Registration No. 33-12911
   
As filed on October 15, 1997                           Registration No. 811-5075
    
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM N-1A

             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

   
                         Post-Effective Amendment No. 24
    
                                     and/or

               REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
                                   ACT OF 1940
   
                                Amendment No. 26
    
                        (Check appropriate box or boxes)

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

                              222 West College Ave.
                         Appleton, Wisconsin 54919-0007
               (Address of Principal Executive Offices) (Zip Code)

        Registrant's Telephone Number, including Area Code (414)734-5721
                                 Robert G. Same
                                    Secretary
                              The AAL Mutual Funds
                             222 West College Avenue
                             Appleton, WI 54919-0007
                     (Name and Address of Agent for Service)

Approximate date of proposed public offering:  As soon as practicable  after the
effective date of the registration statement.

It is proposed that this filing will become effective (check appropriate box):

o  immediately  upon  filing  pursuant  to  paragraph  (b)  of  Rule  485  
o  on ____________,  pursuant  to  paragraph  (b) of Rule 485 
o 60 days  after  filing pursuant  to  paragraph  (a)(1) of Rule 485 
o on  _______________,  pursuant  to paragraph (a)(1) of Rule 485 
o 75 days after filing pursuant to paragraph (a)(2) of Rule 485 
XX on December 29, 1997, pursuant to paragraph (a)(2) of Rule 485
==========================================
Registrant  has  previously  registered  an  indefinite  number of its shares of
beneficial  interest pursuant to Rule 24f-2 under the Investment  Company Act of
1940. Registrant filed under Rule 24f-2 on June 24, 1997.
==========================================
                               Page 1 of pages___.
                               Exhibit index is located at Page


<PAGE>


                           CROSS REFERENCE SHEET FOR
                              The AAL Mutual Funds
                           Class A and Class B shares

<TABLE>
N-1A Item No.                                             Location
<CAPTION>
<S>                                                       <C>    
PART A
     Item  1    Cover Page                                Cover Page
     Item  2    Synopsis                                  Prospectus Summary
     Item  3    Financial Highlights                      The Funds' Financial Highlights
     Item  4    General Description of Registrant         Cover Page; Prospectus Summary and the Funds' Investment Objectives and 
                                                               Investment Policies
     Item  5    Management of the Fund                    Board of Trustees; and Management of the Trust
     Item  5A   Management's Discussion of Fund 
                    Performance                           Annual Report
     Item  6    Capital Stock and Other Securities        Organization and Description of Shares
     Item  7    Purchase of Securities Being Offered      Buying Class A and Class B Shares in the Funds; Dividends, Distributions 
                                                               and Taxes; and Organization and Description of Shares
     Item  8    Redemption or Repurchase                  Selling (Redeeming) Your Class A and Class B Shares
     Item  9    Pending Legal Proceedings                 Not Applicable

PART B
     Item  10   Cover Page                                Cover Page
     Item  11   Table of Contents                         Table of Contents
     Item  12   General Information and History           Not Applicable
     Item  13   Investment Objectives and Policies        Investment Objectives and Investment Policies; Additional Investment 
                                                               Factors and Risks Regarding the Funds; and Investment Restrictions
     Item  14   Management of the Funds                   Investment Advisory Services; Distributor; and Distribution Plan
     Item  15   Control Persons and Principal Holders 
                    of Securities                         Investment Advisory Services
     Item  16   Investment Advisory and Other Services    Investment Advisory Services; Distributor; and Distribution Plan
     Item  17   Brokerage Allocation                      Portfolio Transactions
     Item  18   Capital Stock and Other Securities        General
     Item  19   Purchase, Redemption and Pricing of 
                    Securities Being Offered              Purchases and Redemptions; Pricing Considerations
     Item  20   Tax Status                                Tax Status, Dividends and
                                                          Distributions
     Item  21   Underwriters                              Distributor
     Item  22   Calculation of Performance Data           Calculation of Yield and Total Return
     Item  23   Financial Statements                      Financial Statements

PART C
     Item  24   Information required to be included in Part C is set forth under the appropriate Item, so numbered in  Part C to 
                this Registration Statement
</TABLE>

<PAGE>


                              The AAL Mutual Funds

                                   Prospectus
   
                                December 29, 1997

                           Class A and Class B Shares

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 members and employees of Aid Association
for Lutherans ("AAL").  This prospectus describes Class A and Class B shares for
the following Funds:
    

Equity-Oriented 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

   
Equity and Income Oriented Funds

THE AAL EQUITY INCOME FUND (formerly known as The AAL Utilities Fund): Investing
in Income-Producing Equity Securities

THE AAL BALANCED FUND:  Investing in Stocks, Bonds and Money Market Instruments
    

Income-Oriented Funds

   
THE AAL BOND FUND:  Investing in Investment Grade Bonds
THE AAL MUNICIPAL BOND FUND:  Investing in Tax-Exempt Municipal Bonds
THE AAL HIGH YIELD BOND FUND:  Investing in Below Investment Grade Bonds
    

The AAL High Yield Bond Fund invests  primarily in lower-rated  bonds,  commonly
known as "junk  bonds." Junk bonds are subject to greater loss of principal  and
interest. You 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

The U.S.  government  neither  insures nor guarantees your investment in The AAL
Money Market Fund. Also, we (The AAL Mutual Funds) do not give you any assurance
that we will be able to  maintain  a net asset  value of $1.00 per share for the
Fund.


<PAGE>


   
The prospectus sets forth concisely the information about the Funds' Class A and
Class B shares that you 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  December 29,
1997.  The SAI has  been  filed  with the  Securities  and  Exchange  Commission
("SEC").  The SAI, along with the most recent AAL Mutual Funds Annual Report are
incorporated  in this  prospectus  by reference  (which means that it is legally
considered  part of this  prospectus  even  though  you will not find it printed
here).  You can obtain a copy of the SAI and a copy of the annual report free by
calling 800-553-6319 or 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.  Institutional  shares  for the Funds in this
prospectus  are described in a separate  prospectus.  In addition,  The AAL U.S.
Government  Zero Coupon  Target  Funds,  Series 2001 and 2006 are described in a
separate prospectus and are closed to additional investments.
    

LIKE ALL MUTUAL FUND SHARES,  NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR
ANY STATE SECURITIES COMMISSION HAVE APPROVED OR DISAPPROVED THESE SECURITIES OR
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.  ANY  REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.


<PAGE>


TABLE OF CONTENTS

Prospectus Summary
Reading the Prospectus
The AAL Capital Growth Fund
           Expense Summaries and Example
           Financial Highlights
The AAL Mid Cap Stock Fund
           Expense Summaries and Example
           Financial Highlights
The AAL Small Cap Stock Fund
           Expense Summaries and Example
           Financial Highlights
The AAL International Fund
           Expense Summaries and Example
           Financial Highlights
The AAL Equity Income Fund
           Expense Summaries and Example
           Financial Highlights
   
The AAL Balanced Fund
           Expense Summaries and Example
    
The AAL Bond Fund
           Expense Summaries and Example
           Financial Highlights
The AAL Municipal Bond Fund
           Expense Summaries and Example
           Financial Highlights
The AAL High Yield Bond Fund
           Expense Summaries and Example
           Financial Highlights
The AAL Money Market Fund
           Expense Summaries and Example
           Financial Highlights
   
Additional Investment Factors and Risks Regarding the Funds
Risks of Investing in Foreign Securities
Investment Restrictions
Board of Trustees
Management of the Trust
Buying Class A and Class B Shares in the Funds
Additional Information about Buying Shares
Selling (Redeeming) Your Class A and Class B Shares
Closing Small Accounts
Reinstatement Privilege
Exchange Privilege
Net Asset Value (NAV)
Dividends, Distributions and Taxes
Shareholder Maintenance Agreement
Yield and Performance Information
Transfer Agent, Custodians and Independent Accountants
Organization and Description of Shares
Asset Allocation
Questions
Glossary of Important Terms
Appendix:  Securities Ratings
    

<PAGE>



PROSPECTUS SUMMARY

Organization of The AAL Mutual Funds

   
AAL Capital Management  Corporation ("AAL CMC"), which is a Delaware corporation
organized  in  1986,  is the  investment  adviser  ("Adviser")  and  Distributor
("Distributor")  for the Funds.  As the  Adviser,  AAL CMC makes the  investment
decisions for the Funds. As the Distributor,  AAL CMC sells the Funds' shares to
investors.  As of October 1, 1997,  AAL CMC managed  about $4.4  billion for the
Funds.
    

AAL  owns the  outstanding  stock in AAL  CMC.  AAL is a  non-profit,  non-stock
membership organization, licensed to do business as a fraternal benefit society.
AAL has a mission of bringing  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.  AAL ranks in
the top two percent of all life  insurers in the U.S. in terms of ordinary  life
insurance (nearly $78 billion in force).  AAL offers life, health and disability
income insurance and fixed and variable annuities to its members. Members belong
to one of over 9,500 local AAL branches throughout the U.S.

Reading the Prospectus

References to "you" and "your" in the prospectus refer to prospective  investors
or  shareholders.  References  to "we," "us" or "our"  refer to the Trust or the
Funds  and  Fund  management  (the  Adviser  and/or  Sub-Adviser  for  The  AAL
International Fund), Distributor,  Administrator, Transfer Agent and Custodians)
generally.

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.  We also have an  Appendix to the  prospectus  that
describes the Nationally Recognized Statistical Rating Organizations  ("NRSROs")
and their ratings for bonds and other debt and money market instruments.  If you
are  unsure of a rating as  described  in the  prospectus,  please  refer to the
Appendix.

The Funds

In  the  prospectus,   we  provide  you  with  information  on:  the  investment
objectives,  policies and risks of  investing in the Funds,  how to buy and sell
Class A and Class B shares,  management  and services  provided to the Funds and
other information.  For more information on the Funds' risks, please remember to
read  "Additional  Investment  Factors  and Risks  Involved"  after  reading the
separate  Fund  descriptions.  The  table on page  three  summarizes  the  Funds
available for your investment.

<PAGE>

<TABLE>
The AAL Mutual Funds            Primary Objectives                Primary Investments               Primary Risks
<CAPTION>
<S>                             <C>                               <C>                               <C> 
The AAL Capital Growth Fund     Long-Term Capital Growth          Large Company Stocks              Financial and Market

The  AAL Mid Cap Stock Fund     Long-Term Capital Growth          Mid-Sized Company Stocks          Financial and Market

The AAL Small Cap Stock Fund    Long-Term Capital Growth          Small Company Stocks              Financial and Market

The AAL International Fund      Long-Term Capital Growth          Foreign Stocks                    Financial, Market and Foreign
                                                                                                    Investment
The AAL Equity Income Fund      Current Income, Long-Term         Income-Producing Securities       Financial, Market and Interest
                                Income Growth and Capital Growth                                    Rate
   
The AAL Balanced Fund           Long-Term Total Return            Stocks, Bonds and Money Market    Financial, Market, Interest
                                                                  Instruments                       Rate and Credit
    
The AAL Bond Fund               High Current Income Consistent    Investment Grade Bonds            Interest Rate and Credit
                                with Capital Preservation

The AAL Municipal Bond Fund     High Current Income Exempt from   Investment Grade                  Interest Rate and Credit
                                Federal taxes Consistent with     Municipal Bonds
                                Capital Preservation

The AAL High Yield Bond Fund    High Current Income and           Below Investment Grade Bonds      Interest Rate, Credit and Market
                                Secondarily Capital Growth

The AAL Money Market Fund       High Current Income Consistent    Money Market Instruments          Interest Rate
                                with Liquidity and Capital
                                Preservation
</TABLE>


* Your Guide to Risk Disclosure
Credit Risk ............................................................   pages

Financial Risk .........................................................   pages

Foreign Investment Risk ................................................   pages

Interest Rate Risk .....................................................   pages

Market Risk ............................................................   pages


This prospectus describes two share classes,  Class A shares and Class B shares.
You pay a sales charge  immediately when you purchase Class A shares  (front-end
sales  charge).  You pay a sales  charge when you redeem Class B shares held for
less than five years (contingent  deferred sales charge).  In addition,  you pay
higher  "12b-1  fees" for Class B shares  than  Class A shares.  12b-1  fees are
ongoing asset based fees that we charge pursuant to a plan to cover the costs of
certain activities related to the distribution and service of the Funds' shares.

<PAGE>

   
We also offer an institutional class of shares,  "Institutional" shares, for the
Funds in this  prospectus.  Institutional  shares  are  described  in a separate
prospectus.  Institutional shares are for Lutheran  organizations or enterprises
with  minimum  initial  investment  in the  Funds of $ 1  million.  We  designed
Institutional shares to give Lutheran organizations and enterprises (non-natural
persons) or financial  institutions acting in a fiduciary or agency capacity for
them a convenient  means of  accumulating  an interest in The AAL Mutual  Funds.
Lutheran  organizations  or  enterprises  that  invest in  Institutional  shares
purchase  shares at net asset  value.  They neither pay initial  sales  charges,
redemption  fees nor "12b-1  distribution  or service fees." The  performance of
Class A, Class B and  Institutional  shares  will vary based on  differences  in
sales charges and fees. For more information on the Funds'  Institutional shares
and a prospectus, you may call the Mutual Funds Service Center at 800-553-6319.
    

Whether you should  purchase  Class A or Class B shares  depends on 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,  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 between Class A and Class B shares:

<TABLE>
Class A Shares                                    Class B Shares 
<CAPTION>
<S>                                              <C>   
Maximum 4%  front-end  sales charge               No front-end sales charge 
No contingent  deferred sales charge              Maximum 5% contingent deferred sales charge
Lower annual  expenses,  which includes           Higher annual expenses, which includes 12b-1 
     12b-1 fees,  than Class B                         fees, than Class A shares 
No conversion to Class B shares                   Automatic conversion to Class A shares after 5 years
</TABLE>


THE AAL CAPITAL GROWTH FUND

Investment Objective

The AAL  Capital  Growth  Fund  seeks  long-term  capital  growth  by  investing
primarily in a diversified portfolio of common stocks and securities convertible
into common stocks.

Investment Policies

Under normal circumstances, we invest at least 65% of the Fund's total assets in
common stocks,  not including  convertible  securities.  Generally,  we focus on
dividend-paying stocks issued by companies with earnings growth per share higher
than earnings growth per share of the S&P 500(R).  In selecting  stocks, we look
for quality, operating growth predictability and financial strength.

We may invest the remaining 35% of the Fund's total assets in additional  common
stocks,  preferred  stocks  and  bonds.  The Fund  does not  invest in bonds for
capital growth or for long time periods. We limit our investments in convertible
securities to no more than 5% of the Fund's net assets.

<PAGE>

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 0.50 of 1% on average daily net assets
     over $1 billion

Portfolio Manager

Frederick L. Plautz has managed the day-to-day Fund  investments  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 Risks Involved

Financial Risk: Many factors affect an individual company's performance, such as
management  or the demand for a  company's  products  or  services  and  company
performance affects the value of stocks in the Fund's portfolio.

Market Risk:  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 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). You could lose
money investing in the Fund.

Expense Summaries and Example

The following  expense  summaries and example should assist you in understanding
the various recurring and  non-recurring  costs and expenses you may directly or
indirectly incur with your investment in The AAL Capital Growth Fund.

           Shareholder Transaction Expenses

Shareholder transaction expenses are charges you pay when you buy or sell shares
of the Fund.  For Class A shares,  we based  expenses  on the  maximum  4% sales
charge, which is reduced on purchases of $25,000 or more. For Class B shares, we
based  expenses on the maximum 5% contingent  deferred  sales  charge,  which is
reduce by 1% for each year owned.

<PAGE>

Shareholder Transaction Expenses                     Class A       Class B
                                                                 
Maximum sales charge imposed on purchases (as a      4%             None
percentage of offering price)                                    
                                                                 
Maximum sales charge imposed on reinvested           None           None
dividends (as a percentage of net asset value)                   
                                                                 
Maximum deferred sales charge (as a percentage       None           5%
of net asset value)                                              
                                                                 
Redemption fee (The Funds currently charge           None           None
$ 12.00    for each wireredemption.)                             
                                                                 
Exchange fee                                         None           None
                                                                 
Total                                                4%             5%
                                                              
           Annual Fund Operating Expenses

The following  table reflects  annual  operating  expenses paid by the Fund. The
annual operating  expenses  include a management fee paid to the Adviser,  12b-1
distribution  and service fees and other  expenses for  maintaining  shareholder
records and furnishing  shareholder services,  statements and financial reports.
Operating  expenses are  expressed as a percentage of average net assets for the
fiscal year ended April 30, 1997.


Annual Fund Operating Expenses (as a percentage of     Class A       Class B
average net assets)

Management fee                                          .58%           .58%

12b-1 distribution and service fees                     .25%          1.00%

Other expenses                                          .23%           .31%

Total Fund Operating Expenses                          1.06%          1.89%

           Expense Example

The following  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.


Expense Example         Class A           Class B        Class B No Redemption

After 1 year              $51               $69                   $19

After 3 years             $73               $90                   $60

After 5 years             $97               $104                 $104

After 10 years           $167               N/A*                 N/A*

*Class B shares convert into Class A shares after five years.
You should use the expense  example for  comparison  purposes  only. It does not
represent the Fund's actual expenses and returns,  either past or future. Actual
expenses may be greater or less than those shown.

<PAGE>

Financial Highlights

The  financial  highlights  table  covers The AAL  Capital  Growth  Fund for the
periods  shown.  The  information  presented  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 the Funds' independent accountants,  Price Waterhouse
LLP. At your request,  we will provide you,  without  charge,  a copy of The AAL
Mutual Funds Annual Report,  dated April 30, 1997,  containing  these  financial
statements   and  a  more  detailed   discussion  and  analysis  of  the  Fund's
performance.

<PAGE>

<TABLE>
                     INCOME FROM INVESTMENT                             LESS DISTRIBUTIONS                         
                     OPERATIONS 

                     NAV:     Net         Net          Total from   Dividends    Distribution       Total        
                     Start    Investment  Realized     Investment   from Net     from Net           Dividends    
                     of       Income      and Un-      Operations   Investment   Realized           and          
                     Period   (Loss)      realized                  Income       Gain on            Distributions
                                          Gain(Loss)                             on Investments                          
<CAPTION>
                                                                                                        
Class A shares
<S>                  <C>      <C>        <C>          <C>          <C>           <C>               <C>     
Period From
16-Jul-87 to
30-Apr-88            $10.00   $0.112     $(1.709)     $(1.597)     $(0.043)      $0.000            $(0.043)
Years Ended                                                                                         
30-Apr-89              8.36    0.218       1.466        1.684       (0.204)       0.000             (0.204)
30-Apr-90              9.84    0.233       0.889        1.122       (0.242)       0.000             (0.242)
30-Apr-91             10.72    0.271       1.726        1.997       (0.269)      (0.028)            (0.297)
30-Apr-92             12.42    0.276       1.659        1.935       (0.280)      (0.015)            (0.295)
30-Apr-93             14.06    0.284       0.761        1.045       (0.274)      (0.001)            (0.275)
30-Apr-94             14.83    0.296      (0.287)       0.009       (0.286)      (0.063)            (0.349)
30-Apr-95             14.49    0.274       1.699        1.973       (0.298)      (0.605)            (0.903)
30-Apr-96             15.56    0.201       3.756        3.957       (0.217)      (0.510)            (0.727)
30-Apr-97             18.79    0.125       3.682        3.807       (0.150)      (0.947)            (1.097)

Class B shares

Period From
08-Jan-97 to
30-Apr-97            $20.66  $(0.011)     $0.801       $0.790        $0.000      $0.000             $0.000     


                                                                    SUPPLEMENTAL DATA
                                                                    AND RATIOS

                     NAV:        Total         Net Assets           Ratio of        Ratio of         Portfolio    Average   
                     End of      Return        at End of            Net             Net              Turnover     Commission
                     Period      for           Period               Operating       Investment       Rate         Paid per  
                                 Period                             Expenses        Income(Loss)                  Share     
                                 (1)                                to Average      to Average       
                                                                    Net Assets*     Net Assets* 
                                                                    (2)             (2)         
Period From
16-Jul-87 to
30-Apr-88            $ 8.36      (15.95)%      $  23,672,346        1.50%           2.61%             1.36%       $ --
Years Ended                                                                                                     
30-Apr-89              9.84       20.46           48,915,003        1.50            2.80              2.78          --
30-Apr-90             10.72       11.45          119,731,099        1.44            2.56              1.43          --
30-Apr-91             12.42       18.93          209,055,868        1.41            2.59              2.26          --
30-Apr-92             14.06       15.77          423,231,713        1.28            2.27              1.11          --
30-Apr-93             14.83        7.52          714,184,330        1.20            2.15              2.99          --
30-Apr-94             14.49        0.00          868,850,190        1.18            2.07             40.60          --
30-Apr-95             15.56       14.37        1,032,168,121        1.17            1.89             33.34          --
30-Apr-96             18.79       25.85        1,381,352,221        1.12            1.16             44.26         0.053
30-Apr-97             21.50       20.55        1,794,422,211        1.06            0.62             24.30         0.057
                                                                                                     
                                                                                                                                  
Class B shares

Period From 
08-Jan-97 to
30-Apr-97            $21.45        3.82%         $11,025,073        1.89%          (0.39)%           24.30%       $0.057
</TABLE>


*If the Fund had paid all of its  expenses  for Class A and Class B shares,  the
ratios would be as follows:

     Class A shares - 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 1.06%.
            
     Class B shares - Ratio of net operating expenses to average net assets (2):
     1.89%.

     Class A shares - 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 0.62%.

     Class B shares - Ratio of net  investment  income  (loss)  to  average  net
     assets (2): (0.39)%.

(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) to average
     net assets are calculated on an annualized basis.



<PAGE>


THE AAL MID CAP STOCK FUND

Investment Objective

The AAL Mid Cap Stock Fund seeks long-term 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 capitalizations ranging from $100 million to $5 billion.

Investment Policies

Under normal circumstances, we invest at least 65% of the Fund's total assets in
stocks, not including convertible securities, of mid-sized companies. Generally,
we focus on companies with market  capitalizations  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  in  the
over-the-counter market as well as on U.S. national securities exchanges.

We may invest the remaining 35% of the Fund's 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
stocks 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) have a strong financial position.

We usually  pick  companies  in the middle  stages of their  development.  These
companies tend to have established a record of  profitability  and possess a new
technology, unique product or market niche.

We tend to sell stocks 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.

Annual Advisory Fee

     0.75 of 1% on the first $200 million

     0.65 of 1% on average daily net assets over $200 million

<PAGE>

Portfolio Manager

Michael R. Hochholzer,  CFA, has managed the day-to-day Fund  investments  since
March 1997.  Prior to managing the Fund, Mr.  Hochholzer  served as a securities
analyst and portfolio  manager for Aid  Association  for  Lutherans,  the parent
company of AAL Capital Management Corporation from 1989.

Investment Factors and Risks Involved

Financial  Risk:  Stocks of  mid-sized  companies  may present a greater risk of
losing value 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.

Market Risk:  Over time, the stock market tends to move in cycles,  with periods
when  stock  prices  rise  generally  and  periods  when  stock  prices  decline
generally.  Due to the tendency for mid cap stocks to have less liquidity in the
market than large  company  stocks,  the value of the Fund's  investments  might
increase and decrease more than the stock market in general,  as measured by the
S&P 500(R). You could lose money investing in the Fund.

Expense Summaries and Example

The following  expense  summaries and example should assist you in understanding
the various recurring and  non-recurring  costs and expenses you may directly or
indirectly incur with your investment in The AAL Mid Cap Stock Fund.

            Shareholder Transaction Expenses

Shareholder transaction expenses are charges you pay when you buy or sell shares
of the Fund.  For Class A shares,  we based  expenses  on the  maximum  4% sales
charge, which is reduced on purchases of $25,000 or more. For Class B shares, we
based  expenses on the maximum 5% contingent  deferred  sales  charge,  which is
reduced by 1% for each year owned.


Shareholder Transaction Expenses                     Class A            Class B

Maximum sales charge imposed on purchases (as a      4%                 None
percentage of offering price)

Maximum sales charge imposed on reinvested           None               None
dividends (as a percentage of net asset value)

   
Maximum deferred sales charge (as a percentage       None               5%
of net asset value)
    

Redemption  fee (The  Funds  currently  charge       None               None  
$12.00  for each wire redemption.)

