SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM N-1A

             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

   
                         Post-Effective Amendment No. 28
    
                                     and/or

               REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
                                   ACT OF 1940
   
                                Amendment No. 30
    
                        (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 Services)

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 
X on  September  1, 1998,  pursuant  to  paragraph (a)(1) of Rule 485 
o 75 days after filing  pursuant to paragraph  (a)(2) of Rule 485 
o on __________, pursuant to paragraph (a)(2) of Rule 485
    

If appropriate check the following box:
X This post-effective  amendment designates a new effective date for a
  previously filed post-effective amendment.

<PAGE>



                              THE AAL MUTUAL FUNDS
                THE AAL U.S. GOVERNMENT ZERO COUPON TARGET FUNDS
                           Series 2001 and Series 2006
                              222 West College Ave.
                             Appleton, WI 54919-0007
                  800-553-6319 or 414-734-7633 TDD 800-684-3416

                                   Prospectus
   
                                September 1, 1998


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

                               PLEASE TAKE NOTICE

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


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



<PAGE>


Table of Contents

   
RISK/RETURN SUMMARY
         Investment Objectives/Goals
         Principal Investment Strategies
         Principal Risks
         Risk/Return Bar Chart and Table
         Fee Table
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
         Investment Objectives
         Investment Policies
         Risks
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
         Investment Adviser
         Advisory Fee
         Portfolio Manager
SHAREHOLDER INFORMATION
         Pricing of Funds' Shares
         How to Buy Shares
         How to Redeem (sell) Shares
         Dividends, Distributions and Taxes
DISTRIBUTION ARRANGEMENTS
         Sales Charges (Loads)
FINANCIAL HIGHLIGHTS
         Series 2001
         Series 2006
    


<PAGE>


   
RISK/RETURN SUMMARY

         Investment Objective

The  Funds  seek  high,  relatively  predictable  investment  returns  from U.S.
government securities over selected periods of time from two portfolios maturing
in 2001 and 2006,  assuming  investors  reinvest the dividends and capital gains
distributed by the Funds.

         Principal Investment Strategy

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

         Principal Risk

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

         Risk/Performance

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

                  Charts

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

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

                              12/31/91       19.95%
                              12/31/92        7.03%
                              12/31/93       16.99%
                              12/31/94       -8.62%
                              12/31/95       22.82%
                              12/31/96        0.89%
                              12/31/97        7.21%
                           
The bar chart does not  reflect  the 4.75%  maximum  sales  loads.  If the chart
reflected sales loads,  returns would be less than those shown.  The Fund's year
to date return as of June 30, 1998 was ___%.

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

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

                              12/31/91       19.32%
                              12/31/92        8.58%
                              12/31/93       22.78%
                              12/31/94      -11.47% 
                              12/31/95       35.08%
                              12/31/96       -2.31%
                              12/31/97       11.93%

The bar chart does not  reflect  the 4.75%  maximum  sales  loads.  If the chart
reflected  sales  loads,  returns  would be less than  those  shown.  The Fund's
year-to-date return as of June 30, 1998 was ____%.

                  Table

The table below  compares the Funds'  average  annual total returns for the one,
five and seven  calendar year periods  ended  December 31, 1997, to those of the
Lehman Brothers  Aggregate Bond Index.  Performance  reflects the payment of the
4.75%  maximum  sales loads  charged by the Funds on the  purchase of new shares
(currently, the Funds are closed to new investors).


