  changes  significantly  impact  upon the value of your bond fund
investment.  Interest  rates  are  influenced  by supply  and  demand as well as
economic  monetary  policies.  In general,  bond prices rise when interest rates
fall,  and vice versa.  Longer-term  bonds  generally  have more  sensitivity to
interest  rate  changes  than  short  term  bonds to  compensate  for the  risks
associated  with holding the  securities  for a longer length of time.  However,
investing  in a bond  fund is not the same as buying an  individual  bond.  Both
bonds and bond funds offer regular income.  While  individual  bonds can offer a
fixed amount of regular  income  until  maturity,  a mutual fund bond  portfolio
includes a constantly  changing pool of bonds with differing  interest rates and
maturities.  Therefore,  both share prices and  dividends  may fluctuate in bond
mutual funds.

   
Although  interest rate changes have a significant  impact on the value of bonds
and bond fund  investments,  the  primary  risk of  investing  in the high yield
sector is the financial risk.  Bonds rated below  investment  grade have greater
risks of default than  investment  grade bonds and, may in fact,  be in default.
Issuers of high yield  bonds  usually do not have  strong  historical  financial
conditions,  requiring them to offer higher yields to compensate for the greater
risk of default on the  payment  of  interest  and  principal.  These  bonds are
speculative.  As a result, their market values have less sensitivity to interest
rate changes on a short-term  basis,  but more  sensitivity to adverse  economic
developments or individual corporate  developments because of their lower credit
quality. During an economic downturn or period of rising interest rates, issuers
of  lower-rated  bonds may have more  difficulty  meeting  their  principal  and
interest  payment  obligations  or  obtaining  additional  financing to make the
interest payments on their debt. When issuers have difficulty  meeting projected
goals or obtaining  additional  financing,  the default rate on high yield bonds
will likely rise.
    
   
Frequently,  high yield bonds have a less liquid  resale  market than the market
for investment grade bonds. In some cases,  these bonds have no resale market at
all. As a result, we may have difficulty valuing portfolio securities,  choosing
the securities to sell to meet  redemption  requests and/or selling or disposing
of portfolio  securities on favorable terms. The securities in the portfolio may
experience  large  variations in price. In the event of an illiquid market or in
the absence of readily  available market quotations for certain high yield bonds
in the Fund's portfolio,  our judgment will play a greater role in the valuation
of such  securities.  Such adverse market or economic  conditions  could make it
difficult at times for us to sell or dispose of certain high yield bonds, and we
may  have  to sell  these  bonds  at a  significant  loss  to meet  shareholders
redemptions.

The high yield market has in the past, and may in the future,  experience market
risk due to adverse publicity and investor perceptions,  whether or not based on
fundamental analysis, decreasing market values and liquidity,  especially on the
lesser  traded  issues.  In addition,  there have been attempts in the past , by
Congress,  to restrict the  advantages of high yield bonds and similar  attempts
could occur in the future.

Certain  high yield bonds may carry  particular  risks.  Zero  coupon,  deferred
interest and pay-in-kind ("PIK") bonds, which are issued at deep discounts,  may
experience  greater  volatility  in  market  value . Asset  and  mortgage-backed
securities,  including  collateralized  mortgage  obligations,  in  addition  to
greater  volatility,  may carry  prepayment  risks.  For more information on the
risks  associated  with these  investments,  please  refer to the  Statement  of
Additional Information.

For more  information  on risks see Additional  Investment  Factors and Risks on
page --.
    


<PAGE>


SUMMARY OF EXPENSES AND EXPENSE EXAMPLE

   
The purpose of this  information is to assist you in  understanding  the various
costs  and  expenses  that you may  directly  and  indirectly  incur  with  your
investment  in the Fund.  The  tables  show  recurring  and  non-recurring  Fund
expenses.  Shareholder  Transaction  Expenses  are based upon the maximum  4.00%
sales  charge for Class A Shares  which is reduced for  purchases  of $25,000 or
more, and the maximum 5.00% contingent  deferred sales charge for Class B Shares
which is reduced by 1% for each year the Class B Shares are owned.
    

<TABLE>
<CAPTION>
     <S>                                                                                              <C>           <C>
   
     ------------------------------------------------------------------------------------------------ ------------- ------------
     Shareholder Transaction Expenses                                                                 Class A       Class B
     ------------------------------------------------------------------------------------------------ ------------- ------------
     Maximum sales charge imposed on purchases (as a percentage of offering price)                    4.00%         none
     Maximum sales charge imposed on reinvested dividends                                             none          none
     Maximum deferred sales charge                                                                    none          5.00%
     Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.)              none          none
     Exchange fee                                                                                     none          none
     Total                                                                                            4.00%         5.00%
     ------------------------------------------------------------------------------------------------ ------------- ------------
</TABLE>
    

   
Operating  expenses  are  expressed  as a  percentage  of  average  net  assets.
Percentages  shown  for  management  fees and  12b-1  distribution  fees are the
maximum fees permitted under The AAL Mutual Funds Investment  Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts  management  expects to incur the  current  fiscal  year  including  any
reimbursements.  Without reimbursements,  "other expenses" are estimated at .15%
resulting in "total fund operating  expenses" for the year ending April 30, 1997
of 1.50% and 2.25%,  respectively.  The  Expense  Example  shows the  cumulative
expenses  attributable to a hypothetical $1,000 investment with an annual return
of 5% compounded annually, in each class for the years shown.
    

<TABLE>
<CAPTION>
    <S>                                          <C>             <C>            <C>            <C>        <C>          <C>
   
    --------------------------------------------------------------------------- ----------------------------------------------------
    Annual Fund Operating Expenses (as a percentage of average net assets)                                Expense Example
    --------------------------------------------------------------------------- ----------------------------------------------------
    -------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
                                                 Class A         Class B                       Class A    Class B      Class B No
                                                                                                                       Redemption
    -------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
    -------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
    Management Fee                               .60%            .60%           After 1 year   50         68           18
    -------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
    -------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
    Rule 12b-1 Distribution and Service Fees     .25%            1.00%          After 3 Years  71         86           56
    -------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
    -------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
    Other Expenses                               .15             .15            After 5 Years  NA         NA           NA
    -------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
    -------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
    Total Fund Operating Expenses                1.00            1.75%          After 10 years NA         NA           NA
    -------------------------------------------- --------------- -------------- ------------- ---------- ------------ --------------
</TABLE>
This expense example is for comparison purposes only and is not a representation
of the Fund's actual expenses and returns, either past or future.
    



<PAGE>



THE AAL MONEY MARKET FUND

INVESTMENT OBJECTIVE

   
The AAL Money Market Fund seeks a high level of current income,  consistent with
liquidity  and the  preservation  of  capital,  by  investing  in a  diversified
portfolio of  high-quality,  short-term  money market  instruments.  There is no
assurance  that the Fund will achieve its investment  objective.  Investments in
this Fund are neither insured nor guaranteed by the U.S. Government.
    

INVESTMENT POLICIES

To achieve our investment  objective,  we will invest in short-term money market
instruments. We will invest in:

   
(1) Obligations  issued or  guaranteed  by the U.S.  government,  its  agencies,
or instrumentalities;

(2) Certificates of deposit,  bankers  acceptances,  and similar obligations of
U.S. banks,  savings  associations,  foreign  branches of U.S.  banks,  and  
domestic branches of foreign banks,  which have total assets of more than 
$1 billion when we buy them, and who are members of the Federal  Deposit  
Insurance  Corporation ("FDIC");

(3) Commercial  paper  which,  when we buy it, is defined as "First Tier" or 
"Second Tier" by the  Investment  Company Act of 1940, as long as no more 
than 5% of our total assets are invested in Second Tier commercial paper; and

(4) Corporate  obligations,  including variable rate master notes which, when 
we buy them,  are in one of the two  highest  categories  of a NRSRO,  or, 
if  unrated, issued by a corporation  with outstanding debt which has an 
equivalent or better rating at the time of purchase.
    

All of our  investments  will be consistent  with Rule 2a-7 under the Investment
Company Act of 1940. As such, all of our investments  will mature in 397 days or
less and the Fund will maintain a dollar-weighted  average portfolio maturity of
not more than 90 days.  By limiting the maturity of the Fund's  investments,  we
seek to lessen the changes in asset values caused by  fluctuations in short-term
interest rates. We intend to maintain,  to the extent practical,  a constant net
asset value per share of $1.00.


<PAGE>

We also may purchase  participation interest in any securities in which the Fund
may invest. Participation interests are interests in securities held by others.

Investments  in this  Fund  are  neither  insured  nor  guaranteed  by the  U.S.
government.

ADVISORY FEE

We pay the Adviser a fee based on the average daily net assets of the Fund. This
annual fee, shown below, is paid monthly:

0.50 of 1% on the  first  $500  million;  and  0.45 of 1% on  assets  over  $500
million.

PORTFOLIO MANAGER

Michael R. Hilt, CFA, has managed the day-to-day Fund investments 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.  From June 1988 to August 1992,  he
served  as a  portfolio  analyst  and  trader  for Sears  Investment  Management
Company, Inc. Mr. Hilt also manages The AAL Bond Fund.

INVESTMENT FACTORS AND THE RISKS INVOLVED

The primary risk to your  investment  in The AAL Money Market Fund is the effect
of falling interest rates on the Fund's yield. Although money market instruments
may have less price  sensitivity to interest rate changes because of their short
durations,  in periods of falling interest rates we may have to invest new money
in securities  that produce  lower yields than in the balance of the  portfolio.
This will reduce the yield on the Fund. In periods of rising interest rates, the
opposite may be true.

For more  information  on risks see Additional  Investment  Factors and Risks on
page --.


<PAGE>


SUMMARY OF EXPENSES AND EXPENSE EXAMPLE

The purpose of this  information is to assist you in  understanding  the various
costs  and  expenses  that you may  directly  and  indirectly  incur  with  your
investment  in the Fund.  The  tables  show  recurring  and  non-recurring  Fund
expenses.  Shareholder  Transaction Expenses are based upon the 5.00% contingent
deferred  sales  charge for Class B Shares  which is reduced by 1% for each year
the Class B Shares are owned.  (Note that B Shares may only be acquired  through
an exchange of other Class B Shares.)

<TABLE>
<CAPTION>
       <S>                                                                                             <C>          <C>

   
       ----------------------------------------------------------------------------------------------- ------------ ------------
       Shareholder Transaction Expenses                                                                Class A      Class B
       ----------------------------------------------------------------------------------------------- ------------ ------------
       Maximum sales charge imposed on purchases (as a percentage of offering price)                   none         none
       Maximum sales charge imposed on reinvested dividends                                            none         none
       Maximum deferred sales charge                                                                   none         5.00%
       Redemption fee (A fee, currently $10.00, will be charged for each wire redemption.)             none         none
       Exchange fee                                                                                    none         none
       Total                                                                                           none         5.00%
       ----------------------------------------------------------------------------------------------- ------------ ------------
</TABLE>
    

Operating  expenses  are  expressed  as a  percentage  of  average  net  assets.
Percentages  shown  for  management  fees and  12b-1  distribution  fees are the
maximum fees permitted under The AAL Mutual Funds Investment  Advisory Agreement
and 12b-1 Distribution Plan. Percentages shown for "Other expenses" are based on
amounts  incurred  in the prior  fiscal  year.  The  Expense  Example  shows the
cumulative  expenses  attributable to a hypothetical  $1,000  investment with an
annual return of 5% compounded annually, in each class for the years shown.

<TABLE>
<CAPTION>
     <S>                                  <C>              <C>             <C>                    <C>       <C>          <C>
     --------------------------------------------------------------------- ---------------------------------------------------------
     Annual Fund Operating Expenses (as a percentage of average net                               Expense Example
     assets)
     --------------------------------------------------------------------- ---------------------------------------------------------
     ------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
                                          Class A          Class B                                Class A   Class B      Class B No
                                                                                                                         Redemption
     ------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
     ------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
     Management Fee                       .50%             .50%            After 1 year           $9        $15          $65
     ------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
     ------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
     12b-1 Distribution and Service Fees  .13%             .88%            After 3 Years          $27       $47          $77
     ------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
     ------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
     Other Expenses*                      .20%             .20%            After 5 Years          $46       $81          $81
     ------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
     ------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
     Total Fund Operating Expenses        .83%             1.58%           After 10 years         $103      -            -
     ------------------------------------ ---------------- --------------- ---------------------- --------- ------------ -----------
</TABLE>
The table  reflects  voluntary  expense  reimbursements  by the  Adviser for the
fiscal year ended April 30, 1996. Without these reimbursements  "Other Expenses"
and "Total Fund  Operating  Expenses  would have been .65% and 1.28% for Class A
Shares  and .65% and  1.90%  for Class B Shares.  This  expense  example  is for
comparison  purposes  only  and is not a  representation  of the  Fund's  actual
expenses and returns, either past or future.


<PAGE>


FINANCIAL HIGHLIGHTS

The audited  Financial  Highlights  Table ("table")  covers The AAL Money Market
Fund for the  periods  shown  and is based  on a share  of  beneficial  interest
outstanding  throughout  the  applicable  period.  You should  read the Table in
conjunction with the Fund's financial statements and related notes, all of which
have been  audited by Price  Waterhouse  LLP,  independent  accountants.  These,
together with a more detailed discussion and analysis of the Fund's performance,
are  contained in the Funds' April 30, 1996 Annual  Report,  copies of which are
available from the Distributor without charge.

<TABLE>
<CAPTION>
     <S>         <C>     <C>        <C>          <C>         <C>        <C>          <C>        <C>      <C>       <C>
                 INCOME FROM INVESTMENT                      LESS DISTRIBUTIONS
                 OPERATIONS
                 NAV     Net        Net          Total       Dividends  Distribution Total      NAV:     Total     Net
                 Start   Investment Realized     from        from       from         Dividends  End of   Return    Assets
                 of      Income     and          Investment  Net        net          and        Period   for       at end
                 Period  (loss)     unrealized   Operations  Investment realized     Distributions       Period    of Period
                                    gain                     Income     Gain                             (1)
                                    (loss)                              on
                                    on                                  investments
                                    Investments

     March 10    $1.00   0.009      0            0.009       -0.009     0            -0.009     $1.00     0.91%    $7,990,507
     to April
       30, 1988
     April 30,   $1.00   0.078      0            0.078       -0.078     0            -0.078     $1.00     8.10%    $143,217,501
           1989
     April 30,   $1.00   0.079      0            0.079       -0.079     0            -0.079     $1.00     8.24%    $223,447,573
           1990
     April 30,   $1.00   0.068      0            0.068       -0.068     0            -0.068     $1.00     7.07%    $228,465,749
           1991
     April 30,   $1.00   0.045      0            0.045       (0.045     0            -0.045     $1.00     4.54%    $147,584,931
           1992
     April 30,   $1.00   0.025      0            0.025       -0.025     0            -0.025     $1.00     2.53%    $83,274,493
           1993
     April 30,   $1.00   0.019      0            0.019       -0.019     0            -0.019     $1.00     1.95%    $65,008,303
           1994
     April 30,   $1.00   0.038      0            0.038       -0.038     0            -0.038     $1.00     3.92%    $70,210,675
           1995
     April 30,   $1.00   0.048      0            0.048       -0.048     0            -0.048     $1.00     4.94%    $116,014,091
           1996
     May 1, to
     October
     31, 1996    $1.00   0.025      0            0.025       -0.025     0            -0.025     $1.00     2.59%    $159,077,631
     Unaudited

<CAPTION>
<S>                  <C>        <C>        <C>


                     SUPPLEMENTAL DATA
                     AND RATIOS
                     Ratio      Ratio of   Portfolio
                     of Net     net        Turnover
                     operating  investment
                     expenses   income
                     to         (loss) to
                     Average    average
                     Net        net
                     Assets*    assets*
                     (2)        (2)

 March 10            0.07%      7.06%      NA
 to April
   30, 1988
 April 30,           0.76%      8.29%      NA
       1989
 April 30,           1.04%      7.84%      NA
       1990
 April 30,           1.07%      6.85%      NA
       1991
 April 30,           1.11%      4.56%      NA
       1992
 April 30,           1.13%      2.53%      NA
       1993
 April 30,           1.26%      2.00%      NA
       1994
 April 30,           1.17%      3.955      NA
       1995
 April 30,           0.83%      4.89%      NA
       1996
 May 1, to
 October
 31, 1996            0.46%      4.90%      NA
 Unaudited
</TABLE>

   
If the Fund had paid all of its expenses,  the ratios would be as follows: Ratio
of Net operating expenses to Average Net Assets (2): 1.76%, 1.18%,1.04%,  1.07%,
1.11%,  1.27%,  1.51%,  1.42%,  1.28% and 1.07% Ratio of net  investment  income
(loss) to average net assets (2): 5.37%, 7.87%,  7.84%,  6.85%,  4.56%,  %2.38%,
1.75%,  3.70%,  4.46% and 4.30% (1) Total  return  assumes  reinvestment  of all
dividends  and  distributions  but does not  reflect  any  deductions  for sales
charges.  The aggregate (not annualized)  total return is shown for periods less
than one  year.  (2) For  periods  less  than one  year,  both the  ratio of net
operating  expenses to average net assets and the ratio of net investment income
(loss) are calculated on an annualized basis
    



<PAGE>


ADDITIONAL INVESTMENT FACTORS AND RISKS REGARDING THE FUNDS

TEMPORARY DEFENSIVE PURPOSES

We have a  temporary  defensive  position  policy that allows us to invest up to
100% of our  total  assets  in cash and  short-term  money  market  obligations,
including  tax-exempt  money market funds,  and  investment  grade  fixed-income
securities  when  significant  adverse  market,  economic,  political,  or other
circumstances  require  immediate  action to avoid  losses.  We  primarily  will
purchase the following types of securities for temporary defensive purposes:

Securities  issued or  guaranteed  by the U.S.  government  or its  agencies  or
instrumentalities;

Commercial paper rated at the time of purchase in the highest rating category by
NRSROs; and

Bank obligations,  including repurchase agreements, of banks having total assets
in excess of $1 billion.

   
The AAL  International  Fund may  invest  in U.S.  securities  or in  securities
primarily  traded in one or more foreign  countries or in debt  securities  to a
greater extent than 20%.

INVESTING IN BONDS VERSUS INVESTING IN A MUTUAL FUND

Investing  in a bond  fund is not the same as buying an  individual  bond.  Both
bonds and bond funds offer regular income.  However,  while individual bonds can
offer a fixed  amount of  regular  income  until  maturity,  a mutual  fund bond
portfolio  includes a constantly  changing pool of bonds with differing interest
rates and maturities.  Therefore,  both share prices and dividends may fluctuate
in bond mutual funds.

    

INTEREST RATE RISK

With respect to The AAL Bond,  Municipal  Bond, High Yield Bond and Money Market
Funds and, to some extent,  The AAL Utilities  Fund,  you can be expected that a
decline in prevailing levels of interest rates generally will increase the value
of securities held in the portfolio, and an increase in interest rates generally
will  reduce  the  value  of  those  securities.  As  a  result,  interest  rate
fluctuations  will  affect  these  Funds' net asset  values,  but not the income
received by the Funds from their existing portfolio securities. However, changes
in prevailing  interest  rates will affect the yield on  subsequently  purchased
securities. Because yields on the securities available for purchase by the Funds
will vary over time, we can not assure a specific yield on shares of the Funds.

INVESTMENT GRADE AND MEDIUM GRADE BOND INVESTMENTS

The AAL International,  Utilities, Bond Municipal Bond and High Yield Bond Funds
may invest in investment grade bonds. A debt or other  fixed-income  security is
considered  investment grade if it is rated investment grade by a NRSRO, such as
BBB or better by Duff and Phelps Credit Rating Co. ("D&P") and Standard & Poor's
Corporation  ("S&P")  or Baa or  better  by  Moody's  Investors  Services,  Inc.
("Moody's"). Securities rated in the fourth highest category, such as BBB by D&P
or S&P or Baa by  Moody's,  are  considered  medium  grade  bonds  and are  more
sensitive to economic  changes than are securities  rated in a higher  category.
These medium-grade bonds have speculative  characteristics.  If a bond in a Fund
has lost its rating or has had its rating  reduced,  the Fund is not required to
sell the  security,  but the  Adviser  will  consider  such fact in  determining
whether that Fund should continue to hold the bond.

MORTGAGE-BACKED SECURITIES

The AAL Bond Fund and the AAL High Yield Bond Fund may invest in mortgage-backed
securities  that  have  amortizing  payments  consisting  of both  interest  and
principal  and  prepayment  privileges.  Mortgaged-backed  securities  represent
interest  in pools of  mortgage  loans made by lenders  such as savings and loan
institutions,  mortgage  bankers,  commercial banks and others.  These pools are
combined  for sale to  investors  (such  as the  Fund)  by  various  government,
government-related  and private  organizations  (i.e.  The  Government  National
Mortgage Association ("GNMA") guarantees and issues mortgage-backed securities).
Mortgage- backed  securities  generally  provide for a "pass through" of monthly
payments made by individual  borrowers on their residential  mortgage loans, net
of any fees paid to the  issuer or  guarantor  of the  securities.  The yield on
these securities applies only to the unpaid principal balance.  We must reinvest
the periodic  payments of principal at prevailing  market interest rates,  which
may be higher or lower than the rate on the  original  investment.  In addition,
the  prepayment  privilege  may require us to  reinvest at lower  yields than we
received from the original investment.  If we buy these securities at a premium,
any  prepayments  will be at par or  stated  value,  which  will give us a lower
return.


<PAGE>

PORTFOLIO TURNOVER

We expect the AAL Mid Cap Stock,  Small Cap Stock, Bond, High Yield Bond and the
Municipal Bond Funds to have portfolio  turnover between 50% and 200%. We expect
the  portfolio  turnover for the other Funds to be less than 100%.  No portfolio
turnover  rate is  calculated  for The AAL  Money  Market  Fund due to the short
maturities  of its  investments.  Due to the high  volume of buying and  selling
activity in a portfolio  with turnover in excess of 100%,  the Fund may pay more
commissions  and may realize more  taxable  gains than in  portfolios  with less
turnover, which may result in an increase in Fund expenses and lower returns for
shareholders.  For more  information on transaction  expenses and taxes,  please
refer to sections entitled "Portfolio Transactions," "Dividends,  Distributions,
and Taxes," and "Yield and Performance Information."

REPURCHASE AGREEMENTS AND BORROWING

   
In order to earn income on available cash or for temporary defensive purposes we
may invest in repurchase  agreements,  We then require the Funds'  Custodians to
hold an amount of cash or  government  securities  at least  equal to the market
value of the  securities  held  pursuant  to the  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 a
loss of interest.
    

Each Fund may  borrow  money,  but only from  banks  and only for  temporary  or
emergency purposes. A Fund may not borrow more than 10% of its net assets and it
must repay any borrowing before it can buy additional securities.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

   
In order  to help  ensure  the  availability  of  suitable  securities,  the AAL
Utilities, International, Bond, Municipal Bond, High Yield Bond and Money Market
Funds may buy when-issued or delayed delivery  securities,  which are securities
purchased for future  delivery at a stated price and yield.  Generally,  we will
not pay for these  securities or start earning interest on them until we receive
them. We will not speculate in such  securities,  and we will expect to actually
acquire the securities when we buy them.  However,  we will sell such securities
before their settlement dates if we think it advisable.
    

LENDING PORTFOLIO SECURITIES

In order to generate additional income, we may from time to time lend securities
from our portfolios to brokers, dealers and financial institutions such as banks
and trust companies. A full explanation of lending portfolio securities, and the
restrictions  thereon,  is set forth in the SAI. We have no present intention of
lending portfolio securities.
<PAGE>

ILLIQUID AND RESTRICTED SECURITIES

We may hold up to 15% of a Fund's net assets in illiquid securities  (securities
we believe  cannot be  disposed  of within  seven  days in the normal  course of
business  at  approximately  the  amount at which we have  valued or priced  the
securities),  including  securities  acquired  in private  placements  that have
restrictions on their resale  ("restricted  securities").  We deem time deposits
and repurchase agreements maturing in more than seven days illiquid.  Because an
active market may not exist for illiquid  securities,  we may experience  delays
and additional cost when trying to sell these securities.  We may hold up to 10%
of the AAL Money Market Fund's net assets in illiquid and restricted securities.
For more  information  on illiquid and restricted  securities  regarding The AAL
Money Market  Fund,  please refer to the  Statement of  Additional  Information,
"Privately Issued Securities: The AAL Money Market Fund."

The Funds, subject to the limitations for illiquid investments stated above, may
purchase  restricted  securities  eligible  for resale under Rule 144A under the
Securities  Act  of  1933  (the  "Act").  The  rule  permits  certain  qualified
institutional buyers, such as the Funds, to trade in privately placed securities
that have not been registered under the Act. Rule 144A securities may or may not
be liquid  depending upon the  guidelines  established by the Board of Trustees.
Institutional  markets for restricted  securities  have developed as a result of
Rule  144A,  providing  both a  readily  ascertainable  market  value  for these
securities  and the ability to liquidate  an  investment  to satisfy  redemption
orders. An insufficient number of qualified  institutional  buyers interested in
purchasing   these  securities  held  by  a  Fund  could  adversely  affect  the
marketability  of  these  securities  and a Fund  may not be  able to sell  them
promptly or at favorable prices.

VARIABLE RATE DEMAND NOTES

All of the Funds except the AAL Municipal  Bond Fund may purchase  variable rate
securities. The AAL Money Market Fund may purchase variable rate securities (the
yields will vary in relation to changes in specific money market rates,  such as
the prime rate) with actual maturities of 397 or more, but only under conditions
established  by the Securities  and Exchange  Commission  rules that permit such
securities to be considered to have  maturities of less than 397 days. We intend
to invest in these longer-term  variable rate securities only when, in our view,
we may be able to take  advantage  of the higher  yield that is usually  paid on
these  securities  over  short-term  securities,  and it  appears to us that the
variable rates on these  securities may reduce the  fluctuations in market value
typical of longer-term securities. We also may purchase variable rate securities
with a put option,  which may further reduce the risk of  fluctuations in market
value.

FUTURES CONTRACTS AND OPTIONS

Except for The AAL Money Market  Fund,  we may engage in options,  futures,  and
options on futures,  but only for bona fide  hedging or other  permissible  risk
management  purposes.  Generally,  we will not  make  these  investments  if the
initial margin  deposits and premiums paid for unexpired  options exceed 5% of a
Fund's total assets. In addition, we will not:

Commit more than 25% of a Fund's net assets to such instruments;

Commit more than 25% of a Fund's net assets to covered options; or

Commit  more  than 5% of a Fund's  net  assets to the  premiums  for put or call
options.

Our  options  transactions  and short  sale  transactions  only will  consist of
techniques to hedge an unrealized gain on portfolio securities, such as:

(1) selling short against the box, which involves selling securities that a Fund
owns for delivery at a later date;

(2) the purchase of covered put options on portfolio securities,  which allows a
Fund to sell  securities to the writer  (seller) of the option at a set price on
or before the expiration date of the option; or

(3) the sale of covered  call  options,  which  allows the holder of the options
written by a Fund to purchase  securities  at a set price before the  expiration
date;

(4) and entering into closing transactions with respect to such options.
<PAGE>

If we sell a security  short against the box, we may protect  unrealized  gains,
but will lose the  opportunity to profit on such  securities if the price rises.
When we purchase  covered put options we will pay premiums  for the options.  We
also will receive  premiums when we write covered call options.  The premiums we
receive from writing covered call options may be completely or partially  offset
by any declines in the prices of the underlying securities.

We also may purchase  stock index  options and write covered stock index options
and enter into closing transactions on these options.

We only will deal in exchange traded or  over-the-counter  options on securities
and stock indexes.

Our futures transactions may include instruments such as interest rate and index
futures  contracts  and options  thereon.  We may use futures  transactions  for
several  reasons,  including  hedging  unrealized  portfolio  gains,  minimizing
adverse principal fluctuations in a Fund's debt and fixed-income securities,  or
as a means of adjusting exposure to various markets.