Exchange fee                                         None               None

Total                                                4%                 5%

<PAGE>

            Annual Fund Operating Expenses

The following  table reflects  annual  operating  expenses paid by the Fund. The
annual operating  expenses  include a management fee paid to the Adviser,  12b-1
distribution  and service fees and other  expenses for  maintaining  shareholder
records and furnishing  shareholder services,  statements and financial reports.
Operating  expenses are  expressed as a percentage of average net assets for the
fiscal year ended April 30, 1997.


Annual Fund Operating Expenses (as a percentage of        Class A       Class B
average net assets)

Management fee                                             .69%           .69%

12b-1 distribution and service fees                        .25%          1.00%

Other expenses                                             .41%           .60%

Total Fund Operating Expenses                             1.35%          2.29%

            Expense Example

The following  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.


Expense Example          Class A          Class B          Class B No Redemption

After 1 year               $53              $74                     $24

After 3 years              $82              $102                    $72

After 5 years             $112              $124                   $124

After 10 years            $199              N/A*                   N/A*

*Class B shares convert into Class A shares after five years.
You should use the expense  example for  comparison  purposes  only. It does not
represent the Fund's actual expenses and returns,  either past or future. Actual
expenses may be greater or less than those shown.

Financial Highlights

The financial highlights table covers The AAL Mid Cap Stock Fund for the periods
shown.  The  information  presented 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 the Funds' independent  accountants,  Price Waterhouse LLP.
At your request,  we will provide you,  without charge, a copy of The AAL Mutual
Funds Annual Report, dated April 30, 1997, containing these financial statements
and a more detailed discussion and analysis of the Fund's performance.


<PAGE>


<TABLE>
                 INCOME FROM INVESTMENT                               LESS DISTRIBUTIONS                         
                 OPERATIONS 

                 NAV:     Net           Net          Total from    Dividends    Distribution     Total        
                 Start    Investment    Realized     Investment    from Net     from Net         Dividends    
                 of       Income        and Un-      Operations    Investment   Realized         and          
                 Period   (Loss)        realized                   Income       Gain on          Distributions
                                        Gain(Loss)                              on Investments                   
<CAPTION>
<S>              <C>      <C>           <C>          <C>           <C>          <C>              <C>
Class A shares

Period From
30-Jun-93 to
30-Apr-94        $10.00   $(.044)       $0.424       $ 0.380       $ 0.000      $ 0.000          $ 0.000

Years Ended
30-Apr-95         10.38    (0.054)       0.594         0.540         0.000        0.000            0.000
30-Apr-96         10.92    (0.100)       6.290         6.190         0.000        0.000            0.000
30-Apr-97         17.11    (0.119)      (1.628)       (1.747)        0.000       (2.653)          (2.653)

Class B shares

Period From
08-Jan-97 to
30-Apr-97         $13.67  $(0.026)      $(0.954)     $(0.980)      $ 0.000      $ 0.000          $ 0.000


                                                                        SUPPLEMENTAL DATA
                                                                        AND RATIOS

                 NAV:         Total     Net Assets        Ratio of      Ratio of         Portfolio    Average   
                 End of       Return    at End of         Net           Net              Turnover     Commission
                 Period       for       Period            Operating     Investment       Rate         Paid per  
                              Period                      Expenses      Income(Loss)                  Share     
                              (1)                         to Average    to Average       
                                                          Net Assets*   Net Assets* 
                                                          (2)           (2)         
Class A shares

Period From
30-Jun-93 to
30-Apr-94        $ 10.38        3.80%   $ 142,529,469     1.72%         (1.14)%           55.49%      $ --

                                                                                                        --
Years Ended
30-Apr-95          10.92        5.20      220,792,070     1.54          (0.77)            88.18         --
30-Apr-96          17.11       56.59      424,974,828     1.39          (0.82)            90.14        0.055
30-Apr-97          12.71      (11.08)     461,732,660     1.35          (0.94)           112.60        0.060

Class B shares

Period From
08-Jan-97 to
30-Apr-97        $ 12.69      (7.17)%   $   3,270,870     2.29%         (1.41)%          112.60%      $ 0.060
</TABLE>


*If the Fund had paid all of its  expenses  for Class A and Class B shares,  the
ratios would be as follows:

     Class A shares - Ratio of net operating  expenses to average net assets(2):
     1.73%, 1.54%, 1.39% and 1.35%.
            
     Class B shares - Ratio of net operating expenses to average net assets (2):
     2.29%.

     Class A shares - Ratio of net  investment  income  (Loss)  to  average  net
     assets (2): (1.14)%, (0.77)%, (0.82)% and (0.94)%.

     Class B shares - Ratio of net  investment  income  (loss)  to  average  net
     assets (2): (1.41)%.

(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) to average
     net assets are calculated on an annualized basis.



<PAGE>


THE AAL SMALL CAP STOCK FUND

Investment Objective

   
The AAL  Small  Cap Stock  Fund  seeks  long-term  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 capitalizations of less than $1 billion.
    

Investment Policies

Under normal circumstances, we invest at least 65% of the Fund's total assets in
stocks, not including convertible securities, of small companies.  Generally, we
focus on companies with market capitalizations  ranging from $30 million to $600
million.  Small companies tend to be substantially  less-seasoned than companies
listed in the S&P 500(R) or the S&P(R)  MidCap  400 Index.  Small cap  companies
trade in 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 the Fund's 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.  Generally,  the investing public does not know as much about
or  follow  the  stocks  of small  companies  as  compared  to  stocks of larger
companies.  As a result, small company stocks may provide greater  opportunities
for long-term  capital growth as a result of the relative  inefficiencies in the
marketplace.

We tend to sell the stocks of  companies  when we think  that other  investments
offer better opportunities. This tendency may, from time to time, cause the Fund
to have short-term gains or losses.

Annual Advisory Fee

           0.75 of 1% on the first $200 million
           0.65 of 1% on the average daily net assets over $200 million

Portfolio Manager

Kevin  Schmitting,  CFA, has managed the day-to-day Fund  investments  since its
inception  on July 1, 1996.  Mr.  Schmitting  also managed The AAL Mid Cap Stock
Fund from November 1, 1995,  through March 17, 1997.  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.

<PAGE>

Investment Factors and Risks Involved

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

Market Risk:  Over time, the stock market tends to move in cycles,  with periods
when  stock  prices  rise  generally  and  periods  when  stock  prices  decline
generally. Historically, small capitalization stocks have experienced more price
volatility than mid-size and large  capitalization  stocks.  Some of the reasons
they have greater volatility  include: 1) less certain growth prospects of small
firms;  2) lower  degree of  liquidity  in the markets for such  stocks;  and 3)
greater  sensitivity of small companies to changing  economic  conditions.  As a
result,  the value of the Fund's  investments  tends to  increase  and  decrease
substantially  more than the stock  market in  general,  as  measured by the S&P
500(R). You have a greater risk of losing your money invested in the Fund.

Expense Summaries and Example

The following  expense  summaries and example should assist you in understanding
the various recurring and  non-recurring  costs and expenses you may directly or
indirectly incur with your investment in this Fund.

            Shareholder Transaction Expenses

Shareholder transaction expenses are charges you pay when you buy or sell shares
of the Fund.  For Class A shares,  we based  expenses  on the  maximum  4% sales
charge, which is reduced on purchases of $25,000 or more. For Class B shares, we
based  expenses on the maximum 5% contingent  deferred  sales  charge,  which is
reduced by 1% for each year owned.


Shareholder Transaction Expenses                      Class A        Class B

Maximum sales charge imposed on purchases (as a          4%            None
percentage of offering price)

   
Maximum sales charge imposed on reinvested              None           None
dividends (as a percentage of net asset value)

Maximum deferred sales charge (as a percentage          None            5%
of net asset value)
    

Redemption  fee (The  Funds  currently  charge          None           None  
$12.00  for each wire redemption.)

Exchange fee                                            None           None

Total                                                    4%             5%

<PAGE>

            Annual Fund Operating Expenses

The following  table reflects  annual  operating  expenses paid by the Fund. The
annual operating  expenses  include a management fee paid to the Adviser,  12b-1
distribution  and service fees and other  expenses for  maintaining  shareholder
records and furnishing  shareholder services,  statements and financial reports.
Operating  expenses are  expressed as a percentage of average net assets for the
fiscal year ended April 30, 1997


Annual Fund Operating Expenses (as a percentage of       Class A       Class B
average net assets)

Management fee                                            .75%           .75%

12b-1 distribution and service fees                       .25%          1.00%

Other expenses                                           1.06%          1.45%

Total Fund Operating Expenses                            2.06%          3.20%

            Expense Example

The following  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.


Expense Example        Class A       Class B        Class B No Redemption

After 1 year             $60           $83                   $33

After 3 years           $103           $129                  $99

After 5 years           $148           $169                 $169

After 10 years          $273           N/A*                  N/A*

*Class B shares convert into Class A shares after five years.
You should use the expense  example for  comparison  purposes  only. It does not
represent the Fund's actual expenses and returns,  either past or future. Actual
expenses may be greater or less than those shown.

Financial Highlights

The  financial  highlights  table  covers  The AAL Small Cap Stock  Fund for the
periods  shown.  The  information  presented  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 the Funds' independent accountants,  Price Waterhouse
LLP. At your request,  we will provide you,  without  charge,  a copy of The AAL
Mutual Funds Annual Report,  dated April 30, 1997,  containing  these  financial
statements   and  a  more  detailed   discussion  and  analysis  of  the  Fund's
performance.


<PAGE>

<TABLE>
                  INCOME FROM INVESTMENT                               LESS DISTRIBUTIONS                         
                  OPERATIONS 

                 NAV:     Net           Net          Total from    Dividends    Distribution     Total        
                 Start    Investment    Realized     Investment    from Net     from Net         Dividends    
                 of       Income        and Un-      Operations    Investment   Realized         and          
                 Period   (Loss)        realized                   Income       Gain on          Distributions
                                        Gain(Loss)                              on Investments                   
<CAPTION>
<S>              <C>      <C>           <C>          <C>           <C>          <C>              <C>
Class A shares

Period From
01-Jul-96 to
30-Apr-97        $10.00   $(0.055)      $0.162       $ 0.107       $ 0.000      $(0.267)         $(0.267)

Class B shares

Period From
08-Jan-97 to
30-Apr-97        $11.17   $(0.032)  $(1.328)  $(1.360)   $ 0.000   $ 0.000    $ 0.000



                                                                        SUPPLEMENTAL DATA
                                                                        AND RATIOS

                 NAV:         Total     Net Assets        Ratio of      Ratio of         Portfolio    Average   
                 End of       Return    at End of         Net           Net              Turnover     Commission
                 Period       for       Period            Operating     Investment       Rate         Paid per  
                              Period                      Expenses      Income(Loss)                  Share     
                              (1)                         to Average    to Average       
                                                          Net Assets*   Net Assets* 
                                                          (2)           (2)   

Class A shares

Period From
01-Jul-96 to
30-Apr-97        $  9.84      (0.78)%   $  44,487,852     2.06%         (1.20)%          138.50%      $ 0.059

Class B shares
             
Period From
08-Jan-97 to
30-Apr-97        $  9.81      (12.18)%  $   3,394,082     3.20%         (2.39)%          138.50%      $ 0.059
</TABLE>
             

*If the Fund had paid all of its  expenses  for Class A and Class B shares,  the
ratios would be as follows:
                      
     Class A shares - Ratio of net operating expenses to average net assets (2):
     2.06%.
            
     Class B shares - Ratio of net operating expenses to average net assets (2):
     3.21%.
           
     Class A shares - Ratio of net  investment  income  (loss)  to  average  net
     assets (2): (1.20)%.
            
     Class B shares - Ratio of net  investment  income  (loss)  to  average  net
     assets (2): (2.40)%

(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) to average
     net assets are calculated on an annualized basis.



<PAGE>


THE AAL INTERNATIONAL FUND

Investment Objective

The Fund seeks long-term capital growth by investing  primarily in a diversified
portfolio of foreign stocks.

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.  We may not invest more than 25% of the Fund's assets in any one
country.  We do not have any other  limitations on how much of its assets it may
invest in securities primarily traded in any one country.

We focus on 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 can  invest in either  mature or  emerging
markets.  We 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 make a good-faith
determination  based  on  such  factors  as the  location  of  issuer's  assets,
personnel, sales and earnings.

We may  invest  the  remaining  35% of the Fund's  total  assets in:  additional
foreign stocks; U.S. stocks; structured notes and/or preferred stocks; and up to
20% of the  Fund's  total  assets 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.

We do not place any  restrictions on the debt ratings of securities  acquired or
the portion of the Fund's assets we may invest in a particular  rating  category
for the Fund.

<PAGE>

Pending the  investment  of cash from new sales or to meet  ordinary  daily cash
needs,  we may hold  cash  temporarily  (U.S.  dollars,  foreign  currencies  or
multinational foreign currency units) for the Fund. We may invest any portion of
the Fund's total assets in money market instruments.

Annual Advisory Fee

     1% on the average daily net assets

Annual Sub-Advisory Fee

     0.75 of 1% on the  average  daily net  assets  (payable  from the 1% Annual
     Advisory Fee paid to the Adviser)

Sub-Adviser

We have hired a sub-adviser  ("Sub-Adviser"),  Societe Generale Asset Management
Corp.  ("SoGen"),  who,  under our direction and control,  makes the  day-to-day
investment decisions for the Fund. SoGen, 1221 Avenue of the Americas, New York,
New York 10020 is a registered  investment  adviser that is indirectly  owned by
Societe  Generale,  one  of  France's  largest  banks.  Under  the  Sub-Advisory
Agreement,  the Sub-Adviser for the Fund,  subject to our (the Adviser and Board
of Trustees for the Fund) direction and control  determines  which securities to
purchase and sell for the Fund,  arranges the  purchases and sales for the Fund,
and  renders  other  assistance  to  us  in  formulating  and  implementing  the
investment program for the Fund.

Portfolio Manager

Jean Marie  Eveillard  has managed the  day-to-day  Fund  investments  since its
inception on August 1, 1995. Mr.  Eveillard has served as SoGen's  President and
Director since April 1990.

<PAGE>


Investment Factors and Risks Involved

Foreign  Investment  Risk:  In addition to the risks of  investing  in stocks of
different  sized  companies,  as  highlighted  in our other stock fund offerings
(financial and market risks),  investors face particular  risks  associated with
foreign  investing.  Foreign  investment  risks  include  currency,   liquidity,
political,  economic  and  market  risks,  as  well  as  risks  associated  with
governmental  regulation and nonuniform corporate disclosure  standards.  We may
invest  from 0% to 100% of the Fund's net assets in emerging  growth  countries,
which may entail more risk than investing in mature  countries.  The greater the
percentage of net assets the Fund invests in emerging countries, the greater the
investment

Expense Summaries and Example

The following  expense  summaries and example should assist you in understanding
the various recurring and  non-recurring  costs and expenses you may directly or
indirectly incur with your investment in The AAL International Fund.

            Shareholder Transaction Expenses

Shareholder  transaction expenses are charges you pay when you buy, sell or hold
shares of the Fund.  For Class A shares,  we based  expenses  on the  maximum 4%
sales  charge,  which is reduced on  purchases  of $25,000 or more.  For Class B
shares,  we based  expenses on the maximum 5% contingent  deferred sales charge,
which is reduced by 1% for each year owned.

Shareholder Transaction Expenses                      Class A       Class B

Maximum sales charge imposed on purchases (as a          4%           None
percentage of offering price)

Maximum sales charge imposed on reinvested              None          None
dividends (as a percentage of net asset value)

Maximum deferred sales charge (as a percentage          None           5%
of net asset value)

Redemption  fee (The  Funds  currently  charge          None          None 
$12.00  for each wire redemption.)

Exchange fee                                            None          None

Total                                                    4%            5%

<PAGE>

            Annual Fund Operating Expenses

The following  table reflects  annual  operating  expenses paid by the Fund. The
annual operating  expenses  include a management fee paid to the Adviser,  12b-1
distribution  and service fees and other  expenses for  maintaining  shareholder
records and furnishing  shareholder services,  statements and financial reports.
Operating  expenses are  expressed as a percentage of average net assets for the
fiscal year ended April 30, 1997.


Annual Fund Operating Expenses (as a percentage of       Class A       Class B
average net assets)

Management fee                                            1.00%         1.00%

12b-1 distribution and service fees                       .25%          1.00%

Other expenses                                            .85%           .94%

Total Fund Operating Expenses                             2.10%         2.94%

            Expense Example

The following  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.


Expense Example        Class A           Class B           Class B No Redemption

After 1 year             $61               $80                      $30

After 3 years           $104               $122                     $92

After 5 years           $150               $156                    $156

After 10 years          $277               N/A*                    N/A*

*Class B shares convert into Class A shares after five years.
You should use the expense  example for  comparison  purposes  only. It does not
represent the Fund's actual expenses and returns,  either past or future. Actual
expenses may be greater or less than those shown.

Financial Highlights

The financial highlights table covers The AAL International Fund for the periods
shown.  The  information  presented 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 the Funds' independent  accountants,  Price Waterhouse LLP.
At your request,  we will provide you,  without charge, a copy of The AAL Mutual
Funds Annual Report, dated April 30, 1997, containing these financial statements
and a more detailed discussion and analysis of the Fund's performance.



<PAGE>

<TABLE>
                  INCOME FROM INVESTMENT                               LESS DISTRIBUTIONS                         
                  OPERATIONS 

                 NAV:     Net           Net          Total from    Dividends    Distribution     Total        
                 Start    Investment    Realized     Investment    from Net     from Net         Dividends    
                 of       Income        and Un-      Operations    Investment   Realized         and          
                 Period   (Loss)        realized                   Income       Gain on          Distributions
                                        Gain(Loss)                              on Investments              
<CAPTION>
<S>              <C>      <C>           <C>          <C>           <C>          <C>              <C>
Class A shares

Period From
01-Aug-95 to
30-Apr-96        $10.00   $0.046        $1.058       $ 1.104       $(0.024)     $ 0.000          $(0.024)
Year Ended                            
30-Apr-97         11.08    0.005        0.680          0.685        (0.335)      (0.060)         (0.395)
                                   
Class B shares

Period From
08-Jan-97 to
30-April-97      $10.98    $0.000       $0.3600      $0.360        $0.000       $0.000           $ 0.000


                                                                        SUPPLEMENTAL DATA
                                                                        AND RATIOS

                 NAV:         Total     Net Assets        Ratio of      Ratio of         Portfolio    Average   
                 End of       Return    at End of         Net           Net              Turnover     Commission
                 Period       for       Period            Operating     Investment       Rate         Paid per  
                              Period                      Expenses      Income(Loss)                  Share     
                              (1)                         to Average    to Average       
                                                          Net Assets*   Net Assets* 
                                                          (2)           (2)   
Class A shares

Period From
01-Aug-95 to
30-Apr-96        $11.08       11.07%    $  57,117,185     2.15%         0.94%             1.30%       $ 0.018
Year Ended
30-Apr-97         11.37        6.32       116,153,782     2.10          0.88             12.95          0.013

Class B shares

Period From
08-Jan-97 to
30-April-97      $11.34        3.28%    $   2,599,958     2.94%         (0.03)%          12.95%       $ 0.013
</TABLE>


*If the Fund had paid all of its  expenses  for Class A and Class B shares,  the
ratios would be as follows:

     Class A shares - Ratio of net operating expenses to average net assets (2):
     2.32% and 2.10%.
            
     Class B shares - Ration of net  operating  expenses  to average  net assets
     (2): 2.94%.
            
     Class A shares - Ratio of net  investment  income  (loss)  to  average  net
     assets(2): 0.77% and 0.88%.
            
     Class B shares - Ratio of net  investment  income  (loss)  to  average  net
     assets (2): (0.03)%.

(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) to average
     net assets are calculated on an annualized basis.



<PAGE>


THE AAL EQUITY INCOME FUND (formerly known as The AAL Utilities Fund)

Investment Objective

The AAL Equity Income Fund seeks  current  income,  long-term  income growth and
capital   growth  by  investing   primarily  in  a   diversified   portfolio  of
income-producing equity securities.  By "income-producing equity securities," we
mean equity securities,  including  securities  exchangeable or convertible into
equity  securities,  that offer dividend yields that exceed the average dividend
yields on stocks comprising the S&P 500(R).

Investment Policies

Under normal circumstances, we invest at least 65% of the Fund's total assets in
income-producing  equity  securities.  We may invest the remainder of the Fund's
total  assets,  in whole  or in  part,  in  additional  income-producing  equity
securities, bonds and commercial paper.

In selecting  equity  securities  for the Fund, we look for companies  that: (1)
have a good growth rate and return on capital;  (2) have  favorable  aspects for
future growth and dividends;  (3) are financially  sound; (4) have  high-quality
management; and (5) are in a favorable competitive environment.

We buy bonds, including convertible  securities,  if, at the time of purchase at
least two NRSROs  have rated them  investment  grade;  or, if  unrated,  we have
determined them to be of investment  grade. We may invest up to 5% of the Fund's
total assets in such securities rated below investment  grade. We buy commercial
paper rated in the top two categories by an NRSRO. We may buy unrated commercial
paper, if we determine the commercial paper is investment grade.

Although we do not intend to do so at this time,  we may invest up to 15% of the
Fund's net assets in  securities  located  outside  the United  States.  Without
regard to the 15% limitation,  we may invest in foreign securities  domestically
through depository  receipts (i.e.,  American  Depository Receipts ("ADRs")) and
securities of foreign issuers traded on a U.S. national  securities  exchange or
the NASDAQ National Market System.

We expect to realize  income from  dividends  earned on equity  investments  and
interest earned on debt securities.  We seek capital  appreciation by attempting
to select  income-producing  equity  securities that we believe are under-priced
relative to the securities of companies with comparable fundamentals.

Annual Advisory Fee

     0.50 of 1% on the first $250 million

     0.45 of 1% on average daily net 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 Risks Involved

Although we intend to diversify the Fund's investments in securities across many
different  industries,  income-producing  equity  securities  tend  to  be  more
prevalent  in some market  sectors  than others.  The higher  dividend  yielding
securities  included  in the S&P  500(R)  are found  primarily  in the  services
(communications and retail), energy, utilities,  financial services and consumer
noncyclical and cyclical market  sectors.  Accordingly,  our investments for the
Fund may tend to emphasize certain market sectors more than others.

Financial   Risk:  The  market   sectors  in  which   companies  tend  to  issue
income-producing  equity  securities  usually have high operating,  interest and
other regulatory expenses, such as the public utilities industry.  Also, some of
these sectors are maturing,  meaning that growth is peaking.  Companies in these
market sectors often use their profits for paying higher  dividends  rather than
reinvesting for company growth. As a result,  income-producing equity securities
typically  have lower capital growth  potential than equity  securities in other
sectors.  Capital growth for many  income-producing  equity securities typically
corresponds to the company's  competitive position, in particular its capability
to capture market share from its competitors.

Interest Rate Risk:  Like bonds,  changes in the level of interest  rates affect
the value of  income-producing  equity securities and the value of the Fund as a
whole.

Market Risk:  Market cycles affect all equity securities over time, with periods
when  stock  prices  rise  generally  and  periods  when  stock  prices  decline
generally.  However,  income-producing  equity securities may rise less and fall
less than the market as a whole because of the higher income  component of these
securities. You still could lose money investing in the Fund.

Transitional Restructuring of Investment Portfolio

As of September 1, 1997, the Fund seeks to achieve its objective by investing in
income-producing  equity  securities in a variety of  industries  rather than by
concentrating investments in the public utilities industry. Over a period of six
months to one year  from  September  1,  1997,  we plan to sell  some  utilities
positions in favor of non-utilities positions to reduce the Fund's concentration
in, and exposure to, the utilities industry. This gradual reduction in the level
of  concentration  in  utilities  will give us the  flexibility  to  spread  the
recognition  of capital gains over more than one tax year, if it is desirable to
do so.  Because  companies in the utilities  industry still tend to offer higher
dividends  on their  equity  securities  than  companies  in  other  industries,
reducing our concentration in this industry may reduce the dividend yield on the
Fund, and therefore current income in the short term.