                                Risk/Return Table

                             Average Annual Returns
                         for the Periods Ended 12/31/97

                              One-Year          Five-Year          Seven-Year

Series 2001                   2.13%               6.24%               8.35%
Series 2006                   3.68%               8.86%              10.51%
Lehman Brothers Aggregate*    9.65%               7.48%               8.65%

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

         Expenses

                  Fee Table

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


Shareholder Fees                            Target Fund              Target Fund
  (fees paid directly from your             Series 2001              Series 2006
  investment)

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

  Maximum deferred sales charge             None                     None
  (load) on purchases (as a
   percentage of net asset value upon
   redemption)

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

  Redemption fee (the Funds charge          None                     None
   a $12.00 fee for each wire redemption)

  Exchange fee                              None                     None



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

  Management fees*                          0.50%                    0.50%

  Service (12b-1)fees*                      0.10%                    0.10%

   
  Other expenses**                          0.24%                    0.30%

  Total Fund operating expenses**           0.84%                    0.98%
    

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

   
** AAL CMC is  currently  paying all  expenses  of the Funds in excess of 1.00%.
After giving effect to these voluntary  expense  reimbursements,  the total Fund
operating expenses were 0.77% and 0.82% for Series 2001 and 2006, respectively.
    

                  Example

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

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

Time Period                    Target Fund                     Target Fund
                               Series 2001                     Series 2006

1 year                         $  558                           $  562

3 years                        $  736                           $  748

5 years                        $  928                           $  950

10 years                       $1,483                           $1,530

With the  Adviser's  voluntary  undertaking  to reimburse the Funds for expenses
over 1.00%, the Funds estimate that expenses would be approximately  $551, $714,
$891 and $1,403,  respectively,  for Series 2001 and  approximately  $556, $729,
$917 and $1,460, respectively, for Series 2006.



   
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
    

         Investment Objective

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

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

         Implementation of Investment Objectives

The Funds  invest at least 80% of their  assets in U.S.  government  zero coupon
securities. U.S. Government zero coupon securities include:

         (1) U.S.  Treasury  notes and bonds  that have no  coupons  and are not
         entitled to income;  
         (2) U.S.  Treasury bills; 
         (3) individual  interest coupons  that trade  separately;  and 
         (4)  evidences of receipt of such securities.

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

                  What Are Zero Coupon Securities?

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

                  Why Invest in Zero Coupon Securities?

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

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

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

                           Quality

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

         Risks

                  Interest Rate Risk

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

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

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

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

                  Reinvestment Risk

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

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

                  Portfolio Turnover

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

   
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
    

         Investment Adviser

   
AAL CMC serves as investment  adviser and distributor to the Funds.  AAL CMC was
organized in 1986 as a Delaware  corporation.  AAL Holdings Inc., a wholly owned
subsidiary of Aid  Association for Lutherans (AAL) owns all of AAL CMC's shares.
AAL is a non-profit,  non-stock, membership organization licensed to do business
as a fraternal benefit society in all states.  AAL has approximately 1.7 million
members and is the world's largest  fraternal benefit society in terms of assets
and life  insurance  in  force.  AAL  ranks in the top two  percent  of all life
insurers in the U.S. in terms of ordinary life insurance  (nearly $82 billion in
force).  Membership  is open to Lutherans and their  families.  AAL offers life,
health,  and disability  income insurance and fixed annuities to its members and
all members are part of one of approximately 9,500 local AAL branches throughout
the U.S. Through AAL CMC, AAL offers The AAL Mutual Funds to Lutherans and their
families.  AAL CMC has  served as  adviser  to The AAL  Mutual  Funds  since the
commencement  of  operations.  As  of  June  5,  1998,  AAL  Capital  Management
Corporation managed over $5.2 billion for The AAL Mutual Funds.
    

The adviser's principal address is:

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

AAL's principal address is:

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

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

   
                  Year 2000

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

                  Advisory Fee

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

         Portfolio Manager

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

   
SHAREHOLDER INFORMATION
    

                               PLEASE TAKE NOTICE

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

         Pricing of Funds' Shares

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

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

         How to Buy Shares

                  Initial Purchases in New Accounts

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

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

                  Initial Purchases by Mail

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

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

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

                  Initial Purchase by Wire

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

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

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

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

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

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

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

                  Additional Purchases in Existing Accounts

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

                  Additional Purchase by Mail

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

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

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

                  Additional Purchase by Wire

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

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

                  Minimum Purchase Amounts

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

              Minimum Purchase Amount per Account per Transaction*

Account                                Initial Purchase      Additional Purchase

Regular Account                        $1,000                $50

IRA or other Retirement Plan Account   $250                  $50

Automatic Investment Plan              $0                    $25


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

                  Other Purchase Information

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

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

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

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

                  Automatic Investment Plans

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

                  The Bank Draft Plan

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

                  The Capital Builder Plan

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

                  Payroll Deduction Savings and Investment Plan

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

                  Prestige Account

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

                  Retirement Plans

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

o    IRA (Individual Retirement Account)