Our ability to use futures and options  transactions  successfully  depends upon
our skill in predicting the level and direction of the  securities,  options and
futures markets,  interest rates and other factors. An incorrect  prediction may
make the  implementation  of the hedging  strategy in  furtherance of the Fund's
investment objectives difficult. For example,  significant differences may exist
between the securities and the options and futures  markets that could result in
an imperfect  correlation  between them.  Also,  an incorrect  prediction on the
changes in the level and  direction  of  interest  rates could cause the Fund to
have a lower return than it would have had if the Adviser had not  attempted the
hedging  transaction.  In the  absence  of the  ability to hedge,  however,  the
Adviser  might  take  portfolio  actions  in  anticipation  of the  same  market
movements  with  similar  investment  results,   but,  presumably,   at  greater
transaction costs.

FOREIGN CURRENCY TRANSACTIONS

Foreign securities are subject to currency risk, that is, the risk that the U.S.
dollar  value of these  securities  (and any income  generated  thereon)  may be
affected  favorably or unfavorably by changes in foreign currency exchange rates
and  exchange  control  regulations.  To  manage  this risk and  facilitate  the
purchase  and sale of foreign  securities,  we may  engage in  foreign  currency
transactions  involving  the  purchase  and  sale of  forward  foreign  currency
exchange contracts  (agreements to exchange one currency for another at a future
date),  or it may engage in  transactions  in  options  on  foreign  currencies,
currency futures contracts,  or options on currency futures contracts.  Although
foreign currency  transactions  will be used to protect against adverse currency
movements,  they involve the risk that anticipated  currency movements cannot be
accurately  predicted and a Fund's total return could be adversely affected as a
result.  Further information on foreign securities and currency transactions are
set forth in the Statement of Additional Information.
<PAGE>

RISKS OF INVESTING IN FOREIGN SECURITIES

CURRENCY  RISK - A Fund's  securities  may be  denominated  or traded in foreign
currencies.  Changes in the value of a foreign  currency  relative to the dollar
may  change  the dollar  value of a Fund's  holding(s).  This means that the Net
Asset  Value  of a share  of a Fund  may go up or down as the  value of a dollar
rises or falls compared to a foreign  currency.  Fund performance is measured in
U. S. dollars.

LIQUIDITY  RISK - Trading  volume on foreign  exchanges may be less than that on
the New York or other domestic stock exchange.  The lack of liquidity can affect
a Fund's  ability to purchase or sell blocks of  securities  and obtain the best
price.  Spreads  between  bid  and  asked  prices  may be  greater  and  trading
interruptions  or  suspensions  may be more  common in foreign  markets  than on
domestic  exchanges.  Brokerage  and  other  transaction  costs may be higher in
foreign  markets.  Settlement  practices  may vary from  country to country  and
settlement  periods  for  foreign  securities  may be longer  than for  domestic
securities.  These differing  practices may cause the loss of opportunities  for
favorable purchases and the loss of interest income. Foreign securities may also
be traded on days that a Fund does not value its  portfolio.  This  means that a
Fund's Net Asset Value can change on days in which a  shareholder  cannot access
his or her account.  A Fund may incur costs associated with currency hedging and
the conversion of a foreign currency into U.S. dollars may be adversely affected
by restrictions on such conversion.


POLITICAL,  ECONOMIC  AND MARKET  RISKS - The degree of  political  and economic
stability varies from country to country.  Expropriation and/or  nationalization
may cause a Fund to lose some or all of any  particular  investment.  Individual
foreign  economies may vary  favorably or unfavorably  from the U.S.  economy in
such areas as growth of gross  national  product,  rate of  inflation,  savings,
balance of  payments  and  capital  investment.  These may affect the value of a
Fund's investment in any foreign country.


GOVERNMENTAL REGULATION - Foreign securities markets are not subject to the same
degree  and type of laws and  regulations  that  cover the U.S.  markets.  These
foreign  markets  may be more  volatile  and less  liquid  than the  major  U.S.
markets.  Foreign  governments  may also impose  restrictions  on investments in
their  capital  markets  as  well as  impose  taxes  or  other  restrictions  on
repatriation of investment income.

NONUNIFORM  CORPORATE  DISCLOSURE  STANDARDS -  Information  on  publicly-traded
companies,  banks and  governments  may be incomplete or  unavailable in foreign
countries.  The  lack  of  uniform  accounting  standards  and  practices  among
countries  impairs  the  validity  of direct  comparisons  of  common  valuation
measures,  such as price/earnings  ratios, as applied to securities of different
countries.
<PAGE>

INVESTMENT RESTRICTIONS

In addition to specific  investment  restrictions  described in the SAI,  only a
vote of the majority of the outstanding shares can change:

The investment objective of a Fund;

The policies on borrowing and lending securities;

   
The restriction on concentrating  investments in a single industry, which limits
a Fund from  investing  more than 25% of its net assets (25% of the total assets
of The AAL International and High Yield Bond Funds) in any single industry. This
restriction  does not  apply to  securities  issued  or  guaranteed  by the U.S.
government,  its  agencies  or  instrumentalities  or the  ability  of  the  AAL
Utilities Fund comply with its  requirement of 65% invested in the securities of
public utilities.
    

The  restriction  requiring  issuer  diversification  by  limiting  a Fund  from
investing more than 5% of its net assets in a single  issuer,  except that up to
25% of its net assets may be invested  without regard to this  limitation.  This
restriction does not apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities.


With the exception of the  investment  policy  requiring The AAL Municipal  Bond
Fund to invest at least 80% of its net assets in municipal securities,  which is
a fundamental  policy,  the Board of Trustees may change any of the Funds' other
investment  policies without  shareholder  approval.  For example,  the Board of
Trustees may change the policies regarding specific investments, discussed above
(other than the policies on borrowing and securities  lending). A description of
all of the  investment  restrictions  applicable to the Funds is included in the
SAI.


<PAGE>



BOARD OF TRUSTEES

Our Board of  Trustees*  decides  matters of  general  policy  and  reviews  the
activities  of the Adviser and the officers who conduct and  supervise the daily
business operations of the Funds.

The Trustees, their business addresses and principal occupations during the past
five years are:


   
POSITION WITH THE FUNDS AND PRINCIPAL
NAME AND ADDRESS OCCUPATION
------------------------------------
John H. Pender**           Trustee,  and from 1987 through May 1996, 
222 West College Ave.      President of the Funds; Prior to 1996, Senior 
Appleton,  WI 54919        Vice President and  Chief  Investment  Officer,  
DOB  5/25/30               Aid  Association  for  Lutherans
                           (fraternal benefit society) and prior to 1992, 
                           Treasurer

F. Gregory Campbell        Trustee; President of Carthage College,
2001 Alford Park Drive     Kenosha, WI; Director, Kenosha Hospital
Kenosha, WI 53140          and Medical Center; Chairman, WI Assoc. of
DOB 12/16/39               Independent Colleges and Universities;
                           Board Member, Kenosha Area
                           Development; and Board Member, Prairie
                           High School


    
   
Richard L. Gady            Trustee;  and Vice  President,  Public  Affairs 
One Central Park Plaza     and Chief Economist, ConAgra, Inc. (a food and
Omaha, NE 68102            agriculture company)   
DOB 2/28/43
    

D.W. Russler               Trustee; Former Senior Vice President,
P.O. Box 84                Finance and Administration, NCR
Minocqua, WI 54548         Corporation 1984 - 1988; Director, Capital
DOB 10/28/28               Markets Assurance Corporation (reinsurance);
                           and Member, Advisory Board -- Saratoga
                           Partners II and III (corporate buy-
                           out limited partnerships)

Lawrence M. Woods          Trustee; Former Executive Vice President
P.O. Box 1860              and Director, Mobil Oil Corp. (international
Worland, WY 82401          oil company)
DOB 4/14/32

   
Richard L.  Gunderson**    Trustee;  Chairman of the Board of Directors 
4321 North Ballard  Road   and  Chief  Executive  Officer  and from 1985  
Appleton,  WI 54919        through 1995,  President,  Aid Association for 
DOB 6/14/33                Lutherans  (fraternal benefit society);
                           Trustee, Lawrence University; and Director,
                           Banta Corp. (diversified printer and publisher)
    
   
Ronald Anderson**          Trustee,  Sr. Vice President , CIO, Aid Association 
4321 North Ballard Road    for Lutherans,  Vice President Finance General Re
Appleton, WI  54919        Corporation 1985 to 1991,  Chairman,  General Re 
1995-1996 DOB              Financial products,  1991-1996, Vice President  
10/2/48                    Corporate  Development,  General Re  Corporation,  
                           (both reinsurance) 

*All of the Trustees but Mr.  Anderson are Directors of the AAL Variable
Product  Series  Fund,  Inc. ** Denotes an  "interested  person" of the Funds as
defined in the Investment Company Act of 1940.
    
<PAGE>

MANAGEMENT OF THE TRUST

THE ADVISER

Under an  Investment  Advisory  Agreement  with the  Trust,  and  subject to the
supervision of the Funds' Board of Trustees,  the Adviser 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. The Adviser formulates and implements a continuous  investment
program  for the  Funds  consistent  with  each  Fund's  investment  objectives,
policies and restrictions.

The Adviser  provides  office space as well as executive and other  personnel to
the Funds.  In  addition  to  investment  advisory  fees,  each Fund  incurs the
following expenses: legal, auditing, and accounting expenses; trustees' fees and
expenses; insurance premiums; brokers' commissions; taxes and governmental fees;
expenses of issuing and redeeming shares;  organizational expenses;  expenses of
registering or qualifying shares for sale;  postage and printing for reports and
notices to  shareholders;  fees and  disbursements of the Custodian and Transfer
Agent;   certain   expenses  with  respect  to   membership   fees  of  industry
associations; and any extraordinary expenses, such as litigation expenses.

PORTFOLIO TRANSACTIONS

The Adviser  directs the  placement  of orders for the  purchase and sale of the
Funds' portfolio  securities.  In directing orders,  the Adviser will consider a
number of factors to attain what it believes  is the best  combination  of price
and  execution  for the Funds,  including:  when it believes  that more than one
broker or dealer is  capable  of  providing  the best  combination  of price and
execution in a transaction,  the Adviser normally will select a broker or dealer
who furnishes research services.

The Adviser may have other clients for which it is making  investment  and order
placement decisions similar to the funds. When making simultaneous  purchases or
sales for the Funds and another  client,  if any, the Adviser's  decisions could
have a detrimental effect on the price or volume of the securities  purchased or
sold for the Funds.  In other  cases,  simultaneous  purchases  or sales for the
Funds and another client could provide the Funds with the ability to participate
in volume transactions that could benefit the Funds.

BUYING SHARES IN THE FUNDS

The AAL Mutual Funds offer two classes of shares, Class A and Class B, which can
be purchased by mail or by wire transfer. The primary difference between the two
classes of shares  offered is the sales charge  structure and ongoing  expenses,
which are summarized below.

Class A Shares.  Class A shares of each Fund,  except the AAL Money Market Fund,
are sold at net asset value plus a maximum  sales  charge of 4.75% of the public
offering price incurred at the time of purchase. As a result, Class A shares are
not subject to any charges when they are redeemed.  The initial sales charge may
be reduced or waived for certain purchases as disclosed in the following table:
<PAGE>

   
<TABLE>
<CAPTION>
<S>                            <C>                       <C>                     <C>                 <C>


                               Sales Charge as a % of    Sales Charge as a % of  50% Sales           50% Sales
Amount of Purchase             Public Offering Price     Net Amount Invested     Charge as           Charge as
                                                                                 % of P.O.P          % of NAV
----------------------------------------------------------------------------------------------------------------
Less than $25,000..............4.00%                     4.17%                   2.00%               2.04%
$25,000 or more,
  but less than $50,000........3.75%                     3.90%                   1.88%               1.91%
$50,000 or more,
  but less than $100,000.......3.00%                     3.09%                   1.50%               1.52%
$100,000 or more,*
  but less than $250,000.......2.00%                     2.04%*                  1.00%               1.01%
$250,000 or more,
  but less than $500,000.......1.00                      1.01%                   0.50%               0.50%
$500,000 or more**.............0.00%                     0.00%**                 0.00%               0.00%
-------------------------------------------------------------------------------------------------------------------
</TABLE>

* Purchases at this level or above must be for Class A shares.
** Registered  Representatives may receive  compensation not exceeding .50 of 1%
of amounts invested at this purchase level.
    

Reducing  your Sales  Charge.  You may be eligible for a reduced sales charge on
the purchase of Class A shares. To qualify for any of these reductions, you must
tell us at the time of your  purchase,  or you may not  receive  the  reduction.
Trustees,  directors and employees of the Funds and the Adviser and Sub-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 purchases  made by
family members residing with them. We reserve the right to stop these reductions
at any time.  We will  notify you in advance of any  changes.  50%  Reduction  -
Non-profit  organizations,  charitable trusts,  charitable  remainder unitrusts,
endowments  AAL  Branches  and  congregations  pay only 50% of the normal  sales
charge on Class A shares so long as there is a formal Lutheran affiliation. This
does not apply to 403(b)(7) Retirement Plan Accounts. Rights of Accumulation All
shares,  Class A and Class B, purchased by you and your family who live with you
can be  combined  when  computing  your sales  charge  for Class A shares.  This
includes  individual,  joint  tenant,  gift/transfer  to minor,  trust,  and IRA
registrations.  Employer-sponsored  retirement  plan  accounts are combined with
other participants in the those plans. Rights of Accumulation includes the value
of all Class A shares at the  public  offering  price,  all Class B shares,  and
reinvested dividends and capital gains.
<PAGE>

Letter of Intent - If you expect to invest  $25,000  or more  during the next 13
months,  you can  reduce  your  sales  charge now on Class A shares by signing a
Letter of Intent.  The Letter of Intent can be fulfilled by either  purchases of
Class A (except  the Money  Market  Fund) or Class B  shares,  although  Class A
shares will only receive the reduced  sales  charge.  By  backdating a Letter of
Intent you can include prior  purchases made in the last 90 days,  however sales
charges on those shares will not be recalculated. The Transfer Agent will escrow
shares  totaling  5% of the  investment  goal and will sell  shares to cover any
additional  sales  charges due, if for some reason you do not fulfill the Letter
of Intent within the 13-month period. Only one Letter of Intent should be signed
for all accounts  combined under Rights of  Accumulation.  A Letter of Intent is
not feasible for 403(b)(7) Retirement Plan Accounts,  SEP-IRAs,  Simple accounts
or SARSEP-IRAs since they are combined for Rights of Accumulation with the other
participants in their respective plans.

You are not obligated to buy any additional shares. If for any reason you change
your  mind,  the sales  charges  will be  recalculated  and  charged at the rate
applicable  without the Letter of Intent.  The Transfer Agent will escrow shares
totaling 5% of the investment  goal and will sell shares to cover any additional
sales charges due.

You can backdate a Letter of Intent to include shares  purchased within the last
90 days. However, the sales charges on these shares will not be recalculated.

During the 13-month period,  purchases in accounts that have been linked for the
Rights of  Accumulation,  and are still  owned,  will count toward the Letter of
Intent.

To complete your Letter of Intent you must have the full amount invested, valued
at your purchase cost before the 13-month period ends.

The AAL Money  Market  Fund  shares do not apply  toward  your Letter of Intent,
unless you paid a sales charge and exchanged into The AAL Money Market Fund.

You  cannot  use a Letter of Intent  for  403(b)(7)  Retirement  Plan  Accounts,
SEP-IRAs, or SARSEP-IRAs.

   
Class B Shares.  Class B shares of each Fund,  except the AAL Money Market Fund,
are  sold at net  asset  value  with no  initial  sales  charge  at the  time of
purchase.  However,  you may be subject to a  contingent  deferred  sales charge
(expressed  as a  percentage  of the lesser of the  current  net asset  value or
original  cost)  of up to 5% if  you  redeem  shares  within  five  years  after
purchase.  There is no  contingent  deferred  sales charge on shares you acquire
through the  reinvestment  of dividends and capital gains.  Each time you redeem
shares from a fund, shares that have not been subject to the contingent deferred
sales  charge  or with the  lowest  contingent  deferred  sales  charge  will be
redeemed first to reduce your cost. The contingent  deferred sales charge may be
waived upon the  redemption  of shares  following  the death or  disability of a
shareholder, or to meet certain retirement plan requirements.  The amount of the
contingent  deferred sales charge may also be reduced  dependent upon the number
of years  from the  purchase  of Class B shares  until the sale of those  shares
according to the following table:
<PAGE>


                                    Contingent Deferred Sales Charge
Years after Purchase                on Shares being Sold
--------------------------------------------------------
1st year                                    5.00%
-------------------------------------------------
2nd year                                    4.00%
-------------------------------------------------
3rd year                                    3.00%
-------------------------------------------------
4th year                                    2.00%
-------------------------------------------------
5th year                                    1.00%
-------------------------------------------------
After 5th year                              0.00%
-------------------------------------------------

The sales  charge is based upon the lesser of the net asset  value of the shares
subject to the  Contingent  Deferred Sales Charge at either the time of purchase
or the time of sale.

B Shares  are  generally  not  suitable  for  investors  who can  elect  the 50%
reduction in the Class A sales charge or for  investors  with  $100,000 or more.
Class B Money  Market  Fund  shares may only be  acquired by exchange of other B
shares.

The contingent  deferred sales charge is waived for the heir or beneficiaries of
a deceased  shareholder for mandatory or hardship  distributions from retirement
plans, IRAs and 403(b) plans.

Conversion to Class A Shares. Class B shares will automatically convert to Class
A shares  six  years  after the  purchase  date,  thus  reducing  future  annual
expenses.  Class B shares  provide the benefit of putting all of the  investor's
dollars to work from the time the  investment  is made,  but (until  conversion)
will have a higher  expense  ratio,  pay lower  dividends,  and have a lower net
asset  value  than  Class A shares  due to the  higher  12b-1 and  service  fee.
Therefore,  it is very  important to consider the amount and intended  length of
time  of  your  investment  when  determining  which  class  of  shares  is most
beneficial  for you.  In  general,  if you are making a large  investment,  thus
qualifying for a reduced sales charge, you might consider Class A shares. If you
are making a smaller investment,  you might consider Class B shares because 100%
of  your  purchase  is  invested   immediately.   Your  AAL  Capital  Management
Corporation  Registered  Representative is always available to help you make the
best investment  decision for your specific  financial needs. If you do not know
the name of your Registered Representative,  please call the Mutual Fund Service
Center toll free at  800-553-6319.  The  Telecommunications  Device for the Deaf
(TDD) is 800-684-3416.
    
<PAGE>

Reinstatement  Privilege - If within 60 days after you sell Class A shares,  you
decide to  reinvest  those  dollars  back into the same  account,  you may do so
without incurring a sales charge . You can reinvest as much as you would like up
to the dollar amount of the redemption proceeds you received.  The reinstatement
privilege can only be used one time per account. Our Transfer Agent must receive
your check and  written  request  within the 60 days since your  redemption  was
made.  Once your request is received  shares will be purchased at the next price
available without a sales charge.

PURCHASE PRICE

You buy  shares of The AAL  Capital  Growth,  Mid Cap  Stock,  Small Cap  Stock,
Utilities, International, Bond, Municipal Bond, and High Yield Bond Funds at the
public offering price, which is the net asset value plus a sales charge. You buy
shares of The AAL Money Market Fund at net asset value  without a sales  charge.
The  purchase  price  of each  Fund is  based  on the net  asset  value  that is
determined on the business day the Transfer  Agent receives your order in proper
form. On the record date for a distribution by The AAL Capital  Growth,  Mid Cap
Stock,  Small Cap Stock,  International  and Utilities Funds, the share price is
reduced by the amount of the  distribution.  If you buy shares  just  before the
record date  ("buying a  dividend"),  you will pay the full price for shares and
then receive a portion of the price back as a taxable distribution.

MINIMUM PURCHASE AMOUNT
PER ACCOUNT PER TRANSACTION

Minimum Purchase Amount per Account per   Initial Purchase   Additional Purchase
Transaction
Regular Account                           $1,000                $50
IRA                                       $250                  $50
Automatic Investment Plan                 0                     $25
Letter of Intent (over a 13 month period)                       $25,000


We may waive the minimum  investment  amount needed to open or add to an account
for certain employer-sponsored accounts.

OPENING A NEW ACCOUNT

Your AAL Capital Management  Corporation  Registered  Representative is ready to
help you  open a new  account.  If you do not  know the name of your  Registered
Representative,  please call the Mutual Fund Service Center at 800-553-6319. The
Telecommunications Device for the Deaf (TDD) is 800-684-3416.

 To open your account, just follow these steps:

1. After reviewing this prospectus, complete an AAL Mutual Funds Application for
every  different   account   registration.   For  example,   you  need  separate
applications for an individual  account in The AAL Bond Fund and an IRA invested
in The AAL Bond Fund.  If you don't  complete  the  application  properly,  your
purchase may be delayed or  rejected.  You must also  designate  whether you are
purchasing Class A shares or Class B shares.
<PAGE>

2. Make your check  payable to the Fund you are buying,  for  example,  "The AAL
Bond  Fund." If you are buying  more than one Fund,  make your check  payable to
"THE AAL MUTUAL  FUNDS." DO NOT make your  check  payable to AAL or AAL  Capital
Management Corporation; and

3. Mail your completed application and check to:

 The AAL Mutual Funds
 222 West College Avenue
 P.O. Box 8004
 Appleton, WI 54913-8004.

BUYING SHARES FOR THE FIRST TIME BY WIRE

If your bank is a member of or has a corresponding relationship with a member of
the Federal Reserve System,  you can buy shares of the Funds by wire transfer by
following steps:

1. Call AAL  Capital  Management  Corporation  at  800-553-6319  and provide the
following information:

Your account registration;

   
The name of the  Fund(s) in which you want to invest and whether you wish to buy
A or B shares;
    

Your address;

Your Social Security or tax identification number;

The dollar amount;

The name of the wiring bank; and

The name and the  telephone  number of the  person  at your bank we can  contact
about your purchase.

We must receive your wire order  before the closing of the NYSE  (normally  3:00
p.m. Central Time) to receive that day's price;

2. Tell your bank to wire your funds as follows:

Firstar National Bank
ABA No. 075000022
For Credit to Firstar Trust Company
Acct. No 112-952-137
For Further  Credit to (name of specific AAL Mutual Fund)  Account  Registration
(name(s) of the shareholders(s)); and
<PAGE>

3. Complete The AAL Mutual Funds application and mail it immediately to:

The AAL Mutual Funds
222 West College Ave.
P.O. Box 8004
Appleton, WI 54913-8004.

ACCOUNT REGISTRATION

How you register your account with us can affect your legal interests as well as
the rights and  interests of your family and  beneficiaries.  You should  always
consult with your legal and/or tax adviser to determine the account registration
that best meets your needs.  You must  clearly  identify the type of account you
want on your AAL Mutual Funds application  form. Some account  registrations may
require additional documents.

ACCOUNTS FOR RETIREMENT SAVINGS

AAL members,  their enterprises,  and Lutheran organizations may establish their
own individual or business  retirement  plans.  These accounts may offer you tax
advantages.  You should  consult with your legal  and/or tax adviser  before you
establish a retirement plan.

Your AAL Capital Management Corporation  Registered  Representative will provide
you with all the  materials,  documents,  and forms you need, and will work with
you in establishing your retirement plan from among these choices:

Regular IRA (Individual Retirement Account);

"Rollover" IRA;

SEP-IRA (Simplified Employee Pension Plan);

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

403(b)(7)  Retirement Plan Account (Legal  restrictions apply to your ability to
withdraw funds from this account); and

Qualified Retirement Plans.

PRESTIGE ACCOUNT

Investors  who  maintain  account  balances  totaling  $50,000  or more  will be
provided with additional  benefits  including  personal  attention from Prestige
Account representatives,  an exclusive toll-free number, personalized investment
analysis, complimentary financial information, a Prestige Account organizer, and
more. Your AAL Capital  Management  Corporation  Registered  Representative  can
provide you with more detailed information.
<PAGE>

BUYING ADDITIONAL SHARES FOR YOUR ACCOUNT

After  you have  opened  an  account  with The AAL  Mutual  Funds,  you can make
additional  investments of $50 or more per account by mail, telephone,  or wire.
Please put your name and your AAL Mutual Fund Account  number on the face of all
investment checks, and make sure your checks are payable to the specific Fund in
which you are investing (for example, "The AAL Bond Fund"). If you are investing
in more than one Fund, make your check payable to "The AAL Mutual Funds." DO NOT
make your  check  payable to AAL or AAL  Capital  Management  Corporation.  Some
retirement  accounts,  such as the 403(b)(7)  Retirement  Plan, may allow you to
make investments only by deferring part of your salary.

BY MAIL

REGULAR MAIL: EXPRESS MAIL/PRIVATE DELIVERY:
The AAL Mutual Funds The AAL Mutual Funds c/o Firstar  Trust Company c/o Firstar
Trust Company 615 East Michigan Street Mutual Funds  Services,  Third Floor P.O.
Box 2981 615 East Michigan Street Milwaukee, WI 53201-2981 Milwaukee, WI 53202

BY WIRE

Follow the directions listed under "Buying Shares for the First Time By Wire" on
page ___.

BY TELEPHONE

Before you can buy  additional  shares by telephone,  you must have selected the
Request for Telephone  Purchase option.  Once you have selected this option, you
can call us and we will  withdraw  money  from your  bank  checking  or  savings
account to make your  investment.  The price you pay for your shares will be the
next price we compute after we receive your investment from your bank,  which is
usually three  business  days after you  authorize the transfer.  If you need to
invest sooner, you should consider making your purchase by bank wire.

AUTOMATIC INVESTMENT PLANS

To make regular investing more convenient,  you can open an automatic investment
plan with no initial investment and a minimum of $25 per account per transaction
after you start your plan.

Your AAL Capital Management  Corporation  Registered  Representative is ready to
help you set up one of these plans:

   
THE BANK DRAFT PLAN  allows you to make  regular  investments  in The AAL Mutual
Funds directly from your checking or savings account. The following rules and/or
guidelines apply:
    
<PAGE>

You can select up to two  transaction  dates per month (at least 10 days apart).
If you don't select the date(s),  the funds will automatically be withdrawn from
your bank account on the 5th of the month;

   
To start the plan, or change your bank account, you must notify us in writing at
least 13 business days prior to the  transaction  date.  All bank account owners
must sign the bank draft plan card;
    

To stop or change the amount of your plan,  you must tell us at least 5 business
days prior to the transaction date; and

Be sure you have enough money in your bank account to make the investment so you
can avoid paying any possible fees from your bank or the Transfer Agent.

THE CAPITAL  BUILDER PLAN allows you to transfer money every month from your AAL
Money Market Fund account into  another AAL Mutual  Fund.  The  following  rules
and/or guidelines apply:

You can select  the  transaction  date.  If you don't  select the date,  it will
automatically be withdrawn from your account on the 15th of the month;

To start the plan,  you must notify us in writing at least 24 hours prior to the
transaction date. You must have all account owners sign the Capital Builder Plan
Card; and

To stop or change the  amount of your  plan,  you must tell us at least 24 hours
prior to the transaction date.

THE PAYROLL  DEDUCTION  SAVINGS AND  INVESTMENT  PLAN allows  employees  of AAL,
employees of  Lutheran-affiliated  institutions,  and Lutheran  employees  whose
employers agree to invest in The AAL Mutual Funds through direct  deduction from
their paychecks or commission checks.

THE  GOVERNMENT  ALLOTMENT  PLAN allows  Lutheran  social  security  recipients,
federal  employees  and  military  personnel  to invest in The AAL Mutual  Funds
through direct deduction from their paychecks.

Using The AAL Mutual  Funds'  Automatic  Investment  Plans,  you may implement a
strategy called DOLLAR COST AVERAGING.  Dollar cost averaging involves investing
a fixed  amount of money at regular  intervals.  By  investing  the same  amount
periodically, you will be purchasing more shares when the price is low and fewer
shares when the price is high. Dollar cost averaging does not ensure a profit or
protect against a loss during declining markets. Because such a program involves
continuous  investment  regardless of changing share prices, you should consider
your  ability to continue  the program  through  times when the share prices are
low.
<PAGE>

ADDITIONAL INFORMATION ABOUT BUYING SHARES

EARNING INCOME

You begin earning  income,  if any, on your shares on the business day following
the day that our Transfer Agent receives your payment.