For information on risks associated with  concentrating in utilities  securities
during the transitional  period,  please see "Additional  Investment Factors and
Risks Regarding the Funds."

<PAGE>

Expense Summaries and Example

The following  expense  summaries and example should assist you in understanding
the various recurring and  non-recurring  costs and expenses you may directly or
indirectly incur with your investment in The AAL Equity Income Fund.

            Shareholder Transaction Expenses

Shareholder transaction expenses are charges you pay when you buy or sell shares
of the Fund.  For Class A shares,  we based  expenses  on the  maximum  4% sales
charge, which is reduced on purchases of $25,000 or more. For Class B shares, we
based  expenses on the maximum 5% contingent  deferred  sales  charge,  which is
reduced by 1% for each year owned.


Shareholder Transaction Expenses                      Class A           Class B

Maximum sales charge imposed on purchases (as a          4%               None
percentage of offering price)

Maximum sales charge imposed on reinvested              None              None
dividends (as a percentage of net asset value)

Maximum deferred sales charge (as a percentage          None               5%
of net asset value)

Redemption  fee (The  Funds  currently  charge          None              None  
$12.00  for each wire redemption.)

Exchange fee                                            None              None

Total                                                    4%                5%

            Annual Fund Operating Expenses

The following  table reflects  annual  operating  expenses paid by the Fund. The
annual operating  expenses  include a management fee paid to the Adviser,  12b-1
distribution  and service fees and other  expenses for  maintaining  shareholder
records and furnishing  shareholder services,  statements and financial reports.
Operating  expenses are  expressed as a percentage of average net assets for the
fiscal year ended April 30, 1997

Annual Fund Operating Expenses (as a percentage of       Class A      Class B
average net assets)

Management fee                                            .50%          .50%

12b-1 distribution and service fees                       .25%         1.00%

Other expenses                                            .40%          .49%

Total Fund Operating Expenses                             1.15%        1.99%

            Expense Example

<PAGE>

The following  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.


Expense Example           Class A         Class B       Class B No Redemption

After 1 year                $51             $70                  $20

After 3 years               $76             $93                  $63

After 5 years              $102             $109                $109

After 10 years             $177             N/A*                N/A*

*Class B shares convert into Class A shares after five years.
You should use the expense  example for  comparison  purposes  only. It does not
represent the Fund's actual expenses and returns,  either past or future. Actual
expenses may be greater or less than those shown.

Financial Highlights

The financial highlights table covers The AAL Equity Income Fund for the periods
shown.  The  information  presented 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 the Funds' independent  accountants,  Price Waterhouse LLP.
At your request,  we will provide you,  without charge, a copy of The AAL Mutual
Funds Annual Report, dated April 30, 1997, containing these financial statements
and a more detailed discussion and analysis of the Fund's performance.


<PAGE>
<TABLE>


                  INCOME FROM INVESTMENT                               LESS DISTRIBUTIONS                    
                  OPERATIONS 

                 NAV:     Net           Net          Total from    Dividends    Distribution     Total        
                 Start    Investment    Realized     Investment    from Net     from Net         Dividends    
                 of       Income        and Un-      Operations    Investment   Realized         and          
                 Period   (Loss)        realized                   Income       Gain on          Distributions
                                        Gain(Loss)                              on Investments   
<CAPTION>
<S>              <C>      <C>           <C>          <C>           <C>          <C>              <C>
Class A shares

Period From
18-Mar-94 to
30-Apr-94        $10.00   $0.022        $(0.072)     $(0.050)      $ 0.000      $ 0.000          $ 0.000
Years Ended
30 Apr-95          9.95    0.338         (0.498)      (0.160)       (0.320)       0.000           (0.320)
30-Apr-96          9.47    0.360          1.420        1.780        (0.350)       0.000           (0.350)
30-Apr-97         10.90    0.390          0.455        0.845        (0.405)       0.000           (0.405)

Class B shares

Period From
08-Jan-97 to
30-Apr-97        $11.40   $0.051        $(0.056)     $(0.005)      $(0.025)     $ 0.000          $(0.025)

                                                                        SUPPLEMENTAL DATA
                                                                        AND RATIOS

                 NAV:         Total     Net Assets        Ratio of      Ratio of         Portfolio    Average   
                 End of       Return    at End of         Net           Net              Turnover     Commission
                 Period       for       Period            Operating     Investment       Rate         Paid per  
                              Period                      Expenses      Income(Loss)                  Share     
                              (1)                         to Average    to Average       
                                                          Net Assets*   Net Assets* 
                                                          (2)           (2)   
Class A shares

Period From
18-Mar-94 to
30-Apr-94        $  9.95      (0.50)%   $  15,423,861     1.60%         5.12%            0.00%        $ --
Years Ended
30 Apr-95           9.47      (1.51)       70,861,404     1.19          4.08             24.65          --
30-Apr-96          10.90       18.90      114,460,386     1.20          3.58             21.79        0.056
30-Apr-97          11.34       7.88       134,196,399     1.15          3.57             5.14         0.060

Class B shares

Period From
08-Jan-97 to
30-Apr-97        $ 11.37      (0.04)%   $     494,969     1.99%         2.36%            5.14%        $ 0.060
</TABLE>


*If the Fund had paid all of its  expenses  for Class A and Class B shares,  the
ratios would be as follows:

     Class A shares - Ratio of net operating expenses to average net assets (2):
     2.91%, 1.19%, 1.20% and 1.15%.
            
     Class B shares - Ratio of net operating expenses to average net assets (2):
     1.99%.

     Class A shares - Ratio of net  investment  income  (loss)  to  average  net
     assets (2): 3.81%, 4.08%, 3.58% and 3.57%.

     Class B shares - Ratio of net  investment  income  (loss)  to  average  net
     assets (2): 2.36%.

(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) to average
     net assets are calculated on an annualized basis.


<PAGE>


   
THE AAL BALANCED FUND

Investment Objective

The AAL Balanced Fund seeks  long-term  total return  through a balance  between
income and the potential for long-term capital growth by investing  primarily in
a diversified portfolio of common stocks, bonds and money market instruments. We
will select these investments consistent with the investment policies of The AAL
Capital Growth, Bond and Money Market Funds, respectively.

Investment Policies

Under  normal  circumstances,  we invest 50 to 60% of the Fund's total assets in
common stocks, 30 to 40% in fixed-income securities and 0 to 20% in money market
instruments.  We will,  however,  at all times maintain an investment mix within
the following ranges: (1) 35 to 75% common stocks; (2) 25 to 50% in fixed-income
securities; and (3) 0 to 40% in money market instruments.

We select  investments  for The AAL Balanced Fund in the following  three market
sectors:

1)   common  stocks,  including the  securities in which The AAL Capital  Growth
     Fund may invest;

2)   bonds and other debt  securities with  maturities  generally  exceeding one
     year, including securities in which The AAL Bond Fund may invest; and

3)   money  market   instruments  and  other  debt  securities  with  maturities
     generally not exceeding 397 days, including the securities in which The AAL
     Money Market Fund may invest.

We will make Fund investments in: (1) stocks within the investment parameters of
The AAL Capital Growth Fund;  (2) bonds within the investment  parameters of The
AAL Bond Fund; and (3) money market instruments within the investment parameters
of The AAL Money Market Fund.

We  periodically  review and adjust the mix of  investments  among three  market
sectors  to  capitalize  on  potential  variations  in returns  produced  by the
interaction of changing  financial markets and economic  conditions.  Changes in
the  investment  mix may occur several times within a year or over several years
depending upon market and economic conditions.

Annual Advisory Fee

       0.60 of 1% on average daily net assets.

<PAGE>

Portfolio Managers

Frederick L. Plautz, manager of The AAL Capital Growth Fund and Michael R. Hilt,
Manager of The AAL Bond and Money Market Funds, will serve as co-managers of the
Fund.

Investment Factors and Risks Involved

            Stock Investments

Financial Risk: Many factors affect an individual company's performance, such as
management  or the demand for a  company's  products  or  services  and  company
performance affects the value of stocks in the Fund's portfolio.

     Market Risk:  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 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). Since we invest
35 to 75% of the Fund's assets in stocks,  fluctuating  stock prices will have a
significant  impact on the Fund's  value (the price of the Fund's  shares).  You
could lose money investing in the Fund.

           Bond and Money Market Instrument Investments

Interest  Rate Risk:  Changes in interest  rate  levels  affect the value of the
bonds and money market instruments in the portfolio and the value of the Fund as
a whole.

Credit Risk: The creditworthiness of bond issuers will affect the value of their
bonds and money market instruments,  which may decline during the Fund's holding
periods and affect the value of the Fund as a whole.

           Asset Allocation

We may  shift  the  portfolio's  asset mix of  stocks,  bonds  and money  market
instruments based on existing or anticipated market conditions.  The returns you
receive will depend on how we have allocated the Fund's investments across these
asset  categories.  As the  allocation  fluctuates  over time your  returns will
fluctuate as well.

The Fund seeks total return,  consisting of both capital  appreciation,  current
income and long-term income growth,  by following an asset allocation  strategy.
The  Fund,  however,  may  not  achieve  as  high  a  level  of  either  capital
appreciation  or  income  as a Fund  that has  only  one of  these as a  primary
objective.

Expense Summaries and Example

The following  expense  summaries and example should assist you in understanding
the various recurring and  non-recurring  costs and expenses you may directly or
indirectly incur with your investment in The AAL Balanced Fund.

<PAGE>

Shareholder Transaction Expenses

Shareholder transaction expenses are charges you pay when you buy or sell shares
of the Fund.  For Class A shares,  we based  expenses  on the  maximum  4% sales
charge, which is reduced on purchases of $25,000 or more. For Class B shares, we
based  expenses on the maximum 5% contingent  deferred  sales  charge,  which is
reduced by 1% for each year owned.
    

   
Shareholder Transaction Expenses                          Class A       Class B

Maximum sales charge imposed on purchases (as a              4%           None
percentage of offering price)

Maximum sales charge imposed on reinvested                  None          None
dividends (as a percentage of net asset value)

Maximum deferred sales charge (as a percentage              None           5%
of net asset value)

Redemption  fee (The  Funds  currently  charge              None          None  
$12.00  for each wire redemption.)

Exchange fee                                                None          None

Total                                                        4%            5%
    

   
            Annual Fund Operating Expenses

The following  table reflects an estimate of the annual  operating  expenses the
Fund will pay. The annual  operating  expenses  include a management fee paid to
the  Adviser,  12b-1  distribution  and  service  fees and  other  expenses  for
maintaining shareholder records and furnishing shareholder services,  statements
and  financial  reports.  Operating  expenses are  expressed as a percentage  of
average net assets and includes the Adviser's  reimbursements or use of expenses
to maintain "Total Fund Operating Expenses" at 1.25% and 2.00% or less for Class
A  and  Class  B  shares,  respectively.  Without  reimbursements,  "Total  Fund
Operating  Expenses"  are  estimated  to be 1.50%  and 2.48%  respectively.  The
Adviser may modify or stop reimbursements at any time.
    


   
Annual Fund Operating Expenses (as a percentage of       Class A       Class B
average net assets)

Management fee                                            .60%           .60%

12b-1 distribution and service fees                       .25%          1.00%

Other expenses                                            .40%           .40%

Total Fund Operating Expenses                            1.25%          2.00%
    

Expense Example

The following  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.

Expense Example          Class A        Class B        Class B No Redemption

After 1 year               $60            $78                  $28

After 3 years              $101           $118                 $88

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


<PAGE>


THE AAL BOND FUND

Investment Objective

The AAL Bond Fund seeks a high level of current income,  consistent with capital
preservation  by investing  primarily in a  diversified  portfolio of investment
grade bonds.

Investment Policies

Under  normal  circumstances,  we invest at least 65% of the Fund's total assets
in:

(1)  bonds of U.S. and foreign issuers payable in U.S.  dollars rated within the
     four  highest  rating  categories  by at least  two  NRSROs  at the time of
     purchase; and

(2)  bonds or other 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 invest the  remaining  35% of the Fund's total  assets in: (1)  privately
issued or guaranteed  mortgage-related  securities rated within the four highest
categories by at least two NRSROs or unrated mortgage-related  securities, if we
determine at the time of purchase  these  securities  have credit equal to these
ratings;  (2) commercial  paper in the highest rating  category by an NRSRO,  or
commercial  paper issued or guaranteed by a corporation who has outstanding debt
rated 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,  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 we have no  restrictions  on the maturity of the debt securities in the
portfolio,  generally  we  maintain 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

     0.50 of 1% on the first $250 million
           
     0.45 of 1% on average daily net assets over $250 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. Mr. Hilt also manages The AAL Money
Market Fund.

Investment Factors and Risks Involved

Interest  Rate Risk:  Changes in interest  rate  levels  affect the value of the
bonds in the portfolio and the value of the Fund as a whole. 

Credit Risk: The creditworthiness of bond issuers will affect the value of their
bonds,  which may decline during the Fund's holding periods and affect the value
of the Fund as a whole.

Expense Summaries and Example

The following  expense  summaries and example should assist you in understanding
the various recurring and  non-recurring  costs and expenses you may directly or
indirectly incur with your investment in The AAL Bond Fund.

            Shareholder Transaction Expenses

Shareholder transaction expenses are charges you pay when you buy or sell shares
of the Fund.  For Class A shares,  we based  expenses  on the  maximum  4% sales
charge, which is reduced on purchases of $25,000 or more. For Class B shares, we
based  expenses on the maximum 5% contingent  deferred  sales  charge,  which is
reduced by 1% for each year owned.


Shareholder Transaction Expenses                         Class A      Class B

Maximum sales charge imposed on purchases (as a             4%          None
percentage of offering price)

Maximum sales charge imposed on reinvested                 None         None
dividends (as a percentage of net asset value)

Maximum deferred sales charge (as a percentage             None          5%
of net asset value)

Redemption  fee (The  Funds  currently  charge             None         None  
$12.00  for each wire redemption.)

Exchange fee                                               None         None

Total                                                       4%           5%

<PAGE>

            Annual Fund Operating Expenses
   
     The following table reflects an estimate of annual operating  expenses paid
by the Fund. The annual operating  expenses include a management fee paid to the
Adviser,  12b-1 distribution and service fees and other expenses for maintaining
shareholder  records  and  furnishing   shareholder  services,   statements  and
financial  reports.  On September 1, 1997,  we reduced the advisory fees on this
Fund,  therefore  operating  expenses are  estimated  based on a  percentage  of
average net assets for the fiscal year ended April 30, 1997.
    



Annual Fund Operating Expenses (as a percentage of        Class A       Class B
average net assets)

Management fee                                             .48%           .48%

12b-1 distribution and service fees                        .25%          1.00%

Other expenses                                             .20%           .33%
                                                           .93%
 Total Fund Operating Expenses                                           1.81%


            Expense Example

The following  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.


Expense Example           Class A          Class B         Class B No Redemption

After 1 year                $49              $69                    $19

After 3 years               $69              $88                    $58

After 5 years               $90              $100                  $100

After 10 years             $152              N/A*                  N/A*

* Class B shares convert into Class A shares after five years.
You should use the expense  example for  comparison  purposes  only. It does not
represent the Fund's actual expenses and returns,  either past or future. Actual
expenses may be greater or less than those shown.

Financial Highlights

The financial  highlights  table covers The AAL Bond Fund for the periods shown.
The information presented 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 the Funds'  independent  accountants,  Price  Waterhouse LLP. At your
request,  we will provide you,  without  charge,  a copy of The AAL Mutual Funds
Annual Report, dated April 30, 1997, containing these financial statements and a
more detailed discussion and analysis of the Fund's performance.


<PAGE>
<TABLE>

                  INCOME FROM INVESTMENT                               LESS DISTRIBUTIONS                         
                  OPERATIONS 

                 NAV:     Net           Net          Total from    Dividends    Distribution     Total        
                 Start    Investment    Realized     Investment    from Net     from Net         Dividends    
                 of       Income        and Un-      Operations    Investment   Realized         and          
                 Period   (Loss)        realized                   Income       Gain on          Distributions
                                        Gain(Loss)                              on Investments   
<CAPTION>
<S>              <C>      <C>           <C>          <C>           <C>          <C>              <C>
Class A shares

Period Ended
16-Jul-87
30-Apr-88        $10.00   $0.602        $(0.360)     $ 0.242       $(0.602)     $ 0.000          $(0.602)
Years Ended                                                                                      
30-Apr-89          9.64    0.826        (0.255)        0.571        (0.826)      (0.055)          (0.881)
30-Apr-90          9.33    0.806        (0.080)        0.726        (0.806)       0.000           (0.806)
30-Apr-91          9.25    0.772         0.510         1.282        (0.772)       0.000           (0.772)
30-Apr-92          9.76    0.721         0.273         0.994        (0.721)      (0.013)          (0.734)
30-Apr-93         10.02    0.661         0.627         1.288        (0.661)      (0.037)          (0.698)
30-Apr-94         10.61    0.584        (0.660)       (0.076)       (0.584)      (0.260)          (0.844)
30-Apr-95          9.69    0.580        (0.078)        0.502        (0.580)      (0.002)          (0.582)
30-Apr-96          9.61    0.584         0.010         0.594        (0.584)       0.000           (0.584)
30-Apr-97          9.62    0.595         0.010         0.605        (0.595)       0.000           (0.595)
                                                                                              
Class B shares                                                                                
                                                                                              
Period Ended                                                                                  
08-Jan-97 to                                                                                  
30-Apr-97        $ 9.71   $0.175        $(0.070)     $ 0.105       $(0.175)     $ 0.000          $(0.175)        
                                                                                                    
                                                                        
                                                                        SUPPLEMENTAL DATA
                                                                        AND RATIOS

                 NAV:         Total     Net Assets        Ratio of      Ratio of         Portfolio    
                 End of       Return    at End of         Net           Net              Turnover     
                 Period       for       Period            Operating     Investment       Rate         
                              Period                      Expenses      Income(Loss)                  
                              (1)                         to Average    to Average       
                                                          Net Assets*   Net Assets* 
                                                          (2)           (2) 
                                                  
Class A shares

Period Ended
16-Jul-87
30-Apr-88        $  9.64       2.56%    $  20,938,863     0.75%         8.67%             85.88%      
Years Ended                                                                             
30-Apr-89           9.33       6.21        54,006,123     0.83          8.86              54.49
30-Apr-90           9.25       7.84        94,937,997     0.98          8.38              38.00
30-Apr-91           9.76      14.34       139,228,954     1.00          8.06               6.39
30-Apr-92          10.02      10.47       229,309,955     1.03          7.19              12.18       
30-Apr-93          10.61      13.22       370,219,492     1.03          6.35              26.12
30-Apr-94           9.69      (0.99)      442,962,543     1.02          5.61              27.75
30-Apr-95           9.61       5.47       429,355,163     1.03          6.12              44.57       
30-Apr-96           9.62       6.18       430,846,686     1.01          5.89             125.77
30-Apr-97           9.63       6.43       389,342,652     0.98          6.10             212.49
                                                                                     
Class B shares
             
Period Ended
08-Jan-97 to
30-Apr-97        $  9.64      0.96%     $     390,959     1.86%         5.51%            212.49%
</TABLE>
            

*If the Fund had paid all of its  expenses  for Class A and Class B shares,  the
ratios would be as follows:

     Class A shares - 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 .98%.
          
     Class B shares - Ratio of net operating expenses to average net assets (2):
     1.86%.
           
     Class A shares - 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 6.10%.
            
     Class B shares - Ratio of net  investment  income  (loss)  to  average  net
     assets (2): 5.51%.

(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) to average
     net assets 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  exempt from
federal  income  taxes,   consistent  with  capital  preservation  by  investing
primarily in a diversified portfolio of municipal securities.

Investment Policies

Under normal  circumstances,  we invest at least 80% of the Fund's net assets in
municipal  bonds where the income is exempt from federal  income tax. Of the 80%
invested  in  municipal  bonds,  we invest  at least 75% of them in bonds  rated
within the three highest rating categories assigned by at least one NRSRO at the
time of purchase.

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 specific projects or public facilities. A
municipality may issue municipal bonds 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).

Federal law generally  exempts the interest paid on municipal bonds from federal
income taxes.

We may invest 25% or more of the Fund's total assets in  industrial  development
bonds.  The Fund  tries  not to  invest  more  than 25% of its  total  assets in
municipal  bonds that are so  closely  related  that an  economic,  business  or
political development affecting one bond could also affect the others.

We may purchase certain  tax-exempt  bonds that involve a private  purpose.  The
interest paid on these  private  activity  bonds are subject to the  alternative
minimum tax ("AMT  paper").  We limit our  purchases  of AMT paper to 25% of the
Fund's total assets.

Annual Advisory Fee

          0.50 of 1% on the first $250 million
          0.45 of 1% on average daily net assets over $250 million.

Portfolio Manager

Duane A.  McAllister,  CFA, has managed the day-to-day  Fund  investments  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 before managing the Fund, Mr.
McAllister  managed portfolios for the Northern Trust Company and First National
Bank and Trust in Rockford, Illinois.

<PAGE>

Investment Factors and Risks Involved

Interest  Rate Risk:  Changes in interest  rate  levels  affect the value of the
bonds in the portfolio and the value of the Fund as a whole.

Credit Risk: The creditworthiness of bond issuers will affect the value of their
bond,  which may decline during the Fund's holding  periods and affect the value
of the Fund as a whole.

Tax Rates:  Changes in  federal  income tax rates may affect  both the net asset
value and the Fund's taxable equivalent interest.

Expense Summaries and Example

The following  expense  summaries and example should assist you in understanding
the various recurring and  non-recurring  costs and expenses you may directly or
indirectly incur with your investment in The AAL Municipal Bond Fund.

            Shareholder Transaction Expenses

Shareholder  transaction expenses are charges you pay when you buy, sell or hold
shares of the Fund.  For Class A shares,  we based  expenses  on the  maximum 4%
sales  charge,  which is reduced on  purchases  of $25,000 or more.  For Class B
shares,  we based  expenses on the maximum 5% contingent  deferred sales charge,
which is reduced by 1% for each year owned.


Shareholder Transaction Expenses                      Class A        Class B

Maximum sales charge imposed on purchases (as a          4%            None
percentage of offering price)

Maximum sales charge imposed on reinvested              None           None
dividends (as a percentage of net asset value)

Maximum deferred sales charge (as a percentage          None            5%
of net asset value)

Redemption  fee (The  Funds  currently  charge          None           None  
$12.00  for each wire redemption.)

Exchange fee                                            None           None

Total                                                    4%             5%

<PAGE>

            Annual Fund Operating Expenses

   
The following  table reflects an estimate of annual  operating  expenses paid by
the Fund.  The annual  operating  expenses  include a management fee paid to the
Adviser,  12b-1 distribution and service fees and other expenses for maintaining
shareholder  records  and  furnishing   shareholder  services,   statements  and
financial  reports.  On September 1, 1997,  we reduced the advisory fees on this
Fund,  therefore  operating  expenses are  estimated  based on a  percentage  of
average net assets for the fiscal year ended April 30, 1997.
    


Annual Fund Operating Expenses (as a percentage of       Class A       Class B
average net assets)

Management fee                                            .46%           .46%

12b-1 distribution and service fees                       .25%          1.00%

Other expenses                                            .13%           .18%

Total Fund Operating Expenses                             .84%          1.64%

            Expense Example

The following  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.


Expense Example           Class A           Class B       Class B No Redemption

After 1 year                $48               $67                  $17

After 3 years               $66               $83                  $53

After 5 years               $86               $91                  $91

After 10 years             $141               N/A*                N/A*

*Class B shares convert into Class A shares after five years.
You should use the expense  example for  comparison  purposes  only. It does not
represent the Fund's actual expenses and returns,  either past or future. Actual
expenses may be greater or less than those shown.

Financial Highlights

The  financial  highlights  table  covers  The AAL  Municipal  Bond Fund for the
periods  shown.  The  information  presented  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 the Funds' independent accountants,  Price Waterhouse
LLP. At your request,  we will provide you,  without  charge,  a copy of The AAL
Mutual Funds Annual Report,  dated April 30, 1997,  containing  these  financial
statements   and  a  more  detailed   discussion  and  analysis  of  the  Fund's
performance.