o    "rollover" IRA

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

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

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

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

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

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

o    Money Purchase Pension Plan 

o    Profit Sharing Plan

o    401(k) Plan

                  Changes to Your Account

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

         How to Redeem (Sell) Shares

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

                  Redemption by Mail

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

The Funds base payment for shares presented for redemption at a Fund's net asset
value next  computed  after a request is received in proper form by the transfer
agent.  Shareholders earn income and receive dividends paid on funds through the
date of  redemption.  The Funds will mail  payment  proceeds  within  seven days
following receipt of all required  documents.  The Funds may postpone payment or
suspend the right of redemption in unusual  circumstances.  Shares  purchased by
check  will not be  redeemed  for 12 days or until your  check has  cleared,  if
later.

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

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

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

                  Telephone Redemptions

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

                  Telephone Redemptions and Checks Mailed

The following conditions apply to telephone redemptions described above:

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

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

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

d.   Retirement plan accounts are not eligible;

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

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

                  Telephone Redemptions by Bank Wire

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

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

b.   Wire redemptions can be made for any amount.

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

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

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

                  Reinstatement Privilege

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

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

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

                  Involuntary Redemption

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

                  Exchange Privilege

                           Exchanges by Mail

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

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

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

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

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

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

                  Telephone Transactions

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

                           Exchanges by Telephone

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

Shareholders may exchange shares for which  certificates have not been issued by
telephoning  the Mutual Fund Service  Center at  800-553-6319  or  414-734-7633.
Telephone  exchange  requests  received  prior to the close of the NYSE (usually
3:00  p.m.  Central  Time)  will be made at the net asset  value per share  next
determined that day.

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

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

         Dividends, Distributions and Taxes

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

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

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

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

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

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

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

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

                  Other Tax Information

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

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

   
DISTRIBUTION ARRANGEMENTS
    

         Sales Charges (Loads)

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

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

<S>                                                     <C>                               <C>  
Less than $25,000                                       4.75%                             4.99%

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

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

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

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

$1,000,000 or more*                                     No-Load                           No-Load

</TABLE>


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

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

                  Reduced Sales Charges

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

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

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

<S>                                <C>                              <C>                               <C>   
   Less than $25,000               2.375%                           2.430%                            1.187%

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

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

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

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

   $1,000,000 or more              No load                          No load                           No load

</TABLE>


                  Right of Accumulation.

An investor  with  multiple  accounts and  investors  who are related and living
within the same  household  may "link"  their  accounts  in the Funds and in the
other AAL Mutual Funds so they are eligible for a reduced  sales charge based on
the current value of shares owned,  computed at the public offering price,  plus
the  amount of the new  investment.  The AAL Money  Market  Fund  shares  may be
included if they were acquired in a simultaneous  transaction (i.e. exchange) in
which  shares of another  AAL Mutual  Fund on which a sales  charge was paid are
redeemed  and the  proceeds of sale were used to purchase  AAL Money Market Fund
shares.  SEPs, SARSEPs and 403(b)(7) custodial accounts (except individual IRAs)
are linked with all other  accounts in the plan and  therefore may not be linked
with individual accounts. Accounts of institutional trustees will not be linked,
except within  individual  trusts.  Please refer to the table on page 19 for the
sales  charges,  expressed as a percentage of the public  offering price and the
net amount invested, at the different breakpoint levels.

                  Letter of Intent

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

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

         Distribution (12b-1) Fees

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

Under the Plan, the payments may not exceed an amount computed at an annual rate
of 0.10 of 1% of the average daily net assets of each Fund.  The Plan is subject
to review and annual approval by the Board of Trustees.