PURCHASES

   
Your  purchase must be in U.S.  dollars,  and your check must be drawn on a U.S.
bank. We do not accept cash or travelers  checks.  If your check does not clear,
we will cancel your  purchase  and hold you liable for any losses or  applicable
fees. When you buy shares by check,  you may not be able to receive a redemption
payment on those shares should you redeem them for 12 days.  This does not limit
your right to redeem  shares.  Rather it operates to make sure that  payment for
the shares redeemed has been received by the Transfer Agent.
    

CONFIRMATION

We will  generally  mail written  confirmation  of your  purchases in the Funds,
except for The AAL Money Market Fund,  within two business  days  following  the
date of your purchase.  We will mail confirmation of additional purchases in The
AAL Money  Market Fund  monthly.  We will mail  confirmation  of your  automatic
investment plan purchases at least quarterly.

SHARE CERTIFICATES

We will issue you share  certificates  only upon written request,  and then only
for full  shares.  You must make a new written  request for a share  certificate
each  time  you  purchase  shares.  We do  not  charge  a  fee  to  issue  share
certificates.  If you have asked for or have received  share  certificates,  you
cannot use certain  shareholder  services,  including wire and check redemption,
share exchange, and any systematic withdrawal.  Before you can redeem, transfer,
or exchange your shares, you must deliver the share certificates to the Transfer
Agent in  negotiable  form.  Share  Certificates  may not be available  for some
retirement accounts.

OTHER INFORMATION

The U.S.  Postal  Service or  private  delivery  services  are not agents of The
Funds, the Distributor,  or the Funds' Transfer Agent. We do not legally receive
your purchase  application or your request for redemption  when you deposit them
in the mail, send them with a private delivery service, or when you deposit them
in our Post Office Box. We must have physical  possession of your request for it
to be considered received.  For purposes of delivery requirements other than for
purchases or sales or the Funds,  current law will determine the legal effect of
posting for deadline purposes.  For example,  any IRS rule governing the posting
date  deadline  for  the  establishment  of or  contribution  to  an  Individual
Retirement  Account  would  govern  whether  you will  receive  the  desired tax
treatment,  regardless  of when we are legally  considered to have received your
purchase application for purposes of purchasing the Funds.
<PAGE>

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

SELLING (REDEEMING) YOUR SHARES

You can sell your  shares on any  business  day.  When you sell your  shares you
receive the net asset value per share.  If we receive your request in good order
before the close of the NYSE (normally 3:00 p.m.  Central Time) you will receive
that day's  price.  If we  receive  your  redemption  request in good order on a
holiday,  weekend, or a day the NYSE is closed, we will process your transaction
on the next business day. You can sell shares several ways.

BY MAIL

Please include the following in your redemption request:

Name(s) of the account owner(s);

Account number(s);

   
Amount you want to  receive  or the number of shares you want to sell;  (For a B
Share  redemption we will redeem any additional  shares required for the CDSC in
order to comply with your request for a specific amount.)
    

Tax withholding information, if required, for retirement accounts; and

Signatures of all account owners.

YOU MUST HAVE YOUR SIGNATURE GUARANTEED IF:

1. You want to sell shares with a value of more than $25,000;

2. You want the proceeds  sent to an address  other than the one listed for your
account;

3. You want the check payable to someone other than the account owner(s); or

4. You hold share  certificates  (you must return the signed  certificates  with
your request).

You can  usually  obtain  a  signature  guarantee  at  commercial  banks,  trust
companies,  or broker dealer.  A SIGNATURE  GUARANTEE IS NOT THE SAME THING AS A
NOTARIZED   SIGNATURE.   Accounts  held  by  a   corporation,   trust,   estate,
custodianship,  guardianship, partnership or pension and profit sharing plan may
require more documentation.
<PAGE>

Mail to:

REGULAR MAIL: EXPRESS MAIL/PRIVATE DELIVERY:
The AAL Mutual Funds The AAL Mutual Funds c/o Firstar  Trust Company c/o Firstar
Trust Company 615 East Michigan Street Mutual Funds  Services,  Third Floor P.O.
Box 2981 615 East Michigan Street Milwaukee, WI 53201-2981 Milwaukee, WI 53202

BY TELEPHONE

In order to make  investing  in The AAL Mutual  Funds more  convenient,  you are
allowed  to buy,  sell or  exchange  shares by  telephone.  We have  established
reasonable  procedures  to  protect  against  anyone  who  attempts  to use  the
telephone transaction service  fraudulently.  Please be aware, 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 you that result from following telephone instructions  reasonably believed to
be  authentic  after  verification  pursuant  to  these  procedures;  and once a
Telephone  Request  has been made,  it can't be  canceled  or  modified!  During
periods of extreme volume caused by dramatic  economic or stock market  changes,
or when the telephone  system is not fully  functional,  you may have difficulty
reaching  AAL  Capital  Management  Corporation  by  telephone,   and  telephone
transactions may be difficult to implement at those times. The Funds reserve the
right to temporarily discontinue or limit the telephone purchase,  redemption or
exchange privileges during such periods.

The following rules and/or guidelines for selling by telephone apply:

You must call the Mutual Fund Service Center at 800-553-6319;

You must provide a form of personal identification to confirm your identity;

You can sell up to $25,000 worth of shares;

We will mail a check only to the  person(s)  named on the account  registration,
and only to the address on the account;

Retirement plan accounts are not eligible;

You cannot sell shares in certificate form by telephone;

You can do only one  telephone  redemption  within  any  30-day  period for each
authorized account;

Telephone  redemptions  are not available if the address on the account has been
changed in the  preceding 60 days;  and if we receive your request in good order
before the close of the NYSE (normally 3:00 p.m. Central Time), you will receive
that day's price.
<PAGE>

BY WIRE

The following rules and/or guidelines for selling by wire apply:

You must give us written  authorization,  including  the  signatures  of all the
owners of the account, on The AAL Mutual Funds Application or Change Form;

You can make a wire redemption for any amount;

You pay a $10.00 fee for each wire redemption;

We must  receive  your  request  in good  order  before  the  close  of the NYSE
(normally 3:00 p.m.  Central Time) for you to receive that day's price; and wire
redemptions may not be available to you for all retirement account plans.

SYSTEMATIC WITHDRAWAL PLAN (usually only appropriate for A Shares)

You can have money  automatically  withdrawn  from your mutual fund account on a
regular basis by using our Systematic  Withdrawal  Plan. This plan allows you to
receive funds or pay a bill at regular  intervals.  The  following  rules and/or
guidelines apply:

You need a minimum of $5,000 in your account to start the plan;

You can select the date(s) on which the money is withdrawn.  If you don't select
the date(s), your funds will automatically be withdrawn from your account on the
15th of the month:

   
To start the plan or change the payee(s), you must notify us in writing at least
13  business  days  prior to the first  withdrawal.  You must  have all  account
owner(s) sign the appropriate form;
    

To stop or change your plan,  you must notify us at least 5 business  days prior
to the next  withdrawal;  and  because  of  sales  charges,  you  must  consider
carefully  the  costs of  frequent  investments  in and  withdrawals  from  your
account.

   
THE AAL MONEY MARKET FUND CHECKS (A shares only)
    

You can write  checks on your AAL Money Market Fund  account,  if you complete a
check  writing  signature  card and  agreement.  You can request  checks on your
mutual funds application or in writing. There is no charge for your first set of
checks.  For each  additional  packet of checks,  there is a $2.00  charge.  The
following rules and/or guidelines apply:
<PAGE>

AAL Money Market Fund checks must be for at least $500.  Because the Fund is not
a bank, some features such as stop payment are not available;

The Transfer Agent may impose reasonable fees for each check that is returned;

The Transfer  Agent does not return your canceled  checks to you. For a fee, the
Transfer Agent will send you a copy of your check at your request;

   
Unless  they  were  purchased  by bank  wire,  you must  wait 12 days  after you
purchase  AAL Money  Market Fund  shares,  even if purchased by EFT, in order to
write checks against that purchase; and
    

You need a written  request--NOT  A  CHECK--to  close an AAL Money  Market  Fund
account.  Your  written  request  will  require a signature  guarantee  to close
accounts over $25,000.

CLOSING SMALL ACCOUNTS

All AAL Mutual Funds account owners share the high cost of maintaining  accounts
with low balances.  To reduce this cost, we reserve the right,  subject to state
law, to close an account when, due to a redemption, its value is less than $250.
This does not apply to retirement  plan accounts.  We will notify you in writing
before we close any account, and you will have 30 days to add money to bring the
balance up to $250.

   
REINSTATEMENT PRIVILEGE (A Shares Only)
    

You have 60 days  after you sell  shares  to  reinvest  the  dollar  amount  you
redeemed without having to pay another sales charge.  You will pay the net asset
value  per share as of the day your  reinvestment  is made and not the net asset
value as of the day you sold. The following rules and/or guidelines apply:

You may use this privilege only ONCE per account;

You must send a written  request and a check for the amount you wish to reinvest
to our Transfer Agent:

REGULAR MAIL: EXPRESS MAIL/PRIVATE DELIVERY:
The AAL Mutual Funds The AAL Mutual Funds c/o Firstar  Trust Company c/o Firstar
Trust Company 615 East Michigan Street Mutual Funds  Services,  Third Floor P.O.
Box 2981 615 East Michigan Street Milwaukee, WI 53201-2981 Milwaukee, WI 53202;

The dollar amount you reinvest cannot exceed the dollar amount you sold; and

The sale of your shares may be a taxable event despite the reinstatement.

EXCHANGE PRIVILEGE

After you have paid the initial sales charge,  you may exchange shares in an AAL
Mutual Fund for shares in another AAL Mutual Fund without  paying any additional
sales charge.  The following rules and/or guidelines apply:  Minimum  investment
rules may apply when you open a new account by  exchanging  shares,  and you may
have to submit a new application;
<PAGE>

   
Exchanges  must be within  the same  class of  shares,  that is, A shares  for A
shares B shares for B shares.
    

You may only  exchange  into funds that are legally  available  for sale in your
state;

You may have a taxable gain or loss as a result of an exchange;

We reserve the right to end this privilege if you make more than 12 exchanges in
a year;

We reserve the right to change or end this  privilege  upon 60 days  notice,  or
suspend this  privilege  without  notice when economic or market changes make it
difficult to carry out such transactions; and

If you have share  certificates,  you need to sign the  certificates,  have your
signature guaranteed, and return the certificates with your request.

BY MAIL

Please include the following in your request:

Name(s) of the account owner(s);

Account number(s);

Amount of shares (or dollar amount) you want to exchange; and

Signatures of all account owners.

BY TELEPHONE

The guidelines for exchanging by telephone are:

You  can  exchange   shares  by  calling  the  Mutual  Fund  Service  Center  at
800-553-6319;

When you call us,  you will be asked for a form of  personal  identification  to
confirm your identity; and if we receive your request, in good order, before the
close of the NYSE (normally 3:00 p.m. Central Time), you will receive that day's
price.

NET ASSET VALUE (NAV)

We  compute  the net asset  value of a Fund  share by adding up the value of the
individual Fund's assets,  subtracting the Fund's liabilities,  and dividing the
balance by the total  number of shares  outstanding.  We  compute  the net asset
value at the end of the day after trading on the NYSE closes (normally 3:00 p.m.
Central Time). We do not calculate the net asset value on the days that the NYSE
is not open.
<PAGE>

Securities  owned by a Fund are  valued at current  market  value.  When  market
quotations are readily  available,  that quotation  generally will be used. If a
quotation is not  available,  securities  will be valued as  determined  in good
faith by or under the direction of the Board of Trustees.  The Board of Trustees
may approve the use of pricing services to assist us in the determination of net
asset values.

All  securities  held by The AAL Money Market Fund and money market  instruments
with a  remaining  maturity  of 60 days or less held by the other  Funds will be
valued on an amortized cost basis. We will comply with SEC  requirements for the
use of this  valuation  method.  For The AAL Money Market  Fund,  this method of
calculation facilitates,  but does not assure,  maintaining a constant net asset
value of $1.00 per share.

DIVIDENDS, DISTRIBUTIONS, AND TAXES

The  Internal  Revenue  Code  refers to mutual  funds as  "regulated  investment
companies"  and  exempts  them from  paying  income  taxes if they meet  certain
requirements.  Each Fund  intends to comply  with all of these  requirements  in
order to be considered a regulated  investment company. We will annually provide
you with full information on dividends and capital gains  distributions for each
Fund.

The following is a general description of the distribution  policies and some of
the tax consequences for shareholders of the Funds. You should always check with
your tax adviser to determine  whether any dividends and  distributions  paid to
you by a Fund are subject to any taxes, including state and local taxes.

THE  AAL  SMALL  CAP  STOCK,  MID  CAP  STOCK,  CAPITAL  GROWTH,  INTERNATIONAL,
UTILITIES, BOND, HIGH YIELD BOND and MONEY MARKET FUNDS

The dividends from net investment  income of each of these Funds,  including net
short-term capital gains, are taxable as ordinary income to shareholders whether
paid in additional shares or in cash. Any long-term capital gains distributed to
shareholders are taxable as capital gains to shareholders,  whether they receive
them in cash or in  additional  shares,  and  regardless of the length of time a
shareholder has owned the shares.

These Funds intend to distribute substantially all net investment income and any
net realized long-term capital gains.

Fund (A and B shares)  Dividends  (if any) Capital  gains (if any) The AAL Small
Cap Stock Fund annual  annual The AAL Mid Cap Stock Fund  annual  annual The AAL
Capital Growth Fund  semiannual  annual The AAL Utilities Fund quarterly  annual
The AAL  International  Fund annual annual The AAL Bond Fund monthly  annual The
AAL  Municipal  Bond Fund  monthly  annual The AAL High Yield Bond Fund  monthly
annual The AAL Money  Market Fund  monthly  annual The AAL Bond Fund,  Municipal
Bond  Fund,  High  Yield  Bond Fund and Money  Market  Fund will  accrue  income
dividends daily.
<PAGE>

THE AAL MUNICIPAL BOND FUND

Dividends  derived from the interest earned on municipal  securities  constitute
"exempt-interest dividends" and are generally not subject to federal income tax.
The AAL Municipal Bond Fund will accrue  dividends daily and pay these dividends
monthly. Capital gains will be paid at least annually. Realized capital gains on
municipal securities are subject to federal income tax. Thus,  shareholders will
be subject to taxation at ordinary  rates on the dividends they receive that are
derived  from net  short-term  capital  gains.  Distributions  of net  long-term
capital  gains will be taxable as  long-term  capital  gains  regardless  of the
length of time a shareholder holds them. This Fund may, for temporary  defensive
purposes, invest in short-term taxable securities. Shareholders of this Fund are
subject to federal  income tax at ordinary  rates on any income  dividends  they
receive that are derived from interest on taxable securities.

For shareholders who are receiving Social Security benefits,  tax-exempt income,
including  exempt-interest  dividends  from  this  Fund,  will be  added to your
taxable income in determining whether a portion of your Social Security benefits
will be subject to federal  income tax. The Internal  Revenue Code provides that
every person required to file a tax return must report, solely for informational
purposes, the amount of exempt-interest dividends received from the Funds during
the taxable year.

TAX CONSIDERATIONS

We are required by federal law to withhold  31% of  reportable  payments  (which
include  dividends,  capital gain  distributions,  and  redemption  proceeds) to
shareholders  who have not properly  certified that the Social Security or other
taxpayer  identification  number they  provided is correct and that he or she is
not subject to backup  withholding.  We do not provide  information on state and
local tax consequences of ownership of shares of Funds.

REINVESTMENT OF FUND DISTRIBUTIONS

You can  reinvest all of your income  dividends  and/or  capital  gains into the
Funds at net asset value and pay no sales charges or contingent  deferred  sales
charges.  You can also have these  distributions paid in cash. You may pay taxes
on Fund  distributions that you reinvest or that are paid to you in cash. If you
have  requested  cash  distributions  and we cannot locate you, we will reinvest
your dividends.

DISTRIBUTION FEES GENERALLY

In addition to the sales charge  deducted at the time of purchase,  each Fund is
authorized under a Distribution 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 12b-1 Distribution
Plan  permits  payments  to be made by each of the Funds to the  Distributor  to
reimburse it for expenses  incurred with the  distribution of each of the Funds'
shares  to  investors.   These  payments  include,   but  are  not  limited  to,
compensation  to sales  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 administrative activities on behalf of the Funds.
<PAGE>

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.

A service  fee of up to 0.25 of 1% of the  average  net  assets  for Class A and
Class B shares is a shareholder  servicing fee that  compensates the Distributor
for providing certain  shareholder  services.  12b-1  distribution and servicing
fees for each Fund are contained in the following table:

<TABLE>
<CAPTION>
<S>                                              <C>                     <C>                     <C>                    <C>
------------------------------------------------ ----------------------------------------------- ----------------------------------
                                                 Distribution Fee                                Service Fee

------------------------------------------------ ----------------------------------------------- ----------------------------------
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
Fund                                             Class A                 Class B                 Class A                Class B
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL Small Cap Stock Fund                     none                    0.75%                   0.25%                  0.25%
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL Mid Cap Stock Fund                       none                    0.75%                   0.25%                  0.25%
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL Capital Growth Fund                      none                    0.75%                   0.25%                  0.25%
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL Utilities Fund                           none                    0.75%                   0.25%                  0.25%
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL International Fund                       none                    0.75%                   0.25%                  0.25%
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL Bond Fund                                none                    0.75%                   0.25%                  0.25%
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL Municipal Bond Fund                      none                    0.75%                   0.25%                  0.25%
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL High Yield Bond Fund                     none                    0.75%                   0.25%                  0.25%
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
The AAL Money Market Fund                        none                    0.75%                   0.125%                 0.125%
------------------------------------------------ ----------------------- ----------------------- ---------------------- -----------
</TABLE>
<PAGE>

SHAREHOLDER MAINTENANCE AGREEMENT

The  Board of  Trustees  authorized  the  Funds  to  contract  with AAL  Capital
Management Corporation for certain shareholder maintenance services. AAL Capital
Management Corporation receives an annual fee for providing these services. This
fee is based upon,  and limited by, the difference  between the current  account
fees charged and the normal  full-service fee schedule published by our Transfer
Agent. It also includes  reimbursement for out-of-pocket costs including postage
and telephone charges.  This account differential,  including  reimbursement for
expenses, is currently $4.08 per account per year.

YIELD AND PERFORMANCE INFORMATION

From time to time, we will calculate and advertise  performance  information for
different  historical  periods  of time,  by  quoting  yields  or total  returns
designed to inform you of the  performance  of the Funds.  Whenever we advertise
performance,  we  will  always  include  standardized  yield  and  total  return
information  calculated in accordance with methods established by the Securities
and Exchange Commission. We also may include other total return calculations, if
we feel  that  they  would  be  useful  for  you in  evaluating  the  investment
performance  of the Funds.  Yields  and total  returns  are based on  historical
performance and are not intended to indicate future performance. Your investment
return and the  principal  value of your  investments  (except for The AAL Money
Market  Fund,  for which we intend to  maintain  at a  constant  $1.00 net asset
value) will fluctuate, and the value of your investment, if sold (redeemed), may
be worth more or less than your original cost.

STANDARDIZED YIELD AND TOTAL RETURNS

Whenever we advertises performance, we will include standardized yield and total
return  quotations  calculated in accordance  with rules of the  Securities  and
Exchange Commission, in the manner described in the following paragraphs.

THE AAL MONEY MARKET FUND --STANDARDIZED YIELD AND STANDARDIZED EFFECTIVE YIELD

The AAL Money Market Fund may advertise a standardized  yield and a standardized
effective yield. Both yield figures are based on historical earnings and are not
intended to indicate future performance.

The  standardized  yield  of the  Fund  refers  to the  income  generated  by an
investment  in the Fund over a seven-day  period,  which period will be shown in
the advertisement.  This income, less expenses, is then annualized,  which means
that the  amount of  income  generated  by the  investment  during  that week is
assumed  to be  generated  each  week over a  52-week  period  and is shown as a
percentage of the beginning investment value.

The standardized  effective yield is calculated  similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested.  The
effective  yield  will  be  slightly  higher  than  the  yield  because  of  the
compounding effect of this assumed reinvestment.
<PAGE>

THE  AAL  CAPITAL   GROWTH,   MID  CAP  STOCK,   SMALL  CAP  STOCK,   UTILITIES,
INTERNATIONAL,  BOND,  MUNICIPAL BOND, HIGH YIELD BOND AND MONEY MARKET FUNDS --
STANDARDIZED CURRENT YIELD

We may  advertise a  standardized  current  yield,  which is based on the income
generated by an investment in the particular Fund over a 30-day period,  for The
AAL Capital Growth,  Mid Cap Stock, Small Cap Stock,  Utilities,  International,
Bond,  Municipal Bond and High Yield Bond Funds. We will state the period in the
advertisement.  We determine  income  earned on debt  obligations  by applying a
calculated  yield-to-maturity  percentage  to the  obligations  held  during the
period.  We determine  income earned from equity  securities by using the stated
annual dividend rate applied over the performance  period. We then annualize the
income earned.  That is, the amount of income generated during the 30-day period
is assumed to be generated and reinvested  monthly to provide a six-month return
which is then  annualized.  We show the return as a  percentage  of the  maximum
offering price per share on the last day of the period.

THE AAL MUNICIPAL BOND FUND -- STANDARDIZED TAX EQUIVALENT YIELD

For the AAL Municipal Bond Fund, we may advertise a standardized  tax equivalent
yield,  which  illustrates  the yield that would be required on a fully  taxable
investment  to result in the same net income to an investor  in the Fund,  after
payment of federal  taxes at the stated  rate.  We compute the yield by dividing
that  portion of the Fund's  current  yield  that is  tax-exempt  by one minus a
stated federal income tax rate, and then adding the quotient to the value of any
yield of the Fund that is not tax-exempt.

THE  AAL  CAPITAL   GROWTH,   MID  CAP  STOCK,   SMALL  CAP  STOCK,   UTILITIES,
INTERNATIONAL,  BOND,  HIGH YIELD BOND and MUNICIPAL BOND FUNDS --  STANDARDIZED
AVERAGE ANNUAL TOTAL RATE OF RETURN

   
We may  advertise  for each of The AAL Mutual Funds (except The AAL Money Market
Fund) a  standardized  average annual total rate of return for one, five and ten
year  periods,  or so  much  thereof  as a Fund  has  been in  existence  (since
inception).  The standardized  average annual total rate of return is the change
in redemption  value of shares  purchased with an assumed initial  investment of
$1,000,  after giving effect to the maximum applicable sales charge for A shares
or the applicable  contingent  deferred sales charge for B shares,  assuming the
reinvestment of dividends and capital gains distributions.
    

OTHER TOTAL RETURNS

Due to the many ways of  evaluating  investment  performance,  we may  advertise
total  returns,  other  than  those  described  above,  if  we  feel  that  this
information is useful to you in evaluating the Funds.  All Funds (except The AAL
Money Market Fund) may advertise  total  returns  calculated on the basis of net
investment  in the Fund,  which means we may  calculate  investment  performance
(total returns), usually based on dollars invested, without giving effect to the
maximum  applicable sales charge.  Such performance  figures will be higher than
those calculated by the standardized methods for the same time period.

Additional information regarding yield and performance  information is contained
in the Statement of Additional Information.
<PAGE>

CUSTODIAN, TRANSFER AGENT, AND INDEPENDENT ACCOUNTANTS

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

Custodian (except for The AAL International Fund)
Firstar Trust Company
615 E. Michigan Street
P.O. Box 2981
Milwaukee, Wisconsin 53201-2981

   
Custodian for The AAL International Fund
The Chase Manhattan Bank, N.A.
Chase Metro Tech Center
Brooklyn, NY  11245
    

Independent Accountants
Price Waterhouse LLP
100 East Wisconsin Avenue, Suite 1500
Milwaukee, Wisconsin 53202

ORGANIZATION AND DESCRIPTION OF SHARES

   
The Trust is a diversified  open-end  management  investment  company registered
under the Investment Company Act of 1940. Each of the Funds is a 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 its terms.  The  Declaration  of Trust may be amended by a
vote of shareholders or the 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  with  this  prospectus
describing the class A and B shares for nine series.

Classes of shares of each Fund  represent  interests  in the assets of that Fund
and have identical dividend, liquidation and other rights and are subject to the
same terms and conditions  except that expenses  related to the distribution and
shareholder  servicing  of each  class are borne  solely by such  class and each
class may, at the  Trustees'  discretion,  also pay a  different  share of other
expenses,  not including advisory or custodial fees or other expenses related to
the management of the Trust's assets, if those expenses are actually incurred in
a  different  amount by that  class,  or if the  class  receives  services  of a
different  kind or to a  different  degree  than the  other  classes.  All other
expenses  are  allocated  to each class on the basis of net asset  value of that
class in relation to the net asset value of that  particular  fund.  Class A and
class B shares have identical voting rights except that each class of shares has
exclusive  voting rights on any matter  submitted to  shareholders  that relates
solely to that class,  and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interest of any
other class.  Each class of shares has  exclusive  voting rights with respect to
matters  involving the distribution and servicing plan applicable to that class.
Matters  submitted to shareholder  vote must be approved by each Fund separately
except:
<PAGE>

1) when required by the 40 Act;
2)when the Trustees  determine  that the matter does not affect all Funds,  then
only the shareholders of the affected Funds may vote.

Shares are freely transferable,  entitled to dividends declared by the Trustees,
and receive the assets of their respective Fund in the event of liquidation. The
Trust generally holds annual  shareholder  meetings only when required by law or
at the  written  request  of  shareholders  owning at least  10% of the  Trust's
outstanding  shares.  Shareholders may remove Trustees from office by votes cast
in person or by proxy at a shareholders' meeting.
    

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 that are
binding only on the assets and property of the Trust. We include this disclaimer
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 meets its
obligations.

ASSET ALLOCATION (DIVERSIFICATION)

You should not  consider  an  investment  in any one Fund a complete  investment
program. Like most investors, you should hold a number of different investments,
each with a different  level of risk,  such as common stocks,  bonds,  and money
market  certificates.  You may  want  to meet  your  goal of  diversifying  your
investments by purchasing  shares in a number of different funds,  each of which
has a different investment strategy and level of risk.

QUESTIONS

If  you  have  questions,   contact  your  AAL  Capital  Management  Corporation
Registered   Representative  or  the  Mutual  Fund  Service  Center  by  calling
800-553-6319 or writing us at:

GLOSSARY OF IMPORTANT TERMS

AMORTIZED: Paying the principal on a debt by installments;  an accounting method
that provides for the gradual decline in the value of an asset.

ANNUALIZED:   Calculated  to  represent  a  year(s);  a  statement  produced  by
calculating financial results for periods other than a complete year(s).
<PAGE>

ASSET-BACKED SECURITIES: See Mortgage and Asset-Backed Securities, below.

BOND: An interest-bearing  debt security,  or discounted government or corporate
security,  that requires the issuer to pay a specified  amount of interest for a
specified  time,  usually a number of years,  then repay the bondholder the face
amount of the bond.

BUSINESS DAY: Any day both the Federal Reserve Bank of New York and the New York
Stock  Exchange are open for  business.  A business day normally  begins at 8:00
a.m. Central Time when the Exchange opens, and usually ends at 3:00 p.m. Central
Time when the Exchange closes.

CALL OPTION:  A contract giving the owner the right to buy 100 shares of a stock
at a predetermined price any time up to a predetermined expiration date.

CAPITAL GAIN OR LOSS:  The increase or decrease in the value of a security  over
the original  purchase  price. A gain or loss is REALIZED when the security that
has increased or decreased in value is sold.  An UNREALIZED  GAIN or LOSS occurs
when the value of a security  increases  or  decreases  but the  security is not
sold.  If a security  is held for more than 12 months and then sold at a profit,
that  profit is a REALIZED  LONG TERM  CAPITAL  GAIN.  If it is sold at a profit
before  being held for 12 months,  that profit is a REALIZED  SHORT TERM CAPITAL
GAIN.