<PAGE>

<TABLE>
                 INCOME FROM INVESTMENT                               LESS DISTRIBUTIONS                         
                  OPERATIONS 

                 NAV:     Net           Net          Total from    Dividends    Distribution     Total        
                 Start    Investment    Realized     Investment    from Net     from Net         Dividends    
                 of       Income        and Un-      Operations    Investment   Realized         and          
                 Period   (Loss)        realized                   Income       Gain on          Distributions
                                        Gain(Loss)                              on Investments 
<CAPTION>
<S>              <C>      <C>           <C>          <C>           <C>          <C>              <C>
Class A shares

Period From
16-Jul-87 to
30-Apr-88        $10.00   $0.398        $(0.280)     $ 0.118       $(0.398)     $ 0.000          $(0.398)
Years Ended                                                                                      
30-Apr-89          9.72    0.599         0.020         0.619        (0.599)       0.000           (0.599)
30-Apr-90          9.74    0.608        (0.035)        0.573        (0.608)      (0.005)          (0.613)
30-Apr-91          9.70    0.616         0.434         1.050        (0.616)      (0.004)          (0.620)
30-Apr-92         10.13    0.598         0.234         0.832        (0.598)      (0.004)          (0.602)
30-Apr-93         10.36    0.571         0.631         1.202        (0.571)      (0.001)          (0.572)
30-Apr-94         10.99    0.539        (0.410)        0.129        (0.539)      (0.020)          (0.559)
30-Apr-95         10.56    0.523         0.186         0.709        (0.523)      (0.056)          (0.579)
30-Apr-96         10.69    0.521         0.300         0.821        (0.521)      (0.080)          (0.601)
30-Apr-97         10.91    0.521         0.194         0.715        (0.521)      (0.184)          (0.705)
                                                                                                
Class B shares                         
                                   
Period From
08-Jan-97 to
30-Apr-97        $11.02   $0.147        $(0.010)     $ 0.137       $(0.147)     $ 0.000          $(0.147)
                                    
                                    
                                                                        SUPPLEMENTAL DATA
                                                                        AND RATIOS

                 NAV:         Total     Net Assets        Ratio of      Ratio of         Portfolio    
                 End of       Return    at End of         Net           Net              Turnover     
                 Period       for       Period            Operating     Investment       Rate         
                              Period                      Expenses      Income(Loss)                  
                              (1)                         to Average    to Average       
                                                          Net Assets*   Net Assets* 
                                                          (2)           (2)
Class A shares

Period From
16-Jul-87 to
30-Apr-88        $  9.72       1.29%    $  10,031,478     1.50%         5.72%             20.83%      
Years Ended                                                                            
30-Apr-89           9.74       6.53        41,217,475     0.94          6.30              29.24
30-Apr-90           9.70       5.93        78,844,594     0.90          6.13              30.83
30-Apr-91          10.13      11.12       114,953,939     0.90          6.21              13.63       
30-Apr-92          10.36       8.39       172,494,589     0.95          5.81               0.74
30-Apr-93          10.99      11.84       271,319,546     1.00          5.32               3.41
30-Apr-94          10.56       1.04       370,568,847     0.99          4.87              10.15
30-Apr-95          10.69       7.01       377,765,861     0.98          5.01             172.49
30-Apr-96          10.91       7.74       412,777,320     0.95          4.69             130.52
30-Apr-97          10.92       6.64       421,668,316     0.89          4.69             119.79
                                                                                    
Class B shares                                                                  
                                                                                
Period From                                                                     
08-Jan-97 to                                                                    
30-Apr-97        $ 10.92      0.34%     $     764,783     1.69%         4.09%            119.79%
</TABLE>
                                                                                
                                                                                
*If the Fund had paid all of its  expenses  for Class A and Class B shares,  the
ratios would be as follows:                                                     
                                                                               
     Class A shares - 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%.
            
     Class B shares - Ratio of net operating  expenses to average net assets (2)
     1.69%.
            
     Class A shares - 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 4.69%.
            
     Class B shares - Ratio of net  investment  expenses  to average  net assets
     (2): 4.09%.

(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) to average
     net assets 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 a  diversified  portfolio of high risk,  high
yield bonds  commonly  referred to as "junk bonds." The Fund  actively  seeks to
achieve the secondary objective of capital growth to the extent it is consistent
with the primary objective of high current income.

Investment Policies

Under normal circumstances, we invest at least 65% of the Fund's total assets in
high yield  bonds.  By high yield  bonds,  we mean debt  securities  rated below
investment grade by a 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 invest the  remaining 35% of the Fund's total assets in any  combination  of:
(1)  additional  high yield bonds;  (2) investment  grade bonds;  (3) common and
preferred stocks (including  structured  preferred  stocks);  and (4) securities
issued or guaranteed by the U.S.  government,  its agencies or instrumentalities
("U.S. Government Obligations").

We may invest up to 20% of the Fund's 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 perform our own credit analysis. 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 have restrictions on the rating level of the
securities  in the Fund's  portfolio  and may  purchase and hold  securities  in
default.

Annual Advisory Fee

     0.60 of 1% on average daily net assets.

Portfolio Manager

Dave  Carroll,  CFA,  has  managed the  day-to-day  Fund  investments  since its
inception  on January  8,  1997.  Prior to  managing  the Fund,  he served as an
analyst and trader for Cargill Financial Services from January through September
1996.  From 1986 to August 1995 he was a second  vice  president  and  portfolio
manager for Fortis Advisers, Inc.

<PAGE>

Investment Factors and Risks Involved

Interest  Rate Risk:  Changes in interest  rate  levels  affect the value of the
bonds in the portfolio and the value of the Fund as a whole. 

Credit  Risk:  The primary  risk of  investing  in the high yield  sector is the
credit risk.  Bonds rated below  investment  grade have greater risks of default
than investment grade bonds and, may in fact, be in default

Market Risk: 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 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 the past,  Congress has  attempted  restricting  the
advantages of high yield bonds and similar attempts could occur in the future.

The monthly weighted average  composition of the Fund's portfolio for the period
from  inception on January 8, 1997,  through the end of the fiscal year on April
30, 1997, was:


Investment grade                                 Percentage of Portfolio

BB                                               25.0%

B                                                73.0%

CCC                                               1.0%

CC                                                  0%

C                                                   0%

D                                                   0%

Non-rated                                         1.0%

Subtotal                                          100%

U.S. governments, equities and others               0%

Total                                             100%

<PAGE>

Expense Summaries and Example

The following  expense  summaries and example should assist you in understanding
the various recurring and  non-recurring  costs and expenses you may directly or
indirectly incur with your investment in the Fund.

            Shareholder Transaction Expenses

Shareholder transaction expenses are charges you pay when you buy or sell shares
of the Fund.  For Class A shares,  we based  expenses  on the  maximum  4% sales
charge, which is reduced on purchases of $25,000 or more. For Class B shares, we
based  expenses on the maximum 5% contingent  deferred  sales  charge,  which is
reduced by 1% for each year owned.


Shareholder Transaction Expenses                       Class A      Class B

Maximum sales charge imposed on purchases (as a           4%          None
percentage of offering price)

Maximum sales charge imposed on reinvested               None         None
dividends (as a percentage of net asset value)

Maximum deferred sales charge (as a percentage           None          5%
of net asset value)

Redemption  fee (The  Funds  currently  charge           None         None  
$12.00  for each wire redemption.)

Exchange fee                                             None         None

Total                                                     4%           5%

            Annual Fund Operating Expenses

   
The following  table reflects  annual  operating  expenses paid by the Fund. The
annual operating  expenses  include a management fee paid to the Adviser,  12b-1
distribution  and service fees and other  expenses for  maintaining  shareholder
records and furnishing  shareholder services,  statements and financial reports.
Operating  expenses are  expressed as a percentage of average net assets for the
fiscal year ended April 30, 1997,  and include the  Adviser's  reimbursement  of
expenses to maintain  Total Fund  Operating  Expenses at 1.00% and 1.75% or less
for Class A and B shares,  respectively.  Percentages shown for "Other Expenses"
are  based  on  amounts   incurred   in  the  prior   fiscal   year,   including
reimbursements.   For  the  fiscal   year   ended   April  30,   1997,   without
reimbursements,  "Other Expenses" were .43% and .40%, respectively, resulting in
"Total Fund Operating  Expenses" of 1.28% and 2.00%,  respectively.  The Adviser
may modify or stop reimbursements at any time.
    

<PAGE>


Annual Fund Operating Expenses (as a percentage of        Class A       Class B
average net assets)

Management fee                                             .60%           .60%

12b-1 distribution and service fees                        .25%          1.00%

Other expenses                                             .15%           .15%

Total Fund Operating Expenses                              1.00%         1.75%

            Expense Example

The following  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.


Expense Example            Class A         Class B         Class B No Redemption

After 1 year                 $50             $68                    $18

After 3 years                $71             $86                    $56

After 5 years                $94             $96                    $96

After 10 years              $160             N/A*                  N/A*

*Class B shares convert into Class A shares after five years.
You should use the expense  example for  comparison  purposes  only. It does not
represent the Fund's actual expenses and returns,  either past or future. Actual
expenses may be greater or less than those shown.

Financial Highlights

The  financial  highlights  table  covers  The AAL High  Yield Bond Fund for the
periods  shown.  The  information  presented  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 the Funds' independent accountants,  Price Waterhouse
LLP. At your request,  we will provide you,  without  charge,  a copy of The AAL
Mutual Funds Annual Report,  dated April 30, 1997,  containing  these  financial
statements   and  a  more  detailed   discussion  and  analysis  of  the  Fund's
performance.


<PAGE>

<TABLE>
                 INCOME FROM INVESTMENT                               LESS DISTRIBUTIONS                         
                  OPERATIONS 

                 NAV:     Net           Net          Total from    Dividends    Distribution     Total        
                 Start    Investment    Realized     Investment    from Net     from Net         Dividends    
                 of       Income        and Un-      Operations    Investment   Realized         and          
                 Period   (Loss)        realized                   Income       Gain on          Distributions
                                        Gain(Loss)                              on Investments 

<CAPTION>
<S>              <C>      <C>           <C>          <C>           <C>          <C>              <C>
Class A shares

Period From
08-Jan-97
30-Apr-97        $10.00   $0.270        $(0.120)     $ 0.150       $(0.270)     $ 0.000          $(0.270)

Class B shares

Period From
08-Jan-97 to
30-Apr-97        $10.00   $0.251        $(0.120)     $ 0.131       $(0.251)     $ 0.000          $(0.251)


                                                                        SUPPLEMENTAL DATA
                                                                        AND RATIOS

                 NAV:         Total     Net Assets        Ratio of      Ratio of         Portfolio    
                 End of       Return    at End of         Net           Net              Turnover     
                 Period       for       Period            Operating     Investment       Rate         
                              Period                      Expenses      Income(Loss)                  
                              (1)                         to Average    to Average       
                                                          Net Assets*   Net Assets* 
                                                          (2)           (2)
Class A shares

Period From
08-Jan-97
30-Apr-97        $  9.88      1.51%     $  44,680,637     1.00%         9.11%            36.90%     

Class B shares

Period From
08-Jan-97 to
30-Apr-97        $  9.88      1.31%     $   2,660,309     1.75%         8.66%            36.90%     
</TABLE>

* If the Fund had paid all of its expenses  for Class A and Class B shares,  the
  ratios would be as follows:

     Class A shares - ratio of net operating expenses to average net assets (2):
     1.28%.
 
     Class B shares - ratio of net operating expenses to average net assets (2):
     2.00%.
           
     Class A shares - ratio of net  investment  income  (loss)  to  average  net
     assets (2): 8.83%.
           
     Class B shares - ratio of net  investment  income  (loss)  to  average  net
     assets (2): 8.41%

(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) to average
     net assets are calculated on an annualized basis.



<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.

Investment Policies

We invest in short-term money market instruments for the Fund, such as:

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 at the time of purchase, and who are members of the Federal Deposit
     Insurance Corporation ("FDIC");

3)   commercial paper that at the time of purchase is defined as "First Tier" or
     "Second Tier" by the  Investment  Company Act of 1940, as long as we do not
     invest more than 5% of the Fund's  total  assets in Second Tier  commercial
     paper; and

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

We make  investments for the Fund consistent with Rule 2a-7 under the Investment
Company Act of 1940. As such,  we invest in  securities  maturing in 397 days or
less and 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.
To the extent it is practical, we try to maintain a constant net asset value per
share of $1.00 for the Fund.

We may purchase participation interests (interests in securities held by others)
in securities we are authorized to invest for the Fund as described above.

The U.S. government neither insures nor guarantees the investments in this Fund.

<PAGE>

Annual Advisory Fee

     0.50 of 1% on the first $500 million

     0.45 of 1% on average daily net 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.

Investment Factors and Risks Involved

Interest  Rate Risk:  Changes in interest  rate  levels  affect the value of the
money market instruments in the portfolio and the value of the Fund as a whole.

Credit  Risk:  The Fund  carries  the risk  that  the  creditworthiness  of some
securities issuers may decline during the Fund's holding period.

Expense Summaries and Example

The following  expense  summaries and example should assist you in understanding
the various recurring and  non-recurring  costs and expenses you may directly or
indirectly incur with your investment in the Fund.

            Shareholder Transaction Expenses

Shareholder transaction expenses are charges you pay when you buy or sell shares
of the Fund. For Class A shares,  you do not pay any sales charges or redemption
fees.  For  Class B shares,  we based  expenses  on the  maximum  5%  contingent
deferred sales charge, which is reduced by 1% for each year owned.


Shareholder Transaction Expenses                      Class A        Class B

Maximum sales charge imposed on purchases (as a         None           None
percentage of offering price)

Maximum sales charge imposed on reinvested              None           None
dividends (as a percentage of net asset value)

Maximum deferred sales charge (as a percentage          None            5%
of net asset value)

Redemption  fee (The  Funds  currently  charge          None           None  
$12.00  for each wire redemption.)

Exchange fee                                            None           None

Total                                                   None            5%

<PAGE>

            Annual Fund Operating Expenses

The following  table reflects  annual  operating  expenses paid by the Fund. The
annual operating  expenses  include a management fee paid to the Adviser,  12b-1
distribution  and service fees and other  expenses for  maintaining  shareholder
records and furnishing  shareholder services,  statements and financial reports.
Operating  expenses are  expressed as a percentage of average net assets for the
fiscal year ended April 30, 1997,  and include the Adviser's  waiver of 0.225 of
1% of the 0.50 of 1%  maximum  advisory  fee we could  charge for the Fund and a
waiver of 0.100 of 1% of the 0.125 of 1%  maximum  12b-1  service  fees we could
charge for Class A and Class B shares,  respectively.  For the fiscal year ended
April 30, 1997,  without the expense  waivers,  "Total Fund Operating  Expenses"
were 1.10% and 3.54% for Class A and Class B shares, respectively.


Annual Fund Operating Expenses (as a percentage of        Class A        Class B
average net assets)

Management fee                                             .28%            .28%

12b-1 distribution and service fees                        .02%            .77%

Other expenses                                             .48%*           .83%

Total Fund Operating Expenses                              .78%           1.88%

            Expense Example

The following  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.


Expense Example             Class A          Class B       Class B No Redemption

After 1 year                  $8               $69                  $19

After 3 years                 $25              $90                  $60

After 5 years                 $44              $103                $103

After 10 years                $99              N/A*                N/A*

*Class B shares convert into Class A shares after five years.
You should use the expense  example for  comparison  purposes  only. It does not
represent the Fund's actual expenses and returns,  either past or future. Actual
expenses may be greater or less than those shown.

Financial Highlights

The financial  highlights table covers The AAL Money Market Fund for the periods
shown.  The  information  presented 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 the Fund's independent  accountants,  Price Waterhouse LLP.
At your request,  we will provide you,  without charge, a copy of The AAL Mutual
Funds Annual Report, dated April 30, 1997, containing these financial statements
and a more detailed discussion and analysis of the Fund's performance.


<PAGE>

<TABLE>
                 INCOME FROM INVESTMENT                               LESS DISTRIBUTIONS                         
                  OPERATIONS 

                 NAV:     Net           Net          Total from    Dividends    Distribution     Total        
                 Start    Investment    Realized     Investment    from Net     from Net         Dividends    
                 of       Income        and Un-      Operations    Investment   Realized         and          
                 Period   (Loss)        realized                   Income       Gain on          Distributions
                                        Gain(Loss)                              on Investments 
<CAPTION>
<S>              <C>      <C>           <C>          <C>           <C>          <C>              <C>
Class A shares 

Period From
1-Mar-88 to
30-Apr-88        $ 1.00   $0.009        $0.000       $ 0.009       $(0.009)     $ 0.000         $(0.009)
Years Ended                                                                                    
30-Apr-89          1.00    0.078         0.000         0.078        (0.078)       0.000          (0.078)
30-Apr-90          1.00    0.079         0.000         0.079        (0.079)       0.000          (0.079)
30-Apr-91          1.00    0.068         0.000         0.068        (0.068)       0.000          (0.068)
30-Apr-92          1.00    0.045         0.000         0.045        (0.045)       0.000          (0.045)
30-Apr-93          1.00    0.025         0.000         0.025        (0.025)       0.000          (0.025)
30-Apr-94          1.00    0.019         0.000         0.019        (0.019)       0.000          (0.019)
30-Apr-95          1.00    0.038         0.000         0.038        (0.038)       0.000          (0.038)
30-Apr-96          1.00    0.048         0.000         0.048        (0.048)       0.000          (0.048)
30-Apr-97          1.00    0.051         0.000         0.051        (0.051)       0.000          (0.051)
                                                                                           
Class B shares
Period From
08-Jan-97 to
30-Apr-97        $ 1.00   $0.013        $0.000       $ 0.013       $(0.013)     $ 0.000          $(0.013)


                                                                        SUPPLEMENTAL DATA
                                                                        AND RATIOS

                 NAV:         Total     Net Assets        Ratio of      Ratio of         Portfolio    
                 End of       Return    at End of         Net           Net              Turnover     
                 Period       for       Period            Operating     Investment       Rate         
                              Period                      Expenses      Income(Loss)                  
                              (1)                         to Average    to Average       
                                                          Net Assets*   Net Assets* 
                                                          (2)           (2)
Class A shares

Period From
1-Mar-88 to
30-Apr-88        $  1.00      0.91%     $   7,990,507     0.07%         7.06%            NA      
Years Ended                                                                            
30-Apr-89           1.00      8.10        143,217,501     0.76          8.29             NA
30-Apr-90           1.00      8.24        223,447,573     1.04          7.84             NA
30-Apr-91           1.00      7.07        228,465,749     1.07          6.85             NA
30-Apr-92           1.00      4.54        147,584,931     1.11          4.56             NA     
30-Apr-93           1.00      2.53         83,274,493     1.13          2.53             NA
30-Apr-94           1.00      1.95         65,008,303     1.26          2.00             NA
30-Apr-95           1.00      3.92         70,210,675     1.17          3.95             NA
30-Apr-96           1.00      4.94        116,014,091     0.83          4.89             NA
30-Apr-97           1.00      5.21        189,616,902     0.55          4.91             NA
                                                                                   
Class B shares

Period From
08-Jan-97 to
30-Apr-97        $  1.00      1.32%     $     569,097     1.78%         3.81%            NA
</TABLE>


*If the Fund had paid all of its  expenses  for Class A and Class B shares,  the
ratios would be as follows:

     Class A shares - 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 1.10%.
            
     Class B shares - ratio of net operating expenses to average net assets (2):
     3.54%
            
     Class A shares - 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 4.36%.
            
     Class B shares - ratio of net  investment  income  (loss)  to  average  net
     assets (2): 2.05%

(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) to average
     net assets 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 a Fund's 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.  Primarily,  we may
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.

We may invest up to 100% of The AAL  International  Fund's  total assets 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%.

Interest Rate Risk

For The AAL Bond, Municipal Bond, High Yield Bond and Money Market Funds and, to
some extent,  The AAL Equity  Income  Fund,  you can expect that  interest  rate
changes  will  significantly  impact  upon the value of your  Fund  investments.
Interest rates are influenced by supply and demand as well as economic  monetary
policies.  In general,  a decline in prevailing  interest rate levels  generally
will increase the value of the  securities,  particularly  the bonds,  held in a
Fund's portfolio and vice versa. As a result,  interest rate  fluctuations  will
affect a Fund's net asset values but not the income  received  from its existing
portfolio.  However,  changes in the prevailing  interest rate level will affect
the yield on subsequently purchased securities. Because yields on the securities
available  for  purchase  by the Funds will vary over time,  we cannot  assure a
specific yield on a Fund's shares.

Longer-term  bonds are more sensitive to interest rate changes than shorter-term
bonds, reflecting the greater risk of holding these bonds for a longer period of
time.  Longer-term  bond prices increase more  dramatically  when interest rates
fall and  decrease  more  dramatically  when  interest  rates  rise.  Prices  of
short-term debt, such as money market  instruments,  are less price sensitive to
interest rate changes because of their short durations.

Income-producing  equity securities generally pay higher than average dividends.
Due to the regular payment of higher dividends,  these  securities,  like bonds,
are more sensitive to interest rate levels than other equity securities.

Investing in Bonds Versus Investing in a Mutual Fund

Investing  in a  mutual  fund  that  owns  bonds is not the  same as  buying  an
individual  bond. Both bonds and funds owning bonds offer regular income.  While
individual  bonds can offer a fixed amount of regular income until  maturity,  a
mutual fund  portfolio  may  include a  constantly  changing  pool of bonds with
differing  interest rates and maturity  prices.  Both share prices and dividends
may fluctuate in a mutual fund owning bonds.

Investment Grade and Medium Grade Bond Investments

We may purchase investment grade bonds for The AAL International, Equity Income,
Bond,  Municipal  Bond and High Yield Bond Funds.  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 have more sensitivity to economic  changes and speculative  characteristics.
If a bond in a Fund has lost its rating or has its rating reduced, the Fund does
not have to sell the security, but the Adviser will consider the lost or reduced
rating in determining whether that Fund should continue to hold the bond.

High Yield Bond Investments

We may invest in high yield bonds for The AAL  International (up to 20% of total
assets), Equity Income (up to 5% of total assets) and High Yield Bond Funds.

Credit Risk The primary risk of investing in the high yield sector is the credit
risk.  Bonds rated below  investment  grade have  greater  risks of default than
investment  grade bonds  (including  medium 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 have speculative  characteristics or are speculative.  As a result,  their
market values are less sensitive to interest rate changes on a short-term basis,
but more  sensitive 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.

Market Risk  Frequently,  high yield bonds are less liquid than investment grade
bonds.  In some cases,  these  bonds have no resale  market at all. As a result,
these  bonds are more  difficult  to price  accurately  and are subject to price
volatility. We may experience difficulty in valuing the high yield securities in
these  portfolios  or  purchasing  or  disposing  of  them on  favorable  terms,
particularly  during adverse market or economic  conditions.  In the event of an
illiquid  market or in the absence of readily  available  market  quotations for
certain  high yield bonds in the Funds'  portfolios,  our  judgment  will play a
greater role in valuing the securities.

   
Convertible Bonds

Except  for The AAL Money  Market  Fund,  we may  invest in  convertible  bonds,
subject to any  restrictions on the quality of bonds in which a Fund may invest.
We also may retain any stocks  received upon  conversion that do not fall within
the  Fund's  investment  parameters  to:  (1) permit  orderly  disposition;  (2)
establish a long-term holding basis for Federal income tax purposes; or (3) seek
capital growth.

Convertible  bonds are often rated below  investment  grade or not rated because
they fall below debt  obligations and just above equities in order of preference
or priority on the issuer's  balance  sheet.  Hence,  an issuer with  investment
grade  senior  debt may issue  convertible  securities  with  ratings  less than
investment grade debt.
    

Mortgage-Backed Securities

For The AAL  Balanced,  Bond  and  High  Yield  Bond  Funds,  we may  invest  in
mortgage-backed  securities with amortizing payments consisting of both interest
and principal and prepayment  privileges (the ability to prepay the principal or
a  portion  thereof  without  penalty).  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. Various government,
government-related and private organizations combine these mortgages for sale to
investors  (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 reinvest the periodic payments of principal and interest and prepayments,  if
any, in securities at the prevailing market interest rates. The prevailing rates
may be higher or lower than the rate on the original investment.  During periods
of declining interest rates, prepayment of mortgages underlying  mortgage-backed
securities tend to accelerate.  Accordingly,  any prepayments on mortgage-backed
securities  that we hold for a Fund reduce our ability to maintain  positions in
high-yielding,   mortgage-backed   securities  and  reinvest  the  principal  at
comparable yields for the Fund. If we buy any  mortgage-backed  securities for a
Fund at a  premium,  the Fund  receives  prepayments,  if any,  at par or stated
value, which lowers the return on the Fund.