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


   
FINANCIAL HIGHLIGHTS

         Series 2001

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


<TABLE>
                     INCOME FROM INVESTMENT                             LESS DISTRIBUTIONS                         
                     OPERATIONS 

Share Class          NAV:     Net        Net          Total from   Dividends     Distribution      Total        
and Periods          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>
                                                                                                        
Fiscal year
ended
<S>                  <C>      <C>        <C>          <C>    <C>   <C>           <C>               <C>                 
30-Apr-94            $12.25   $0.700     -$0.623      $0.077       -$0.700       -$1.087           -$1.787    
30-Apr-95             10.54    0.663       0.000       0.663        -0.663        -0.170            -0.833    
30-Apr-96             10.37    0.647       0.335       0.982        -0.761        -0.041            -0.802    
30-Apr-97             10.55    0.639      -0.068       0.571        -0.639        -0.102            -0.741    
30-Apr-98             10.38    0.636       0.303       0.939        -0.636        -0.073            -0.709    
                                                                                                                                 

            

                                                             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)


Fiscal Year
Ended
30-Apr-94            $10.54   -$0.34%    $1,824,482           1.00%               5.74%             1.65%            
30-Apr-95             10.37     6.82%     1,754,517           1.00%               6.50%             0.00%
30-Apr-96             10.55     9.23%     1,811,034           1.00%               5.84%             0.00%
30-Apr-97             10.38     5.42%     1,710,814           0.97%               6.08%             0.00%
30-Apr-98             10.61     3.96%     1,524,996           0.77%               6.16%             0.00%
                                                                                             



*    If the Fund had paid all of its expenses, the ratios would be as follows:

Ratio of net operating expenses to average net assets(2):  2.33%, 2.00%, 1.74%, 0.99% and 0.84%.
Ratio of net investment income (loss) to average net assets(2):  4.41%, 5.51%, 5.10%, 6.07% and 6.10%.

(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.

</TABLE>  

                                                                             
    




   
         Series 2006

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


<TABLE>
                     INCOME FROM INVESTMENT                             LESS DISTRIBUTIONS                         
                     OPERATIONS 

Share Class          NAV:     Net        Net          Total from   Dividends     Distribution      Total        
and Periods          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>
                                                                                                        
Fiscal year
ended
<S>                  <C>      <C>        <C>          <C>    <C>   <C>           <C>               <C>                 
30-Apr-94            $12.52   $0.740     -$0.567      $0.173       -$0.740       -$0.993           -$1.733    
30-Apr-95             10.96    0.734       0.184       0.918        -0.734        -0.214            -0.948    
30-Apr-96             10.93    0.711       0.648       1.359        -0.865        -0.094            -0.959    
30-Apr-97             11.33    0.708       0.075       0.783        -0.708        -0.165            -0.873    
30-Apr-98             11.24    0.701       1.004       1.705        -0.701        -0.114            -0.815    
                                                                                               
                                                                                                                                  

            
                                                             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)


Fiscal Year
Ended
30-Apr-94            $10.96    $0.18%    $1,364,890           1.00%               5.86%             1.05%              
30-Apr-95             10.93     9.05%     1,400,161           1.00%               6.95%             0.00% 
30-Apr-96             11.33    11.80%     1,479,703           1.00%               5.83%             0.00% 
30-Apr-97             11.24     6.84%     1,452,870           1.00%               6.22%             0.00% 
30-Apr-98             12.13     9.83%     1,615,945           0.82%               6.03%             0.00% 
                                                                                             



*    If the Fund had paid all of its expenses, the ratios would be as follows:

Ratio of net operating expenses to average net assets(2):   6.19%, 2.49%, 2.07%, 1.17% and 0.90%.
Ratio of net investment income (loss) to average net assets(2):  3.72%, 5.46%, 4.76%, 6.04% and 5.96%.

(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.