CHARTERED FINANCIAL ANALYST (CFA):  Designation earned by financial analysts who
pass  examinations in economics,  financial  accounting,  portfolio  management,
security analysis, and standards of conduct.

COLLATERAL:  Something of value--such as real estate,  stocks and bonds--pledged
to secure a debt.

COMMERCIAL PAPER:  Short-term,  unsecured debt obligations  issued by businesses
and sold at a discount but redeemed at pay within 2 to 270 days.

 COMPOUND INTEREST: Interest paid upon interest; interest that is calculated and
credited daily, weekly monthly,  quarterly,  semi-annually,  or annually on both
the principal and the already credited interest.

CONVERTIBLE  BONDS:  Bonds that convert or exchange into stocks or carry with it
the right to  acquire  stocks  evidenced  by  warrants  attached  to the bond or
acquired as part of the unit with the bonds.

COVERED OPTION: Option contract backed by the shares underlying the option.

DEBT  SECURITIES:  Bonds and other  debt  instruments  used by issuers to borrow
money from  investors.  The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity.
<PAGE>

DEFERRED INTEREST BONDS:  Bonds that an issuer issues at a significant  discount
from face value.  The  discount  approximates  the total  amount of interest the
bonds will accrue and compound over the period until the first interest  accrual
date at a rate of interest  reflecting  the market  rate of the  security at the
time of issuance.  Deferred  interest bonds provide for a period of delay before
the regular payment of interest begins.

DEPOSITORY RECEIPTS The Funds may hold securities of foreign issuers in the form
of American  Depository  Receipts  (ADRs),  American  Depository  Shares (ADSs),
Global Depository  Receipts (GDRs) and European  Depository  Receipts (EDRs), or
other  securities   convertible  into  securities  of  foreign  issuers.   These
securities  may not be  denominated  in the same currency as the  securities for
which they might be exchanged. ADRs and ADSs are generally issued by a U.S. bank
or trust company and they evidence ownership of underlying  foreign  securities.
GDRs are global offerings where two securities are issued  simultaneously in two
markets,  usually publicly in non-U.S. markets and privately in the U.S. market.
EDRs (sometimes  called  Continental  Depository  Receipts  [CDRs]) are receipts
issued in Europe, generally by a foreign bank or trust company and they evidence
ownership of foreign securities.  ADRs and ADSs in registered form are generally
used in U.S. securities markets,  GDRs in the U.S. and European markets and EDRs
and CDRs in bearer form are generally  used in European  securities  markets.  A
Fund  will  consider  ADRs,  ADSs,  GDRs,  EDRs and CDRs as  investments  in the
underlying equity securities for purposes of diversification.

ECONOMIC RISK:  The risk that an investment  will lose value or not pay expected
returns because of domestic or international events.

EQUITY:  Ownership interest in a company;  stock represents the equity or amount
of ownership you have in the company issuing the stock.

FACE VALUE: See Par.

FDIC:  The  Federal  Deposit  Insurance  Corporation,  an agency of the  federal
government that guarantees  individual  deposits up to $100,000 at participating
banks and savings and loan associations.

FINANCIAL RISK: The fundamental  risk of investing that the issuer of a security
may not be able to meet its obligations to its investors.

FLOATING RATE BONDS: SEE VARIABLE OR FLOATING RATE BONDS.

403(b)(7)  RETIREMENT  PLAN:  A personal  retirement  savings  program that lets
employees of certain tax-exempt  organizations or school systems and educational
institutions contribute a portion of their earnings,  usually by salary deferral
agreement,  into a special  mutual  fund  account.  Contributions  are made on a
pre-tax  basis and benefit from  tax-deferred  build up of income.  The right to
withdraw  funds is limited by law and  amounts  withdrawn  are subject to income
taxes.
<PAGE>

FUTURES  CONTRACT:  Agreement to buy or sell a specific amount of a commodity or
financial instrument at a particular price on a stipulated future date.

GENERAL OBLIGATIONS BONDS: Municipal bonds secured by the issuer's pledge of its
credit and taxing power for the payment of principal and interest.

INDIVIDUAL  RETIREMENT ACCOUNT (IRA): A personal retirement savings program that
lets  individuals  with  earned  income  (and  their  spouses)  under age 70 1/2
contribute  both  deductible  and non  deductible  payments  with the benefit of
tax-deferred  build up of income.  Funds withdrawn are usually subject to income
taxes and, if withdrawn before age 59 1/2, may also be subject to penalties.

INDUSTRIAL  DEVELOPMENT  BONDS:  Municipal bonds (usually  revenue  bonds),  the
credit quality of which is normally  directly  related to the credit standing of
the industrial user involved or of the issuer of any credit  enhancement such as
an insurance policy or letter of credit.

INFLATION RISK: The risk that the value of assets or of income from  investments
will be less in the future as inflation decreases the
value of money.

INSTRUMENTALITY:  An agency of the Federal  government whose debts are sponsored
or guaranteed by the  government  and are backed by the full faith and credit of
the  government,  even  though the debt is not a direct  obligation  of the U.S.
Government.  Examples of government  instrumentalities  include the Federal Home
Loan Bank and the Student Loan marketing Association.

INTEREST:  The payment  borrowers  make to lenders  for the use of their  money,
usually expressed as a percentage of the amount borrowed (the principal).

INVESTMENT GRADE: A bond or other fixed-income security is considered investment
grade if it is rated investment  grade by a NRSRO,  such as BBB or better by D&P
or S&P or Baa or better by Moody's.

LIQUIDITY: The ease and speed at which an investment can be converted into cash.

MARGIN:  Amount a customer deposits with a broker when borrowing from the broker
to buy securities.

MARKET  CAPITALIZATION:  The value of a corporation as determined by multiplying
the current market price of a share of common stock by the number of shares held
by shareholders.  Thus, if a corporation has one million shares  outstanding and
the market price of a share is $10, the market capitalization of the corporation
is $10 million.

MARKET RISK:  Refers to the tendency of security  prices to move  together.  The
risk that a broad market downturn will impact investments in a particular field.
<PAGE>

MARKET  VALUE:  The price at which a  security  can be bought or sold at a given
time in an open market.

MATURITY:  The date on which the principal of a debt  obligation  such as a bond
comes due and must be repaid.

MONEY MARKET  INSTRUMENT:  Short-term,  liquid debt,  such as Treasury bills and
commercial  paper,  which  is sold  at a  discount  but  redeemed  at  par.  See
COMMERCIAL PAPER.

MORTGAGE AND  ASSET-BACKED  SECURITIES:  Typically these  securities  consist of
interest in pools of mortgages or consumer credit that provide monthly  payments
consisting both interest and principal  payments.  In effect,  these  securities
"pass  through" the monthly  payments that  individual  borrowers  make on their
mortgages or consumer loans net of any fees paid to the issuers or guarantors of
such  securities.  Mortgage  backed  and/or  asset-backed  securities  may  make
additional payments due to principal prepayments made on the mortgages or loans,
refinancing  or  foreclosures  on  the  underlying   property.   Mortgage-backed
securities also may include debt obligations collateralized by mortgage loans or
mortgage   pass-through   securities   ("CMOs")  and  stripped   mortgage-backed
securities,  as well as other  types  of  mortgage-backed  securities.  For more
information  on  mortgage-backed  securities,  please refer to the  Statement of
Additional Information

MUNICIPAL BONDS:  Debt obligations  issued by or on behalf of the governments of
states,  territories  or  possessions  of the United  States,  the  District  of
Columbia and their political subdivisions,  agencies and instrumentalities,  the
interest on which is generally exempt from federal income tax.

NATIONALLY  RECOGNIZED  STATISTICAL RATING ORGANIZATION  (NRSRO): A company that
assesses  the quality and  potential  performance  of bonds,  commercial  paper,
preferred and common  stocks,  and municipal  short-term  issues,  and rates the
probability  that the  issuer  of the debt  will  meet  the  scheduled  interest
payments and repay the  principal.  Ratings are  published by such  companies as
Moody's Investors Service (Moody's), Standard & Poor's Corporation (S&P), Duff &
Phelps, Inc. (D&P), and Fitch Investor Services, Inc. (Fitch).

OPEN-END FUND: Also called a mutual fund; an investment  company in which people
invest by buying its shares,  thereby  pooling their money and allowing the fund
to invest in a number of securities. The fund distributes any profits from these
investments, after expenses, to the fund's shareholders.  Although shares in the
fund are sold publicly, they are not traded on an open exchange because the fund
will buy and sell shares to meet  investor  demand.  Since the company can issue
more shares, the company's capitalization is not fixed but open.

PAR:  The stated  principal  value of a bond,  or the stated  value per share of
stock usually only used to calculate  fees for  incorporation.  Typically  bonds
have a principal  value of  $1,000.00.  A security  selling at its face value is
said to be selling at "par". A security  selling below its face value is said to
be selling below par or at a discount.  A security  selling above its face value
is said to be selling above par or at a premium.
<PAGE>

PRINCIPAL:  Face  value of an  obligation  (such as a bond or loan) that must be
repaid at maturity.

PORTFOLIO: Combined holding of more than one stock, bond, commodity, real estate
investment,  cash  equivalent,  or other asset by an individual or institutional
investor. The purpose of a portfolio is to reduce risk by diversification.

PREFERRED  STOCK:  Stock  with a fixed  dividend  that must be paid  before  the
dividend of common stock is paid.

PUBLIC  UTILITY:  A privately  owned company that is involved in the generation,
transmission,  or distribution of electricity, gas, energy, water and telephone,
telegraph,  satellite,  microwave  and other  communication  facilities  for the
public benefit.

PUT OPTION: A contract giving the owner the right to sell 100 shares of stock at
a predetermined price any time up to a predetermined expiration date.

QUALIFIED  RETIREMENT  PLANS:  Retirement plans established and maintained by an
employer for the benefit of its employees that must comply with special  federal
tax and labor laws and  regulations.  Some of the more common types of qualified
plans are pension,  profit  sharing and 401(k) plans. A 401(k) plan also permits
employees to make contributions to the plan through salary deferrals.

RECORD DATE: Date on which a shareholder  must officially own shares in order to
be entitled to a dividend.

REGULATED  INVESTMENT  COMPANY:  Term used by Internal  Revenue Code to define a
mutual fund.

REPURCHASE  AGREEMENT:  Agreement between a seller and a buyer,  usually of U.S.
Government securities, whereby the seller agrees to repurchase the securities at
an agreed upon price and, usually, at a stated time.

REVENUE BONDS:  Municipal  bonds that usually are payable only from the revenues
derived for a particular facility or class of facilities,  or in some cases from
the proceeds of a special excise tax or other specific revenue source.

RISK: The possibility that you may lose all or part of your investment, that the
value of your  investment  will decrease,  or that you will receive little or no
return on your investment.  There are many kinds of risks in investing. See also
ECONOMIC RISK, FINANCIAL RISK, INFLATION RISK, and MARKET RISK.

ROLLOVER IRA: An IRA that receives its funding through a distribution  made from
another  retirement  plan,  often  because  of  the  employee's  termination  of
employment from the retirement plan's sponsoring employer.
<PAGE>

SARSEP-IRA:  A retirement plan that permits the employees to make  contributions
through salary reduction agreements.

SEC: The U.S. Securities and Exchange Commission.

SEP-IRA: A retirement plan that permits employers to make contributions to their
employees'  IRAs. If the employer  permits the  employees to make  contributions
through salary reduction agreements, it is often called a SARSEP-IRA.

SECURITIES:   Financial   instruments,   usually  stocks,  bonds,  money  market
instruments,   or  mutual  fund   shares   that  are  issued  by   corporations;
municipalities;  state, local, or national governments;  or investment companies
to raise or borrow money or give the public an opportunity to participate in the
growth of a company.

SIMPLIFIED  EMPLOYEE PENSION (SEP): A retirement plan that permits  employers to
make  contributions  to their  employees'  IRAs.  If the  employer  permits  the
employees to make contributions through salary reduction agreements, it is often
called a SARSEP- IRA.

STANDARD & POOR'S  INDEX:  Also known as the  STANDARD & POOR'S 500;  Standard &
Poor's  Corporation is a subsidiary of McGraw-Hill,  Inc. that provides a number
of investor  services.  The S&P 500 is a measure of the changes in stock  market
conditions  based on the average  performance  of 500 widely held common stocks.
This index is considered the benchmark for large stock investors.

S&P SMALL CAP 600 INDEX (S&P SMALL  CAP):  Introduced  in October  1994 to track
small cap stocks.  It  contains  companies  chosen by a committee  at Standard &
Poor's for their size,  industry  characteristics,  and  liquidity.  None of the
companies in the S&P Small Cap overlap with the S&P 500 or S&P Mid Cap. However,
some companies in the S&P Small Cap are larger than the S&P Mid Cap or S&P 500.

S&P MID CAP 400 INDEX (S&P MID CAP): Contains companies chosen by a committee at
Standard & Poor's for their mid cap size and industry  characteristics.  None of
the companies in the S&P Mid Cap overlap with the S&P 500 or S&P Small Cap. Some
companies in the S&P Mid Cap, however,  are larger than those in the S&P 500 and
smaller than those in the S&P Small Cap.  This is a function of the normal drift
that takes place in any index as some  companies'  stock prices  appreciate  and
those of others depreciate.

STRUCTURED  SECURITIES:  Securities  that  have a value  linked  to  currencies,
interest rates, commodities,  indices or other financial indicators.  Typically,
these  securities are debt securities or deposits whose value at maturity (i.e.,
principal  value)  or coupon  rate is  determined  by  reference  to a  specific
instrument or statistic. For example,  goldstructured securities may provide for
maturity values that depend on the price of gold,  resulting in securities whose
prices tend to rise and fall together with gold prices.
<PAGE>

TOTAL RETURN:  The  combination of the change in price of an investment plus any
income (or other distributions), it is expressed as a percentage gain or loss in
the investment's value.

TRANSFER  AGENT:  An agent  appointed  by a mutual fund to  maintain  records of
shareholders, and issue share certificates.

TRUST: An arrangement that permits one party,  the Trustee,  to hold legal title
and control property for the benefit of another party, the beneficiary.

TURNOVER:  Also called the PORTFOLIO TURNOVER RATE; the percentage change in the
assets held by the Fund due to its  purchases  and sales.  A portfolio  turnover
rate of 100% means that the Fund has purchased and sold securities equal to 100%
of the Fund's total net asset value for the year.

12B-1  DISTRIBUTION/SERVICE  FEE: The fee a mutual fund charges  shareholders to
cover the expenses the fund has for shareholder service, advertising, promoting,
and selling shares in the fund, also called distribution fee.

VARIABLE OR FLOATING RATE BONDS: Variable or floating rate debt obligations bear
variable  or floating  interest  rates and carry  rights that permit  holders to
demand payment of the unpaid  principal  balance plus accrued  interest from the
issuers or certain  financial  intermediaries.  Floating rate  instruments  have
interest rates that change  whenever there is a change in a designated base rate
while variable rate instruments  provide for a specified periodic  adjustment in
the interest rate. The interest rate formulas are designed to result in a market
value for the instruments that approximate their par values, reducing the effect
of changing market conditions on their underlying market values.

VARIABLE RATE MASTER NOTES:  unsecured  obligations,  redeemable on notice, that
permit  investment of varying amounts at varying  interest rates according to an
agreement with the issuer.

VOLATILITY:  The measure of the rise and fall of the price of a security  over a
stated period of time.

YIELD: The annual return on an investment (from dividends or interest) expressed
as a percentage of either cost or current price.

ZERO COUPON BONDS:  Bonds that the issuer issues at a significant  discount from
face value.  The  discount  approximates  the total amount of interest the bonds
will accrue and compound over the period until  maturity  reflecting  the market
rate of the security at the time of issuance.

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

APPENDIX: SECURITY RATINGS

RATINGS IN GENERAL

A rating of a rating service  represents the service's  opinion as to the credit
quality of the security  being rated.  However,  the ratings are general and are
not absolute standards as to the  creditworthiness  of an issuer.  Consequently,
the Adviser and Sub-Adviser believe that the quality of debt securities in which
The Fund invests should be continuously  reviewed and that  individual  analysts
give different  weightings to the various factors involved in credit analysis. A
rating is not a recommendation to purchase, sell or hold a security,  because it
does  not  take  into  account  market  value or  suitability  for a  particular
investor. When a security has received a rating from more than one service, each
rating  should  be  evaluated  independently.   Ratings  are  based  on  current
information  furnished  by the issuer or  obtained by the rating  services  from
other sources which they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability  of such  information,  or
for other reasons.

The following is a description of the  characteristics of ratings used by Duff &
Phelps Credit Rating Co., Moody's  Investors  Service,  Inc.,  Standard & Poor's
Corporation and Fitch Investors Service,  Inc. four major nationally  recognized
statistical rating organizations.

DUFF & PHELPS
RATING SCALE DEFINITION
------------ ----------
AAA Highest credit quality. The risk factors are negligible, being only slightly
more than for risk free U.S. Treasury debt.

AA+ High credit quality.  Protection  factors are strong.  AA Risk is modest but
may vary slightly from time to time AA- because of economic conditions.

A+ Protection factors are average but adequate.  However A risk factors are more
variable and greater in periods of A- economic stress.

BBB+ Below average  protection  factors but still  considered BBB sufficient for
prudent  investment.  Considerable  BBB-  variability  in risk  during  economic
cycles.

BB+ Below  investment grade but deemed likely to meet ob- BB ligations when due.
Present or prospective  financial BB- protection factors fluctuate  according to
industry  conditions or company  fortunes.  Overall  quality may move up or down
frequently within this category.

B+ Below  investment  grade but deemed likely to meet ob- B ligations  when due.
Present or prospective  financial B- protection  factors fluctuate  according to
industry  conditions or company  fortunes.  Overall  quality may move up or down
frequently within this category.
<PAGE>

CCC Well below investment grade securities.  Considerable  uncertainty exists as
 to timely  payment of principal,  interest or preferred  dividends.  Protection
 factors   are   narrow   and  risk   can  be   substantial   with   unfavorable
 economic/industry conditions and/or with unfavorable company developments.

DD Defaulted debt obligations.  Issuer failed to meet scheduled principal and or
 interest payments.

DP Preferred stock with dividend arrearages.


MOODY'S RATING
SCALE DEFINITIONS
----- -----------
Aaa Bonds which are rated Aaa are judged to be of the best  quality.  They carry
 the smallest degree of investment  risk and are generally  referred to as "gilt
 edged."  Interest  payments  are  protected  by a large or by an  exceptionally
 stable margin and principal is secure.  While the various  protective  elements
 are likely to change,  such changes as can be  visualized  are most unlikely to
 impair the fundamentally strong position of such issues.

Aa Bonds which are rated Aa are judged to be of high  quality by all  standards.
Together  with the Aaa group they  comprise what are general known as high grade
bonds.  They are rated lower than the best bonds  because  margins of protection
may not be as large as Aaa securities or fluctuations of protective elements may
be of  greater  amplitude  or there may be other  elements  present  which  make
long-term risk appear somewhat larger than the Aaa securities.

A Bonds which are rated A possess many favorable  investment  attributes and are
to be considered as upper-medium grade  obligations.  Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest susceptibility to impairment some time in the future.

Baa Bonds which are rated Baa are considered as medium-grade  obligations  (i.e.
they are neither highly  protected nor poorly  secured).  Interest  payments and
principal  security  appear  adequate  for the present  but  certain  protective
elements may be lacking or may be  characteristically  unreliable over any great
length of time. Such bonds lack outstanding  investment  characteristics  and in
fact have speculative characteristics as well.

Ba Bonds  which are  rated Ba are  judged to have  speculative  elements;  their
future cannot be considered as  well-assured.  Often the  protection of interest
and  principal  payments may be very  moderate and thereby not well  safeguarded
during  both  good  and bad  times  over the  future.  Uncertainty  of  position
characterizes bonds in this class.
<PAGE>

B Bonds  which are  rated B  generally  lack  characteristics  of the  desirable
investment.  Assurance of interest and principal  payments or of  maintenance of
other terms of the contract over a long period of time may be small.

Caa  Bonds  which  are rated Caa are of poor  standing.  Such  issues  may be in
default or there may be present  elements of danger with respect to principal or
interest.

Ca Bonds which are rated Ca represent  obligations  which are  speculative  in a
high degree. Such issues are often in default or have other marked shortcomings.

C Bonds which are rate C are the lowest rated class of bonds and issues so rated
can be regarded as having  extremely  poor  prospects of ever attaining any real
investment standing.

Note:  Moody's applies  numerical  modifiers,  1, 2 and 3 in each generic rating
classification  from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its  generic  rating  category ; the  modifier 2  indicates  a
mid-range  raking;  and the modifier 3 indicates  that the company  ranks in the
lower end of its generic rating category

STANDARD & DEFINITIONS
POOR'S RATING
SCALE

AAA Debt rated  "AAA" has the  highest  rating  assigned  by  Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA Debt rated "AA" has very strong  capacity to pay interest and repay principal
and differs from the higher rated issues only in small degrees.

A Debt  rated "A" has  strong  capacity  to pay  interest  and  repay  principal
although it is somewhat more  susceptible  to the adverse  effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB Debt rated "BBB" is regarded as having an adequate  capacity to pay interest
and  repay  principal.   Whereas  it  normally  exhibits   adequate   protection
parameters,  adverse  economic  conditions  or changing  circumstances  are more
likely to lead to a weakened  capacity to pay interest and repay  principal  for
debt in this category than in higher rated categories.

BB, B,  CC,CC,C  Debt rated  "BB",  "B",  "CCC",  "CC" and "C" is  regarded,  on
balance,  as predominantly  speculative with respect to capacity to pay interest
and  repay  principal  in  accordance  with the  terms of the  obligation.  "BB"
indicates  the  lowest  degree  of  speculation  and "C" the  highest  degree of
speculation.  While  such debt will  likely  have some  quality  and  protective
characteristics,  these are  outweighed  by large  uncertainties  or major  risk
exposures to adverse conditions.
<PAGE>

BB Debt  rated  "BB" has less  near-term  vulnerability  to  default  than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse  business,   financial  or  economic  conditions  which  could  lead  to
inadequate  capacity to meet timely interest and principal  payments.  The "BB"
rating  category  is also  used for debt  subordinated  to  senior  debt that is
assigned an actual or implied "BBB-" rating.

B Debt rated "B" has a greater  vulnerability  to default but  currently has the
capacity to meet interest  payments and principal  repayments.  Averse business,
financial or economic  conditions  will likely impair capacity or willingness to
pay  interest  and  repay  principal.  The "B"  rating  is also  used  for  debt
subordinated  to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.

CCC Debt rated "CCC" has a currently  identifiable  vulnerability to default and
is dependent upon favorable business,  financial and economic conditions to meet
timely  payment of interest and repayment of principal.  In the event of adverse
business,  financial  or  economic  conditions,  it is not  likely  to have  the
capacity to pay interest and repay principal.  The "CCC" rating category is also
used for debt  subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.

CC The rating "CC" is typically applied to debt subordinated to senior debt that
is assigned an actual or implied "CCC" rating.

C The rating "C" is typically  applied to debt subordinated to senior debt which
is assigned an actual or implied "CCC-" debt rating.  The "C" rating may be used
to cover a situation  in which a bankruptcy  petition  has been filed,  but debt
service payments are continued.

CI The rating "CI" is reserved for income bonds on which no interest is paid.

D Debt rated "D" is in payment  default.  The "D" rating  category  is used when
interest payments or principal payments are not made on the date due even if the
applicable  grace period has not expired,  unless S & P believes  such  payments
will be made during such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

NR NR  indicates  that no  public  rating  has  been  requested,  that  there is
insufficient  information on which to base a rating, or that S & P does not rate
a particular type
 of obligation as a matter of policy.

Plus (+) or Minus (-):  The  ratings  from "AA" to "CCC" may be  modified by the
addition  of a plus or minus  sign to show  relative  standing  within the major
category.
<PAGE>

FITCH INVESTMENT DEFINITIONS
GRADE BOND
RATINGS:

AAA Bonds  considered to be investment  grade and of the highest credit quality.
The  obligor  has an  exceptionally  strong  ability to pay  interest  and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA Bonds considered to be investment grade and of very high credit quality.  The
obligor's  ability to pay interest and repay principal is very strong,  although
not quite as strong as bonds rated "AAA".  Because  bonds rated in the "AAA" and
"AA"  categories  are  not  significantly   vulnerable  to  foreseeable   future
developments, short-term debt of these issuers is generally rated "F-1+."

A Bonds  considered  to be  investment  grade and of high  credit  quality.  The
obligor's  ability to pay  interest  and repay  principal  is  considered  to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB Bonds considered to be investment grade and of satisfactory  credit quality.
The  obligor's  ability to pay interest and repay  principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more  likely to have an adverse  impact on these  bonds,  and  therefore  impair
timely  payment.  The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

NR NR indicates that Fitch does not rate the specific issue.

Plus (+) or Minus  (-):  Plus or Minus  signs are used  with a rating  symbol to
indicate the relative position of a credit within the rating category.  Plus and
minus signs, however, are not used in the "AAA" category.

COMMERCIAL PAPER RATINGS

RATINGS BY DUFF & PHELPS

Category 1: Top Grade

Duff 1 plus Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or ready access to alternative  sources of funds,
is  clearly  outstanding,  and  safety is just  below  risk-free  U.S.  Treasury
short-term obligations.

Duff 1 Very high certainty of timely  payment.  Liquidity  factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.

Duff 1 minus High certainty of timely payment.  Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
<PAGE>

Category 2: Good Grade

Duff  2  Good  certainty  of  timely  payment.  Liquidity  factors  and  company
fundamentals  are  sound.  Although  ongoing  funding  needs may  enlarge  total
financing  requirements,  access to capital  markets is good.  Risk  factors are
small.

Category 3: Satisfactory Grade

Duff 3 Satisfactory  liquidity and other protection  factors qualify issue as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless timely payment is expected.

RATINGS BY MOODY'S

Moody's commercial paper ratings are opinions of the ability to repay punctually
promissory   obligations.   Moody's   employs  the  following   three   category
designations,  all judged to be  investment  grade,  to  indicate  the  relative
repayment capacity of rated issuers:  Prime 1 --highest quality; Prime 2--higher
quality; Prime 3--high quality.

RATINGS BY STANDARD & POOR'S

A Standard  & Poor's  commercial  paper  rating is a current  assessment  of the
likelihood of timely payment.  Ratings are graded into four categories,  ranging
from "A" for the highest quality obligations to "D" for the lowest.

Issues  assigned  the highest  rating  category,  A, are  regarded as having the
greatest  capacity for timely  payment.  Issues in this category are  delineated
with the numbers "1", "2" and "3" to indicate the relative degree of safety. The
designation A-1 indicates that the degree of safety  regarding timely payment is
either overwhelming or very strong. A "+" designation is applied to those issues
rated "A-1" which possess extremely strong safety characteristics.  Capacity for
timely  payment on issues with the  designation  "A-2" is strong.  However,  the
relative  degree of safety is not as high as for issues  designated  A-1. Issues
carrying the  designation  A-3 have a satisfactory  capacity for timely payment.
They are, however,  somewhat more vulnerable to the adverse effect of changes in
circumstances than obligations carrying the higher designations.

MUNICIPAL NOTE RATINGS

RATINGS BY MOODY'S

MIG 1. This designation  category denotes best quality.  There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
<PAGE>

MIG 2. This designation category denotes high quality. Margins of protection are
ample although not so large as in the preceding group.

MIG 3.  This  designation  category  denotes  favorable  quality.  All  security
elements are accounted for but there is lacking the  undeniable  strength of the
preceding  grades.  Liquidity and cash flow  protection may be narrow and market
access for refinancing is likely to be less well established.

DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES

Moody's may assign a separate  rating to the demand  feature of a variable  rate
demand security. Such a rating may include:

VMIG  1.  This  designation  denotes  best  quality.  There  is  present  strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.

VMIG 2. This designation  denotes high quality.  Margins of protection are ample
although not so large as in the preceding group.

VMIG 3. This designation  denotes favorable  quality.  All security elements are
accounted  for but there is lacking the  undeniable  strength  of the  preceding
grades.  Liquidity and cash flow  protection may be narrow and market access for
refinancing is likely to be less well established.