<PAGE>

Portfolio Turnover

We expect The AAL Mid Cap Stock, Small Cap Stock, Equity Income, Bond, Municipal
Bond and High Yield Bond Funds to have portfolio turnover greater than 100%, and
the  other  Funds to have a  portfolio  turnover  of less than  100%.  We do not
calculate a portfolio turnover rate for The AAL Money Market Fund because of 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%, we may pay more
commissions  for a Fund and may realize  more taxable  gains than in  portfolios
with less  turnover,  which may result in an increase in a Fund's  expenses  and
lower  returns for  shareholders.  We may trade for a Fund at a  portfolio  rate
significantly exceeding 100% (i.e., 300% or more for The AAL Bond Fund), when we
believe  the  benefits  of  short-term  investments  outweigh  any  increase  in
transactions  costs or  capital  gains.  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

To earn income on available  cash or for temporary  defensive  purposes,  we may
invest in repurchase agreements for the Funds. We must 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,  we may  experience  delays and  expenses in
liquidating  the  securities,  declines  in the  securities'  value  and loss of
interest for a Fund.

We may borrow  money,  but only from banks and only for  temporary  or emergency
purposes.  We may not  borrow  more than 10% of a Fund's  net assets and we must
repay any amount we borrow for a Fund before we can buy additional securities.

When-Issued and Delayed Delivery Securities

   
To ensure the  availability  of suitable  securities,  we may buy when-issued or
delayed delivery securities for The AAL International,  Equity Income, Balanced,
Bond, Municipal Bond, High Yield Bond and Money Market Funds. Generally, we will
not pay for  when-issued  securities  or start  earning  interest  until we have
received  the  underlying  securities  for the  Funds.  We do not  speculate  in
when-issued  securities  for the Funds.  We  purchase  the  securities  with the
expectation of acquiring the underlying  securities when delivered.  However, we
sell when-issued  securities before the settlement date when we believe it is in
the best interest of a Fund.
    

Lending Portfolio Securities

To generate  additional  income, we may from time to time lend securities from a
Fund's portfolios to brokers,  dealers and financial  institutions such as banks
and trust companies.  You will find a full  explanation of portfolio  securities
lending and the restrictions thereon in the Statement of Additional Information.
Presently, we do not intend to lend portfolio securities for the Funds.

<PAGE>

Illiquid and Restricted Securities

   
Except  for The AAL Money  Market  Fund,  we may hold up to 15% of a Fund's  net
assets in  illiquid  securities.  We may hold up to 10% of The AAL Money  Market
Fund's  net  assets  in  restricted  and  other  illiquid  securities.  Illiquid
securities  are  securities  we believe  cannot be sold within seven days in the
normal course of business at approximately the amount at which we have valued or
priced the  securities for a Fund,  including  securities we 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 illiquid  securities.
For more information on restricted and other illiquid  securities  regarding The
AAL Money Market Fund, please refer to the Statement of Additional  Information,
"Privately Issued Securities:  The AAL Money Market Fund." The Board of Trustees
has established  procedures for determining the liquidity of Fund securities and
has delegated the day-to-day liquidity determinations to the Adviser.
    

Subject  to the  limitations  for  illiquid  investments  stated  above,  we may
purchase liquid restricted  securities eligible for resale under Rule 144A under
the  Securities  Act of  1933  (the  "Act"),  without  regard  to the 15% or 10%
limitation.  Rule 144A permits certain qualified  institutional  buyers, such as
the Funds, to trade in privately placed securities not registered under the Act.
Institutional  markets for restricted  securities  have developed as a result of
Rule  144A,  providing  both  readily   ascertainable  market  values  for  144A
securities and the ability to liquidate these investments to satisfy  redemption
orders.  However,  an  insufficient  number of  qualified  institutional  buyers
interested  in  purchasing  certain  Rule 144A  securities  held by a Fund could
adversely  affect  their  marketability,  causing us to sell the  securities  at
unfavorable prices.

Variable Rate Demand Notes

All of the Funds 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 days or more,  but only under  conditions  established  by the
Securities  and  Exchange  Commission  rules that permit such  securities  to be
considered  as having  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  other  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.

<PAGE>

Structured Securities

The AAL  International  Fund may invest in  structured  notes  and/or  preferred
stocks. These securities have a value (i.e., principal amount at maturity and/or
coupons or dividend amounts) 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,  gold structured 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.  These securities involve additional risk,  including
structures  that may reduce the coupons and/or  dividend  amounts to zero or the
redemption  amounts payable at maturity as a result of a decline in the value of
the underlying  instrument.  Structured securities may have more volatility than
the price of the underlying instrument

Transitional Risk of Concentrating  Investments in Utilities  Securities for The
AAL Equity Income Fund

In addition to the risks of investing in income producing equity securities, The
AAL  Equity  Income  Fund  will  continue  to have  the  risks  associated  with
concentrating   investments  in  the  public   utilities   industry  during  its
transitional period. 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 utilities companies
independently from the securities markets as a whole.

Futures Contracts and Options

Except for The AAL Money  Market  Fund,  we may engage in  options,  futures and
options on futures transactions for the Funds, but only for bona fide hedging or
other  permissible  risk management  purposes.  Generally,  we do 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 do 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 consist of techniques
to hedge an unrealized gain on portfolio securities, such as:

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

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

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

     4)   entering into closing transactions with respect to such options.

<PAGE>

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

Also, we may purchase stock index options, write covered stock index options and
enter into closing transactions on these options.

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

Our futures  transactions for the Funds may include instruments such as interest
rate and  index  futures  contracts  and  options  thereon.  We may use  futures
transactions for several reasons,  including:  (1) hedging unrealized  portfolio
gains;  (2)  minimizing  adverse  principal  fluctuations  in a Fund's  debt and
fixed-income  securities;  or (3) as a means of  adjusting  exposure  to various
markets.

Our ability to use futures and options  transactions  successfully  depends upon
our skill for 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 a 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 us to have a
lower  return  for the Fund than it would have had if we had not  attempted  the
hedging transaction.  In the absence of the ability to hedge,  however, we 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 have currency risk, meaning the risk that changes in foreign
currency  exchange rates and exchange control  regulations will affect favorably
or  unfavorably  the  U.S.  dollar  value of these  securities  (and any  income
generated thereon).  To manage this risk and facilitate the purchase and sale of
foreign  securities for a Fund, we may engage in foreign  currency  transactions
involving:  (1) the  purchase  and sale of  forward  foreign  currency  exchange
contracts  (agreements  to exchange one currency for another at a future  date);
(2)  options on foreign  currencies;  (3)  currency  futures  contracts;  or (4)
options  on  currency  futures  contracts.  Although  we  use  foreign  currency
transactions  to protect against adverse  currency  movements,  they involve the
risk that we may not  accurately  predict the  currency  movements,  which could
adversely  affect a Fund's total  return.  We set forth further  information  on
foreign  securities  and currency  transactions  in the  Statement of Additional
Information.

Foreign Securities

   
The AAL Capital  Growth (up to 10% of net  assets),  Mid Cap Stock (up to 10% of
net assets),  Small Cap Stock (up to 10% of net assets),  International,  Equity
Income  and  Balanced  (common  stock  portion)  Funds  may  invest  in  foreign
securities  domestically through depository receipts (i.e.,  American Depository
Receipts  ("ADRs")) and securities of foreign issuers traded on a U.S.  national
securities exchange or the NASDAQ National Market System. The AAL Balanced (bond
portion),  Bond and High  Yield  Bond  Funds  may  invest up to 20% of their net
assets in debt securities of foreign  issuers that are payable in U.S.  dollars.
The AAL  International  and Equity  Income (up to 15% of net  assets)  Funds may
invest in foreign  securities  primarily trading in countries outside the United
States. Foreign securities may present a greater degree of risk (including risks
related to tax  provisions  or  appropriation  of assets) than do  securities of
domestic issuers.
    

Foreign Investing Expenses

Investing in foreign securities costs more than investing in U.S. securities due
generally to higher  transaction  costs, such as the commissions paid per share.
As a  result,  Funds  that  invest in  foreign  securities  tend to have  higher
expenses,  particularly funds that invest primarily in foreign securities (i.e.,
The AAL International  Fund). In addition to higher commissions,  they generally
have higher  advisory and custodial fees.  However,  you may find investing in a
fund that purchases foreign securities a more efficient way to invest in foreign
securities  than investing in individual  foreign  securities.  Higher  expenses
attributable to a Fund that invests in foreign securities does not mean that the
Fund has higher expenses than other funds with similar  investment  policies and
percentages of assets invested in foreign securities.

Risks of Investing in Foreign Securities

Currency Risk

Even  though  a Fund  may hold  securities  denominated  or  traded  in  foreign
currencies,  we measure a Fund's performance in terms of U.S. dollars, which may
subject the Fund to foreign  currency  risk.  Foreign  currency risk is the risk
that the U.S.  dollar  value of foreign  securities  (and any  income  generated
therefrom) held by a Fund may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations. Therefore, the
net asset value of a Fund may go up or down as the value of the dollar  rises or
falls compared to a foreign currency.

<PAGE>

Liquidity Risk

Foreign  markets or exchanges tend to have less trading volume than the New York
Stock Exchange or other domestic stock exchanges or markets, meaning the foreign
market may have less  liquidity.  The lower  liquidity  in a foreign  market can
affect our ability to purchase or sell blocks of securities  and obtain the best
price in the foreign  market for a Fund.  Foreign  markets  tend to have greater
spreads between bid and asked prices,  trading  interruptions or suspensions and
brokerage and other transaction costs. Settlement practices vary from country to
country  and many  foreign  markets  have  longer  settlement  periods for their
securities in comparison to domestic  securities.  These differing practices may
cause us to lose  opportunities for favorable  purchases  elsewhere and interest
income.  Also,  foreign  markets  may  trade on days when the Funds do not value
their  portfolios.  This means that a Fund's Net Asset  Value can change on days
when a shareholder  cannot  access his or her account.  We may incur extra costs
for a Fund when  involved in currency  hedging.  For  example,  restrictions  on
converting a foreign  currency into U.S.  dollars may adversely affect the value
of a Fund.

Political, Economic and Market Risks

The degree of political and economic  stability  varies from country to country.
If a country  expropriates money from foreigners or nationalizes an industry,  a
Fund  may  lose  some  or all of any  particular  investment  in  that  country.
Individual  foreign  economies may vary favorably or  unfavorably  from the U.S.
economy  in such  areas as growth of gross  national  product,  inflation  rate,
savings, balance of payments and capital investment,  which may affect the value
of a Fund's investment in any foreign country.

Governmental Regulation

Many foreign  countries do not subject their markets to the same degree and type
of laws  and  regulations  that  cover  the U.S.  markets.  Also,  many  foreign
governments impose  restrictions on investments in their capital markets as well
as taxes  or other  restrictions  on  repatriation  of  investment  income.  The
regulatory  differences  in some foreign  countries make investing or trading in
their markets more difficult and risky.

Nonuniform Corporate Disclosure Standards

Many countries have laws making information on publicly-traded  companies, banks
and   governments   unavailable,   more  difficult  to  obtain,   incomplete  or
unavailable.  The lack of  uniform  accounting  standards  and  practices  among
countries impairs the ability of investors to compare 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 for The AAL International, Small Cap Stock , Balanced 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; and
    

     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 fundamental  investment  policy requiring us to invest
at  least  80%  of The  AAL  Municipal  Bond  Fund's  net  assets  in  municipal
securities,  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).   We  have  included  a
description of all of the investment restrictions applicable to the Funds in the
Statement of Additional Information.

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.

<PAGE>

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

John H. Pender,** P.O. Box 250 Dunbar WV 25064 DOB 5/25/30 Chairman of the Board
of Trustees  and from 1987 through May 1996,  President  of the Funds;  Prior to
1996,  Senior Vice President and Chief Investment  Officer,  Aid Association for
Lutherans (fraternal benefit society) and prior to 1992, Treasurer

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

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

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

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

Richard L. Gunderson**
10801 E. Happy Valley Road, # 67
Scottsdale, AZ 85255
DOB 6/14/33
Trustee:  Chairman of the Board of Directors and from 1985 through  1996,  Chief
Executive Officer,  and from 1985 through 1995,  President,  Aid Association for
Lutherans  (fraternal  benefit  society);   Trustee,  Lawrence  University;  and
Director, Banta Corp. (diversified printer and publisher)

<PAGE>

Ronald G.  Anderson**  4321 North  Ballard Road  Appleton,  WI 54919 DOB 10/2/48
Trustee and  President;  Senior Vice  President  and CFO,  Aid  Association  for
Lutherans; President, AAL Capital Management Corporation; Director, General Re -
CKAG Reinsurance and Investment S.ar.L.  (Luxembourg  reinsurance  corporation);
and From 1991 through  1996,  Chairman,  General Re Financial  Products and from
1995  through  1996,  Vice  President  Corporate  Development,  General Re (both
reinsurance)

*    All of the Trustees  except for Mr. Pender and Mr.  Gunderson 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.

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.

We have engaged  Societe  Generale Asset  Management  Corp.,  1221 Avenue of the
Americas,  New York, NY 10020, to act as Sub-Adviser  for The AAL  International
Fund.  The  Sub-Adviser  has  registered  as an  investment  adviser  under  the
securities  laws.  Societe  Generale,  which is one of France's  largest  banks,
indirectly owns the  Sub-Adviser.  Pursuant to the Sub-Advisory  Agreement,  the
Sub-Adviser,  subject to the direction of the Adviser and the Board of Trustees,
determines the securities that The AAL International Fund purchases or sells and
renders other  assistance to the Adviser in  formulating  and  implementing  the
investment program for the Fund.

<PAGE>

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  of
securities  for the Funds and other  clients  could  provide  the Funds with the
ability to  participate in volume  transactions  that may cost less per share or
unit traded than smaller transactions.

BUYING CLASS A AND CLASS B SHARES IN THE FUNDS

You can buy  Class A and  Class B in the Funds  through  a  licensed  registered
representative,  by mail or wire transfer. Sales charges and ongoing asset based
distribution  fees  mark the  primary  differences  between  Class A and Class B
shares. We describe the differences between the types of shares below.

Class A Shares

Sales Charges

You buy Class A shares of each Fund,  except for The AAL Money Market  Fund,  at
net asset  value  ("NAV")  plus a maximum  sales  charge of 4.00% of the  public
offering price ("POP") incurred at the time of purchase.  As a result, we do not
impose a sales charge when an investor  redeems Class A shares of a Fund. We may
reduce or waive sales  charges on certain  purchases.  The chart below shows the
sales charge  percentage  for Class A shares  imposed at different  dollar level
purchases.


<PAGE>

<TABLE>
<CAPTION>
<S>                              <C>                <C>                         <C>                  <C>                    
Your Investment Amount           Sales Charge as    Sales Charge as a %         50% Sales Charge     50% Sales Charge as a %
                                 a % of POP         of Net Amount Invested      as a % of POP        of Net Amount Invested

Less than $25,000                    4.00%                4.17%                    2.00%                     2.04%

$25,000 but less than $50,000        3.75%                3.90%                    1.88%                     1.91%

$50,000 but less than                3.00%                3.09%                    1.50%                     1.52%
$100,000

$100,000* but less than              2.00%                2.04%                    1.00%                     1.01%
$250,000

$250,000 but less than               1.00%                1.01%                    0.50%                     0.50%
$500,000

$500,000 and up**                    0.00%                0.00%                    0.00%                     0.00%
</TABLE>

   
*    Registered  Representatives  may receive  compensation not exceeding 75% of
     the sales  charge on amounts  purchased  and may receive  compensation  not
     exceeding .50% of 1% of amounts invested at $500,000 and up.

**   You should purchase Class A shares at this level of investment and above.
    

You buy Class A shares of The AAL Money Market Fund at net asset value without a
sales charge and you do not pay a fee upon redemption.

Reducing Your Sales Charge

We may reduce your sales  charges on purchases  of Class A shares under  certain
circumstances, described below. If you are eligible for one of these reductions,
you must  tell us or your  Registered  Representative  at the time you  purchase
Class A shares or you may or 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  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 or change these reductions at any time.

50% Reduction. Non-profit organizations, charitable trusts, charitable remainder
unitrusts, endowments, AAL branches and congregations pay only 50% of the normal
sales  charge  so  long as  there  is a  meaningful  Lutheran  affiliation.  The
reduction does not apply to 403(b)(7) Retirement Plan Accounts.

Right  of  Accumulation.  You can  combine  all your  Class A and  Class B share
purchases,  including  the  purchases of family  members who live with you, when
computing  your  current  sales charge for Class A shares.  Eligible  shares for
combination in computing the sales charge include those contained in individual,
joint tenant, gift/transfer to minor, trust and IRA accounts. Employer sponsored
plans can link the shares in the plan for purposes of calculating a sales charge
reduction.  Accumulation  includes the value of all Class A shares at the public
offering price, all Class B shares, and reinvested dividends and capital gains.

Letter of Intent

If you  expect to invest  $25,000 or more  during  the next 13  months,  you can
reduce your sales charge on Class A shares by signing a Letter of Intent.  Class
A or Class B share  purchases  fulfill  the Letter of Intent,  but you receive a
reduced  sales  charge on Class A shares  only.  You can  include  purchases  in
accounts you have linked for purposes of the Right of Accumulation,  and you can
back  date a Letter of Intent  to  include  purchases  made in the last 90 days.
However, we do not recalculate the sales charge on prior purchases.

<PAGE>

You do not have any  obligation to buy additional  shares.  During the Letter of
Intent period,  we will escrow shares totaling 5% of the investment goal. If for
some reason you do not fulfill the Letter of Intent within the 13-month  period,
we will sell escrowed shares to cover any additional sales charges due from you.
You should sign only one Letter of Intent for all accounts  combined under Right
of Accumulation.

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

Class B Shares

You buy Class B shares of each Fund at net asset  value  with no  initial  sales
charge.  However, you may pay 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.  We do not impose a
contingent  deferred sales charge on shares you acquire through the reinvestment
of dividends and capital gains. To reduce your cost, when you redeem shares in a
Fund,  you will  redeem  either  shares  that are not  subject  to a  contingent
deferred sales charge (i.e., those bought through  reinvestment of dividends and
capital gains) or shares with the lowest  contingent  deferred sales charge.  We
waive the contingent  deferred sales charge upon redemption of shares  following
the  death  or  disability  of  a  shareholder  or  for  mandatory  or  hardship
distributions  from retirement  plans,  IRAs and 403(b) plans or to meet certain
retirement  plan  requirements.  Also,  we reduce  the  amount  of a  contingent
deferred  sales  charge  depending  on the amount of years from the  purchase of
Class B shares until the sale of those shares according to the following table:


  Years after Purchase          Deferred Sales Charge 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%

   
*    Registered  Representatives may receive compensation upon the sale of Class
     B shares in the amount of 1.25% of the purchase  amount even if such shares
     are not  redeemed  within five years of purchase  and thus not subject to a
     CDSC.
    

<PAGE>

We base the sales  charge on the lesser of the net asset  value of the shares at
the time of the purchase or at the time of the sale.

You should not consider buying Class B shares if you can elect the 50% reduction
for  purchases  of Class A shares or you are  investing  $100,000 or more in the
Funds.  Also,  because of the higher  expenses,  you should not consider  buying
Class B shares of The AAL Money  Market Fund unless you intend to exchange  them
for other Class B shares or as part of The AAL Mutual Funds Capital Builder Plan
(see page ___).

Conversion to Class A Shares

Your Class B shares  automatically  convert to Class A shares after 5 years from
the purchase date,  reducing future annual expenses.  Class B shares provide the
benefit  of  putting  all of your  dollars  to work  from the time you make your
investment.  However,  until your Class B shares convert to Class A shares,  you
will have a higher expense ratio,  receive lower  dividends and may have a lower
net asset value than Class A shares due to the higher 12b-1 fees.

You should  consider the amount and intended  length of time of your  investment
when  determining  which share class would benefit you the most. In general,  if
you  intend to make a large  investment,  thus  qualifying  for a reduced  sales
charge,  you might consider  purchasing Class A shares.  If you intend to make a
smaller  investment,  you might  consider  Class B shares  because  100% of your
purchase is invested immediately.

Purchase Price

   
To  determine  the prices at which you buy shares,  we  calculate  the net asset
value as of the business day on which we receive your order in proper form.  The
share price (net asset value per share)  will  decline on the record  dates when
The AAL Capital Growth,  Mid Cap Stock, Small Cap Stock,  International,  Equity
Income and Balanced Funds  distribute  dividends and capital gains by the amount
of the  distributions.  If you buy shares  before the record date  ("buying  the
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      Initial Purchase    Additional Purchase
per Transaction

Regular Account                                  $1,000                 $50

IRA                                               $250                  $50

Automatic Investment Plan                          $0                   $25

Letter of Intent                                                      $25,000
(over a 13-month period)

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

<PAGE>

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  and New Account  Form,  which should be attached to the
            prospectus,  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.  Remember  to
            designate  whether  you are  purchasing  Class A  shares  or Class B
            shares.  If  you  don't  complete  the  application  properly,  your
            purchase may be delayed or rejected;

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 these steps:

     1.   Call AAL  Capital  Management  Corporation  at  800-553-6319  (The AAL
          Mutual  Funds  Service  Center  ("Service  Center"))  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 Class A or Class 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 who the
          Funds can contact about your purchase.

<PAGE>

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)).

            3. Call the Service Center and inform them or your incoming wire.

            4. 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 the Funds 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.   Some  account
registrations may require additional documents.

<PAGE>

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.

A third party  maintenance  fee may apply to some  retirement  accounts.  Please
review plan documents for more information.

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;

   
     Roth IRA - Available in 1998 (annual  contributions  are not tax deductible
     but  distributions may not be subject to income tax);  SEP-IRA  (Simplified
     Employee Pension Plan);
    

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

     SIMPLE-IRA (Savings Incentive Match Plan for Employees);

   
     Education  IRA -  Available  in  1998  (annual  contributions  are  not tax
     deductible,  but  distributions to beneficiary may not be subject to income
     tax)
    

     403(b)(7) retirement plan account (legal restrictions apply to your ability
     to withdraw funds from this account); and

     qualified retirement plans.

Prestige Account

We provide  investors  who  maintain  substantial  account  balances in one or a
combination  of The Funds  with  additional  benefits.  You will have  exclusive
access to our Prestige  Account  Network,  personalized  retirement or education
planning  analysis,  complimentary  investment  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 Funds 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 on the application. Once you have selected
this option,  you can call the Mutual Fund Service  Center and we will  withdraw
money from your bank checking or savings  account to make your  investment.  You
pay the next price computed after the Funds have received 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 a bank wire
purchase.

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 the following plans.

<PAGE>

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:

     You can  select  up to two  transaction  dates  per month (at least 10 days
     apart).  If you don't select the date(s),  the money 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

     Make 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 our Transfer
     Agent.

The Capital  Builder Plan allows you to transfer money every month from your AAL
Money Market Fund Account into another AAL Mutual Funds  Account.  The following
rules and/or guidelines apply:

     You can select the transaction  date. If you don't select the date, we will
     automatically  transfer  the  money  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.  When you "dollar cost  average,"
you  purchase  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 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  and any
applicable  fees.  When you buy shares by check,  electronic  funds  transfer or
automatic  investment  purchase,  you may not be able to redeem  the  shares you
purchased for 12 days or until your check has cleared,  whichever is later. 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 generally mail written  confirmation  of your  purchases,  except for The AAL
Money Market Fund, within two business days following the date of your purchase.
We mail  confirmation  of  additional  purchases  in The AAL Money  Market  Fund
monthly.  We mail  confirmation  of your automatic  investment plan purchases at
least quarterly.