</TABLE>  

                                                                             
    
<PAGE>


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

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



Investment Company Act File No. 811-5075
    

<PAGE>


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


                       STATEMENT OF ADDITIONAL INFORMATION
   
                             Dated September 1, 1998


This  statement of  additional  Information  is not a  prospectus,  but provides
additional  information to supplement the prospectus for The AAL U.S. Government
Zero Coupon Target Funds,  Series 2001 and 2006,  dated  September 1, 1998.  You
should read the  statement of additional  information  in  conjunction  with the
prospectus, and any supplements thereto. You may obtain the Funds' prospectus at
no charge by writing  or  telephoning  the Funds at the  address  and  telephone
number above.
    

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

   
The  Funds  have  incorporated  by  reference  financial  statements,  notes  to
financial  statements  and  report  of  independent  accountants  for the  Funds
included in the Annual Report to Shareholders  of the Trust,  for the year ended
April 30, 1998.
    



<PAGE>


                                Table of Contents

                                                       Page      Prospectus Page

Fund History

Description of the Fund and Its Investments
and Risks

Management of the Fund

Control Persons and Principal Holders of
Securities

Investment Advisory and Other Services

Brokerage Allocation and Other Practices

Capital Stock and Other Securities

Purchases, Redemptions and Pricing of Shares

Taxation of the Fund

Underwriters

Calculation of Performance Data

Financial Statements


<PAGE>


   
HISTORY OF THE FUNDS

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

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

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

FUNDS' ORGANIZATION AND DESCRIPTION AND THEIR INVESTMENTS AND RISKS
    
         The Funds' Classification

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

         Other Investment Strategies and Risks

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

                  Zero Coupon Securities

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

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

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

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

                  Repurchase Agreements

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

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

                  When-Issued and Delayed Delivery Securities

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

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

                  Short-term Trading

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

                  Lending Portfolio Securities

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

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

         Other Fund Policies

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

   
THE FUNDS' MANAGEMENT
    

         Board of Trustees

The Funds' Board of Trustees  decides  matters of general policy and reviews the
activities of the Funds' adviser and distributor, AAL CMC. The Board of Trustees
is  subject  to the laws of  Massachusetts  governing  business  trusts  and the
regulatory provisions of the securities laws largely derived from the Investment
Company Act of 1940 and the rules  thereunder.  The Funds' officers  conduct and
supervise the daily business operations of the Funds.

         Trustee and Officer Information

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

                  Trustees

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

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

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

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

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

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

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

John O. Gilbert**                  Trustee; President and Chief Executive Officer, Aid Association for
4321 North Ballard Road            Lutherans; Regent, Luther College; Director, Life Office Management
Appleton, WI 54949                 Association, Inc.
DOB 8/30/42
</TABLE>

*    All of the Trustees  except Mr.  Pender are  Directors for the AAL Variable
     Product Series Fund, Inc.

**   Denotes an  "interested  person" of the Funds as defined in the  Investment
     Company Act of 1940.

                  Officers

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

<TABLE>
<CAPTION>
<S>                                <C> 
Ronald G. Anderson                 President; Director, President of AAL CMC since 1996
222 West College Avenue
Appleton, WI 54919-0007
DOB 10/2/48

Robert G. Same                     Secretary; Director, Executive Vice President 
222 West College Avenue            since 1997, Senior Vice President and
Appleton, WI 54919-0007            Secretary of AAL CMC from 1987 to 1997
DOB 7/28/45

Terrance P. Gallagher              Treasurer;  Director,  Chief Financial Officer of AAL CMC
222 West  College  Avenue          since  1994,  Comptroller  since 1992 and Senior Vice
Appleton, WI 54919                 President since 1996 DOB 9/20/58
</TABLE>


                  Compensation

   
The Funds do not pay their  officers for  services.  However,  the Trust pays an
annual fee of $25,000 to any of the  Trustees  who are not officers or employees
of the adviser or its parent.  These fees are assessed ratably to each series of
the Trust.  The Trust reimburses the Trustees for any expenses they may incur by
reason of  attending  such  meetings or in  connection  with  services  they may
perform for the Trust.  For the fiscal year ended April 30, 1998, the Trust paid
an aggregate of $85,751 in Trustees' fees and expenses.
    