RATINGS BY S & P

SP-1.  Notes rated SP-1 have very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety characteristics
are designated as SP-1+.

SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating.  Notes maturing
beyond  three years  normally  receive a bond  rating,  although  the  following
criteria are used in making that assessment.  Amortization  schedule (the larger
the final maturity relative to other maturities,  the more likely the issue will
be rated as a note.)  Source of payment (the more  dependent the issue is on the
market for its refinancing, the more likely it will be rated as a note.)

DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES

S & P assigns  dual  ratings to all  long-term  debt issues that have as part of
their provisions a demand feature.  The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand  feature.  The  long-term  debt rating  symbols are used for bonds to
denote the  long-term  maturity  and the  commercial  paper  rating  symbols are
usually  used to  denote  the put  (demand)  options  (for  example,  AAA/A-1+.)
Normally demand notes receive note rating symbols combined with commercial paper
symbols (for example SP-1+/A-1+.)
<PAGE>




                              The AAL Mutual Funds
                             222 West College Avenue
                             Appleton, WI 54919-0007
                     Telephone (414) 734-5721, 800-553-5319
                                TDD 800-684-3416

   
                       STATEMENT OF ADDITIONAL INFORMATION
                              Dated January 8, 1997


The AAL Capital Growth Fund:  Investing In Large Company Stocks

The AAL Mid Cap Stock Fund (Formerly Known As The AAL Smaller Company
Stock Fund):  Investing In Mid-Sized Company Stocks

The AAL Small Cap Stock Fund:  Investing In Small Company Stocks

The AAL International Fund:  Investing In Foreign Securities

The AAL Utilities Fund:  Investing In Public Utilities Securities

The AAL Bond Fund:  Investing In Investment Grade Bonds

The AAL Municipal Bond Fund:  Investing In Tax-Exempt Municipal Securities

The AAL High Yield Bond Fund:  Investing in Non-Investment Grade Securities

The AAL Money Market Fund:  A Money Market Investment

         This  Statement of  Additional  Information  is not a  prospectus,  but
provides  additional  information  which should be read in conjunction  with the
Prospectus  of The AAL Mutual  Funds dated  January 8, 1997 and any  supplements
thereto.  The  Funds'  Prospectus  may be  obtained  at no charge by  writing or
telephoning your AAL Capital Management Corporation Registered Representative or
The AAL Mutual Funds at the address and telephone  number above.  Two additional
series: The AAL U.S.  Government Zero Coupon Bond Fund, Series 2001; and The AAL
U.S.  Government Zero Coupon Bond Fund, Series 2006, are described in a separate
Prospectus and Statement of Additional Information.

         In this Statement of Additional  Information,  The AAL Mutual Funds may
be referred to as the "Trust," and The AAL Capital Growth,  Mid Cap Stock (f/k/a
The AAL Smaller Company Stock Fund), Small Cap Stock, International,  Utilities,
Bond, Municipal Bond, High Yield Bond, and Money Market Funds may be referred to



<PAGE>



collectively  as the "Funds" or  individually  as a "Fund."  Terms not otherwise
defined have the same meaning as in the Prospectus.
    


         Table of Contents

Investment Objectives And Policies.............................................

Investment Techniques..........................................................

Investment Restrictions........................................................

Purchases And Redemptions; Pricing Considerations..............................

Investment Advisory Services...................................................

Compensation of The Board of Trustees..........................................

Distributor....................................................................

Distribution Plan..............................................................

Portfolio Transactions.........................................................

Dividends, Distributions And Taxes.............................................

Calculation Of Yield And Total Return..........................................

General  ......................................................................

Shareholder Maintenance Agreement..............................................

Independent Accountants........................................................

Financial Statements...........................................................




<PAGE>



Investment Objectives And Policies

The following  information  supplements the discussion of the Funds'  respective
investment  objectives  and policies  described in the  Prospectus.  In pursuing
their  respective  objectives,  each Fund invests as described below and employs
the  investment  techniques  described in the  Prospectus  and elsewhere in this
Statement  of  Additional  Information.  Each Fund's  investment  objective is a
fundamental policy, which 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.

The AAL Capital Growth Fund:  Investing In Large Company Stocks

   
This Fund seeks long-term capital growth by investing in a diversified portfolio
of common stocks, and securities convertible into common stocks.
    

The AAL Mid Cap Stock Fund (Formerly Known As The AAL Smaller Company
Stock Fund):  Investing In Mid-Sized Company Stocks

This Fund seeks capital growth by investing primarily in a diversified portfolio
of common stocks,  and securities  convertible into common stocks,  of mid-sized
companies with a market  capitalization  of between $100 million and $5 billion,
focusing on those with a market  capitalization of between $400 million and $3.5
billion.  Prior to July 1, 1996 The AAL Mid Cap Stock  Fund was known as The AAL
Smaller Company Stock Fund.

The Fund is designed for  long-term  investors  who are able to accept the risks
associated  with  seeking   capital   appreciation  by  investing  in  mid-sized
companies.

The AAL Small Cap Stock Fund:  Investing In Small Company Stocks

This Fund seeks capital growth by investing primarily in a diversified portfolio
of common stocks, and securities  convertible into common stocks, of small-sized
companies with a market capitalization of less than $1 billion.

The Fund is designed for  long-term  investors  who are able to accept the risks
associated with seeking capital growth by investing in small companies.





<PAGE>


   
The AAL International Fund:  Investing In Foreign Securities

This Fund seeks capital growth by investing primarily in a diversified portfolio
of foreign securities.

The Fund is designed for  long-term  investors  who are able to accept the risks
associated with seeking capital growth by investing in foreign securities.
    

The AAL Utilities Fund:  Investing In Public Utilities Securities

This  Fund  seeks  current  income,  long-term  growth  of  income  and  capital
appreciation,  by investing  primarily in a diversified  portfolio of equity and
debt securities of companies in the public utilities industry.

The AAL Bond Fund:  Investing In Investment Grade Bonds

This Fund seeks a high level of current income,  consistent with preservation of
capital, by investing  primarily in a diversified  portfolio of investment grade
bonds and other debt  securities.  Prior to July 1, 1992,  The AAL Bond Fund was
known as The AAL Income Fund.

The AAL Municipal Bond Fund:  Investing In Tax-Exempt Municipal Securities

This Fund seeks a high  level of  current  income  that is exempt  from  federal
income taxes, consistent with preservation of capital, by investing primarily in
a diversified portfolio of municipal securities.

   
The AAL High Yield Bond Fund:  Investing in Non-Investment Grade Securities

This Fund seeks high current income and secondarily  capital growth by investing
primarily in a diversified portfolio of high yield, high risk bonds ("High Yield
Bonds").
    

The AAL Money Market Fund:  Investing In Money Market Instruments

This Fund seeks a high level of current income  consistent with  preservation of
capital and liquidity by investing in a diversified  portfolio of  high-quality,
short-term money market instruments.

Investment Techniques

Each of the Funds may use the techniques  described in the Prospectus and in the
Statement of Additional Information in pursuit of its investment objective.




<PAGE>



Lending Portfolio Securities

   
Subject to restriction (4) under  "Investment  Restrictions,"  below, a Fund may
lend its portfolio securities to broker-dealers and financial institutions, such
as banks  and  trust  companies.  The  Adviser  and/or  Sub-Adviser  for The AAL
International  Fund will monitor the  creditworthiness  of any firm with which a
Fund  engages  in  securities  lending  transactions.  Any  such  loan  must  be
continuously  secured by collateral in cash or cash equivalents  maintained on a
current basis in an amount at least equal to the market value of the  securities
loaned by the Fund.  The 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. The 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 Fund would not have the right to vote the securities  during
the  existence  of the  loan,  but  would  call the  loan to  permit  voting  of
securities  during  the  existence  of the  loan  if,  in the  Adviser's  and/or
Sub-Adviser  for  The  AAL  International  Fund's  judgment,  a  material  event
requiring a shareholder  vote would  otherwise occur before the loan was repaid.
In the event of  bankruptcy  or other  default of the  borrower,  the Fund could
experience  both delays in  liquidating  the loan  collateral or recovering  the
loaned securities and losses including: (a) possible decline in the value of the
collateral or in the value of the  securities  loaned during the period when the
Fund seeks to enforce  its rights  thereto;  (b)  possible  subnormal  levels of
income and lack of access to income  during  this  period;  and (c)  expenses of
enforcing its rights.
    

Repurchase Agreements

The Funds maintain procedures for evaluating and monitoring the creditworthiness
of firms with which they enter into repurchase agreements. A Fund may not invest
more than 10% of its net assets in repurchase  agreements  maturing in more than
seven days.

When-issued and Delayed Delivery Securities

   
A Fund may purchase  securities on a when-issued or  delayed-delivery  basis, as
described  in the  Prospectus.  A Fund  makes  such  commitments  only  with the
intention of actually  acquiring  the  securities,  but may sell the  securities
before   settlement  date  if  the  Adviser  and/or   Sub-Adviser  for  The  AAL
International Fund deems it advisable for investment reasons.
    

At the time a Fund enters into a binding obligation to purchase  securities on a
when-issued basis, liquid assets of the Fund having a value at least as great as
the



<PAGE>



purchase  price of the securities to be purchased are identified on the books of
the  Fund  and  held  by the  Funds'  custodian  throughout  the  period  of the
obligation.  The use of these investment strategies may increase net asset value
fluctuation.

Convertible Bonds

The  Funds,  except for The AAL Money  Market  Fund,  may invest in  convertible
bonds, subject to any restrictions on the quality of the bonds in which the Fund
may invest,  and retain any stocks  received  upon  conversion  that do not fall
within  the Fund's  investment  parameters  to permit  orderly  disposition,  to
establish a long-term holding basis for Federal income tax purposes,  or to seek
capital growth.

Rated Securities

   
If the rating of a Fund security is lost or reduced, the Fund is not required to
sell  the  security,  but  the  Adviser  and/or  the  Sub-Adviser  for  The  AAL
International  Fund will  consider  such fact in  determining  whether that Fund
should continue to hold the security. With respect to The AAL Money Market Fund,
however,  the Fund will sell downgraded  commercial paper to the extent required
to comply with Rule 2a-7 under the  Investment  Company Act of 1940 (the "Act").
To the extent that the ratings given by Nationally Recognized Statistical Rating
Organizations  for  debt  securities  change  as a  result  of  changes  in such
organization,  or changes in their  rating  systems,  a Fund will attempt to use
comparable ratings as standards for its investments in debt securities in accord
with its investment policies.

High Yield Bond Market -- The AAL International and High Yield Bond Funds

The AAL  International  Fund and The AAL High  Yield  Bond  Fund  invest in high
yield, high risk bonds, with The AAL High Yield Bond Fund normally  investing at
least 65% of its  assets in such  securities.  While the  market  for high yield
bonds has existed for many years and has weathered previous economic  downturns,
the 1980's  brought a dramatic  increase in the use of such  securities  to fund
highly leveraged corporate  acquisitions and restructuring.  Past experience may
not provide an accurate  indication of the future  performance of the high yield
bond market, especially during periods of economic recession. From 1989 to 1991,
the percentage of lower quality  securities  that  defaulted rose  significantly
above prior default levels. However, the default rate decreased subsequently.

The AAL High Yield Bond Fund may invest in Iower rated asset and mortgage-backed
securities,  including interest in pools of lower-rated bonds, consumer loans or
mortgages,  or complex instruments such as collateralized  mortgage  obligations
("CMOs")  and  stripped  mortgage-backed  securities  (the  separate  income  or
principal



<PAGE>



components).  Changes in interest rates, the market's  perception of the issuers
and the  creditworthiness  of the parties involved may significantly  affect the
value of these bonds.  Some of these  securities may have a structure that makes
their reaction to interest rates and other factors difficult to predict, causing
their value to be highly volatile. These bonds also may be subject to prepayment
risk.  During periods of declining  interest rates,  prepayment of the loans and
mortgages  underlying  these  securities  tend to accelerate.  Accordingly,  any
prepayments on these securities held by the Fund reduces our ability to maintain
positions  in  high-yielding,   mortgage-backed   securities  and  reinvest  the
principal at comparable yields.

Collateralized Mortgage Obligations and Multi-Class Pass-Through Securities --
The AAL Bond and High Yield Bond Funds

The AAL Bond and High Yield Bond Funds may invest in mortgage-backed securities,
including  CMOs  and  multi-class  pass-through   securities,   which  are  debt
instruments  issued by special  purpose  entities  secured by pools of  mortgage
loans or other mortgage-backed  securities.  Multi-class pass-through securities
are  interests in a trust  composed of mortgage  loans or other  mortgage-backed
securities.  Payments of  principal  and interest on the  underlying  collateral
provide the money to pay debt service on the CMO or make scheduled distributions
on the multi-class  pass-through security.  Multi-class pass-through securities,
CMOs, and classes thereof  (including those discussed below) are examples of the
types of financial instruments commonly referred to as "derivatives."

In a CMO, a series of bonds or certificates is issued in multiple classes.  Each
class of CMO,  often  referred to as a "tranche,"  is issued a specified  coupon
rate and has a stated maturity or final distribution date. Principal payments on
collateral  underlying  a CMO may cause it to be retired  substantially  earlier
than the  stated  maturity  or final  distribution  dates.  Interest  is paid or
accrues on all classes of a CMO on a monthly,  quarterly or  semi-annual  basis.
The principal and interest on the  underlying  mortgages may be allocated  among
the  several  classes  of a CMO's  series in many ways.  In a common  structure,
payment of  principal  on the  underlying  mortgages  are applied  according  to
scheduled cash flow priorities to classes of a CMO's series.

There are many classes of CMOs. There are interest only's ("IOs"), which entitle
the holder to receive  distributions  consisting solely or primarily of all or a
portion of the interest in an  underlying  pool of mortgages or  mortgage-backed
securities ("Mortgage Assets").  There are also principal only's ("POs"),  which
entitle the holder to receive  distributions  consisting  solely or primarily of
all or a portion of the underlying pool of Mortgage Assets.  In addition,  there
are  "inverse  floaters,"  which have a coupon  rate that  moves in the  reverse
direction  to an  applicable  index,  and  accrual  (or "Z")  bonds,  which  are
described below.




<PAGE>



As to IOs, POs,  inverse  floaters and accrual  bonds,  each Fund may not invest
more than  7.5% of its net  assets  in any one of these  obligations  at any one
time,  and more than 15% of its net  assets in all such  obligations  at any one
time.

Inverse  floating CMOs are typically more volatile than fixed or adjustable rate
tranches of CMOs. Investments in inverse floating CMOs would be purchased by the
Fund to attempt  to  protect  against a  reduction  in the income  earned on the
Funds'  investments  due to  decline  in  interest  rates.  The  Funds  would be
adversely  affected  by the  purchase of such CMOs in the event of a increase in
the interest  rates  because the coupon rate  thereon will  decrease as interest
rates  increase,  and,  like other  mortgage-backed  securities,  the value will
decrease as interest rates increase.

The cash flows and yields on IO and PO classes are  extremely  sensitive  to the
rate of principal  payments  (including  prepayments) on the related  underlying
pool of mortgage loans or mortgage backed  securities.  For example,  a rapid or
slow rate of principal  payments may have a material adverse effect on the yield
to maturity  of IOs or POs,  respectively.  If the  underlying  Mortgage  Assets
experience greater than anticipated  prepayments of principal,  the holder of an
IO may incur substantial  losses even if the IO class is rated AAA.  Conversely,
if the underlying Mortgage Assets experience slower than anticipated prepayments
of principal, the yield and market value for the holder of a PO will be affected
more  severely  than  would  be  the  case  with a  traditional  mortgage-backed
security.

However,  if  interest  rates were  expected  to rise,  the value of an IO might
increase and may partially  offset other bond value declines,  and if rates were
expected to fall, the inclusion of POs could balance lower reinvestment rates.

An accrual or Z bondholder is not entitled to receive cash payments until one or
more  other  classes  of the CMO have  been paid in full  from  payments  on the
mortgage loans  underlying the CMO. During the period in which cash payments are
not being made on the Z tranche,  interest  accrues on the Z tranche at a stated
rate, and this accrued  interest is added to the amount of principal that is due
to the holder of the Z tranche.  After the other classes have been paid in full,
cash  payments  are  made  on  the Z  tranche  until  its  principal  (including
previously accrued interest that was added to principal, as described above) and
accrued interest at the stated rate have been paid in full. Generally,  the date
upon which cash payments begin to be made on a Z tranche  depends on the rate at
which  the  mortgage  loans  underlying  the  CMO  are  prepaid,  with a  faster
prepayment  rate resulting in an earlier  commencement of cash payments on the Z
tranche.  Like a zero coupon bond,  during its accrual period the Z tranche of a
CMO has the advantage of eliminating the risk of reinvesting  interest  payments
at lower rates during a period of declining  market  interest rates. At the same
time, however, and also like a zero coupon bond, the market value of a Z tranche
can be expected to fluctuate  more widely with changes in market  interest rates
than would the market value



<PAGE>



of a tranche that pays interest currently. Changes in market interest rates also
can be expected to influence  prepayment  rates on the mortgage loans underlying
the CMO of  which a Z  tranche  is a part.  As  noted  above,  such  changes  in
prepayment rates will affect the date at which cash payments begin to be made on
a Z tranche, and therefore also will influence its market value.

Structured Securities -- The AAL International and High Yield Bond Funds

The AAL  International  and High Yield Bond Funds may invest in structured notes
and/or  preferred  stock,  the value of which is linked to currencies,  interest
rates, other commodities,  indices or other financial indicators. The securities
differ from other  securities in which the Funds may invest in several ways. For
example,  the coupon,  dividend  and/or  redemption  amount at  maturity  may be
increased or  decreased  depending  on the value of the  underlying  instrument.
Investment in structured  securities  involves certain risks. In addition to the
credit risk of the issuer and the normal risks of changes in interest rates, the
redemption  amount may increase or decrease as a result of price  changes in the
underlying  instrument.  Further, in the case of certain structured  securities,
the coupon and/or  dividend may be reduced to zero, and any further  declines in
the value of the underlying  instrument  may then reduce the  redemption  amount
payable at maturity.  Finally,  structured  securities may have more  volatility
than the price of the underlying instrument.

Variable Rate Demand Notes

Except for The AAL  Municipal  Bond Fund,  the Funds may purchase  variable rate
master  demand  notes,   which  are  unsecured   instruments   that  permit  the
indebtedness  thereunder  to vary and provide for  periodic  adjustments  in the
interest  rate.  Although the notes are not normally  traded and there may be no
secondary  market in the notes,  a Fund may demand  payment of  principal at any
time.  Except for The AAL High Yield Bond Fund, the notes purchased by the Funds
must either be rated in one of the two highest rating categories by a Nationally
Recognized Statistical Rating Organization or have been issued by an issuer that
has  received a rating  from the  requisite  Nationally  Recognized  Statistical
Rating  Organizations,  in  the  top  categories  with  respect  to a  class  of
short-term debt obligations that is now comparable in priority and security with
the instrument.  If an issuer of a variable rate master demand note defaulted on
its payment obligation, the Funds might be unable to dispose of the note because
of the  absence of a  secondary  market and  might,  for this or other  reasons,
suffer a loss to the extent of the default.  The Funds  invest in variable  rate
master demand notes only when the  investment  adviser  deems the  investment to
involve minimal credit risk.
    





<PAGE>



Portfolio Turnover -- The AAL Bond, Municipal Bond and High Yield Bond Funds

As noted in the  Prospectus,  portfolio  turnover  rates in  excess  of 100% may
increase  brokerage and other trading expenses  incurred by a Fund. The AAL Bond
Fund's  portfolio  turnover rate increased from 44.57% for the fiscal year ended
on April 30, 1995,  to 125.77% for the fiscal year ended on April 30, 1996.  The
increase reflected the activities of a new portfolio  manager,  who repositioned
the Fund to  reflect  his  style  of  investing  within  the  Fund's  investment
paramaters.  The AAL Municipal Bond Fund's portfolio  turnover rate for the year
ended on April 30, 1996 was 130.52%.  The turnover  rate  reflects the portfolio
manager's  pursuit  of  total  return  (growth  and  income)  in  the  municipal
securities market.

In seeking its  objectives,  The High Yield Bond Fund will buy or sell portfolio
securities whenever the Adviser believes it appropriate.  The Adviser's decision
will not  generally  be  influenced  by how long  the  Fund may have  owned  the
security.  From time to time,  the Fund will buy  securities  intending  to seek
short-term  trading  profits.  As a  result,  The AAL  High  Yield  Bond  Fund's
portfolio  turnover  rate may be higher  than that of other  mutual  funds.  The
Fund's  portfolio  turnover  rate is not a limiting  factor when  considering  a
change in the Fund's portfolio.

Options And Futures

The Funds, except for The AAL Money Market Fund, may engage in options,  futures
and options on futures  transactions  that constitute bona fide hedging or other
permissible risk management transactions. The Funds will follow the requirements
of the SEC and the Commodities  Futures Trading  Commission and set aside liquid
assets in a separate account to secure a Fund's potential  obligations under its
futures or options positions.

As the writer of a covered call option,  a Fund may forego,  during the option's
life,  the  opportunity  to profit  from  increases  in the market  value of the
security  covering the call option above the sum of the premium and the exercise
price of the call option. However, if the market value of the security declines,
writing a call option  would  reduce the amount of any decline  sustained to the
extent of the premium income  received from the sale of the covered call option.
Additionally,  in periods  when the market is neutral or  declining,  additional
incremental  income  can be  achieved  by  writing  options  and  receiving  the
premiums.  In  addition,  through the  writing  and  purchase of options and the
purchase and sale of futures contracts and related options,  a Fund may at times
seek to enhance  current  returns or to hedge  against a decline in the value of
securities  owned by it or an increase in the price of securities which it plans
to purchase.




<PAGE>



If additional types of options, futures contracts, or futures options are traded
in the future, a Fund may also use those investment  vehicles  provided that the
Board  of  Trustees  determines  that  their  use is  consistent  with a  Fund's
investment objective.

         Options on Securities and Indexes

Options and futures may be  purchased  and sold on debt or other  securities  or
indexes in  standardized  contracts  traded on  national  securities  exchanges,
boards  of trade,  or  similar  entities,  or quoted  on  NASDAQ.  In  addition,
agreements  sometimes called cash puts may accompany the purchase of a new issue
of bonds  from a dealer.  Currently  there are no  publicly  traded  options  on
tax-exempt securities.

An option on a security  (or  index) is a contract  that gives the holder of the
option,  in return for a premium,  the right to buy from (call) or sell to (put)
the writer of the option the security  underlying  the option (or the cash value
of the index) at a specified  exercise  price at any time during the term of the
option.  The writer of an option on a security has the obligation  upon exercise
of the option to deliver the  underlying  security  upon payment of the exercise
price or to pay the exercise  price upon  delivery of the  underlying  security.
Upon  exercise,  the  writer of an option  on an index is  obligated  to pay the
difference between the cash value of the index and the exercise price multiplied
by the  specified  multiplier  for the index  option.  (An index is  designed to
reflect  specified  facets of a particular  financial or  securities  market,  a
specific  group of financial  instruments  or  securities,  or certain  economic
indicators.)

The Funds, except for The AAL Money Market Fund, will write call options and put
options only if they are  "covered." In the case of a call option on a security,
the option is covered if a Fund owns the security  underlying the call or has an
absolute and immediate  right to acquire that security  without  additional cash
consideration  (or, if additional cash  consideration is required,  cash or cash
equivalents  in such amount are held in a segregated  account by its  custodian)
upon  conversion or exchange of other  securities  held in its portfolio.  For a
call option on an index,  the option is covered if a Fund  maintains  with their
custodian cash or cash  equivalents  equal to the contract  value. A call option
also is covered if a Fund holds a call on the same security or index as the call
written where the exercise  price of the call purchased is: (i) equal to or less
than the exercise  price of the call; or (ii) greater than the exercise price of
the call  written,  provided the  difference  is maintained by a Fund in cash or
cash equivalents in a segregated  account with its custodian.  A put option on a
security or an index is covered if a Fund  maintains a cash or cash  equivalents
equal to the exercise price in a segregated account with their custodian.  A put
option  also is covered if a Fund holds a put on the same  security  or index as
the put  written  where the  exercise  price of the put held is: (i) equal to or
greater  than the  exercise  price of the put  written;  or (ii)  less  than the
exercise  price of the put written,  provided the  difference is maintained by a
Fund in cash or cash equivalents in a segregated account with its custodian.



<PAGE>



If an option  written by a Fund expires,  the Fund realizes a capital gain equal
to the  premium  received  at the time the  option  was  written.  If an  option
purchased  by The Fund  expires  unexercised,  the Fund  realizes a capital loss
equal to the premium paid.

Prior to the earlier of exercise or  expiration,  an option may be closed out by
an offsetting purchase or sale of an option of the same series (type,  exchange,
underlying security or index,  exercise price, and expiration).  There can be no
assurance,  however, that a closing purchase or sale transaction can be effected
when a Fund desires.

A Fund will realize a capital gain from a closing  purchase  transaction  if the
cost of the closing  option is less than the premium  received  from writing the
option,  or, if it is more, a Fund will realize a capital  loss.  If the premium
received  from a  closing  sale  transaction  is more than the  premium  paid to
purchase  the option,  a Fund will  realize a capital  gain or, if it is less, a
Fund will realize a capital  loss.  The principal  factors  affecting the market
value of a put or call option include  supply and demand,  interest  rates,  the
current  market  price of the  underlying  security  or index in relation to the
exercise price of the option, the volatility of the underlying security or index
and the time remaining until the expiration date.

The premium paid for a put or call option purchased by a Fund is an asset of the
Fund.  The premium  received for an option  written by the Fund is recorded as a
deferred  liability.  The value of an option  purchased  or written is marked to
market  daily and is valued at the closing  price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.

         Risks Associated with Options on Securities and Indexes

There are several risks  associated  with  transactions in options on securities
and on indexes.  For  example,  there are  significant  differences  between the
securities  and options  markets that could  result in an imperfect  correlation
between  these  markets,   causing  a  given  transaction  not  to  achieve  its
objectives.  A decision as to whether,  when and how to use options involves the
exercise of skill and judgment,  and even a  well-conceived  transaction  may be
unsuccessful to some degree because of market behavior or unexpected events.

There can be no assurance  that a liquid  market will exist when a Fund seeks to
close out an option position.  If a Fund were unable to close out an option that
it had purchased on a security, it would have to exercise the option in order to
realize any profit or the option may expire worthless.  If a Fund were unable to
close out a covered call option that it had written on security, it would not be
able to sell the underlying security unless the option expires without exercise.
As the writer of a covered  call  option,  a Fund  forgoes,  during the option's
life, the opportunity to profit from increases



<PAGE>



in the market  value of the  security  covering the call option above the sum of
the premium and the exercise price of the call.

If trading were suspended in an option  purchased by a Fund, a Fund would not be
able to close out the option.  If restrictions on exercise were imposed,  a Fund
might be unable to  exercise  an option it has  purchased.  Except to the extent
that a call option on an index  written by a Fund is covered by an option on the
same index purchased by a Fund, movements in the index may result in a loss to a
Fund; however,  such losses may be mitigated by changes in the value of a Fund's
portfolio securities during the period the option was outstanding.

         Futures Contracts and Options on Futures Contracts

A Fund may use interest  rate and index futures  contracts.  An interest rate or
index futures contract provides for the future sale by one party and purchase by
another  party of a specified  quantity of a  financial  instrument  or the cash
value of an index at a specified price and time. A futures  contract on an index
is an agreement by which two parties agree to take or make delivery of an amount
of cash equal to the  difference  between the value of the index at the close of
the last trading day of the  contract and the price at which the index  contract
was  originally  written.  Although the value of an index might be a function of
the  value of  certain  specified  securities,  no  physical  delivery  of those
securities is made.

A public market exists in futures contracts covering a number of indexes as well
as the following  financial  instruments:  U.S.  Treasury bonds;  U.S.  Treasury
notes;  GNMA  certificates;  three-month U.S.  Treasury bills; 90 day commercial
paper; bank certificates of deposit; and Eurodollar  certificates of deposit. It
is expected that other futures  contracts  will be developed and traded.  A Fund
may engage in transactions  involving new futures contracts (or options thereon)
if,  in the  opinion  of the Board of  Trustees,  they are  appropriate  hedging
instruments for a Fund.