Share Certificates

We issue 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,  check and telephone  redemption,  share
exchange  and any  systematic  withdrawal.  Before you can  redeem,  transfer or
exchange your shares,  you must deliver the share  certificates  to our Transfer
Agent in  negotiable  form (with a signature  guarantee).  We may not have share
certificates 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 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 to consider
your request  received.  Current law will  determine the legal effect of posting
for deadline purposes.

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

<PAGE>

SELLING (REDEEMING) YOUR CLASS A AND CLASS B SHARES

You can sell your  shares on any  business  day.  When you sell your  shares you
receive the net asset  value per share,  except for Class B shares for which you
will receive the net asset value per share minus the CDSC, if any,  depending on
how long you have held the shares  redeemed.  If we receive your request in good
order, which means including all the information listed below,  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. Please note that transfers via Electronic
Funds Transfer (EFT) generally take up to three business days to reach your bank
account.

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
     Class B share redemption we will redeem any additional  shares required for
     the CDSC 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- dealers.  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
P.O. Box 2981                              Mutual Funds Services, Third Floor
615 East Michigan Street                   615 East Michigan Street
Milwaukee, WI 53201-2981                   Milwaukee, WI 53202


By Telephone

To make  investing in the Funds more  convenient,  you may buy, sell or exchange
shares by  telephone.  We have  established  reasonable  procedures  to  protect
against anyone who attempts to use the telephone 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.  Once you have made a telephone  request you cannot cancel or modify
it! 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 us by telephone and telephone  transactions may be difficult
to implement at those times. We reserve the right to temporarily  discontinue or
limit the  telephone  purchase,  redemption  or exchange  privileges at any time
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;

     The Funds  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 $12.00 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 Class A Shares)

You can have money automatically withdrawn from your AAL Mutual Funds account(s)
on a regular basis by using our systematic  withdrawal plan. The 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),  we will  withdraw the money  automatically  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 and 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.

<PAGE>

The AAL Money Market Fund Checks (Class A Shares Only)

You can write checks on your AAL Money Market Fund  account,  except for Class B
shares,  if you complete a check writing  signature card and agreement.  You can
request  checks on your AAL Mutual Funds  Application  or in writing.  We do not
charge a fee for supplying  your first set of checks,  but charge $2.00 for each
additional packet of checks. The following rules and/or guidelines apply:

     The checks you write on The AAL Money  Market Fund must be for $500 or more
     (Because the Fund is not a bank, some features,  such as stop payment,  are
     not available);

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

     We do not return your canceled  checks.  For a fee, our Transfer Agent will
     send a copy of your check to you at your request;

     Unless you purchased  shares by bank wire,  you must wait 12 days after you
     purchase  The AAL Money  Market Fund shares 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 legal
restrictions,  if any, 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  closing any account,  and you will have 30 days to
add money to bring the balance up to $250.
    

REINSTATEMENT PRIVILEGE (CLASS 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 on the day when you made  your  reinvestment  and not on the day
when you sold your investment. 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 the Funds' 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
P.O. Box 2981                              Mutual Funds Services, Third Floor
615 East Michigan Street                   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.

<PAGE>

EXCHANGE PRIVILEGE

 You may exchange  shares in an AAL Mutual Fund for shares in another AAL Mutual
Fund without paying any additional  sales charge,  if you initially paid a sales
charge.  For  example,   if  you  had  purchased  Class  A  shares  of  The  AAL
International  Fund and paid the applicable  sales charge and wanted to exchange
them for Class A shares of The AAL Bond Fund,  you could do so without paying an
additional sales charge.  However,  if you initially purchased Class A shares of
The AAL Money  Market,  where you  would  not have had to pay an  initial  sales
charge,  you would not be able to exchange these shares for another Fund without
paying the applicable sales charge. Also, if you had exchanged Class A shares in
a Fund where you had to pay a sales  charge into Class A shares of The AAL Money
Market Fund (so called "privileged  shares" once exchanged for Money Market Fund
Shares),  you would not have to pay an additional  sales charge if you exchanged
these shares for Class A shares in another Fund. Class B shares are purchased at
net asset value without a sales charge,  so the issue of paying additional sales
charges  does not apply when  exchanging  Class B shares.  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 (i.e., you
     must  exchange at least $1,000 worth of shares to another Fund and fill out
     a new account form, if you have not invested
         
     shares in the other AAL Mutual Fund account before);

     You can  exchange for the same class of shares only (for  example,  Class A
     shares for Class A shares and Class B shares for Class 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.

<PAGE>

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;

     the name of the Fund you are exchanging into; 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, Mutual Fund Service  Representatives  will ask 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  (i.e.,  stocks and bonds in the  Fund's  portfolio),
subtracting the Fund's  liabilities and dividing the balance by the total number
of shares  outstanding.  We compute  the net asset value of a Fund 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 for the Funds on the days when the NYSE is
not open.

We value (or price)  securities  owned by a Fund at current  market  value.  For
securities with readily  available market  quotations,  we use the quotations to
price the security.  If a security does not have a readily available  quotation,
we value the security 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.

<PAGE>

We value 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
on an amortized cost basis. We 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 Funds endeavor to qualify  annually for, and elect tax treatment  applicable
to, a regulated  investment  company under  Subchapter M of the Internal Revenue
Code  ("Code").  Pursuant to the  requirements  of the Code,  the Funds annually
intend to distribute  substantially  all of their net investment  income and net
realized  capital gains, if any, less any available  capital loss carryover,  to
its  shareholders  annually,  so as to  avoid  paying  income  tax  on  its  net
investment  income and net realized  capital gains or being subject to a federal
excise  tax on  undistributed  net  investment  income and net  realized  gains.
Annually,  we intend to comply  with all of the  requirements  to  qualify  as a
regulated investment company for each Fund.  Annually,  we provide you with full
information on dividends and capital gains distributions for each Fund.

Below, we provide you with a general  description of the  distribution  policies
and some of the tax consequences for the Funds' shareholders.  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  Capital  Growth,  Mid Cap Stock,  Small Cap Stock,  International,
Equity Income, Balanced, 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.

We  distribute  substantially  all net  investment  income and any net  realized
capital gains, if any, for the Funds as follows:

   
Fund                               Dividends (if any)     Capital Gains (if any)

The AAL Capital Growth Fund        semi-annually          annually
The AAL Mid Cap Stock Fund         annually               annually
The AAL Small Cap Stock Fund       annually               annually
The AAL International Fund         annually               annually
The AAL  Equity Income Fund        quarterly              annually
The AAL Balanced Fund              quarterly              annually
The AAL Bond Fund                  monthly                annually
The AAL Municipal Bond Fund        monthly                annually
The AAL High Yield Bond Fund       monthly                annually
The AAL Money Market Fund          monthly                annually
    

<PAGE>

The AAL Bond,  Municipal  Bond,  High Yield Bond and Money  Market  Funds accrue
income dividends daily.

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.
We accrue dividends daily and pay these dividends  monthly for The AAL Municipal
Bond Fund.  We pay the capital  gains for the Fund 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.  We may, for  temporary  defensive
purposes,  invest in short-term taxable securities for the Fund. 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,  the  federal
government  requires you to add  tax-exempt  income,  including  exempt-interest
dividends  from this  Fund,  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 us for the Funds  during the  taxable
year.

Tax Considerations

Federal law requires us to withhold 31% of a shareholder's  reportable  payments
(which include dividends,  capital gain  distributions and redemption  proceeds)
for those 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 owning shares in the Funds.

Reinvestment of Fund Distributions

You can reinvest all of your income dividends and/or capital gains distributions
into the  Funds at net  asset  value and pay no  up-front  (Class A  shares)  or
contingent  deferred  (Class B  shares)  sales  charges.  You also can have your
distributions  paid in cash. When you receive a distribution you may have to pay
taxes whether or not you reinvested them or had them paid out to you in cash. If
you have requested cash distributions and we cannot locate you, we will reinvest
your dividends.

<PAGE>

Distribution Fees

In addition to the sales charge deducted at the time of purchase, the Investment
Company Act of 1940,  Rule 12b-1,  thereunder,  authorizes us pursuant to a Rule
12b-1 Distribution Plan for the Funds ("12b-1  Distribution Plan" or "Plan")) to
use a portion  of the  Funds'  assets to cover the costs of  certain  activities
relating to the distribution of its shares to investors.

The 12b-1 Distribution Plan permits us to reimburse the Distributor for expenses
incurred in distributing the Funds' shares to investors, which includes expenses
relating to: sales  representative  compensation  (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.

Pursuant to the Plan,  we may reimburse the  Distributor  for overhead  expenses
incurred in distributing the Funds' shares. We may not reimburse the Distributor
for  expenses of past fiscal  years or in  contemplation  of expenses for future
fiscal years.  We may not use  distribution  fees we pay for one Fund to finance
the distribution of shares for another Fund.

We charge a service fee of up to 0.25 of 1% of the average daily net assets of a
Fund for Class A and Class B shares.  We use the  shareholder  servicing  fee to
compensate  the  Distributor  for certain  shareholder  services.  We charge the
following 12b-1 distribution and servicing fees.

            Distribution Fees

Fund                                        Class A           Class B

The AAL Capital Growth Fund                  None              0.75%

The AAL Mid Cap Stock Fund                   None              0.75%

The AAL Small Cap Stock Fund                 None              0.75%

The AAL International Fund                   None              0.75%

The AAL Equity Income Fund                   None              0.75%

The AAL Balanced Fund                        None              0.75%

The AAL Bond Fund                            None              0.75%

The AAL Municipal Bond Fund                  None              0.75%

The AAL High Yield Bond Fund                 None              0.75%

The AAL Money Market Fund                    None              0.75%
                                                                  

<PAGE>
                                                                  

            Service Fees

Fund                                         Class A           Class B

The AAL Capital Growth Fund                   0.25%             0.25%

The AAL Mid Cap Stock Fund                    0.25%             0.25%

The AAL Small Cap Stock Fund                  0.25%             0.25%

The AAL International Fund                    0.25%             0.25%

The AAL Equity Income Fund                    0.25%             0.25%

The AAL Balanced Fund                         0.25%             0.25%

The AAL Bond Fund                             0.25%             0.25%

The AAL Municipal Bond Fund                   0.25%             0.25%

The AAL High Yield Bond Fund                  0.25%             0.25%

The AAL Money Market Fund                    0.125%             0.125%


SHAREHOLDER MAINTENANCE AGREEMENT

The Board of  Trustees  authorizes  us 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  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 a Fund.  Whenever  we  advertise
performance,   we  include  standardized  yield  and  total  return  information
calculated in accordance with methods established by the Securities and Exchange
Commission. We may include other total return calculations,  if we feel that you
would  find  such  total  return  calculations  useful  in  evaluating  a Fund's
investment  performance.   We  base  yields  and  total  returns  on  historical
performance.  You should not use such historical  performance  information as an
indication of 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. At the time you
sell  (redeem)  your  investment,  its value may be worth more or less than your
original cost.

<PAGE>

Standardized Yield and Total Returns

Whenever  we  advertise  performance,  we 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

We may advertise a standardized yield and a standardized effective yield for The
AAL Money Market Fund. We base both yield figures on historical  earnings and do
not intend for these figures to indicate future performance.

The  standardized  yield  of the  Fund  refers  to the  income  generated  by an
investment in the Fund over the seven-day period shown in the advertisement. The
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.

We calculate the standardized effective yield similarly but, when annualized, we
assume that any income earned by the Fund is  reinvested.  The  effective  yield
will be slightly higher than the yield because of the compounding  effect of the
assumed reinvestment.

   
The AAL Capital Growth,  Mid Cap Stock, Small Cap Stock,  International,  Equity
Income, Balanced, Bond, Municipal Bond and High Yield Bond Funds -- Standardized
Current Yield
    

Except for The AAL Money Market Fund,  we may advertise a  standardized  current
yield based on income  generated by an  investment  in a particular  Fund over a
30-day  period.  We state the 30-day 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  stocks  by  using  the  stated  annual  dividend  rate  applied  over  the
performance  period.  Then, we annualize the income  earned.  We assume that the
amount of income  generated during the 30-day period is generated and reinvested
monthly to  provide a  six-month  return  which we then  annualize.  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
the 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.

<PAGE>

   
The AAL Capital Growth,  Mid Cap Stock, Small Cap Stock,  International,  Equity
Income, Balanced, Bond, Municipal Bond and High Yield 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 Class A
shares or the  applicable  contingent  deferred sales charge for Class B shares,
assuming the reinvestment of dividends and capital gains distributions.

Other Total Returns

If we believe it would be useful in  evaluating  performance,  we may  advertise
total  returns for a Fund in another way than the  Standardized  Average  Annual
Total  Rate of Return or the other  measures  of  return  described  above.  For
example,  except The AAL Money  Market  Fund,  we may  advertise  total  returns
calculated  on the  basis of the net  amount  invested  in a Fund  (the  dollars
invested without giving effect to the maximum  applicable sales charge).  Return
calculations  based  on the net  amount  invested  will  be  higher  than  those
calculated by the standardized methods for the same time period.

We have provided more  information on yield and  performance in the Statement of
Additional Information.

TRANSFER AGENT, CUSTODIANS AND INDEPENDENT ACCOUNTANTS

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

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

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

<PAGE>

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

ORGANIZATION AND DESCRIPTION OF SHARES

   
The AAL Mutual Funds or "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.  The  Declaration  of Trust 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 twelve series.  This prospectus  describes Class A and Class B shares
for ten series of the  Trust.  Institutional  shares  for these same  series are
described in a separate prospectus.

Each Fund's classes of shares represent  interests in the assets of the Fund and
have  identical  dividend,  liquidation  and other  rights.  The separate  share
classes  have the same  terms and  conditions,  except  each Class A and B share
bears its separate  distribution  and  shareholder  servicing  expenses.  At the
Trustees'  discretion,  each class may 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 each class incurs the expenses in different
amounts,  or if a class receives  services of a different kind or to a different
degree than the other class. The Funds allocate all other expenses to each class
on the basis of the net asset  value of that class in  relation to the net asset
value of the particular  Fund. Class A and B shares (and  Institutional  shares)
have identical  voting rights except that each class has exclusive voting rights
on any  matter  submitted  to  shareholders  relating  solely to the  class.  In
addition,  Class A and Class B (and  Institutional  shares) have separate voting
rights on any matter submitted to shareholders  where the interests of one class
differ from the  interests of the other  class.  Class A and Class B shares have
exclusive  voting  rights on matters  involving the 12b-1  Distribution  Plan as
applied to that class. Matters submitted to shareholder vote must be approved by
each Fund separately except:
    

     1)   when required otherwise by the 1940 Act; or

     2)   when the Trustees determine that the matter does not affect all Funds:
          then, only the shareholders of the affected Funds may vote.

<PAGE>

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 shareholder,  Trustee and/or officer
liability  for acts on behalf of the  Trust or for  Trust  obligations  that are
binding  only on the assets and  property of the Trust.  The Funds  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.  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: The AAL Mutual Funds,  222 West College  Avenue,
Appleton, WI 54919-0007.
Appleton, WI 54919-0007

GLOSSARY OF IMPORTANT TERMS

American Depository Receipts (ADRs):  See Depository Receipts.

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; a statement produced by calculating
financial results for periods other than a complete year.

Asset-Backed Securities:  See Mortgage and Asset-Backed Securities, below.

<PAGE>

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 ("NYSE") are open for business. A business day normally begins at
8:00  a.m.  Central  Time when the NYSE  opens,  and  usually  ends at 3:00 p.m.
Central Time when the NYSE 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: A capital gain or loss equals 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 the
applicable  capital  gains tax  holding  period and then sold at a profit,  that
profit is a REALIZED  LONG-TERM  CAPITAL  GAIN. If it is sold at a profit before
the applicable period, 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  where the purchase or seller of the contract
owns or has the rights to purchase the shares underlying the option.

Credit Risk: The fundamental risk of investing that the issuer of a security may
not be able to meet its obligations to its investors, usually used in describing
the  fundamental  risk of debt  securities.  Nationally  recognized  statistical
rating organizations  (NRSROs) rate debt securities on the ability of the issuer
to pay the interest and principal on the debt issued.

<PAGE>

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.

Deferred Interest Bonds:  Bonds that an issuer issues at a significant  discount
from face value and does not begin  paying  interest  on the bonds for a delayed
period of time. 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.

Delayed Delivery Securities: Refers to the delivery of securities later than the
scheduled  date.  A contract  calling for delayed  delivery,  known as "seller's
option," is usually agreed to by both parties to a trade.

Depository  Receipts:  Depository receipts are receipts evidencing  ownership in
the underlying  shares of a foreign  company.  Generally,  U.S. banks and trusts
issue American depository receipts (ADRs) and American depository shares (ADSs).
They hold the  foreign  company  securities  underlying  the  receipts  in their
vaults.  In addition to the  underlying  securities,  the  receipts  entitle the
shareholder  to all  dividends  and  capital  gains.  The bank or trust  company
issuing the receipts may have  denominated the receipts in a currency other than
the currency underlying the foreign security.  U.S. and European banks and trust
companies usually issue global depository receipts (GDRs), which are receipts in
the  shares  of a  global  offering  of a  foreign  issuer  who has  issued  two
securities simultaneously in two markets, usually publicly in a non-U.S. markets
and privately in the U.S. market.  European banks and trust companies  generally
issue  European  depository   receipts  (EDRs),   sometimes  called  continental
depository  receipts (CDRs) when issued in bearer form, which evidence ownership
in foreign securities.

   
Education IRA: Allows for  contributions up to $500 per year to an Education IRA
for each beneficiary under age 18.  Contributions are not tax deductible and the
funds must be distributed (or rolled over to an Education IRA for the benefit of
another family member) by the time the beneficiary reaches age 30. Distributions
are tax free if used for qualified higher education expenses for the beneficiary
it is established  for or a family member who receives a roll over  distribution
into their  Education  IRA.  Education  IRAs are not available  until January 1,
1998.
    

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

Face Value:  See Par.

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

<PAGE>

Financial  Risk:  The  fundamental  risk of how a  company  will  perform  after
analyzing its balance  sheet and income  statements to forecast its future stock
price movements. Fundamental analysts consider past records of assets, earnings,
sales,  product,  management  and markets in  predicting  future trends in these
indicators  of a  company's  success or  failure.  There is a risk that  factors
affecting a company's  performance  will change,  causing the company's stock to
under-perform.

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.

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 Obligation 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 2
contribute both deductible and non-deductible  contributions to the account with
the benefit of tax-deferred  build up of income.  When investors  withdraw funds
from their IRA accounts they are subject to income  taxes,  and if they withdraw
funds before age 592 they may 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 a rise in the  level of  prices  for  goods and
services  (inflation)  will  decrease  the value of your  money in terms of your
investments or the income from your investments.

Interest: The payment borrowers (i.e., bond issuers) make to lenders (i.e., bond
holders) for the use of their money,  usually  expressed as a percentage  of the
amount  borrowed (the  principal).  Usually  interest is expressed as a rate per
period of time, typically one year, in which case it is called an annual rate of
interest.

Interest  Rate Risk:  The risk that a rise in the level of  interest  rates will
reduce the market value (price) of securities  held,  particularly  bonds,  in a
Fund's  portfolio.  Typically,  a bond pays a fixed rate of interest (called the
"coupon").  When interest rates rise in the economy the value of the coupon (the
amount of money received on the bond  periodically)  falls in  comparison.  As a
result,  the price of the bond  declines.  In general,  a decline in  prevailing
interest rate levels  increases the value of the  securities,  particularly  the
bonds,  held in a Fund's  portfolio and vice versa.  Interest rate  fluctuations
affect a Fund's net asset values but not the income  received  from its existing
portfolio  because  the income  paid on the bonds or other  securities  does not
change. However,  changes in prevailing interest rates will affect the yields on
subsequently purchased securities.

<PAGE>

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. See the Appendix.

Liquidity: The ease and speed at which an investor or holder of the security can
sell or otherwise convert the security 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 affect investments in a particular field.

Market  Value:  The price at which an  investor  can buy or sell a security 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. The issuers sell these instruments at a
discount but redeem them at par.  See Commercial Paper.

Mortgage and  Asset-Backed  Securities:  Typically these  securities  consist of
interest in pools of mortgages or consumer loans 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.

<PAGE>

Municipal Bonds: Debt obligations  issued by or on behalf of state  governments,
U.S.  territories or  possessions,  the District of Columbia and their political
subdivisions,  agencies  and  instrumentalities.   Generally,  the  interest  on
municipal bonds is exempt from federal income tax.

Mutual Fund: Also called an open-end investment company. People invest by buying
shares in the mutual fund, thereby pooling  shareholders' 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.

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).

PAR:  The  stated  principal  value of a bond or the  stated  value per share of
stock.  The par  value of  stock  usually  is 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.

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  Stocks:  Stocks  with a fixed  dividend  that must be paid before the
dividends of common stocks are paid.

Public Utilities:  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.

<PAGE>

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 from 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
Credit  Risk,  ,  Inflation  Risk and Market  Risk.  Rollover  IRA:  An IRA that
receives its funding through a distribution from another  retirement plan, often
because of the employee's  termination of employment from the retirement  plan's
sponsoring employer.

   
Roth IRA: A personal  retirement  savings  program  that lets  individuals  make
annual non-deductible  contributions of the lessor of $2,000 or earned income to
the account with the benefit of tax-deferred build up of income.  When investors
make qualified  withdrawals from their Roth IRA accounts they are not subject to
income taxes,  and if they withdraw  funds before age 59 1/2 they may be subject
to penalties.  Roth IRAs do not become  available to investors  until January 1,
1998.
    

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

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

SEP-IRA:   A   Simplified   Employee   Pension   Plan   (SEP)   is  a  form   of
employer-sponsored retirement plan that permits employers to make tax-deductible
contributions  directly  into  IRAs  established  for  their  employees.  If the
employer  permits the employees to make  contributions  through salary reduction
agreements,  it is often called a Salary Reduction  Simplified  Employee Pension
Plan  (SARSEP-IRA).  No new plans may start after 1996,  but existing  plans may
continue.

<PAGE>

Securities:   Financial   instruments,   usually  stocks,  bonds,  money  market
instruments  or mutual fund shares issued by  corporations,  municipalities  and
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.

SIMPLE-IRA:  A  Savings  Incentive  Match  Plan  for  Employees  (SIMPLE)  is an
IRA-based  retirement plan that permits  employees to defer part of their salary
(up to $6,000) on a pre-tax  basis and to which the employer is required to make
certain matching or non-elective contributions.
The IRS may impose a 25%  penalty  for  distributions  made within the first two
years.

Standard  & Poor's  Index:  Also  known as the  STANDARD & POOR'S 500 (S&P 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. The S&P 500 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.

Stocks: See Equity.

Structured  Securities:  Securities that have a value (i.e., principal amount at
maturity  and/or coupons or dividend  amounts)  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, gold structured 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. These securities involve
additional  risk,  including  structures  that may  reduce  the  coupons  and/or
dividend  amounts to zero or the  redemption  amounts  payable at  maturity as a
result  of a  decline  in the  value of the  underlying  instrument.  Structured
securities may have more volatility than the price of the underlying instrument.

<PAGE>

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

Transfer  Agent:  An agent  appointed  by a mutual fund to maintain  shareholder
records and issue share certificates.

Trust: An arrangement that permits one party,  the Trustee,  to hold legal title
of 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 a mutual  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 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 Demand 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 a security's price over a stated
period of time.

When-Issued  Securities:  The term refers to a  transaction  made  conditionally
because the security,  although authorized,  has not yet been issued. New issues
of stocks and bonds,  stocks  that have split and  Treasury  securities  are all
traded on a when issued basis.

Yield: The income generated by an investment (from dividends or interest) over a
given period of time, 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.


<PAGE>



APPENDIX:  SECURITY RATINGS

Ratings in General

A NRSRO's rating represents the  organization's  opinion on the credit quality a
particular  security.  The  ratings  are  general  and do not  portray  absolute
standards on the  creditworthiness  of an issuer.  We  continuously  monitor the
ratings given by the NRSROs on the securities in a Funds'  portfolios as part of
our ongoing effort to monitor the Funds' debt quality.  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.  A rating
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, the
Funds' Adviser and/or the Sub-Adviser for The AAL  International  Fund evaluates
each rating  independently.  Rating  organizations base their ratings on current
information furnished by the issuer or obtained from other sources they consider
reliable. Rating organizations may change, suspend or withdraw their ratings due
to changes in, unavailability of, such information or for other reasons.