<TABLE>
<CAPTION>
(1)                    (2)                   (3)                   (4)                   (5)               (6)Total
Name of Person         Capacities in Which   Aggregate             Pension or            Estimated         Compensation from
                       Remuneration          Remuneration          Retirement Benefits   Annual Benefits   Registrant and Fund
                       Received                                    Accrued During        Upon Retirement   Complex paid to
                                                                   Registrant's Last                       Trustees *
                                                                   Fiscal Year

<S>                    <C>                   <C>                   <C>                   <C>               <C>
John H. Pender         Trustee               -                     -                     -                 -
DOB 5/25/30

John O. Gilbert        Trustee               -                     -                     -                 -
DOB 8/30/42

Ronald G. Anderson,    Trustee               -                     -                     -                 -
DOB 10/2/48

F. Gregory Campbell    Trustee               $19,500               -                     -                 $25,000
DOB 12/16/39

Richard L. Gady        Trustee               $19,500               -                     -                 $25,000
DOB 2/28/43

D. W. Russler          Trustee               $19,500               -                     -                 $25,000
DOB 10/28/28

Lawrence M. Woods      Trustee               $19,500               -                     -                 $25,000
DOB 4/14/32
</TABLE>

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

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

         Control Persons

As of May 31,  1998,  no one was  considered  a control  person of the Funds.  A
control person is one who has beneficial interest in more than 25% of the voting
securities of a Fund or one who asserts or is  adjudicated  to have control of a
Fund.

         Principal Holders

As of May 31, 1998, there were two principal  holders of the Funds'  securities.
Principal holders are those who own (either of record or beneficially) in excess
of 5% of a Fund's outstanding shares.

                  Series 2001

                  Name                                 % of Ownership
   
                  S. W. Heriot                              6.6%
                  Guardian
                  9118 Little Sweden Rd.
                  Cook, MN 55723-8814



                  Series 2006

                  Name

                  J. May and N. May                         5.91%
                  35 Interlachen Place
                  Tonka Bay, MN 55331-9522
    

         Management Ownership

As of May 31, 1998,  the officers and Trustees  owned less than 1% of the Funds'
shares.

INVESTMENT ADVISORY AND OTHER SERVICES

         Control

   
AAL CMC is the  investment  adviser for the Funds under an  investment  advisory
agreement with the Trust. AAL Holdings,  Inc. owns all of the shares of AAL CMC.
AAL  Holdings,  Inc. is a wholly owned  subsidiary  of the Aid  Association  for
Lutherans  (AAL).  AAL  is  a  non-profit,  non-stock,  membership  organization
licensed to do business as a fraternal  benefit  society in all states.  AAL was
formed in 1992 for the purpose of having  Lutherans  join together for financial
security and for helping others.  AAL has  approximately 1.7 million members and
is the world's  largest  fraternal  benefit  society in terms of assets and life
insurance in force. AAL ranks in the top two percent of all life insurers in the
U.S.  in terms of  ordinary  life  insurance  (nearly  $82  billion  in  force).
Membership is open to Lutherans and their families. AAL offers life, health, and
disability  income  insurance and fixed annuities to its members and all members
are part of one of  approximately  9,500 local AAL branches  throughout the U.S.
Through AAL CMC,  AAL offers  mutual  funds and other  investment  products  and
services.  AAL CMC has  served as  adviser  to Funds  from the  commencement  of
operations. As of April 30, 1998, AAL CMC managed over $4 billion for the Trust.
    

         Advisory Fees

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

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

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

                                  
*    The Funds became available to the public on November 14, 1998.

    

         Affiliated Principal Underwriter

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

AAL CMC's address is:

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

The Trust's  executive  officers,  Ron G. Anderson,  Robert G. Same and Terry P.
Gallagher,  also serve as officers  and  directors  of AAL CMC,  the adviser and
distributor of The AAL Mutual Funds.