A Fund may purchase (and, if the Commodity  Futures  Trading  Commission  grants
certain regulatory relief, write) call and put futures options.  Futures options
possess many of the same characteristics as options on securities and indexes. A
futures  option gives the holder the right,  in return for the premium  paid, to
assume a long position (call) or short position (put) in a futures contract at a
specified  exercise  price at any time  during  the period of the  option.  Upon
exercise of a call option,  the holder  acquires a long  position in the futures
contract and the writer is assigned the opposite short position.  In the case of
a put option, the opposite is true.

As long as it is required by regulatory  authorities having  jurisdiction over a
Fund, it will limit its use of futures  contracts and futures options to hedging
transactions.  For example,  a Fund might use futures contracts to hedge against
anticipated changes in



<PAGE>



interest  rates  that  might  adversely  affect  either  the  value  of a Fund's
securities  or the price of the  securities  that a Fund intends to purchase.  A
Fund's hedging may include sales of futures contracts,  as an offset against the
effect of  expected  increases  in  interest  rates,  and  purchases  of futures
contracts  as an offset  against  the effect of  expected  declines  in interest
rates.  Although other  techniques  could be used to reduce a Fund's exposure to
interest  rate  fluctuations,  a Fund may be able to  hedge  its  exposure  more
effectively  and perhaps at a lower cost by using futures  contracts and futures
options.

   
The success of any hedging  technique depends on the Adviser and/or Sub- Adviser
for The AAL  International  Fund correctly  predicting  changes in the level and
direction  of interest  rates and other  factors.  Should those  predictions  be
incorrect,  the Fund's  return  might  have been  better  had  hedging  not been
attempted;  however,  in the absence of the ability to hedge,  the Adviser might
have taken portfolio  actions in anticipation of the same market  movements with
similar investment results, but presumably at greater transaction costs.
    

A Fund will only enter into  futures  contracts  and  futures  options  that are
standardized and traded on a U.S.  exchange,  board of trade, or similar entity,
or quoted on an automated quotation system.

When a  purchase  or sale of a  futures  contract  is made by a Fund,  a Fund is
required to deposit  with its  custodian  (or broker,  if legally  permitted)  a
specified amount of cash or U.S. Government  securities ("initial margin").  The
margin  required  for a futures  contract  is set by the  exchange  on which the
contract  is traded and may be  modified  during the term of the  contract.  The
initial  margin is in the nature of a performance  bond or good faith deposit on
the  futures  contract  that  is  returned  to a Fund  upon  termination  of the
contract,  assuming all  contractual  obligations  have been  satisfied.  A Fund
expects  to earn  interest  income on its  initial  margin  deposits.  A futures
contract held by a Fund is valued daily at the official  settlement price of the
exchange on which it is traded.  Each day a Fund pays or receives  cash,  called
"variation  margin," equal to the daily change in value of the futures contract.
This  process  is  known as  "marking  to  market."  Variation  margin  does not
represent a borrowing or loan by a Fund,  but is instead a settlement  between a
Fund and the  broker  of the  amount  one  would  owe the  other if the  futures
contract expired. In computing daily net asset value, a Fund will mark to market
its open futures positions.

A Fund also is  required  to  deposit  and  maintain  margin on any put and call
options on futures contracts that it has written. Such margin deposits will vary
depending  on the nature of the  underlying  futures  contract  (and the related
initial margin requirements),  the current market value of the option, and other
futures positions held by a Fund.




<PAGE>



Although  some  futures  contracts  call for  making or taking  delivery  of the
underlying  securities,  generally  these  obligations  are  closed out prior to
delivery by offsetting  purchases or sales of matching  futures  contracts (same
exchange,  underlying  security or index, and delivery month).  If an offsetting
purchase  price is less than the original sale price,  a Fund realizes a capital
gain. If the offsetting  purchase price is more, a Fund realizes a capital loss.
Conversely,  if an  offsetting  sale  price is more than the  original  purchase
price, a Fund realizes a capital gain. If the  offsetting  price is less, a Fund
realizes a capital loss.  The  transaction  costs must also be included in these
calculations.

         Risks Associated with Futures

There are several risks associated with the use of futures contracts and futures
options as hedging  techniques.  A purchase  or sale of a futures  contract  may
result in losses in excess of the amount invested in the futures contract. There
can be no guarantee that there will be a correlation  between price movements in
the hedging vehicle and in the portfolio  securities being hedged.  In addition,
there are  significant  differences  between the securities and futures  markets
that could result in an  imperfect  correlation  between the markets,  causing a
given  hedge not to  achieve  its  objectives.  The  degree of  imperfection  of
correlation  depends on  circumstances  such as:  variations in the  speculative
market  demand for  futures,  futures  options  and debt  securities,  including
technical  influences  in futures and futures  options  trading and  differences
between the financial  instruments  being hedged and the instruments  underlying
the standard  contracts  available  for trading,  such as interest  rate levels,
maturities,  and creditworthiness of issuers. A decision as to whether, when and
how  to  hedge  involves  the  exercise  of  skill  and  judgment,  and  even  a
well-conceived  hedge  may be  unsuccessful  to some  degree  because  of market
behavior or unexpected interest rate trends.

Futures  exchanges  may limit the  amount of  fluctuation  permitted  in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum  amount that the price of a futures  contract  may vary either up or
down from the previous day's  settlement price at the end of the current trading
session.  Once the daily limit has been reached in a futures contract subject to
the limit,  no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price  movements  during a particular  trading day,
and  therefore  does not limit  potential  losses  because the limit may work to
prevent the liquidation of unfavorable  positions.  For example,  futures prices
have occasionally moved to the daily limit for several  consecutive trading days
with little or no trading,  thereby  preventing prompt  liquidation of positions
and subjecting some holders of futures contracts to substantial losses.

There can be no assurance  that a liquid market will exist at a time when a Fund
seeks to close out a futures or futures options position. In such a case, a Fund
would



<PAGE>



continue  to be  required  to meet  margin  requirements  until the  position is
closed.  In addition,  some of the contracts  discussed above are relatively new
instruments without a significant trading history. As a result,  there can be no
assurance that an active secondary market will develop or continue to exist.

         Limitations on Options and Futures

A Fund will not enter into a futures contract or purchase an option there on If:
the initial margin  deposits for futures  contracts held by a Fund plus premiums
paid by it for open futures options  positions less the amount by which any such
positions are "in the money" exceed 5% of a Fund's net assets.  A call option is
"in the money" if the value of the futures  contract  that is the subject of the
option  exceeds  the  exercise  price.  A put  option  is "in the  money" if the
exercise price exceeds the value of the futures  contract that is the subject of
the option.

When  purchasing a futures  contract or writing a put on a futures  contract,  a
Fund must maintain with its custodian (or broker, if legally  permitted) cash or
cash  equivalents  (including  any  margin)  equal to the  market  value of such
contract.  When writing a call option on a futures  contract,  a Fund  similarly
will maintain with its custodian cash or cash equivalents (including any margin)
equal to the amount such  option is in the money until the option  expires or is
closed out by a Fund.

A Fund may not maintain open short positions in futures contracts,  call options
written on  futures  contracts  or call  options  written on indexes  if, in the
aggregate, the market value of all such open positions exceeds the current value
of the securities in its portfolio, plus or minus unrealized gains and losses on
the open  positions,  adjusted for the  historical  relative  volatility  of the
relationship  between the portfolio and the positions.  For this purpose, to the
extent a Fund has written call options on specific  securities in its portfolio,
the value of those  securities will be deducted from the current market value of
the securities portfolio.

In order to comply with Commodity  Futures Trading  Commission Rules and thereby
avoid being  deemed a  "commodity  pool  operator,"  the  "underlying  commodity
value," of each long  position in a commodity  contract in which a Fund  invests
will not at any time exceed the sum of:

          (1) The value of short-term U.S. debt obligations or other U.S. dollar
denominated, high-quality short-term money market instruments and cash set aside
in an identifiable manner, plus any funds deposited as margin on the contract;

          (2) Unrealized appreciation on the contract held by the broker; and



<PAGE>



          (3) Cash proceeds from  existing  investments  due in not more than 30
days.

"Underlying  commodity  value" means the size of the contract  multiplied by the
daily settlement price of the contract.

As long as the Fund continues to sell its shares in certain  states,  the Fund's
options  transactions  will  also be  subject  to  some  of the  non-fundamental
restrictions set forth in this Statement of Additional Information.

         Taxation of Options and Futures

If a Fund  exercises  a call or put  option it owns,  the  premium  paid for the
option is added to the cost of the security  purchased  (call) or deducted  from
the  proceeds  of the sale  (put).  For cash  settlement  of options and futures
options,  the  difference  between the cash received at exercise and the premium
paid is a capital gain or loss.

Entry into a closing  purchase  transaction will result in capital gain or loss.
If an option  was "in the  money" at the time it was  written  and the  security
covering  the option was held for more than one year prior to the writing of the
option, any loss realized as a result of a closing purchase  transaction will be
long-term  for  federal  tax  purposes.  The  holding  period of the  securities
covering an "in the money" option will not include the period of time the option
is outstanding.

A futures  contract held until delivery results in capital gain or loss equal to
the difference  between the price at which the futures contract was entered into
and the  settlement  price on the earlier of delivery  notice date or expiration
date.  If a Fund  delivers  securities  under a  futures  contract,  a Fund also
realizes a capital gain or loss on those securities.

For federal  income tax purposes,  a Fund  generally is required to recognize as
income for each taxable year its net  unrealized  gains and losses as of the end
of the year on options, futures and futures options positions ("year-end mark to
market").  Generally, any gain or loss recognized with respect to such positions
(either by year-end  mark to market or by actual  closing of the  positions)  is
considered to be 60% long term and 40% short term, without regard to the holding
periods of the contracts.  However, in the case of positions  classified as part
of a "mixed straddle," the recognition of losses on certain positions (including
options,  futures and futures  options  positions,  the related  securities  and
certain  successor  positions  thereto) may be deferred to a later taxable year.
Sale of futures  contracts or writing of call options (or futures call  options)
or buying put  options  (or futures  put  options)  which are  intended to hedge
against  a change  in the  value of  securities  held by a Fund may  affect  the
holding period of the hedged securities.




<PAGE>



A Fund distributes to shareholders annually any net capital gains that have been
recognized for federal income tax purposes  (including  year-end  mark-to-market
gains) on options and futures transactions. Such distributions are combined with
distributions  of capital  gains  realized  on a Fund's  other  investments  and
shareholders are advised of the nature of the payments. Federal Tax Treatment of
Options, Futures Contracts and Forward Foreign Exchange Contracts

A Fund may enter into certain  option,  futures,  and forward  foreign  exchange
contracts that will be treated as Section 1256 contracts or straddles  under the
Internal Revenue Code.

Transactions  that are  considered  Section 1256 contracts will be considered to
have been closed at the end of a Fund's fiscal year and any gains or losses will
be  recognized  for tax  purposes  at that time.  Such gains or losses  from the
normal closing or settlement of such  transactions  will be characterized as 60%
long-term  capital  gain  or  loss  and  40%  short-term  capital  gain  or loss
regardless of the holding period of the  instrument.  A Fund will be required to
distribute net gains on such transactions to shareholders even though it may not
have closed the transaction and received cash to pay such distribution.

Options,  futures and forward foreign  exchange  contracts that offset a foreign
dollar denominated bond or currency position may be considered straddles for tax
purposes in which case a loss on any  position in a straddle  will be subject to
deferral to the extent of unrealized gain in an offsetting position.

In order for a Fund to continue to qualify for federal income tax treatment as a
regulated  investment  company,  at least 90% of its gross  income for a taxable
year must be derived from qualifying income (i.e., dividends,  interest,  income
derived  from  loans of  securities,  and gains from the sale of  securities  or
currencies).  Pending  tax  regulations  could  limit the extent  that net gains
realized  from  options,  futures  or  foreign  forward  exchange  contracts  on
currencies are qualifying  income for purposes of 90% requirement.  In addition,
gains  realized  on the  sale of  other  disposition  of  securities,  including
options,  futures  or  foreign  forward  exchange  contracts  on  securities  or
securities  indices  and,  in some cases,  currencies,  held for less than three
months,  must be limited to less than 30% of a Fund's  annual gross  income.  In
order to avoid  realizing  excessive gains on securities or currencies held less
than three  months,  a Fund may be required  to defer the  closing out  options,
futures  or foreign  forward  exchange  contracts  beyond the time when it would
otherwise be advantageous to do so. It is anticipated  that the unrealized gains
on Section 1256 options,  future and foreign forward exchange  contracts,  which
had been open for less than three  months as of the end of a Fund's  fiscal year
and  which  are  recognized  for tax  purposes,  will  be  considered  gains  on
securities or  currencies  held for three months or more for purposes of the 30%
test.


<PAGE>



Foreign Securities - The AAL Capital Growth, Mid Cap Stock, Small Cap Stock,
and Bond Funds

The AAL  Capital  Growth,  Mid Cap Stock and Small Cap Stock Funds may invest in
foreign securities,  but only if such securities are listed and traded on a U.S.
national securities exchange. The AAL Bond Fund may invest in debt securities of
foreign  issuers  that are  payable  in U.S.  dollars.  Foreign  securities  may
represent a greater degree of risk  (including  risks relating to tax provisions
or expropriation of assets) than do securities of domestic issuers.  These Funds
do not intend to invest more than 5% of their net assets in foreign securities.

   
Foreign Securities - The AAL International, Utilities and High Yield Bond Funds
    

The AAL  Utilities  Fund  may  invest  up to 20% of its net  assets  in  foreign
securities.  The Fund may also invest in foreign  securities in domestic markets
through depository receipts and securities of foreign issuers that are traded on
a  registered  American  stock  exchange or the NASDAQ  National  Market  System
without regard to the 15% limitation.

   
The AAL High  Yield  Bond Fund may invest up to 15% of its net assets in foreign
bonds. At this time, the Fund intends to limit its purchases of foreign bonds to
those trading in the U.S.

The AAL International  Fund normally invests at least 65% of its total assets in
foreign  securities  primarily  trading in at least 3 different  countries,  not
including the U.S.
    

Foreign investments may involve risks that are in addition to the risks inherent
in U.S. securities. In many countries there is less public information available
about issuers and foreign  companies  may not be subject to uniform  accounting,
auditing and financial reporting standards. The value of foreign investments may
rise or fall because of changes in currency exchange rates, and a Fund may incur
costs in  converting  securities  denominated  in foreign  currencies  into U.S.
dollars.  Dividends and interest on foreign securities may be subject to foreign
withholding  taxes,  which would reduce a Fund's income without  providing a tax
credit to shareholders.  Obtaining and enforcing judgments,  when necessary,  in
foreign  countries may be more difficult and expensive than in the U.S. Although
these Funds intend to invest in  securities  of issuers of stable and  developed
countries,  there is the possibility of  expropriation,  confiscatory  taxation,
nationalization, currency blockage or political or social instability that could
affect investments in such countries.

   
The AAL  International and Utilities Funds may invest in ADRs without limit. ADR
facilities  may  be  either   "sponsored"  or   "unsponsored."   While  similar,
distinctions  exist  relating to the rights and duties of ADR holders and market
practices. A depository may
    



<PAGE>



establish an unsponsored facility without the participation by or consent of the
issuer of the deposited securities,  although a letter of non-objection from the
issuer is often  requested.  Holders of unsponsored  ADRs generally bear all the
costs of such facility,  which can include deposit and withdrawal fees, currency
conversion  fees and  other  service  fees.  The  depository  of an  unsponsored
facility may be under no duty to distribute shareholder  communications from the
issuer or to pass through  voting rights.  Issuers of  unsponsored  ADRs are not
obligated to disclose material information in the U.S. and, therefore, there may
not be a correlation  between such  information and the market value of the ADR.
Sponsored  facilities  enter into an  agreement  with the  issuer  that sets out
rights  and  duties of the  issuer,  the  depository  and the ADR  holder.  This
agreement also allocates fees among the parties.  Most sponsored agreements also
provide  that  the  depository  will  distribute  shareholder  notices,   voting
instructions and other communications. The AAL International and Utilities Funds
may invest in sponsored and unsponsored ADRS.

In addition to ADRS, The AAL International  Fund may hold foreign  securities in
the form of American  Depository  Shares ("ADSs"),  Global  Depository  Receipts
("GDRs")  and  European   Depository   Receipts  ("EDRs),  or  other  securities
convertible  into foreign  securities.  These receipts may not be denominated in
the same currency as the  underlying  securities.  Generally,  American banks or
trust  companies  issue ADRs and ADSs,  which  evidence  ownership of underlying
foreign  securities.  GDRs represent global offerings where an issuer issues two
securities  simultaneously in two markets, usually publicly in a non-U.S. market
and privately in the U.S. market. EDRs (sometimes called Continental  Depository
Receipts ("CDRs")) are similar to ADRs, but usually issued in Europe.  Typically
issued by foreign banks or trust companies,  EDRs and CDRs evidence ownership of
foreign  securities.  Generally,  ADRs and ADSs in registered  form trade in the
U.S.  securities  markets,  GDRs in the U.S. and European markets,  and EDRs and
CDRs (in bearer form) in European markets.  The Adviser (and/or  Sub-Adviser for
The AAL International Fund) considers  investments in ADRs, ADSs, GDRs, EDRs and
CDRs  as  investments  in the  underlying  equity  securities  for  purposes  of
diversification.

         Classification of Foreign Markets -- The AAL International Fund

Foreign  markets are often  classified  as mature or emerging.  The countries in
which The AAL  International  Fund may invest are classified below. The Fund may
also invest in additional  countries when such  investments  are consistent with
the Fund's objective and policies.

Mature:  Australia,  Austria,  Belgium, China, Canada, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland, United Kingdom and United States.

<PAGE>

Emerging:  Argentina,  Brazil, Chile, Czech Republic,  Ecuador, Greece, Hungary,
India,  Indonesia,  Jamaica, Kenya, Israel, Jordan,  Malaysia,  Mexico, Morocco,
Nigeria, Pakistan, People's Republic of China, Peru, Phillippines, Poland, South
Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay, Venezuela and
Vietnam.

   
Foreign Currency Transactions -- The AAL International, Utilities and High Yield
Bond Funds
    

To manage the currency risk accompanying  investments in foreign  securities and
to   facilitate   the  purchase  and  sale  of  foreign   securities,   The  AAL
International,  Utilities  Fund and High  Yield Bond Funds may engage in foreign
currency  transactions on a spot (cash) basis at the spot rate prevailing in the
foreign currency  exchange market or through entering into contracts to purchase
or  sell  foreign  currencies  at a  future  date  ("forward  foreign  currency"
contracts or "forward" contracts).

A forward foreign currency contract involves an obligation to purchase or sell a
specific  currency at a future date,  which may be any fixed number of days from
the date of the contract agreed upon by the parties,  at a price set at the time
of the contract. These contracts are principally traded in the inter-bank market
conducted directly between currency traders (usually large commercial banks) and
their customers.  A forward contract generally has no deposit requirement and no
commissions are charged at any stage for trades.

When a Fund  enters  into a  contract  for the  purchase  or sale of a  security
denominated in a foreign  currency,  it may desire to "lock in" the U.S.  dollar
price of the security.  By entering into a forward  contract for the purchase or
sale of a fixed amount of U.S.  dollars equal to the amount of foreign  currency
involved in the  underlying  security  transaction,  the Fund can protect itself
against a possible loss  resulting  from an adverse  change in the  relationship
between  the U.S.  dollar and the  subject  foreign  currency  during the period
between  the date the  security is  purchased  or sold and the date on which the
payment is made or received.

   
When the Adviser and/or  Sub-Adviser for the International  Fund believes that a
particular  foreign  currency may suffer a substantial  decline against the U.S.
dollar,  they may enter into a forward  contract  to sell a fixed  amount of the
foreign currency  approximating the value of some or all of the Fund's portfolio
securities  denominated in such foreign  currency.  The precise  matching of the
forward  contract  amounts  and the value of the  securities  involved  will not
generally be possible since the future value of



<PAGE>



such  securities in foreign  currencies  will change as a consequence  of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures.  The projection of short-term  currency
market  movement  is  extremely  difficult  and the  successful  execution  of a
short-term hedging strategy is highly uncertain. A Fund will not enter into such
forward  contracts  or  maintain  a net  exposure  to such  contracts  where the
consummation  of the contracts  would  obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's securities or other assets
denominated in that  currency.  Under normal  circumstances,  the Adviser and/or
Adviser for the  International  Fund  considers  the long term  prospects  for a
particular  currency and  incorporate the prospects into their overall long term
diversification   strategies.   The   Adviser  and   Sub-Adviser   for  The  AAL
International  Fund  believes  that it is important to have the  flexibility  to
enter into such forward contracts when they determine that the best interests of
a Fund will be served.
    

At the  maturity of a forward  contract,  a Fund may either  sell the  portfolio
securities  and make  delivery  of the  foreign  currency,  or it may retain the
securities  and  terminate  its  contractual  obligation  to deliver the foreign
currency by purchasing an "offsetting"  contract  obligating it to purchase,  on
the same maturity date, the same amount of foreign currency.

If a  Fund  retains  the  portfolio  securities  and  engages  in an  offsetting
transaction,  the Fund will incur a gain or a loss to the extent  that there has
been movement in forward contract  prices.  If the Fund engages in an offsetting
transaction,  it may  subsequently  enter  into a forward  contract  to sell the
foreign currency.  Should forward prices decline during the period when the Fund
entered  into the forward  contract  for the sale of a foreign  currency and the
date it entered  into an  offsetting  contract  for the  purchase of the foreign
currency,  the Fund will  realize a gain to the extent the price of the currency
it has  agreed  to sell  exceeds  the  price of the  currency  it has  agreed to
purchase.  Should  forward prices  increase,  the Fund will suffer a loss to the
extent  that the price of the  currency  it has agreed to  purchase  exceeds the
price of the currency it has agreed to sell.

It is important to note that: (1) a foreign currency hedge transactions does not
protect against or eliminate  fluctuations in the prices of particular portfolio
securities  (i.e.,  if the price of such  securities  decline due to an issuer's
deteriorating  credit  situation);  and (2) it is  impossible  to forecast  with
precision  the  market  value  of  securities  at the  expiration  of a  forward
contract. Accordingly, the Fund may have to purchase additional foreign currency
on the spot market (and bear the  expense of such  purchase)  if: (1) the market
value of a Fund's  securities  are less than the amount of the foreign  currency
the Fund is obligated to deliver; and (2) a decision is made to sell the foreign
securities  and make  delivery of the foreign  currency  upon  expiration of the
contract.  Conversely,  the Fund may have to sell some of its  foreign  currency
received upon the sale of a portfolio security if the market value of the Fund's
securities exceed



<PAGE>



the  amount of foreign  currency  the Fund is  obligated  to  deliver.  A Fund's
dealings in forward foreign currency  exchange  contracts will be limited to the
transactions  described  above.  Also a Fund may not be able to hedge  against a
currency  devaluation  at a price above the  anticipated  level where the market
itself has generally anticipated the currency's devaluation.

Although the Funds value their assets  daily in terms of U.S.  dollars,  they do
not intend to convert their holdings of foreign  currencies into U.S. dollars on
a daily basis. A Fund will do so from time to time and investors should be aware
of the costs of currency  conversion.  Although  foreign exchange dealers do not
charge a fee for conversion,  they realize a profit based on the difference (the
"spread")  between  the  prices at which they are  buying  and  selling  various
currencies. Thus, a dealer may offer to sell a foreign currency to a Fund at one
rate,  while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer.

   
Options and Futures Relating to Foreign Currencies - The AAL International,
Utilities and High Yield Bond Funds

The AAL International, Utilities and High Yield Bond Funds may purchase and sell
currency futures and purchase and write currency options to increase or decrease
their exposure to different foreign currencies. They also may purchase and write
currency options in conjunction  with the currency futures or forward  contracts
of  another  series of the Funds.  The uses and risks of  currency  options  and
futures are similar to options and futures relating to securities or indices, as
discussed above.
    

Currency futures  contracts are similar to forward foreign  currency  contracts,
except that they are traded on exchanges (and have margin  requirements) and are
standardized  as to contract  size and  delivery  date.  Most  currency  futures
contracts  call  for  payment  or  delivery  in  U.S.  dollars.  The  underlying
instrument of a currency  option may be a foreign  currency,  which generally is
purchased  or  delivered  in  exchange  for U.S.  dollars,  or may be a  futures
contract.  The  purchaser  of a currency  call obtains the right to purchase the
underlying  currency,  and the  purchaser of a currency put obtains the right to
sell the underlying currency.

Currency  futures and options  values can be expected to correlate with exchange
rates, but may not reflect other factors that affect the value of the respective
Fund's   investments.   A  currency  hedge,   for  example,   should  protect  a
Yen-denominated  security  from a  decline  in the Yen,  but will not  protect a
particular  Fund against a price decline  resulting  from  deterioration  in the
issuer's  creditworthiness.  Because the value of the Fund's foreign-denominated
investments  changes in response to many factors other than exchange  rates,  it
may not be possible  to match the amount of currency  options and futures to the
value of the Fund's investments exactly overtime.




<PAGE>



Privately Issued Securities:  The AAL Money Market Fund

Securities  in which The AAL Money  Market  Fund may invest  include  securities
issued by major  corporations  without  registration under the Securities Act of
1933 in  reliance  on certain  exemptions,  including  the  "private  placement"
exemption afforded by Section 4(2) of that Act. Section 4(2) paper is restricted
as to disposition  under the federal  securities laws in that any resale must be
made  in  an  exempt  transaction.  This  paper  normally  is  resold  to  other
institutional investors through or with the assistance of investment dealers who
make a market in it, thus  providing  liquidity.  In the opinion of the Adviser,
Section 4(2) paper is no less liquid or saleable  than  commercial  paper issued
without legal restrictions on disposition.  However, should a section 4(2) paper
issue be deemed  illiquid by the Adviser,  the Fund would purchase such security
only in accordance with its limitations on illiquid securities.  See "Additional
Investment  Factors and Risks  Regarding  the Funds -- Illiquid  and  Restricted
Securities" in the Prospectus.

   
Variable Rate Demand Notes--The AAL Capital Growth, Mid Cap Stock, Small Cap
Stock, International, Bond, High Yield Bond and Money Market Funds

The AAL Capital Growth,  Mid Cap Stock,  Small Cap Stock,  International,  Bond,
High Yield  Bond and Money  Market  Funds  (subject  to Rule 2a-7) may  purchase
variable rate master demand notes,  which are unsecured  instruments that permit
the indebtedness  thereunder to vary and provide for periodic adjustments in the
interest  rate.  Although the notes are not normally  traded and there may be no
secondary  market in the notes, the Funds may demand payment of principal at any
time.  The notes  purchased  by the Funds must either be rated in one of the two
highest  rating  categories  by  a  Nationally  Recognized   Statistical  Rating
Organization  or have been issued by an issuer  that has  received a rating from
the requisite Nationally Recognized Statistical Rating Organizations, in the top
categories  with respect to a class of short-term debt  obligations  that is now
comparable  in priority  and  security  with the  instrument.  If an issuer of a
variable rate master demand note defaulted on its payment obligation,  the Funds
might be unable to dispose of the note  because  of the  absence of a  secondary
market and might, for this or other reasons,  suffer a loss to the extent of the
default.  The Funds  invest in variable  rate master  demand notes only when the
investment adviser deems the investment to involve minimal credit risk.
    

Investments In Other Investment Companies

An  investment  by a Fund in other  investment  companies,  which is  limited by
fundamental  investment  restriction  14  below,  may  cause a Fund to  increase
payments of administration and distribution expenses.