The Funds have provided the following rating  characteristics used by four major
nationally  recognized  statistical  ratings  organizations  ("NRSROs"),  Duff &
Phelps Credit Rating Co.,  Moody's  Investors  Service,  Inc.  Standard & Poor's
Corporation and Fitch Investors Service.

BOND RATINGS

Duff & Phelps Rating Scale Definitions
---------------------------------------------------

AAA:                Highest  credit  quality.  The risk factors are  negligible,
                    being only slightly more than for  risk-free  U.S.  Treasury
                    debt.

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

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

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

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

<PAGE>

B+, B, B-:          Below  investment  grade and possessing risk that the
                    obligation  might no be met when due.  Financial  protection
                    factors will fluctuate  widely according to economic cycles,
                    industry  conditions  and/or  company  fortunes.   Potential
                    exists  for  frequent  changes  in the  rating  within  this
                    category or into a higher or lower rating category.

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 stocks with dividend arrearage.


Moody's Rating Scale Definitions
-------------------------------------------------

Aaa:                Bonds  that  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 that 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 that make  long-term risk appear
                    somewhat larger than the Aaa securities.

A:                  Bonds  that 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  that  are  rated  Baa  are  considered   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.

<PAGE>

Ba:                 Bonds  that 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.

B:                  Bonds that 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 that are rated Caa have poor standing. Such issues may
                    be in default or present  elements of danger with respect to
                    principal or interest.

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

C:                  Bonds  that 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  ranking;  and the modifier 3 indicates  that the company ranks in the
lower end of its generic rating category.


Standard & Poor's ("S&P") Rating Scale Definitions
-------------------------------------------------

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" has 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.

<PAGE>

BB, B, CC, C , 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.

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   that  could  lead  to
                    inadequate  capacity to meet timely  interest and  principal
                    payments.  The "BBB"  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.   Adverse  business,   financial  or
                    economic   conditions   likely  will   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 that 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.

<PAGE>

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 the 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.


Fitch's Investment Grade Bond Rating Definitions
--------------------------------------------------------

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 that 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:                 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.



<PAGE>

COMMERCIAL PAPER RATINGS


Duff & Phelp's Commercial Paper Ratings
 ...........................................
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.

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.


MOODY'S Commercial Paper Ratings
 ....................................................

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; and

Prime 3:            High quality.



<PAGE>

S&P's Commercial Paper Ratings
 .......................................................

A Standard & Poor's ("S&P")  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.

A:                  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.

A-1:                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" that possess extremely strong safety characteristics.

A-2:                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.

A-3:                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.


OTHER RATINGS

Moody's Municipal Note Ratings
 .....................................................

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.

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.


Moody's Ratings of the Demand Features on 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.

<PAGE>

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.


S&P Note Ratings
 ...................................................

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:  (1)  the
                    amortization   schedule  (the  larger  the  final   maturity
                    relative to other maturities, the more likely the issue will
                    be rated as a note); (2) and the 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).


S&P Ratings of the Demand Features on 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  (i.e.,  AAA/A-1+).  Normally
demand notes receive note rating symbols  combined with commercial paper symbols
(i.e., SP-1+/A-1+).


<PAGE>



                              The AAL Mutual Funds
                             222 West College Avenue
                             Appleton, WI 54919-0007
                     Telephone (414) 734-7633, 800-553-5319
                                TDD 800-684-3416
   
                       STATEMENT OF ADDITIONAL INFORMATION
                             Dated December 29, 1997
    

Equity-Oriented 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

   
Equity and Income Oriented Funds
    

The AAL Equity Income Fund (Formerly Known as The AAL Utilities Fund):
Investing In Income-Producing Equity Securities

   
The AAL Balanced Fund
Investing in Common Stocks, Bonds and Money Market Instruments
    

Income-Oriented Funds

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 Below Investment Grade Securities

The AAL Money Market Fund:


<PAGE>

Investing in Money Market Instruments

   
This  Statement of  Additional  Information  is not a  prospectus,  but provides
additional  information  that should be read in conjunction  with The AAL Mutual
Funds  Prospectus  dated  December  29, 1997 and any  supplements  thereto.  The
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.  Institutional  shares  and  Two
additional series: The AAL U.S.  Government Zero Coupon Target Fund, Series 2001
and The AAL U.S.  Government Zero Coupon Target Fund, Series 2006, are described
in separate Prospectuses and Statements 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, Small Cap
Stock, International,  Equity Income, Balanced, Bond, Municipal Bond, High Yield
Bond and Money  Market Funds may be referred to  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, Redemptions; Pricing Considerations ..........................

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

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

      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 ):  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.

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 AAL International Fund:  Investing In Foreign Securities

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

The AAL Equity Income Fund: Investing In Income-Producing Equity Securities

This Fund seeks current income,  long-term income growth and capital growth,  by
investing  primarily  in a  diversified  portfolio  of  Income-Producing  Equity
Securities.  Prior to September 1, 1997, The AAL Equity Income Fund was known as
The AAL Utilities Fund.


<PAGE>

   
The AAL  Balanced  Fund:  Investing  In Common  Stocks,  Bonds and Money  Market
Instruments

The Fund seeks  long-term  total return through a balance between income and the
potential for long-term  capital growth by investing  primarily in a diversified
portfolio of common stocks,  bonds and money market instruments.  We will select
these  investments  consistent  with the investment  policies of The AAL Capital
Growth, Bond and Money Market Funds, respectively.
    

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.

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

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 Below-Investment Grade Bonds

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  capital
preservation   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.

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.


<PAGE>

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 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.

       

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.  The AAL Money Market Fund, however,  will
sell downgraded commercial paper to the extent required to comply with Rule 2a-7
under the Investment Company Act of 1940 (the "Act").


<PAGE>

To the extent that the ratings given by Nationally Recognized Statistical Rating
Organizations  ("NRSRO") for debt securities change as a result of changes in an
NRSRO,  or changes  in an  NRSRO's  rating  system,  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,  Equity  Income and High Yield
Bond Funds

The AAL  International,  Equity  Income and High Yield Bond Funds invest in high
yield, high risk bonds, with The AAL High Yield Bond Fund normally  investing at
least 65% of its total  assets in such  securities.  While the  market  for high
yield  bonds has  existed  for many years and has  weathered  previous  economic
downturns,  the 1980s 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 lower-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 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.

Certain high yield bonds carry particular  market risks.  Zero coupon,  deferred
interest and payment-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.

<PAGE>

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

The AAL Balanced,  Bond and High Yield Bond Funds may invest in  mortgage-backed
securities,  including CMOs and multi-class 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 "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 "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.

Each  Fund may not  invest  more than  7.5% of its net  assets in any IOs,  POs,
inverse  floaters  or accrual  bonds at any one time or 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
Funds 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 rate 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.


<PAGE>

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 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 affect the date at which cash payments
begin to be made on a Z tranche, and therefore also 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  stocks,  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.


<PAGE>

Variable Rate Demand Notes

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 Fund  must be rated  in one of the two  highest  rating
categories by a Nationally  Recognized  Statistical Rating  Organization or that
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 Adviser
deems the investment to involve minimal credit risk.

In some  instances,  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. The Fund may invest in these  longer-term  variable rate  securities  only
when,  in the  Adviser's  view,  the Fund 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 the  Adviser  that the  variable  rates on these
securities  may reduce the  fluctuations  in market value typical of longer-term
securities.  The Fund also may  purchase  variable  rate  securities  with a put
option, which may further reduce the risk of fluctuations in market value.

Portfolio  Turnover -- The AAL Midcap Stock,  Small Cap Stock,  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 Small
Cap Stock and Mid Cap Stock Funds had  portfolio  turnover  rates of 138.50% and
112.60%,  and The AAL Bond and Municipal Bond Funds had portfolio turnover rates
of  212.49%  and  119.70%  for  the  fiscal  year  ended  on  April  30,   1997,
respectively.  The turnover  rates for The AAL Mid Cap Stock and Small Cap Stock
Funds reflect the portfolio  managers growth  investment  style, the purchase of
initial  public  offerings,  which tend to  appreciate  significantly  after the
offering and then level off in price,  and the  volatility  of small cap and mid
cap stock prices in general.  The portfolio  turnover rate for The AAL Bond Fund
reflects the portfolio  manager's active selection of the individual  securities
that he believes  provide the best  income for the  portfolio  within the Fund's
investment  parameters  at any one time.  The  portfolio  manager has  increased
buying and selling  securities for The AAL Bond Fund recently.  As a result, the
portfolio  turnover rate for the next fiscal year may be in excess of 300%,  and
may be as high as 600% or more.  The turnover  rate for The AAL  Municipal  Bond
Fund  reflects  the  portfolio  manager's  pursuit of total  return  (growth and
income) in the municipal securities market.


<PAGE>

In seeking its objectives,  The High Yield Bond Fund,  which began operations on
January  8,  1997,  buys or sells  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  turnover  rate  is not a  limiting  factor  when
considering a change in the Fund's portfolio.

The AAL Equity Income Fund may have portfolio  turnover in excess of 100% during
its  transition  from  concentrating  its  assets  in the  securities  of public
utilities  companies,  to  investing  at  least  65%  of  its  total  assets  in
income-producing equity securities in any industry.

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 (seller) 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.

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 it plans to purchase.

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.


<PAGE>

      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 the 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.

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.


<PAGE>

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  them,  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 a writer of a covered call option, a Fund forgoes,  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.

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.


<PAGE>

      Futures Contracts and Options on Futures Contracts

A Fund may enter into  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 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 it not  attempted
hedging.  However,  in the absence of the ability to hedge,  the Adviser  and/or
Sub-Adviser for The AAL International Fund might have taken portfolio actions in
anticipation of the same market movements with similar investment  results,  but
presumably at greater transaction costs.


<PAGE>

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
Avariation  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.

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: (1) variations in the speculative
market  demand for  futures,  futures  options  and debt  securities,  including
technical influences in futures and futures options trading; and (2) 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.


<PAGE>

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 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.


<PAGE>

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.

To comply with  Commodity  Futures  Trading  Commission  Rules and thereby avoid
being deemed a "commodity  pool operator," a Fund will not invest in a commodity
contract  where the  "underlying  commodity  value" of each long position at any
time exceeds the sum of:

     (1)  The value of the Fund's short-term U.S. debt obligations or other U.S.
          dollar denominated,  high-quality  short-term money market instruments
          and cash that it has 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

     (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,  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.


<PAGE>

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)  that 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.

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.


<PAGE>

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.  To
avoid realizing excessive gains on securities or currencies held less than three
months,  a Fund may be required  to defer the  closing  out  option,  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.

   
Foreign  Securities - The AAL Capital  Growth,  Mid Cap Stock,  Small Cap Stock,
Balanced, Bond and High Yield 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.  These Funds do not intend to invest more than 10%
of their net assets in such foreign securities.  The AAL Bond Fund may invest up
to 20% of its net assets in debt  securities of foreign issuers that are payable
in U.S.  dollars.  The  Balanced  Fund may invest in foreign  securities  to the
extent  The AAL  Capital  Growth  and Bond Funds  allow  investments  in foreign
securities  for  the  common  stock  and  fixed-income  portions  of  the  Fund,
respectively. Foreign securities may present a greater degree of risk (including
risks relating to tax provisions or  expropriation of assets) than do securities
of domestic issuers.
    

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

The AAL  Equity  Income  Fund may  invest up to 15% of its net assets in foreign
securities.  The Fund also may 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 Funds consider depository receipts as
investments in the underlying stocks for purposes of diversification.

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.


<PAGE>

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 Equity Income Funds may invest in American  Depository
Receipts  ("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  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 Equity Income
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 Sub-Adviser for The
AAL International  Fund consider  investments in ADRs, ADSs, GDRs, EDRs and CDRs
as investments in the underlying stocks for purposes of diversification.


<PAGE>

      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 also
may 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.

     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,
          Philippines,  Poland,  South Africa,  South Korea, Sri Lanka,  Taiwan,
          Thailand, Turkey, Uruguay, Venezuela and Vietnam.

Foreign Currency Transactions

   
To manage the currency risk accompanying  investments in foreign  securities and
to facilitate the purchase and sale of foreign securities,  the 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.


<PAGE>

When the Adviser and/or  Sub-Adviser for The AAL International Fund believe 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 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 Sub-Adviser for The AAL
International  Fund consider 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 believe
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 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.


<PAGE>

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 Funds may purchase and sell currency futures and purchase and write currency
options to increase or decrease its 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 change 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.

   
Privately Issued Securities:  The AAL Balanced and Money Market Fund


<PAGE>


Securities  in which The AAL  Money  Market  and  Balanced  Funds may  invest in
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 salable 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,  Equity Income, Balanced, Bond, High Yield Bond and Money
Market Funds

   
The AAL Capital Growth,  Mid Cap Stock, Small Cap Stock,  International,  Equity
Income,  Balanced, 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 be rated
in  one  of  the  two  highest  rating  categories  by a  Nationally  Recognized
Statistical  Rating  Organization or that 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  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.

Investment Restrictions

Each Fund operates under the following investment restrictions. A Fund may not:

   

<PAGE>

     (1)  invest  more than 5% of its net  assets  (or 5% of The AAL Small  Cap)
          Stock, International, Balanced or High Yield Bond Funds' 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, Small Cap Stock, Balanced
          or High Yield Bond Funds' 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 that are either publicly offered
          or of a type customarily  purchased by institutional  investors,  even
          though the purchase of such debt  obligations may be deemed 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 that otherwise
          might require untimely dispositions of portfolio securities;  interest
          paid on any such borrowing will reduce net income);

     (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;


<PAGE>

     (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% or more of The AAL
          International,  Small Cap Stock,  Balanced  or High Yield Bond  Funds'
          total assets),  taken at current value at the time of each investment,
          in securities of  nongovernmental  issuers  whose  principal  business
          activities  are  in  the  same  industry(or  25% or  more  of The  AAL
          International,  Small Cap Stock,  Balanced  or High Yield Bond  Funds'
          total  assets)  in any  single  industry  or issuer  (except  the U.S.
          government or any agency or instrumentality thereof);
    

     (11) invest in oil, gas or mineral related programs or leases except as may
          be included in the definition of public utilities, 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;

   
     (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 Small Cap Stock,  International,  Balanced  or
          High Yield Bond Funds'  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  Small Cap  Stock,
          International,  Balanced or High Yield Bond Funds' 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 Balanced and High Yield Bond Funds, is
a fundamental policy.
    


<PAGE>

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
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, the Funds use the last sale price on
the exchange  where the securities  primarily  trade.  For securities  that have
readily  available  market  quotations,  the  Funds 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.


<PAGE>

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 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 where 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 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.

   
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 $25,000. 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,  1997,  The AAL Mutual Funds paid an
aggregate of $60,280.54 in Trustees' fees and expenses (the Trustees at the time
were paid an annual fee of $10,000 and a fee of $1,000 per meeting).
    



<PAGE>

   
<TABLE>
     (1)                    (2)                   (3)                    (4)                   (5)                   (6)
Name of Person       Capacities in which        Aggregate             Pension or          Estimated Annual     Total Compensation
                         Remuneration         Remuneration       Retirement Benefits      Benefits Upon      from Registrant and
                           Received                                 Accrued During           Retirement        Fund Complex Paid
                                                                   Registrant's Last                              to Trustees*
                                                                      Fiscal Year
<CAPTION>
<S>                        <C>                  <C>                   <C>                    <C>                  <C>   
Ronald G. Anderson,        Trustee                  -                      -                     -                     -
DOB 10/2/48

John H. Pender,            Trustee                  -                      -                     -                   $4,500
DOB 5/25/30

Richard L. Gunderson,      Trustee                  -                      -                     -                     _
DOB 6/14/33

F. Gregory Campbell,       Trustee               $14,000                   -                     -                  $20,000
DOB 12/16/39

D. W. Russler,             Trustee               $14,000                   -                     -                  $20,000
DOB 10/28/28

Richard L. Gady,           Trustee               $14,000                   -                     -                  $20,000
DOB 2/28/43

Lawrence M. Woods,         Trustee               $14,000                   -                     -                  $20,000
DOB 4/14/32
</TABLE>

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

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>

<TABLE>
<CAPTION>
<S>                                 <C>    
Ronald G. Anderson                  President; Director and President of AAL Capital Management                       
222 West College Avenue             Corporation since  2/26/97                                      
Appleton, WI 54919-0007                                                                             
DOB 10/2/48                         

Robert G. Same                      Secretary; Director since 1987,  Executive Vice President and
222 West College Avenue             Chief Operating Officer since 2/14/97 and Secretary of AAL
Appleton, WI 54919-0007             Capital Management Corporation since 1987
DOB 7/28/45

Terrance P. Gallagher               Treasurer; Director and Chief Financial Officer of AAL Capital
222 West College Avenue             Management Corporation since 1994, Senior Vice President since
Appleton, WI 54919-0007             1987 and Comptroller since 1992
DOB 9/20/58
</TABLE>

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 may waive its advisory  fees for,  assume or reimburse  the expenses
of, any Fund at any time.  As of September 1, 1997,  the Adviser is waiving .225
of 1% of its .50 of 1%  maximum  advisory  fee for The AAL  Money  Market  Fund.
Effectively,  the  adviser is charging  only a 0.275 of 1% advisory  fee for the
Fund. The Adviser also is  reimbursing  The AAL High Yield Bond Fund expenses in
excess of 1.00%,  1.75% and .75% for Class A, Class B and Institutional  shares,
respectively.  Any fee waivers or expense  assumptions  are voluntary and may be
discontinued   at  any  time.   The  Funds  have  paid   advisory  fees  net  of
reimbursements  to the Adviser for the past three  fiscal  years ended April 30,
1997 as follows:


<PAGE>

<TABLE>
  For the Year Ended                April 30, 1995      April 30, 1996      April 30, 1907
<CAPTION>
<S>                                 <C>                 <C>                 <C>    
The AAL Capital Growth Fund
                                    $5,910,666          $7,332,620          $9,121,422
The AAL Mid Cap Stock Fund                                                 
                                    $1,443,406          $2,207,510          $3,188,294
The AAL Small Cap Stock Fund                                               
                                           N/A                 N/A          $  159,016
The AAL International Fund                                                 
                                           N/A          $  182,656          $  873,585         
The AAL Equity Income Fund                                                 
                                    $  260,436          $  445,179          $  643,863
The AAL Balanced Fund                      
                                           N/A                 N/A                 N/A                                              
The AAL Bond Fund                                                          
                                    $2,448,730          $2,410,603          $2,214,486
The AAL Municipal Bond Fund                                                
                                    $2,134,525          $2,215,237          $2,153,751
The AAL High Yield Bond Fund                                               
                                           N/A                 N/A          $   60,205
The AAL Money Market Fund                                                  
                                    $  335,173          $  448,619          $  780,148
</TABLE>
                                                                                

<PAGE>

   
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,  Capital Growth,  Equity Income,  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 by the Board of  Trustees on May 18,  1993,  and
     the sole shareholder on June 30, 1993;

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


<PAGE>

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

     The AAL Small Cap Stock Fund by the Board of Trustees on February 23, 1996,
     and the sole shareholder on July 1, 1996;

   
     The AAL High Yield Bond Fund by the Board of Trustees on May 29, 1996,  and
     the sole shareholder on January 8, 1997; and

     The AAL Balanced Fund by the Board of Trustees on __________, 1997, and the
     sole shareholder on December 29, 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, Equity Income,  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.


<PAGE>

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
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 ABuying  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, 1997 for
Class A Shares were as follows:

                                 Class A Shares


For Fiscal Year Ended         Aggregate Commissions         Retained Commissions

   April 30, 1995                  $13,705,723                    $837,983

    April 30,1996                  $17,870,771                   $5,027,588

   April 30, 1997                  $18,026,973                   $7,289,125

Class B Shares:  The public  offering price of a Fund's Class B share is the net
asset  value  (See  "Buying  Class A and  Class B Shares  in the  Funds"  in the
prospectus).  The Funds began offering  Class B shares on January 8, 1997.  From
January  8,  1997  through  April  30,  1997,  the  aggregate   redemption  fees
(underwriting  commissions)  received and the amount of compensation retained by
the underwriter were as follows:

                                                                 Class B Shares


For Fiscal Year Ended 4/30/97     Aggregate Commissions     Retained Commissions

From January 8, 1997 to  
the Fiscal Year                            $71                      $71
Ended April 30, 1997

   
Institutional Shares: The public offering price of a Fund's Institutional shares
is the net  asset  value.  The  Funds  began  offering  Institutional  shares on
December 29, 1997.  For  information  on  Institutional  shares,  please see the
separate prospectus and statement of additional information.
    


<PAGE>

General

   
     AAL  Capital  Management  Corporation  acts as  exclusive  underwriter  for
Institutional  shares and 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.
    

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.  The Distribution Plan does not cover Institutional shares.
As a result,  the distributor may not make any payments  pursuant to the plan in
connection with Institutional shares.
    

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,  Small  Cap  Stock,
International,  Equity Income,  Balanced,  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. The Funds
will not reimburse or pay for expenses of past fiscal years or in  contemplation
of expenses for future fiscal years.  Since  September 1, 1997, the  Distributor
has waived 0.100 of 1% of the 0.125 of 1% maximum  12b-1 service fee for Class A
shares  under the Plan for The AAL Money  Market  Fund (prior to January 8, 1997
Class A share, 12b-1 service fees were described as "12b-1 Distribution  Fees"),
effectively  charging  a  0.025  of  1%,  12b-1  service  fee.  This  continuing
reimbursement  (waiver) is voluntary and may be modified or  discontinued at any
time.

Class B Shares -- The AAL  Capital  Growth,  Mid Cap  Stock,  Small  Cap  Stock,
International,  Equity Income,  Balanced,  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% 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.  Since  September 1, 1997, the Distributor has
waived  0.100 of 1% of the 0.125 of 1%  maximum  12b-1  service  fee for Class B
shares  under the Plan for The AAL Money  Market  Fund,  effectively  charging a
0.025 of 1%,  12b-1  service  fee.  This  continuing  reimbursement  (waiver) is
voluntary and may be modified or discontinued at any time.
    


<PAGE>

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 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 Class A and
Class B 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.
    


<PAGE>

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 Distributor under the Plan for Class A
shares for the fiscal  year ended April 30,  1997,  and the manner in which this
amount was spent is as follows:

                                 Class A Shares


Gross 12b-1 Fees Paid by the Funds
for Class A Shares                                           $7,719,753

                                  Expenditures

Compensation to Registered Representatives                   $7,567,489

Other                                                        $152,264

Class B shares  first became  available  to  investors  on January 8, 1997.  The
aggregate amount paid by the Funds to the Distributor under the Plan for Class B
shares from January 8, 1997  through the fiscal year ended April 30,  1997,  and
the manner in which this amount was spent is as follows:

                                 Class B Shares

Gross 12b-1 Fees Paid by the Funds for Class B Shares        $18,104

                                  Expenditures

Compensation to Registered Representatives                   $4,833

Other                                                        $13,271

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.


<PAGE>

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 8, 1997 included only the shares that now are referred to as Class
A shares.  As of January 8, 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 8, 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  direct  the
placement  of  orders  for  the  purchase  and  sale  of  the  Funds'  portfolio
securities.

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 look  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.


<PAGE>

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  exercise
investment  discretion.  It is possible that certain of the services received by
the Adviser and/or  Sub-Adviser for 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,  $1,108,673,  $1,697,844 and $4,205,263 in
brokerage commissions in each of the past 3 fiscal years.

Dividends, Distributions and Taxes

   
     The AAL  Capital  Growth,  Mid Cap Stock,  Small Cap Stock,  International,
Equity Income, Balanced, 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 Equity Income and
Balanced Funds expect 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 capital gains, if any, at least annually.


<PAGE>

      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  capital gains  (whether from  tax-exempt  or taxable  securities)  are
taxable to shareholders. 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.

Interest on borrowing a  shareholder  incurs to purchase or carry shares of this
Fund may not be 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 advisers  before  purchasing  shares of The AAL Municipal Bond
Fund. For these purposes,  the term  "substantial  user" is defined generally to
include a "nonexempt 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
Aprivate  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. 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 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  does  not  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 stocks 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 stocks of the PFIC,  as  ordinary  income.  This
ordinary income would be allocated  ratably to the Fund's holding period for the
stocks.  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.