<PAGE>



Investment Restrictions

   
         Each Fund operates under the following investment restrictions.  A Fund
may not:
         (1)  invest  more  than  5%  of  its  net  assets  (or  5% of  The  AAL
         International  Fund's  total  assets or 5% of The AAL High  Yield  Bond
         Fund's total assets), taken at value at the time of each investment, in
         the securities (including repurchase agreements) of any one issuer (for
         this purpose,  the issuer(s) of a debt security being deemed to be only
         the entity or  entities  whose  assets or  revenues  are subject to the
         principal and interest obligations of the security),  except that up to
         25% of its net assets  (or 25% of The AAL  lnternational  Fund's  total
         assets or 25% of The AAL High Yield Bond  Fund's  total  assets) may be
         invested  without  regard to this  limitation  and  provided  that such
         restrictions shall not apply to obligations issued or guaranteed by the
         U.S. Government or any agency or instrumentality thereof;
    

         (2) purchase securities on margin,  except for use of short-term credit
         necessary for clearance of purchases and sales of portfolio securities,
         but a Fund may make margin deposits in connection with  transactions in
         options, futures and options on futures;

         (3) make short sales of  securities  or maintain a short  position,  or
         write,   purchase,  or  sell  puts,  calls,   straddles,   spreads,  or
         combinations thereof, except for the described transactions in options,
         futures, options on futures and short sales against the box;

         (4) make loans to other persons,  except that the Fund reserves freedom
         of  action,   consistent  with  its  other   investment   policies  and
         restrictions and as described in the Prospectus and this Statement, to:
         (a)  invest in debt  obligations,  including  those  which  are  either
         publicly  offered or of a type  customarily  purchased by institutional
         investors,  even though the  purchase of such debt  obligations  may be
         deemed the making of 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);

         (5) issue senior securities or borrow,  except that the Fund may borrow
         in  amounts  not in excess of 10% of its net  assets,  taken at current
         value,   and  then  only  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 which otherwise
         might require untimely dispositions of portfolio  securities;  interest
         paid on any such borrowings will reduce net income);



<PAGE>



         (6)  mortgage,  pledge,  hypothecate  or in  any  manner  transfer,  as
         security  for  indebtedness,  any  securities  owned  or held by a Fund
         except as may be necessary in connection with and subject to the limits
         in restriction (5);

         (7) underwrite  any issue of securities,  except to the extent that the
         purchase of securities directly from an issuer thereof in accord with a
         Fund's  investment   objectives  and  policies  may  be  deemed  to  be
         underwriting  or to the extent that in connection  with the disposition
         of  portfolio  securities  a Fund may be  deemed an  underwriter  under
         federal securities laws;

         (8) purchase or sell real estate,  or real estate  limited  partnership
         interests provided that a Fund may invest in securities secured by real
         estate or interests  therein or issued by companies that invest in real
         estate or interests therein;

         (9) purchase or sell  commodities or commodity  contracts except that a
         Fund may  purchase  or sell  futures  and  options  thereon for hedging
         purposes as described this Statement;

   
         (10)  invest  more  than  25% of its  net  assets  (or  25% of The  AAL
         International  Fund's  total  assets or 25% of The AAL High  Yield Bond
         Fund's  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,  except  for  The AAL
         Utilities Fund.  [The Funds interpret this  restriction to prohibit any
         Fund from  investing  25% or more of its net  assets (or 25% or more of
         The AAL  International  Fund's  total  assets or 25% or more of The AAL
         High Yield Bond Fund's total  assets) in any single  industry or issuer
         (except the U.S. government or any agency or instrumentality  thereof).
         Under normal circumstances, The AAL Utilities Fund invests at least 65%
         of its total assets in the securities of public utility companies];
    

         (11) invest in oil, gas or mineral related programs or leases except as
         may be included in the  definition of public  utility,  although a Fund
         may invest in securities of enterprises  engaged in oil, gas or mineral
         exploration;

         (12) invest in repurchase  agreements  maturing in more than seven days
         or in other securities with legal or contractual restrictions on resale
         if, as a result thereof, more than 10% of a Fund's net assets (taken at
         current value at the time of such investment) would be invested in such
         securities;

   
         (13) except for The AAL High Yield Bond Fund, invest in any security if
         as a result a Fund would  have more than 5% of its net assets  invested
         in securities of companies which, together with any predecessors,  have
         been in continuous operation for less than three years;
    



<PAGE>



   
         (14) purchase securities of other investment companies, if the purchase
         would  cause  more than 10% of the value of a Fund's net assets (or 10%
         of the value of The AAL International Fund's total assets or 10% of the
         value of The AAL High Yield Bond Fund's total  assets),  to be invested
         in investment company securities  provided that: (a) no investment will
         be made in the securities of any one investment  company if immediately
         after such investment more than 3% of the outstanding voting securities
         of such  company  would be owned by a Fund or more than 5% of the value
         of a Fund's  net  assets  (or 5% of the value of The AAL  International
         Fund's  total  assets  or 5% of the  value of The AAL High  Yield  Bond
         Fund's  total  assets)  would be invested in such  company;  and (b) no
         restrictions shall apply to a purchase of investment company securities
         in   connection   with   a   merger,   consolidation   acquisition   or
         reorganization; or
    

         (15) purchase more than 10% of the outstanding  voting securities of an
         issuer or invest for the purpose of exercising control or management.

   
Each of the  above  restrictions  (1)  through  (15),  as  well  as each  Fund's
investment objective,  except for The AAL High Yield Bond Fund, is a fundamental
policy. In addition, each Fund may not, so long as it publicly offers its shares
for sale in certain states: (a) buy or sell a call option unless, (i) the option
is issued by the Options Clearing  Corporation,  an exchange,  NASDAQ or similar
entity, and (ii) the security  underlying the option is listed on an exchange or
similar entity or is a U.S. Government or Federal agency obligation;  (b) invest
more than 5% of its net assets  (valued at the time of  investment) in warrants,
nor more than 2% of its net  assets in  warrants  that are not listed on the New
York or  American  stock  exchange;  (c) write a put option  except as a closing
transaction or purchase a put option if the aggregate premiums paid for all such
options exceed 2% of its net assets (less the amount by which any such positions
are in the  money),  excluding  puts  purchased  as  closing  transactions;  (d)
purchase  or retain  securities  of any issuer if 5% of the  securities  of such
issuer are owned by those  officers and  directors of the Fund or by partners of
its Adviser who own individually more than 1/2 of 1 % of its securities; (or (e)
with regard to The AAL Money  Market  Fund,  invest in warrants or other  mutual
fund shares not in connection with a merger, consolidation or reorganization.
    

Purchases And Redemptions; Pricing Considerations

Purchases and  redemptions  are discussed in the  Prospectus  under the headings
"How to Buy Shares," "How to Sell  (Redeem)  Shares," and "Net Asset Value," and
that information is incorporated herein by reference.

The Funds' net asset value is determined  only on the days on which the New York
Stock  Exchange  is open for  trading.  That  Exchange  is  regularly  closed on
Saturdays and Sundays and on New Years' Day, the third Monday in February, Good


<PAGE>



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  determine  the net  asset  value by  adding up the value of a Fund's
assets,  subtracting  the Fund's  liabilities,  and  dividing the balance by the
total number of shares outstanding.  In determining the current market value for
securities  traded or listed on an  exchange,  we use the last sale price on the
exchange where the securities  primarily trade. For securities that have readily
available  market  quotations,  we  use  an  over-the-counter  or  exchange  bid
quotation. When a Fund holds securities or other assets that do not have readily
available  market  quotations  or are  restricted,  the Fund values them at fair
market value,  as determined in good faith by management  under the direction of
the Board of Trustees.  The Funds may use pricing  services in  determining  the
current or fair market value of securities held in their  portfolios.  The Funds
value money market  instruments with a remaining  maturity of 60 days or less on
an amortized costs basis. The Funds comply with the SEC's requirements for using
an amortized cost valuation method.

Reliable market  quotations are not considered to be readily  available for many
long-term  corporate  bonds and  notes,  certain  preferred  stocks,  tax-exempt
securities or foreign securities.  The Funds may, and generally will, value debt
securities on the basis of  valuations  furnished  through a pricing  service or
services  approved by the Board of Trustees.  A pricing  service  generally will
determine valuations based upon normal, institutional-size trading units of such
securities  using market  transactions  for  comparable  securities  and various
relationships between securities generally recognized by institutional traders.

Management  prices foreign  securities in terms of U.S.  dollars at the official
exchange rate.  Alternatively,  it may price these  securities at the average of
the  current  bid and asked  price of such  currencies  against  the dollar last
quoted by a major bank that is a regular  participant  in the  foreign  exchange
market,  or on the basis of a pricing service that takes into account the quotes
provided by a number of such major banks.  If management does not have either of
these alternatives available to it or the alternatives do not provide a suitable
method  for  converting  a  foreign  currency  into U.S.  dollars,  the Board of
Trustees in good faith will establish a conversion rate for such currency.

Generally, U.S. Government securities and other fixed income securities complete
trading at various times prior to the close of the New York Stock Exchange.  For
purposes of computing net asset value, the Funds use the market value of such as
of the time their trading day ends. Occasionally,  events affecting the value of
such securities may occur between such times and the close of the New York Stock
Exchange,  which events will not be reflected in the computation of a Fund's net
asset



<PAGE>



value. If events  materially  affecting the value of a Fund'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.

Foreign securities trading may not take place on all days when the NYSE is open,
or may take  place on  Saturdays  and  other  days when NYSE is not open and the
Fund's net asset value is not calculated.  When  determining the net asset value
of the Fund, management values foreign securities primarily listed and/or traded
in foreign  markets at their  market  value as of the close of the last  primary
market  in which  the  securities  traded.  Unless  material  as  determined  by
management under the supervision of the Board of Trustees,  events affecting the
valuation of Fund securities  occurring  between the time its net asset value is
determined  and the close of the NYSE will not be reflected in such asset value.
As a result,  the Fund's net asset value may be  significantly  affected by such
trading on days when the Fund is not accepting purchases or redemptions.
    

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 New York Stock  Exchange  is  restricted,  as
determined by the  Securities and Exchange  Commission,  or that the 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.

The AAL Money Market Fund - Amortized Cost Valuation

The AAL Money Market Fund values its portfolio  securities on the basis of their
amortized cost.  Amortized cost is an approximation of market value, whereby the
difference  between  acquisition  cost and value at maturity is  amortized  on a
straight-line  basis over the remaining  life of the  instrument.  The effect of
changes in the market  value of a security as a result of  fluctuating  interest
rates is not taken into account and thus the amortized  cost method of valuation
may  result in the value of a  security  being  higher or lower  than its actual
market value. In addition, if a large number of redemptions take place at a time
when  interest  rates  have  increased,  the  Fund  may  have to sell  portfolio
securities prior to maturity and at a price which might not be as desirable.



<PAGE>



Although  there is no assurance that it will be able to do so, the Fund will use
its best  efforts to maintain a constant  net asset value of $1.00 per share for
purchases and redemptions.  The Board of Trustees has established procedures for
this purpose,  which procedures  include a review of the extent of any deviation
of net asset value per share,  based on available  market  quotations,  from the
$1.00 amortized cost per share.  Should that deviation  exceed 1/2 of 1% for the
Fund, the Board of Trustees will promptly  consider whether any action should be
initiated to eliminate or reduce  material  dilution or other unfair  results to
shareholders.  Such action may  include  redemption  of shares in kind,  selling
portfolio securities prior to maturity,  reducing or withholding dividends,  and
utilizing a net asset value per share as  determined by using  available  market
quotations.  The Fund will maintain a dollar-weighted average portfolio maturity
of 90 days or less  and  will  not  purchase  any  instrument  deemed  to have a
remaining  maturity  greater than 397 days,  will limit  portfolio  investments,
including repurchase  agreements,  to those dollar denominated  instruments that
the Board of Trustees  determines present minimal credit risks as advised by the
Adviser,  and will  comply  with the  requirements  as to the quality of certain
portfolio  securities  specified  by the SEC for money  market  funds  using the
amortized cost method of valuation and with certain reporting and record keeping
procedures.  There  is no  assurance  that  constant  net  asset  value  can  be
maintained at all times.  In the event  amortized  cost ceases to represent fair
value, the Board will take appropriate action.

Letter of Intent

Under a Letter of Intent, as described in the Prospectus,  shares totaling 5% of
the dollar amount indicated in the letter will be held in escrow by the Transfer
Agent in the name of the  purchaser.  The Letter of Intent does not obligate the
investor to purchase, nor a Fund to sell, the indicated amount. In the event the
Letter of Intent goal is not achieved within the 13-month period,  the Purchaser
is  required  to pay the  difference  between  the  sales  commission  otherwise
applicable to the purchases  made during this period and sales charges  actually
paid. The Distributor will liquidate  sufficient  escrowed shares to obtain such
difference after expiration of the Letter of Intent.

Investment Advisory Services

Please refer to the  description  of the Adviser,  Advisory  Agreement  and Fees
under "Management of the Trust" in the Prospectus,  which is incorporated herein
by reference.

The  following  Executive  Officers  of the  Trust  also  serve as  officers  or
directors of the Adviser as shown below:




<PAGE>




H. Michael Spence            President, Director, President of AAL Capital
222 West College Avenue      Management Corporation since 1994, Vice
Appleton, WI 54919-0007      President 1991 to 1994, and Director from 1988 to
DOB 6/12/35                  1991

Robert G. Same               Secretary; Director, Senior Vice President and
222 West College Avenue      Secretary of AAL Capital Management
Appleton, WI 54919-0007      Corporation since 1987
DOB 7/28/45

Terrance P. Gallagher        Treasurer, Director, Chief Financial Office of AAL
222 West College Avenue      Capital Management Corporation since 1994,
Appleton, WI 54919           Senior Vice President since 1987 and Comptroller
DOB 9/20/58                  since 1992

Compensation of The Board of Trustees

The Fund makes no payments to any of its officers for services.  However, any of
the  Trustees who are not officers or employees of the adviser or its parent are
paid, by The AAL Mutual Funds,  an annual fee of $10,000 and a fee of $1,000 per
meeting. These fees are assessed ratably to each series of The AAL Mutual Funds.
Trustees are  reimbursed by The AAL Mutual Funds 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, 1996, The
AAL Mutual Funds paid an aggregate of $93,150.00 in Trustees' fees and expenses.

<TABLE>
<CAPTION>
<S>               <C>                 <C>                 <C>               <C>               <C>


(1)               (2)                 (3)                 (4)               (5)               (6)
Name of           Capacities in       Aggregate           Pension or        Estimated         Total
Person            which               Remuneration        Retirement        Annual            Compensation
                  Remuneration                            Benefits          Benefits Upon     from
                  Received                                Accrued           Retirement        Registrant and
                                                          During                              Fund Complex
                                                          Registrant's                        Paid to
                                                          Last Fiscal                         Trustees*
                                                          Year
Ronald G.         Trustee             -                   -                 -                 N/A
Anderson
DOB 10/2/48
John H.           Trustee             -                   -                 -                 $1,500
Pender,
DOB 5/25/30
Richard L.        Trustee             -                   -                 -                 -
Gunderson,
DOB 6/14/33




<PAGE>




F. Gregory        Trustee             $16,000             -                 -                 $23,500
Campbell,
DOB 12/16/39
D.W. Russler,     Trustee             $16,000             -                 -                 $23,500
DOB 10/28/28
Richard L.        Trustee             $16,000             -                 -                 $23,500
Gady,
DOB 2/28/43
Lawrence M.       Trustee             $16,000             -                 -                 $23,500
Woods,
DOB 4/14/32
</TABLE>
*        The Fund complex includes the AAL Variable Product Series Fund, Inc.

The Adviser furnishes the Funds, at the Adviser's expense, with all office space
and facilities,  equipment and clerical personnel necessary for carrying out its
duties under the Advisory Agreement.  The Adviser also will pay all compensation
of Trustees,  officers and employees of the Trust who are affiliated  persons of
the Adviser.  All costs and expenses not expressly  assumed by the Adviser under
the Advisory Agreement are paid by the Funds, including, but not limited to: (a)
interest and taxes;  (b)  brokerage  commissions;  (c) insurance  premiums;  (d)
compensation  and expenses of its Trustees other than those  affiliated with the
Adviser;  (e) legal and audit  expenses;  (f) fees and  expenses  of the Trust's
custodian  and  transfer  agent;  (g)  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; (h) fees and expenses incident to the
registration  under Federal or state securities laws of the Trust or its shares,
(i) expenses of  preparing,  printing and mailing  reports and notices and proxy
material to  shareholders  of the Trust;  (j) all other  expenses  incidental to
holding  meetings of the Trust's  shareholders;  (k) dues or  assessments  of or
contributions  to the Investment  Company  Institute or its successor,  or other
industry organizations;  (l) 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 (m) 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 Act.

The Adviser has agreed to reimburse each of the Funds monthly to the extent that
total annual expenses  (excluding taxes,  interest and brokers'  commissions and
other normal charges incident to the purchase and sale of portfolio  securities,
but  including  fees  paid to the  Adviser  and/or a  Sub-Adviser)  exceeds  the
applicable  limits  prescribed by any state in which the shares of such Fund are
being offered for sale.

The Funds  believe that  currently the most  restrictive  state limits on annual
expenses  during any fiscal year are 2 1/2% of a Fund's average daily net assets
up to



<PAGE>



$30  million,  2% of the next $70  million  and 1 1/2%  thereafter.  The Adviser
reimbursed  annual expenses in excess of 1.6% for The AAL Utilities Fund through
April 30, 1994. In addition,  the Adviser voluntarily assumed annual expenses of
The AAL Bond Fund in excess of:  0.70 of 1 % of average  daily net assets of the
Fund for the period from September 19, 1987 through March 31, 1988;  0.80 of 1 %
of average  daily net assets for the period from April 1, 1988  through  January
31, 1989;  0.90 of 1% of average  daily net assets from February 1, 1989 through
July 31, 1989;  and 1.0% of average daily net assets from August 1, 1989 through
December  31,  1991.  The Adviser  reimbursed  The AAL Money Market Fund for all
expenses of that Fund in excess of the  following  percentages  of average daily
net assets for the dates indicated:  all expenses, March 1988; 0.10 of 1%, April
1988;  0.20 of 1%, May 1 through July 31, 1988; 0.30 of 1%, August 1, 1988; 0.50
of 1%,  September 1 through  October 3, 1988;  0.60 of 1%, October 4 through 16,
1988;  0.70 of 1%,  October 17,  1988,  through  January 31,  1989;  0.80 of 1%,
February 1 through 14, 1989; 0.90 of 1%, February 15 through 28, 1989; and 1.0%,
March 1, through May 30, 1989.  The Adviser  reimbursed The Money Market Fund by
waiving 0.10 of 1% of its Advisory fee (to 0.30 of 1%), from August 19, 1992 and
waiving  the entire  advisory  fee from  November  1, 1995.  These  waivers  are
voluntary and may be  discontinued  at any time. The Adviser  reimbursed The AAL
Municipal  Bond Fund for all  expenses  of that Fund in excess of: 0.80 of 1% of
average daily net assets for the period August 1, 1988 through January 31, 1989;
and 0.90 of 1% of  average  daily net  assets  from  February  1,  1989  through
December 31, 1991.  The  assumption  of expenses may be  initiated,  modified or
discontinued  by the  Adviser,  for any Fund,  at any time.  The Funds have paid
advisory  fees to the  Adviser for the past three  fiscal  years ended April 30,
1996 as follows:


For the Year Ended      April 30, 1994      April 30, 1995        April 30, 1996
The AAL Capital         $5,418,238          $5,910,666            $7,332,620
Growth Fund
The AAL Mid Cap         $456,993            $1,443,406            $2,207,510
Stock Fund
The AAL Small Cap       N/A                 N/A                   N/A
Stock Fund
The AAL International   N/A                 N/A                   $182,656
Fund
The AAL Utilities       $3,374              $260,436              $445,179
Fund
The AAL Bond Fund       $2,430,869          $2,448,730            $2,410,603
The AAL Municipal       $1,924,353          $2,134,525            $2,215,237
Bond Fund




<PAGE>




The AAL High Yield      N/A                 N/A                    N/A
Bond Fund
The AAL Money           $363,583            $335,173               $448,619
Market Fund

   
From its  advisory  fees,  the Adviser  pays the  sub-advisory  fees for The AAL
International  Fund in accordance  with the formula set forth in the Prospectus.
Prior to November 1, 1995, the Adviser paid  sub-advisory fees from the Advisory
fees  received for The AAL Mid Cap Stock  (f/k/a  Smaller  Company  Stock Fund),
Capital Growth, Utilities, Bond, Municipal Bond and Money Market Funds.
    

The Advisory Agreement and Sub-Advisory Agreement for The AAL International Fund
provide  that  subject  to  Section  36 of the  Act,  neither  the  Adviser  nor
Sub-Adviser shall 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 their  duties  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 agreements.

The Trust has agreed to use its best  efforts to change its name if the  Adviser
ceases  to act as such with  respect  to the  Funds.  The  continued  use of the
Trust's present name would create confusion in the context of the Adviser or its
parent's business.

The  Investment  Advisory  Agreement  was  approved  by the  Board of  Trustees,
including a majority of the Trustees who were not interested persons (as defined
in the Act) of any party to the  agreement on August 21, 1990,  and was approved
by the shareholders of The AAL Municipal Bond Fund on November 27, 1990, and The
AAL Capital  Growth,  Bond and Money Market  Funds on December  20, 1990.  After
December 20, 1990, the Advisory Agreement was approved for:

         The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller  Company  Stock Fund)
         by the Board of Trustees on May 18, 1993,  and the sole  shareholder on
         June 30, 1993;

         The AAL  Utilities  Fund by the Board of Trustees on February 24, 1994,
         and the sole shareholder on March 18, 1994;

   
         The AAL  International  Fund by the Board of Trustees on May 23,  1995,
         and the sole shareholder on July 31, 1995;
    




<PAGE>



         The AAL Small Cap Stock Fund by the Board of Trustees  on February  23,
         1996.

   
         The AAL High Yield Bond Fund by the Board of Trustees on May 29,  1996.

Class B shares  for The AAL  Capital  Growth,  Mid Cap  Stock,  Small Cap Stock,
International, Utilities, Bond, Municipal Bond, High Yield Bond and Money Market
Funds were approved by the Board of Trustees on , 1996, and the sole shareholder
on January 2, 1997.

On  October  16,  1995,  the  Board  of  Trustees  terminated  the  Sub-Advisory
Agreements (effective November 1, 1995) with, and approved the assumption of the
duties by the Adviser of, the sub-advisers,  Duff & Phelps Investment Management
Co., and Pilgrim Baxter & Associates  Ltd., for The AAL Capital Growth,  Mid Cap
Stock (f/k/a The Smaller Company  Stock),  Utilities,  Bond,  Municipal Bond and
Money  Market  Funds.  The Board of Trustees  also  approved  reductions  in the
advisory fees for these Funds.

On May 23, 1995, the Board of Trustees, including a majority of the Trustees who
were  not  interested  persons  (as  defined  in the  Act) of any  party  to the
agreement  approved the current  Sub-Advisory  Agreement  with Societe  Generale
Asset Management Corp. for The AAL International Fund.

The Advisory  Agreement and Sub-Advisory  Agreement will continue in effect from
year to year only so long as such  continuances  are  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
and Sub-Advisory Agreement are 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 a particular Fund,
the Advisory or Sub-Advisory  Agreement,  if any, is terminable 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.
    

Distributor

AAL Capital  Management  Corporation is the exclusive  underwriter for the Funds
under a written Distribution  Agreement,  dated June 15, 1987, as amended,  with
the  Funds.  The  underwriter  offers  the  shares  of the  Funds  for sale on a
continuous basis through its field sales force.

Class A Shares:  The public  offering price of a Fund's Class A share is the net
asset value next computed plus a sales charge that varies based on the quantity



<PAGE>



purchased.  The public offering price of a Fund's Class A share is calculated by
dividing  the net  asset  value  of the  Class A share  being  purchased  by the
difference (expressed as a decimal) between 100% and the sales charge percentage
of the offering  price  applicable  to the purchase  (See "Buying  Shares In The
Funds" in the  Prospectus).  The sales charge scale set forth in the  Prospectus
applies  to  purchases  of  Class A  shares  of a  particular  Fund  alone or in
combination with shares of all classes of the other Funds (as noted under "Right
of  Accumulation")  by any person,  including  family  members who live with the
purchaser (i.e., husband,  wife and minor children) and bona fide trustees,  and
also  applies to  purchases  made under the Right of  Accumulation  or Letter of
Intent as set forth in the Prospectus.  The Funds offer a reduction in the sales
charges for non-profit  organizations,  charitable trusts,  charitable remainder
Unitrusts,  endowments,  AAL branches and congregations  (See "50% Reduction" in
the Prospectus).

The underwriter does not, and did not,  receive  compensation in connection with
redemptions and repurchases or brokerage commissions for Class A shares.

The aggregate  underwriting  commissions  received and the amount of commissions
retained  by the  underwriter  for the past three years ended April 30, 1996 for
Class A Shares were as follows:


For Fiscal Year Ended       Aggregate Commissions           Retained Commissions
April 30, 1994              $25,776,162                      $4,846,750
April 30, 1995              $13,705,723                       $837,983
April 30, 1996              $17,870,771                      $5,027,588

Class B Shares:  The public  offering price of a Fund's Class B share is the net
asset  value (See  "Buying  Shares in the Funds" in the  Prospectus).  The Funds
began offering Class B shares on January 8, 1997.  Therefore,  as of the date of
this Statement, the Underwriter has not received any Commissions for the sale of
Class B shares.

         General

AAL Capital  Management  Corporation also acts as exclusive  underwriter for two
additional  series of The AAL Mutual Funds: The AAL U.S.  Government Zero Coupon
Target Fund,  Series 2001; and The AAL U.S.  Government Zero Coupon Target Fund,
Series 2006.





<PAGE>



Distribution Plan

The Trust has  adopted a  distribution  plan for Class A and Class B shares (the
"Distribution Plan") pursuant to Rule 12b-1 (the "Rule") under the Act.

The Plan authorizes the distributor to make certain payments (either as a "12b-1
Distribution Fee" or a "Service Fee") to any qualified recipient,  as defined in
the Plan, that has rendered  assistance in the distribution of the Funds' shares
(such as sale or placement of the Funds' 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 payments  paid under the Plan to qualified  recipients  or expenses  will be
reimbursed or paid by the Funds for Class A and Class B shares as follows:

   
Class A shares -- The AAL  Capital  Growth,  Mid Cap Stock  (f/k/a  The  Smaller
Company Stock Fund, Small Cap Stock,  International,  Utilities, Bond, Municipal
Bond,  High Yield Bond,  and Money Market  Funds -- In a given fiscal year,  the
Funds, pursuant to the Plan, will pay up to a limit of 0.25 of 1% of the average
net  assets  (0.125 of 1% for The AAL Money  Market  Fund) as a Service  Fee for
Class A shares.  Pursuant to the Plan,  the Funds will not  reimburse or pay for
expenses of past fiscal years or in  contemplation of expenses for future fiscal
years. Since August 19, 1992 and October 1, 1992, the Distributor has reimbursed
0.025 of 1% and the entire 0.125 of 1%, respectively, of the fees under Plan for
The AAL Money  Market Fund (Prior to January 8, 1997,  the Funds  described  the
0.025 of 1% fee as a 12b-1 Distribution  Fee). This continuing  reimbursement is
voluntary and may be modified or discontinued at any time; and

Class B shares -- The AAL Capital  Growth,  Mid Cap Stock (f/k/a The AAL Smaller
Company Stock Fund), Small Cap Stock, International,  Utilities, Bond, Municipal
Bond,  High Yield Bond and Money Market  Funds -- In a given  fiscal  year,  the
Funds, pursuant to the Plan, will pay up to a limit of 0.75 of 1% of the average
daily  net  assets as a 12b-1  Distribution  Fee and up to a limit of 0.25 of 1%
(0.125%  for the AAL Money  Market  Fund) of the  average  daily net assets as a
Service  Fee for  Class B shares.  Pursuant  to the  Plan,  the  Funds  will not
reimburse  or pay 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 payments by a Fund for
Class A and Class B shares 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 Plans and shall not be
included in the limitations contained in the Plan,  including:  (a) the costs of
the preparation, printing and



<PAGE>



mailing of all  require  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 the 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  Fund's
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 Fund's
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 states 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 Plans or any  agreements  related  to the Plans  ("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 payments was were made;  (b) the amounts of expenses and
the  purpose  of each such  expense;  and (c) all  costs of the  other  payments
specified  in the Plans  (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



<PAGE>



Distributor  under the Plan for Class A shares for the fiscal  year ended  April
30, 1996, and the manner in which this amount was spent is as follows:


Gross 12b-1 Fees Paid by the Funds                                $6,251,972
-------------------------------------------------------------------------------
                                  Expenditures
-------------------------------------------------------------------------------
Compensation to Registered Representatives                        $5,883,885
Other                                                              $368,087

   
The Funds did not make any payments  under the Plan for Class B shares.  Class B
shares first became available to investors on December 1, 1996.
    