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.


<PAGE>

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;

               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  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.

           
<PAGE>

               Annual Returns for the 1 and 5 Year and Since Inception
                         Periods Ended April 30, 1997,
               for Class A Shares Based on Gross Amount Invested

<TABLE>
 The Fund and      Total Return for the 1-year Period     Average Annual Total Return for the    Average Annual Total Return for the
Inception Date               Ended 4/30/97                    5-Year Period Ended 4/30/97       Period Ended 4/30/97 Since Inception
<CAPTION>
<S>                              <C>                                    <C>                                    <C>   
The AAL Capital 
Growth Fund (7/16/87)            15.75%                                 12.36%                                 11.01%

The AAL Mid Cap 
Stock Fund (6/30/93)             (14.62%)                                N/A                                   10.36%

The AAL Small Cap 
Stock Fund (7/1/96)               N/A                                    N/A                                    N/A

The AAL International
Fund (8/1/95)                     2.08%                                  N/A                                    7.42%

The AAL Equity Income
Fund (3/18/94)                    3.61%                                  N/A                                    6.20%
   
The AAL Balanced Fund             N/A                                    N/A                                    N/A
(12/29/97)
    

The AAL Bond Fund (7/16/87)       2.18%                                  5.09%                                  6.78%

The AAL Municipal Bond Fund 
(7/16/87)                         2.42%                                  5.92%                                  6.38%

The AAL High yield Bond Fund 
(1/8/97)                           N/A                                   N/A                                    N/A
</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.

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);


<PAGE>

               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 stocks is  determined  by
using the stated annual dividend rate applied over the performance  period.  The
yields  for  The  AAL  Capital   Growth,   Mid  Cap  Stock,   Small  Cap  Stock,
International, Equity Income, Bond, Municipal Bond and High Yield Bond Funds for
the 30-day period ended April 30, 1997 for Class A shares were:

                              Class A Share Yields
                           30-day period ended 4/30/97

<TABLE>
Capital Growth    Mid Cap Stock   Small Cap Stock    International     Equity Income      Bond      Municipal Bond   High Yield Bond
<CAPTION>
     <S>             <C>              <C>                <C>               <C>            <C>            <C>               <C>  
     .82%            (.36)%           (1.07%)            11.71%            4.12%          5.96%          4.46%             9.01%
</TABLE>

The  yields  for  the AAL  Capital  Growth,  Mid Cap  Stock,  Small  Cap  Stock,
International,  Equity Income, Bond, Municipal and High Yield Bond Funds for the
30-day period ended April 30, 1997 for Class B shares were:

                              Class B Share Yields
                           30-day period ended 4/30/97

<TABLE>
Capital Growth    Mid Cap Stock   Small Cap Stock    International     Equity Income      Bond      Municipal Bond   High Yield Bond
<CAPTION>
     <S>             <C>              <C>                <C>               <C>            <C>            <C>               <C>  
     .10%            (1.19)%          (1.89)%            11.38%            3.54%          5.43%          3.89%             8.64%
</TABLE>

   
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.  There is no yield  information  available for The AAL Balanced Fund,
because the Fund first became available to investors on December 29, 1997.
    


<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 April 30,
1997,  for a Class A share and a Class B share for The AAL  Municipal  Bond Fund
were 6.46% and 5.64%,  respectively.  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 April 30, 1997, the current and effective yields
of The AAL  Money  Market  Fund  for  Class  A  shares  were  5.06%  and  5.19%,
respectively,  and for Class B shares  4.36% and  4.46%,  respectively.  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;

               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.


<PAGE>

Annual Returns for the 1 and 5 Year and Since Inception  Periods Ended April 30,
1997, for Class A Shares Based on Net Amount Invested

<TABLE>
The Fund and Inception Date           Total Return for the               Average Annual Total                   Average Annual Total
                                   1-Year Period Ended 4/30/97          Return for the 5-Year                  Return for the Period
                                                                         Period Ended 4/30/97                   Ended 4/30/97 Since
                                                                                                                     Inception
<CAPTION>
<S>                                          <C>                                <C>                                    <C>   
The AAL Capital Growth                       20.55%                             13.28%                                 11.48%
Fund (7/16/87)

The AAL Mid Cap Stock Fund                  (11.08%)                             N/A                                   11.55%
(6/30/93)

The AAL Small Cap Stock                        N/A                               N/A                                    N/A
Fund

The AAL International Fund                    6.32%                              N/A                                   9.98%

The AAL Equity Income Fund                    7.88%                              N/A                                   7.61%
(3/18/94)

   
The AAL Balanced Fund                          N/A                               N/A                                    N/A
    

The AAL Bond Fund (7/16/97)                   6.43%                             5.96%                                  7.23%

The AAL Municipal Bond                        6.64%                             6.78%                                  6.83%
Fund (7/16/87)

The AAL High Yield Bond                        N/A                               N/A                                    N/A
Fund (1/8/97)
</TABLE>

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 unmanaged indexes, such as Morgan Stanley's EAFE and World, Dow Jones
Industrial  and  Averages,  the S&P 500, S&P MidCap 400, S&P Small Cap or Lehman
Brothers  High Yield  Index,  Lehman  Brothers  Aggregate  or other  Lehman Bond
Indexes, 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.


<PAGE>

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, Class B and  Institutional  shares
for the Funds,  except for The AAL U.S.  Government  Zero Coupon  Target  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 October 1, 1997, the officers and Trustees of the Trust owned less than 1%
of the shares of any Funds.  As of , October  1,  1997,  the  following  account
holders held in excess of 5% of the following Funds' shares:
    

                                                  Percentage
Shareholder                                       Ownership

Aid Association for Lutherans (AAL)
4321 N. Ballard Road
Appleton, Wisconsin 54919

      The AAL High Yield Bond Fund                   25%

      AAL Capital Management Corporation
      The AALMoney market Fund                        5%

LCMS Foundation

      The AAL Bond Fund                               6%

Because  AAL  owns  more  than  25% of The AAL  High  Yield  Bond  Fund,  AAL is
considered  a control  person  of the Fund and,  as such,  has  voting  power in
connection with any matters subject to a shareholders vote for the Fund.


<PAGE>

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, Small Cap Stock, Equity Income, Balanced,
Bond,  Municipal  Bond,  High Yield Bond and Money  Mark t Funds'  custodian  is
Firstar  Trust  Company.  The AAL  International  Fund's  custodian is The Chase
Manhattan  Bank,  N.A. The  custodians  are  responsible  for holding the Funds'
assets.

AAL Capital Management Corporation 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  balances  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 to this  agreement  on May 18,  1993;  
      The AAL Equity Income Fund on February 24, 1994; 
      The AAL International Fund on May 23, 1995; 
      The AAL Small Cap Stock on February 28, 1996; 
      The AAL High Yield Bond Fund on May 29, 1996; and 
      The AAL Balanced Fund on _____, 1997.
    

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 - $35,000
      The AAL Small  Cap  Stock  Fund -  $35,000  
      The AAL  International  Fund - $40,000  
      The AAL Equity  Income  Fund - $35,000  
      The AAL  Balanced  Fund - $35,000 
      The AAL Bond Fund - $35,000 
      The AAL Municipal  Bond Fund - $35,000
      The AAL High Yield Bond Fund - $30,000 
      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
<PAGE>


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 review the  Trust's  state and Funds'
federal tax returns.

Financial Statements

The  financial   statements,   notes  to  financial  statements  and  report  of
independent  accountants  for  the  Funds  included  in  the  Annual  Report  to
Shareholders  of the  Trust,  for the year  ended  April  30,  1997  are  hereby
incorporated by reference.


<PAGE>


                              THE AAL MUTUAL FUNDS
                                     PART C

                                OTHER INFORMATION

Item 24.          Financial Statements and Exhibits

(a)  Financial  Statements:  The AAL Mutual Funds  ("Trust")  has filed  audited
financial statements for the Trust for the fiscal year ended April 30, 1997, for
the following series:  The AAL Capital Growth,  Mid Cap Stock,  Small Cap Stock,
International,  Equity Income,  Bond,  Municipal Bond, High Yield Bond and Money
Market Funds; and The AAL U.S.  Government Zero Coupon Target Funds, Series 2001
and  2006,  contained  in the  Annual  Reports  for April  30,  1997,  which are
incorporated   by  reference   into  this   Post-Effective   Amendment  to  this
Registration  Statement.  The AAL U. S.  Government  Zero Coupon  Target  Funds,
Series 2001 and 2006 and  Institutional  shares for The AAL Capital Growth,  Mid
Cap Stock,  Small Cap  Stock,  International,  Equity  Income,  Balanced,  Bond,
Municipal  Bond,  High  Yield Bond and Money  Market  Funds are  contained  in a
separate prospectuses. The Trust has closed The AAL U. S. Government Zero Coupon
Target Funds, Series 2001 and 2006, to new investors.

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

(4)        The AAL Balanced Fund Specimen Stock Certificate;

(5)(a)     Amendment No. 9 to Investment Advisory Agreement;

(6)        Amendment No. 8 to Distribution Agreement;

(8)        Amendment No. 12 to First Amended Custodian Contract;

(9)(a)     Amendment No. 11 to Transfer and Dividend Disbursing Agent Agreement;

(9)(b)     Amendment No. 8 to Administrative Services Agreement;

(9)(c)     Amendment No. 4 to Shareholder Maintenance Agreement;

(11)       Consent of Independent Accountants;

(17)       The Financial Data Schedule (included as Exhibit 27).


<PAGE>

Item 25.   Persons Controlled by or under Common Control with Registrant

AAL Capital Management  Corporation (the "Adviser" and "Distributor" for The AAL
Mutual Funds ("Trust") was organized in 1986 as a Delaware  corporation,  all of
the shares of which are owned by AAL Holdings Inc., a wholly-owned subsidiary of
the Aid  Association  for  Lutherans  ("AAL").  AAL is a  non-profit,  non-stock
membership organization,  licensed to do business as a fraternal benefit society
in all  states.  Under  an  Investment  Advisory  Agreement  and a  Distribution
Agreement with the Trust,  and subject to the supervision of the Funds' Board of
Trustees,  AAL Capital Management  Corporation provides the investment advisory,
administrative, shareholder, distribution and other services for the Funds.

Item 26.          Number of Holders of Securities

     On  October  1,  1997,  the  following   indicates  the  number  of  record
shareholders of each series of the Registrant: 

                                        Class A             Class B

The AAL Capital Growth Fund -           172,782             6,739
The AAL Mid Cap Stock Fund -             86,508             3,038
The AAL Small Cap Stock Fund -           18,787             3,193
The AAL International Fund -             28,499             2,419
The AAL Equity Income Fund -             18,735               401
The AAL Bond Fund -                      28,474               180
The AAL Municipal Bond Fund -            17,191               196
The AAL High Yield Bond Fund -            4,800               878
The AAL Money Market Fund -              26,072               176
The AAL U.S. Government Zero Coupon Target Funds, Series 2001 - 218; and
The AAL U.S. Government Zero Coupon Target Funds, Series 2006 - 226.

Item 27.          Indemnification

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

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


<PAGE>

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

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

Item 28.          Business and other Connections of the Investment Adviser.

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

Item 29.          Principal Underwriters

                  (a)             None

                  (b)


Name and Principal           Positions and                 Positions and Offices
Business                     Offices with                  with Registrant
                             Underwriter

Ronald G. Anderson           Chairman of the               Trustee and President
222 W. College Ave.          Board of Directors
Appleton, WI 54919           and President


<PAGE>

Robert G. Same               Executive Vice President,     Secretary and
222 W. College Ave.          Chief Operating Officer,      Vice President
Appleton, WI 54919           Secretary and Director

Terrance P. Gallagher        Senior Vice President,        Treasurer
222 W. College Ave.          CFO, Treasurer
Appleton, WI 54919           and Director

Robert Roth                  Senior Vice                   None
222 W. College Ave.          President and
Appleton, WI 54919           Director

James H. Abitz               Director                      None
222 W. College Ave.
Appleton, WI 54919

Woody Eno                    Director                      None
222 W. College Ave.
Appleton, WI 54919

Jerome Laubenstein           Director                      None
4321 N. Ballard Rd.
Appleton, WI 54919

Steven Weber                 Director                      None
4321 N. Ballard Rd.
Appleton, WI 54919

Roger Johnson                Director                      None
4321 N. Ballard Rd
Appleton, WI 54919

Anthony De Angelis           Vice President                None
222 West College Ave.
Appleton, WI 54919

Kenneth E. Podell            Assistant                     None
222 West College Ave.        Secretary
Appleton, WI 54919

Paul Stadler                 Vice President                None
222 West College Ave.
Appleton, WI 54919


<PAGE>

Lori Richardson              Vice President                None
222 West College Ave.
Appleton, WI 54919

Jeffrey Verhagen             Vice President                None
222 West College Ave.
Appleton, WI 54919

Charles D. Gariboldi, Jr.    Assistant Vice                Assistant Treasurer
222 West College Ave.        President
Appleton, WI 54919

Charles Friedman             Assistant Vice                None
222 West College Ave.        President
Appleton, WI 5491 9

Joseph Wreschnig             Assistant Vice President      Assistant Secretary
222 West College Ave.        and Assistant Secretary
Appleton, WI 54919

Wendy Schmidt                Assistant Vice President      None
222 West College Ave.
Appleton, WI 54919

Item 30.          Location of Accounts and Records.

The accounts,  books and other documents required to be maintained by Registrant
pursuant to Section  31(a) of The  Investment  Company Act of 1940 and the rules
promulgated  thereunder are in the possession of the Registrant and Registrant's
Custodian as follows:  all documents  required to be maintained by Rule 31a-1(b)
will be maintained by Registrant,  except that records required to be maintained
by paragraph (2)(iv) of Rule 31a-1(b) will be maintained by the Custodian.

Item 31.          Management Services

                  Not applicable

Item 32.          Undertakings

     1.   Registrant  undertakes to file within four to six months following the
          effective date of post effective amendment no. 24 to this registration
          statement,   1933  Act  File  No.  33-12911,   another  post-effective
          amendment  to  include  in  this  registration   statement   financial
          statements  for The AAL High Yield  Balanced Fund as of and for a time
          period reasonably close to the date of said amendment.  Such financial
          statements need not be certified.


<PAGE>

     2.   The  Registrant  undertakes  that, at the request of the  shareholders
          holding 10% or more of the outstanding  shares of the Registrant,  the
          Registrant  will hold a special meeting for the purpose of considering
          the  removal  of a  trustee  from  office,  and  the  Registrant  will
          cooperate  with and  assist  shareholders  of record  who  notify  the
          Registrant that they wish to communicate  with the other  shareholders
          for the purpose of obtaining signatures to request such a meeting, all
          pursuant to and in  accordance  with Section  16(c) of the  Investment
          Company Act, as amended.

     3.   Registrant  undertakes  to furnish a copy of the  Registrant's  latest
          annual report to  shareholders,  upon request and without  charge,  to
          each person to whom a prospectus is delivered.



<PAGE>


SIGNATURES

Pursuant to the  requirements  of the  Securities Act of 1933 and the Investment
Company  Act of 1940,  the  Registrant  has duly caused  this  amendment  to its
Registration  Statement to be signed on its behalf by the  undersigned,  thereto
duly authorized,  in the City of Appleton and State of Wisconsin, on the 8th day
of October, 1997.

THE AAL MUTUAL FUNDS

/s/ Ronald G. Anderson
---------------------------------------------------
Ronald G. Anderson, President

      Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration  Statement has been signed below by the following persons in
the capacities and on the date indicated.

      /s/ Richard L. Gunderson*              Trustee             October 8, 1997
------------------------------------------
      Richard L Gunderson

      /s/ John H. Pender*                    Trustee             October 8, 1997
------------------------------------------
      John H. Pender

      /s/ Richard L. Gady*                   Trustee             October 8, 1997
------------------------------------------
      Richard L. Gady

      /s/ D. W. Russler*                     Trustee             October 8, 1997
------------------------------------------
      D.W. Russler

      /s/ Lawrence M. Woods*                 Trustee             October 8, 1997
------------------------------------------
      Lawrence M. Woods

      /s/ F. Gregory Campbell*               Trustee             October 8, 1997
------------------------------------------
      F. Gregory Campbell


      /s/ Terrance P. Gallagher              Principal           October 8, 1997
------------------------------------------   Financial and
      Terrance P. Gallagher                  Accounting Officer


/s/ Ronald G. Anderson                       Trustee and         October 8, 1997
------------------------------------------   President
Ronald G. Anderson, Trustee

*Pursuant to Powers of Attorney


<PAGE>


POWER OF ATTORNEY

NOW ALL MEN BY THESE  PRESENTS  that the person whose  signature  appears  below
constitutes Ronald G. Anderson to act as lawful attorney-in-fact and agent, with
full  power of  substitution  and  resubstitution,  for such  person and in such
person's name,  place and stead, in any and all  capacities,  to sign any or all
amendments (including  post-effective  amendments) to the Registration Statement
on Form  N-1A of The AAL  Mutual  Funds,  and to the  file  the  same,  with all
exhibits  thereto,  and  other  documents  in  connection  therewith,  with  the
Securities  and Exchange  Commission,  granting unto said  attorney-in-fact  and
agent full power and  authority  to do and perform  each and every act and thing
requisite  and  necessary  to be done to all intents and purposes as such person
might or could do in  person,  hereby  ratifying  and  confirming  all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.


/s/ Richard L. Gunderson
-------------------------------
Richard L. Gunderson,
as Trustee, but not
individually

<PAGE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE  PRESENTS  that the person whose  signature  appears below
constitutes  Ronald  G.  Anderson  or  Richard  L.  Gunderson,  to act as lawful
attorney-in-fact  and agent, with full power of substitution and resubstitution,
for such  person and in such  person's  name,  place and  stead,  in any and all
capacities, to sign any or all amendments (including post-effective  amendments)
to the  Registration  Statement on Form N-1A of The AAL Mutual Funds, and to the
file the same,  with all exhibits  thereto,  and other  documents in  connection
therewith,  with the  Securities  and Exchange  Commission,  granting  unto said
attorney-in-fact  and agent full power and  authority to do and perform each and
every  act and thing  requisite  and  necessary  to be done to all  intents  and
purposes  as such  person  might or could do in  person,  hereby  ratifying  and
confirming  all that said  attorney-in-fact  and  agent,  or his  substitute  or
substitutes, may lawfully do or cause to be done by virtue thereof.

/s/ John H. Pender
-------------------------------
John H. Pender
as Trustee, but not
individually

<PAGE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE  PRESENTS  that the person whose  signature  appears below
constitutes  Ronald  G.  Anderson  or  Richard  L.  Gunderson  to act as  lawful
attorney-in-fact  and agent, with full power of substitution and resubstitution,
for such  person and in such  person's  name,  place and  stead,  in any and all
capacities, to sign any or all amendments (including post-effective  amendments)
to the  Registration  Statement on Form N-1A of The AAL Mutual Funds, and to the
file the same,  with all exhibits  thereto,  and other  documents in  connection
therewith,  with the  Securities  and Exchange  Commission,  granting  unto said
attorney-in-fact  and agent full power and  authority to do and perform each and
every  act and thing  requisite  and  necessary  to be done to all  intents  and
purposes  as such  person  might or could do in  person,  hereby  ratifying  and
confirming  all that said  attorney-in-fact  and  agent,  or his  substitute  or
substitutes, may lawfully do or cause to be done by virtue thereof.


/s/ D.W. Russler
-------------------------------
D.W. Russler,
as Trustee, but not
individually

<PAGE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE  PRESENTS  that the person whose  signature  appears below
constitutes  Ronald  G.  Anderson  or  Richard  L.  Gunderson  to act as  lawful
attorney-in-fact  and agent, with full power of substitution and resubstitution,
for such  person and in such  person's  name,  place and  stead,  in any and all
capacities, to sign any or all amendments (including post-effective  amendments)
to the  Registration  Statement on Form N-1A of The AAL Mutual Funds, and to the
file the same,  with all exhibits  thereto,  and other  documents in  connection
therewith,  with the  Securities  and Exchange  Commission,  granting  unto said
attorney-in-fact  and agent full power and  authority to do and perform each and
every  act and thing  requisite  and  necessary  to be done to all  intents  and
purposes  as such  person  might or could do in  person,  hereby  ratifying  and
confirming  all that said  attorney-in-fact  and  agent,  or his  substitute  or
substitutes, may lawfully do or cause to be done by virtue thereof.

/s/ F. Gregory Campbell
-------------------------------
F. Gregory Campbell,
as Trustee, but not
individually

<PAGE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE  PRESENTS  that the person whose  signature  appears below
constitutes  Ronald  G.  Anderson  or  Richard  L.  Gunderson  to act as  lawful
attorney-in-fact  and agent, with full power of substitution and resubstitution,
for such  person and in such  person's  name,  place and  stead,  in any and all
capacities, to sign any or all amendments (including post-effective  amendments)
to the  Registration  Statement on Form N-1A of The AAL Mutual Funds, and to the
file the same,  with all exhibits  thereto,  and other  documents in  connection
therewith,  with the  Securities  and Exchange  Commission,  granting  unto said
attorney-in-fact  and agent full power and  authority to do and perform each and
every  act and thing  requisite  and  necessary  to be done to all  intents  and
purposes  as such  person  might or could do in  person,  hereby  ratifying  and
confirming  all that said  attorney-in-fact  and  agent,  or his  substitute  or
substitutes, may lawfully do or cause to be done by virtue thereof.

/s/ Richard L. Gady
-------------------------------
Richard L. Gady,
as Trustee, but not
individually

<PAGE>
POWER OF ATTORNEY

KNOW ALL MEN BY THESE  PRESENTS  that the person whose  signature  appears below
constitutes  Ronald  G.  Anderson  or  Richard  L.  Gunderson  to act as  lawful
attorney-in-fact  and agent, with full power of substitution and resubstitution,
for such  person and in such  person's  name,  place and  stead,  in any and all
capacities, to sign any or all amendments (including post-effective  amendments)
to the  Registration  Statement on Form N-1A of The AAL Mutual Funds, and to the
file the same,  with all exhibits  thereto,  and other  documents in  connection
therewith,  with the  Securities  and Exchange  Commission,  granting  unto said
attorney-in-fact  and agent full power and  authority to do and perform each and
every  act and thing  requisite  and  necessary  to be done to all  intents  and
purposes  as such  person  might or could do in  person,  hereby  ratifying  and
confirming  all that said  attorney-in-fact  and  agent,  or his  substitute  or
substitutes, may lawfully do or cause to be done by virtue thereof.

/s/ Lawrence M. Woods
-------------------------------
Lawrence M. Woods,
as Trustee, but not
individually

<PAGE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE  PRESENTS  that the person whose  signature  appears below
constitutes  Richard L. Gunderson to act as lawful  attorney-in-fact  and agent,
with full power of substitution and resubstitution,  for such person and in such
person's name,  place and stead, in any and all  capacities,  to sign any or all
amendments (including  post-effective  amendments) to the Registration Statement
on Form  N-1A of The AAL  Mutual  Funds,  and to the  file  the  same,  with all
exhibits  thereto,  and  other  documents  in  connection  therewith,  with  the
Securities  and Exchange  Commission,  granting unto said  attorney-in-fact  and
agent full power and  authority  to do and perform  each and every act and thing
requisite  and  necessary  to be done to all intents and purposes as such person
might or could do in  person,  hereby  ratifying  and  confirming  all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.

/s/ Ronald G. Anderson
-------------------------------
Ronald G. Anderson,
as Trustee, but not
individually

<PAGE>



Exhibit Index
Item 24                                                                     Page

24(b)(4)            The AAL Balanced Fund Specimen Stock Certificate

24(b)(5)(a)         Amendment No. 9 to Investment Advisory Agreement

24(b)(6)            Amendment No. 8 to Distribution Agreement

24(b)(8)            Amendment No. 12 to First Amended Custodian Contract

24(b)(9)(a)         Amendment No. 11 to Transfer and Dividend Disbursing Agent 
                    Agreement

24(b)(9)(b)         Amendment No. 8 to Administrative Services Agreement

25(b)(9)(c)         Amendment No. 4 to Shareholder Maintenance Agreement

24(b)(11)           Consent of Independent Accountants

27                  Financial Data Schedule