Management and the Board of Trustees believe that the Distribution  Plan and the
Service  and 12b-1  fees have a positive  impact on sales of the Funds,  and the
retention  of Fund  assets,  both of which are  beneficial  to the Funds and the
Funds' shareholders.

   
The Plan was  approved by the  shareholders  of the Trust at the  Trust's  first
meeting of shareholders held on September 13, 1988. The Plan at that time and up
until January 2, 1997 included only the shares that now are referred to as Class
A shares.  As of January 2, 1997, the Plan includes Class B shares.  The Plan as
Amended and Restated was approved by the sole shareholder of the Trust's Class B
shares on January 2, 1997.  The Plan will  continue 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  for each  class of  shares of the  Trust,  with
respect to any Fund by the vote of a majority of the outstanding shares for each
class of such  Fund.  The Plan may not be  amended to  increase  materially  the
amount of payments to be made for the separate class shares without  shareholder
approval of the class. 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.
    

Portfolio Transactions

The  Adviser  and/or  Sub-Adviser  for The AAL  International  Fund  directs the
placement  of  orders  for  the  purchase  and  sale  of  the  Funds'  portfolio
securities.




<PAGE>



The cost of  securities  transactions  for each Fund will  consist  primarily of
brokerage  commissions or dealer or underwriter spreads.  Bonds and money market
instruments  are  generally  traded on a net basis and do not  normally  involve
either brokerage commissions or transfer taxes.

Occasionally,  securities  may  be  purchased  directly  from  the  issuer.  For
securities traded primarily in the over-the-counter market, the sellers who make
a market in the securities  will be dealt with directly unless better prices and
execution are available  elsewhere.  Such dealers  usually act as principals for
their own account. In placing portfolio transactions, the Adviser seeks the best
combination of price and execution.

   
In determining  which brokers  provide best  execution,  the Adviser and/or Sub-
Adviser for The AAL International Fund looks primarily to the stock price quoted
by the broker, and normally places orders with the broker through which the most
favorable price can be obtained.  It is expected that securities will ordinarily
be purchased in the primary  markets,  and that in assessing  the best net price
and execution  available to a Fund, the Adviser and/or  Sub-Adviser  for The AAL
International  Fund will consider all factors they deem relevant,  including the
breadth or the market in the security,  the price of the security, the financial
condition   and   execution   capability   of  the  broker  or  dealer  and  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 brokers to sell shares of the Funds as a factor in the
selection  of brokers  for the  Funds'  portfolio  transactions,  subject to the
overall best price and execution standard.

Assuming equal execution  capabilities,  other factors may be taken into account
in  selecting  brokers  or dealers to  execute  particular  transactions  and in
evaluating  the best net price  and  execution  available.  The  Adviser  and/or
Sub-Adviser for The AAL International Fund 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 Sub-Adviser (or their affiliates)). The
Adviser and/or  Sub-Adviser for The AAL International Fund may also cause a Fund
to pay to a broker or dealer who provides such brokerage and research services a
commission  for  executing  a  portfolio  transaction  which is in excess of the
amount of commission  another  broker or dealer would have charged for effecting
that transaction.  The Adviser and/or Sub-Adviser for The AAL International Fund
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  and/or  Sub-Adviser  for  The  AAL  International  Fund  exercises
investment  discretion.  It is possible that certain of the services received by
the Adviser and/or Sub-Adviser for


<PAGE>



The AAL International Fund attributable to a particular transaction will benefit
one or more other accounts for which  investment  discretion is exercised by the
Adviser  and/or  Sub-Adviser  for The AAL  International  Fund.  The Funds paid,
$155,000, $1,108,673 and $1,697,844 in brokerage commissions in each of the past
3 fiscal years.
    

Dividends, Distributions And Taxes

        The AAL Capital Growth, Mid Cap Stock (f/k/a The AAL Smaller Company
        Stock Fund), Small Cap Stock, International, Utilities, Bond, High Yield
        Bond and Money Market Funds

Each  of the  Funds'  dividends,  except  for  The  AAL  Municipal  Bond  Fund's
dividends,  from net investment  income together with distribution of short-term
capital gains  (collectively  "income dividends") are taxable as ordinary income
to  shareholders  whether paid in  additional  shares or in cash.  Any long-term
capital gains ("capital gains  distributions")  distributed to shareholders  are
treated as such by the  shareholders,  whether received in cash or in additional
shares,  regardless  of the length of time a  shareholder  has owned the shares.
These Funds intend to distribute  substantially  all their net investment income
and net realized long-term capital gains in order to avoid imposition of federal
income  and  excise tax  liability.  The AAL Mid Cap Stock,  Small Cap Stock and
International Funds expect to pay any dividends annually. The AAL Capital Growth
Fund expects to pay any  dividends  semi-annually,  and The AAL  Utilities  Fund
expects to pay any dividends quarterly.  The AAL Bond, High Yield Bond and Money
Market  Funds  will  accrue  income  dividends  daily  and  expect  to pay these
dividends monthly.  These Funds expect to distribute long-term capital gains, if
any, at least annually.

        The AAL Municipal Bond Fund

This Fund  expects  to  accrue  income  dividends  daily  and to  distribute  to
shareholders  all of its net  investment  income in  monthly  dividends  and net
realized  capital gains, if any, at least annually.  Dividends  derived from the
interest earned on municipal securities constitute  "exempt-interest  dividends"
and are  generally  not  subject to federal  income  tax.  Distributions  of net
realized long-term capital gain (whether from tax-exempt or taxable  securities)
are taxable to  shareholders  at ordinary  income rates.  The federal income tax
status of all  distributions  will be reported to  shareholders  annually.  Such
report will allocate income dividends between  tax-exempt and taxable income (if
any) in approximately the same proportions as the Fund's total income during the
year.  Accordingly,  income  derived from each of these  sources by the Fund may
vary  substantially  in any particular  distribution  period from the allocation
reported to shareholders annually.




<PAGE>



Interest on borrowings a shareholder  incurs to purchase or carry shares of this
Fund is not  deductible  for federal  income tax purposes.  Shareholders  may be
subject to state and local taxes on dividends  from this Fund,  including  those
which are exempt from federal income tax.

Entities or persons who are  "substantial  users" (or persons who are related to
"substantial  users") of facilities  financed by industrial revenue bonds should
consult their tax advisors  before  purchasing  shares of The AAL Municipal Bond
Fund. For these purposes,  the term  "substantial  user" is defined generally to
include a "non exempt  person" who regularly uses in trade or business a part of
a facility financed from the proceeds of industrial development revenue bonds.

The 1986 Tax Reform Act subjects  tax-exempt  interest  attributable  to certain
"private  activity  bonds"  (including,  in the case of a  regulated  investment
company  receiving   interest  on  such  bonds,  a  proportionate  part  of  the
exempt-interest  dividends paid by that company) to the individual and corporate
alternative  minimum tax. Also, it possibly subjects  exempt-interest  dividends
received by a corporate  shareholder of such company to the alternative  minimum
tax without regard to whether the investment  company's  tax-exempt interest was
attributable to such bonds.  However,  the Fund will not invest more than 20% of
its  assets  in  such  private  activity  bonds.  Moreover,   certain  corporate
shareholders  may be subject to a federal  "environmental"  tax with  respect to
their receipt of dividends and distributions.  The Omnibus Budget Reconciliation
Act of 1993 provides that market  discount on tax-exempt  bonds  purchased after
April 30, 1993 is to be classified as ordinary upon sale or other disposition of
the bond;  thereby creating the possibility that the Fund may distribute taxable
income to shareholders.

        The AAL International Fund -- Foreign Withholding Tax

The Fund may be subject to foreign withholding taxes on income and gains derived
from its  investments  outside the U.S. Such taxes would reduce the yield on the
Fund's  investments.  Tax treaties  between  certain  countries and the U.S. may
reduce or  eliminate  such  taxes.  If more than 50% of the value of the  Fund's
total assets at the close of any taxable year consist of stocks or securities of
foreign corporations,  the Fund may elect, for U.S. federal income tax purposes,
to treat any foreign  country income or withholding  taxes paid by the Fund that
can be treated as income taxes under U.S. income tax principles,  as paid by its
shareholders.  For any year that the Fund  makes such an  election,  each of its
shareholders  will be required to include in his income (in  addition to taxable
dividends  actually received) his allocable share of such taxes paid by the Fund
and will be entitled,  subject to certain limitations,  to credit his portion of
these  foreign  taxes  against  his U.S.  federal  income tax due, if any, or to
deduct it (as an  itemized  deduction)  from his U.S.  taxable  income,  if any.
Generally, credit for foreign taxes is subject to the limitation that it may not
exceed the  shareholder's  U.S. tax  attributable  to his foreign source taxable
income.


<PAGE>



If the pass through  election  described above is made, the source of the Fund's
income  flows  through  to its  shareholders.  Certain  gains  from  the sale of
securities  and  currency  fluctuations  will not be treated  as foreign  source
taxable income. In addition,  this foreign tax credit limitation must be applied
separately  to certain  categories  of foreign  source  income,  one of which is
foreign source  "passive  income." For this purpose,  foreign  "passive  income"
includes dividends,  interest, capital gains and certain foreign currency gains.
As a consequence,  certain  shareholders  may not be able to claim a foreign tax
credit for the full amount of their  proportionate share of the foreign tax paid
by the Fund.

The foreign tax credit can be used to offset only 90% of the alternative minimum
tax (as  computed  under the Code for  purposes of this  limitation)  imposed on
corporations  and  individuals.  If the  Fund is not  eligible  to make the pass
through  election  described  above,  the foreign  taxes it pays will reduce its
income, and distributions by the Fund will be treated as U.S. source income.

Each  shareholder  will be notified within 60 days after the close of the Fund's
taxable year  whether,  pursuant to the election  described  above,  the foreign
taxes paid by the Fund will be treated as paid by its shareholders for that year
and, if so, such notification will designate:  (i) such shareholder's portion of
the  foreign  taxes  paid to such  country;  and (ii) the  portion of the Fund's
dividends and  distributions  that represent  income derived from sources within
such country.

Investments by the Fund in stock of certain foreign  corporations  that generate
largely passive  investment-type  income, or which hold a significant percentage
of assets that generate such income (referred to as "passive foreign  investment
companies"  or  "PFICs"),  are subject to special tax rules  designed to prevent
deferral of U.S.  taxation of the Fund's  share of the PFIC's  earnings.  In the
absence  of certain  elections  to report  these  earnings  on a current  basis,
regardless  of whether the Fund  actually  receives any  distributions  from the
PFIC, a Fund would be required to report certain "excess  distributions" and any
gain  from the  disposition  of stock of the  PFIC,  as  ordinary  income.  This
ordinary income would be allocated  ratably to the Fund's holding period for the
stock.  Any amounts  allocated to prior taxable year will be taxable to the Fund
at the highest  rate of tax  applicable  in that year,  increased  by a interest
charge  determined  as though the  amounts  were  underpayment  of tax.  Amounts
allocated to the year of the  distribution  or disposition  would be included in
the Fund's net investment income for that year, and to the extent distributed as
a dividend to the Fund's shareholders would not be taxable to the Fund.





<PAGE>



        Summary

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.

Calculation Of Yield And Total Return

From time to time the Funds may advertise yield and total return for Class A and
Class B shares for various periods of investment.  Such  information will always
include  uniform   performance   calculations  based  on  standardized   methods
established  by The  Securities  and  Exchange  Commission,  which  reflect  the
front-end  sales  charge on a Class A share and the  contingent  deferred  sales
charge  ("CDSC") on a Class B share,  and may also  include  other total  return
information  without  giving  effect  to the  sales  charges.  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 particular Fund's investment objectives and
policies, characteristics and quality of its 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,  except The AAL Money Market
Fund,  standardized  average  annual  total  return is  computed  by finding the
average  annual  compounded  rates of return for Class A and Class B shares 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 in each class
to the ending redeemable value according to the following formula:

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

        Where:

                 T =      average annual total return for the class;

                 n =      number of years and portion of a year;




<PAGE>



                 ERV =   ending redeemable value for the class (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 for the class (CDSC for Class B shares),
                         assuming redemption at the end of the period;

                 P =     $1,000 (the hypothetical initial payment before
                         deduction of the maximum sales load, if any); and

                 ^ =     raised to the power of.

Annual Returns For The 1, 5 and 10-Year  Periods Ended December 31, 1996, 
For Class A Shares Based On Gross Amount Invested
    

<TABLE>
<CAPTION>
<S>                       <C>                     <C>                           <C>


The Fund and              Total Return for the    Average Annual Total          Average Annual Total
Inception Date            1-year Period Ended     Return for the 5-Year         Return for the Period
                          12/31/96                Period Ended 12/31/96         Ended 12/31/96 Since
                                                                                Inception
The AAL Capital           16.24%                  10.99%                        10.71%
Growth Fund (7/16/87)
The AAL Mid Cap           3.55%                   N/A                           13.26%
Stock Fund (6/30/93)
The AAL Small Cap         N/A                     N/A                           N/A
Stock Fund (7/1/96)
The AAL International     6.92%                   N/A                           5.85%
Fund (8/1/95)
The AAL Utilities         -0.14%                  N/A                           6.66%
Fund (3/18/94)
The AAL Bond Fund         -2.64%                  4.56%                         6.86%
(7/16/87)
The AAL Municipal         -0.61%                  5.97%                         6.60%
Bond Fund (7/16/87)
The AAL High Yield        N/A                     N/A                           N/A
Bond Fund (1/2/97)
</TABLE>


   
There is no  standardized  annual  return  information,  which is based on gross
amount  invested,  available  for Class B shares.  Class B shares  first  became
available to investors on January 8, 1997.
    




<PAGE>



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

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

        where:
   

              a =      dividends and interest earned by the Class during the
                       period;

              b =      expenses accrued by the Class for the period (net of
                       reimbursements);

              c =      the average daily number of shares outstanding for the
                       Class during the period they were entitled to receive
                       dividends; and

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

              ^ =      to the power of.

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.   Interest  earned  on  mortgage  backed
securities will be calculated  using the coupon rate and principal  amount after
adjustment  for a monthly  pay down.  Income  earned  on  equity  securities  is
determined by using the stated annual dividend rate applied over the performance
period.  The yields for The AAL Capital Growth, Small Cap Stock, Mid Cap Stock,
Utilities,  International, Bond and Municipal  Bond Funds for the 30-day period 
ended December 31, 1996 for Class A shares were: .68%, -1.00%, -1.05%, 3.62%, 
N/A, 5.65%, 4.33% (6.28% effective yield at 31% tax rate),  respectively.  There
is no yield  information  available  for Class B shares.  Class B shares  first
became available to investors on January 8, 1997.

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.  From time to time, The AAL Mutual Funds may advertise  yield. 
No historic  yield is provided for these Funds because they only recently 
commenced operations.




<PAGE>



Tax  Equivalent  Yield.  The  AAL  Municipal  Bond  Fund  will  calculate  a tax
equivalent yield based on a 30-day (or one-month) period for Class A and Class B
shares, computed by dividing that portion of the yield of the Fund for the share
class  (computed as described  above) that is  tax-exempt  by one minus a stated
income tax rate and adding the  quotient to that portion if any, of the yield of
that  share  class  for  the  Fund  that  is not  tax-exempt.  The  formula  for
computation of the tax equivalent yield is:

                                X = ( N/1-F) + T

         Where:

           N =      % of yield for the class derived from tax-exempt income;

           F =      federal income tax rate; and

           T = % of yield for the  class  derived  from  taxable income.

The tax  equivalent  yield at 31% tax rate for the 30-day period ended December 
31, 1996, for a Class A share for The AAL Municipal Bond Fund was 6.28%. 
There is no tax equivalent yield  information  available for Class B shares.  
Class B shares first became available to investors on January 8, 1997.

Current and  Effective  Yield - The AAL Money Market Fund.  The AAL Money Market
Fund may quote a current yield or effective yield for Class A and Class B shares
from  time-to-time.  The current yield is an  annualized  yield based on the net
change in account  value for each class for a seven-day  period.  The  effective
yield is an annualized  yield based on a daily  compounding of the current yield
for each share class.  These yields are each computed by first  determining  the
"Net Change in Account  Value" for each share class for a  hypothetical  account
having a share  balance  of one share at the  beginning  of a  seven-day  period
("Beginning  Account  Value"),  excluding  capital  changes.  The Net  Change in
Account Value will always equal the total dividends declared with respect to the
account. The yields for each share class are computed as follows:

        Current Yield = Net Change in Account Value Per Class   365
                                Beginning Account Value Per Class        x 7

        Effective Yield = [1 + Net Change in Account Value Per Class]  365/7 - 1

For the seven-day  period ended December 31, 1996, the current and effective 
yields of The  AAL  Money  Market  Fund  for  Class  A  shares  were  5.28%  and
5.42% respectively.  There is no current and effective yield information 
available for Class B shares. Class B shares first became available to investors
on January 8, 1997.
    



<PAGE>



In  addition  to  fluctuations  reflecting  changes  in net  income  of the Fund
resulting  from changes in income earned on its portfolio  securities and in its
expenses,  the Fund's  yield also would be affected if the Fund were to restrict
or  supplement  its dividends in order to maintain its net asset value at $1.00.
(See "Net  Asset  Value" in the  Prospectus  and in this  Statement.)  Portfolio
changes resulting from net purchase or net redemptions of Fund shares may affect
yield.  Accordingly,  the  Fund's  yield  may vary from day to day and the yield
stated for a  particular  past period is not a  representation  as to its future
yield. The Fund's yield is not guaranteed nor is its principal insured. Although
there is no assurance  that it will be able to do so, the Fund will use its best
efforts to maintain its net asset value per share at $1.00.

Other Performance Information

   
All of The AAL Mutual  Funds  may,  from time to time,  include  in their  sales
literature  and  advertisements:   (1)  total  return  quotations  computed  for
different  time  periods  or by a method  that  differs  from  the  computations
described in the section above for Class A and B shares; (2) calculations of the
growth of an investment (or series of investments),  at various assumed interest
rates and compounding,  to show the effect of the length of time,  interest rate
and/or tax deferral on an investment  for Class A and B shares;  (3)  illustrate
the concepts of asset  allocation  by use of  hypothetical  case  studies  using
various  risk  levels and life  cycles,  as well as  illustrating  the effect of
various tax brackets and tax deferrals on hypothetical  systematic investing for
Class A and Class B shares;  and (4) performance  relative to the performance of
other  investments  such as stocks,  bonds,  closed end funds,  certificates  of
deposit, as well as various indices such as the Consumer Price Index and indices
generated by lbbotson & Associates  and Chase Global Data and Research  Products
for Class A and B shares.

Average  Annual Total Return.  All Funds,  except The AAL Money Market Fund, may
advertise an average  annual total  return  calculation  for Class A and Class B
shares for any appropriate time period, based upon the value of a net investment
in the Fund for the class, after deduction of the maximum sales charge for Class
A shares  and  after  deducting  the CDSC for  Class B shares  according  to the
following formula:

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

        where:

                           T =       average annual total return for the class;

                           n =       number of years and portion of a year;



<PAGE>



                           ERV      = ending  redeemable  value  for the
                                    class  (of the  hypothetical  $1,000
                                    investment) at the end of any period
                                    after  deducting  all  non-recurring
                                    charges  (CDSC  for  Class B shares)
                                    assuming  redemption  at the  end of
                                    the period;
    

                           P        = $1,000 (the  hypothetical  initial
                                    net  investment  after  deduction of
                                    the sales load, if any).

                           ^ =      raised to the power of.

Annual Returns For The 1,5 and 10-Year Periods Ended December 31, 1996, For 
Class A Shares Based on Net Amount Invested.

<TABLE>
<CAPTION>
<S>                       <C>                      <C>                          <C>
The Fund and              Total Return for the     Average Annual Total         Average Annual Total
Inception Date            1-Year Period Ended      Return for the 5-Year        Return for the Period
                          12/31/96                 Period Ended 12/31/96         Ended 12/31/96

The AAL Capital           22.05%                   12.07%                       11.28%
Growth Fund (7/16/87)
The AAL Mid Cap           8.75%                    N/A                          14.84%
Stock Fund (6/30/93)
The AAL Small Cap         N/A                      N/A                          N/A
Stock Fund (7/1/96)
The AAL International     12.21%                   N/A                          9.55%
Fund (8/1/95)
The AAL Utilities         4.81%                    N/A                          8.54%
Fund (3/18/94)
The AAL Bond Fund         2.26%                    5.59%                        7.41%
(7/16/87)
The AAL Municipal         4.39%                    7.01%                        7.15%
Bond Fund (7/16/87)
The AAL High Yield        N/A                      N/A                          N/A
Bond Fund
</TABLE>
*       Annualized from Inception (8/1/95).

   
There is no annual return information based on net amount invested available for
Class B shares. Class B shares first became available to investors on January 8,
1997.

Performance  information  for Class A and B shares for the Funds may be compared
to various un-managed indices, such as Morgan Stanley's EAFE and World,



<PAGE>



Dow Jones Industrial and Utility Averages,  the S&P 500, the S&P Utilities,  the
S&P MidCap  400,  the S&P Small Cap or the  Lehman  Brothers  High Yield  Index,
Lehman  Brothers  Aggregate or other Lehman Bond Indices,  as well as indices of
similar mutual funds,  and various  foreign  country and currency  indices.  The
Funds  may  include  in  their  advertising  rankings  published  by  recognized
statistical  services  or  publishers  such as  Morningstar,  Lipper  Analytical
Services,  Inc.,  Weisenberger  Investment Companies Services or rankings shares
published by other  comparable  national  services that rank mutual funds.  They
also may use information from publications such as Barron's,  Business Week, The
Economist,  Financial World,  Forbes,  Fortune,  Kiplinger's  Personal  Finance,
Money,  Smart  Money,  the Star,  The Wall  Street  Journal  or Worth,  and from
videotapes of television  shows and  interviews  involving  investment  experts,
including employees of the Adviser (and/or Sub-Adviser for The AAL International
Fund). Advertisements may depict performance graphically.

General

The Trust's  Declaration  of Trust  permits its  Trustees to issue an  unlimited
number of full and  fractional  shares of  beneficial  interest and to divide or
combine the shares  into a greater or lesser  number of shares  without  thereby
changing  the  proportionate  beneficial  interest  in a Fund.  Pursuant to this
authority,  the  Trustees  have issued Class A and Class B shares for the Funds,
except for The AAL U.S. Government Zero Coupon Bond Funds, Series 2001 and 2006.
Each class share represents an interest in a Fund  proportionately  equal to the
interest of each other share in its class.  If the Trust were to liquidate,  all
shareholders  of a Fund  would  share pro rata in its net  assets  for the class
available for distribution to shareholders. If they deem it advisable and in the
best  interests  of  shareholders,  the Board may create  additional  classes of
shares that may differ from each other only as to  dividends  or, as is the case
with the Funds, as to assets and liabilities (in which case any such class would
have a  designation  including  the word  "Series").  Shares of each  series are
entitled  to vote as a series  only to the extent  required by the '40 Act or as
permitted by the Trustees.  Income and operating  expenses are allocated  fairly
among the series by the Trustees.
    

As of April 30, 1996 the  officers and Trustees of the Trust owned less than 1 %
of the shares of any Funds.

Except for the  election  of  Trustees  and  ratification  of the  selection  of
accountants,  any matter  required to be  submitted to  shareholder  vote is not
deemed to have been  effectively  acted upon unless approved by the holders of a
"majority"  (as  defined in the Rule) of the voting  securities  of each  Series
affected by the matter.

   
The AAL  Capital  Growth,  Mid Cap Stock  (f/k/a The AAL Smaller  Company  Stock
Fund),  Small Cap Stock,  Utilities,  Bond,  Municipal Bond, High Yield Bond and
Money Market Funds'  custodian is Firstar Trust Company.  The AAL  International
Fund's



<PAGE>



custodian is The Chase Manhattan Bank, N.A.  The custodians are responsible for
holding the Funds' assets.

AAL  Capital   Management   Corporation   (the   "Adviser")   provides   certain
administrative,   accounting  and  pricing  services  to  the  Funds,  including
calculating  the daily net asset  value per class  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 based on Sub-Adviser communications;  and preparing monthly and annual
summaries  to  assist  in  the  preparation  of  financial  statements  of,  and
regulatory  reports for, the Funds. These services were formerly provided by the
Funds'  Custodian.  An  Administrative  Services  Agreement with the Adviser was
approved by a majority of the Trustees of the Funds, including a majority of the
Trustees who are not  interested  persons of the Funds or of the Adviser and was
approved by the shareholders of The AAL Municipal Bond Fund on November 27, 1990
and of The AAL Capital Growth, Bond and Money Market Funds on December 20, 1990,
The Board of Trustees approved the addition of:
    

        The AAL Mid Cap Stock Fund (f/k/a as The AAL Smaller Company Stock Fund)
        to this agreement on May 18, 1993;

        The AAL Utilities Fund on February 24, 1994;

   
        The AAL International Fund on May 23, 1995;
    

        The AAL Small Cap Stock on February 28, 1996; and

   
        The AAL High Yield Bond Fund on May 29, 1996.
    

The principal motivation for having the Adviser provide these services was cost.
The Adviser has agreed to provide these  services at rates that would not exceed
the rates charged by unaffiliated vendors for similar services. The initial rate
of payment for these  services  was $25,000 per Fund per year,  plus the cost of
outside  pricing  services but only to the extent the Adviser is not voluntarily
absorbing any expenses of that Fund. The annual rates of payment approved by the
Trustees presently are:

   
The AAL Capital Growth Fund - $35,000
The AAL Mid Cap Stock Fund (f/k/a The AAL Smaller  Company Stock Fund) - $35,000
The AAL Small Cap Stock Fund - $35,000 The AAL International  Fund - $40,000 The
AAL Utilities  Fund - $35,000 The AAL Bond Fund - $35,000 The AAL Municipal Bond
Fund - $35,000 The AAL High Yield Bond Fund - $30,000



<PAGE>



The AAL Money Market Fund - $35,000
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  Agreement  will  continue  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 and in either case 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  assigned  and may be
terminated  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.

Shareholder Maintenance Agreement

The  Board of  Trustees  authorized  The  Funds  to  contract  with AAL  Capital
Management Corporation for 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 payable to AAL Capital Management  Corporation for providing such
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,  as well as 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 $4.08 per  account,
effective June 1, 1996. The Agreement will continue 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 and in either case
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 assigned
and may be terminated  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 Fund but may be in the future.




<PAGE>


Independent Accountants

The Trust's  independent  accountants,  Price Waterhouse 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.

Financial Statements

The  financial  statements  and  notes to  financial  statements  for the  Funds
included in the Annual Report to Shareholders  of the Trust,  for the year ended
April 30, 1996 are hereby  incorporated  by reference,  except for The AAL Small
Cap Stock Fund and The AAL High Yield Bond Fund.  Financial  information for The
AAL High Yield  Bond Fund is not yet a  available.  The Fund's  shares are being
offered for the first time by this  prospectus  and this Statement of Additional
Information.

The AAL Small Cap Stock  Fund -- The AAL  Small Cap Stock  Fund's  shares  first
became  available  to  investors  on  July  1,  1996.  Pursuant  to  the  Fund's
undertaking to provide  financial  information to investors within 4 to 6 months
of operation, the Funds' hereby incorporate by reference the AAL Small Cap Stock
Fund's Semi-Annual Report, dated October 31, 1996, copies of which are available
free of charge from the Distributor.