         Advisory Services and Expenses

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

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

          (i)  interest and taxes;

          (ii) brokerage commissions;

          (iii) insurance premiums;

          (iv) compensation  and  expenses  of its  Trustees  other  than  those
               affiliated with the adviser;
                    
          (v)  legal and audit expenses;
                     
          (vi) fees and expenses of the Trust's custodian and transfer agent;

          (vii)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;

          (viii) fees and expenses incident to the registration under Federal or
               state securities laws of the Trust or its shares;
                  
          (ix) expenses of preparing,  printing and mailing  reports and notices
               and proxy material to shareholders of the Trust;
                     
          (x)  all other expenses  incidental to holding meetings of the Trust's
               shareholders;

          (xi) dues or assessments of or contributions to the Investment Company
               Institute or its successor, or other industry organizations;
                 
          (xii)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
                  
          (xiii) all expenses which the Trust agrees to bear in any distribution
               agreement  or in any plan  adopted by the Trust  pursuant to Rule
               12b-1 under the Investment Company Act of 1940.

The advisory  agreement  provides  that subject to Section 36 of the  Investment
Company Act of 1940,  the adviser shall not be liable to the Trust for any error
of judgment or mistake of law or for any loss arising out of any  investment  or
for any act or omission in the  management of the Trust and the  performance  of
its duties  under the  agreement  except for willful  misfeasance,  bad faith or
gross  negligence  in the  performance  of its  duties or by reason of  reckless
disregard of its obligations  and duties under the agreements.  As to the Funds,
the Board of Trustees approved the advisory  agreement on February 27, 1990. The
Funds'  shareholders  approved the advisory  agreement on November 12, 1991. The
advisory  agreement  continues  in  effect  from  year  to  year so long as such
continuance is specifically approved at least annually by the Board of Trustees,
including a majority of the Trustees who are not Interested  Persons (as defined
in the Act.)

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

         Other Services

                  Administrative Services

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

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

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

         Shareholder Maintenance Agreement

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

   
The annual fee the Trust pays for AAL CMC to provide such  shareholder  services
is based upon, and limited by, the difference  between the current  account fees
actually charged by Firstar Trust Company,  as transfer and dividend  disbursing
agent,  and the normal  full-service  fee schedule  published  by Firstar  Trust
Company.  The annual  fee is also  based on  reimbursement  for  certain  actual
out-of-pocket  costs  including  postage and  telephone  charges.  This  account
differential,  including reimbursement for expenses, is at an annualized rate of
$4.30 per account, effective June 1, 1998. The shareholder maintenance agreement
continues  in  effect  from  year to year,  as long as it is  approved  at least
annually by the Funds' Board of Trustees or by a vote of the outstanding  voting
securities of the Funds. In either case, the agreement must be approved annually
by a majority of the Trustees who are not parties to the agreement or interested
persons of any such party.  The  agreement  terminates  automatically  if either
party assigns the agreement.  The agreement also  terminates  without penalty by
either party on 60-days notice.  The agreement provides that neither the adviser
nor its personnel shall be liable for any error of judgment or mistake of law or
for  any  loss  arising  out of any act or  omission  in the  execution  and the
discharge  of  its   obligations   under  the  agreement,   except  for  willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of  reckless  disregard  of their  obligations  and  duties  under the
agreement. These fees are not currently assessed against the Funds but may be in
the future.
    

         Rule 12b-1 (Distribution) Plan

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

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

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

         (a)  the  costs  of  the  preparation,  printing,  and  mailing  of all
              required  reports and  notices to  shareholders,  irrespective  of
              whether  such  reports or notices  contain or are  accompanied  by
              material  intended  to  result  in the sale of shares of a fund or
              other funds or other investments;
         (b)  the costs of  preparing, printing  and mailing of all prospectuses
              to shareholders;
         (c)  the  costs  of  preparing,  printing  and  mailing  of  any  proxy
              statements  and  proxies,  irrespective  of whether any such proxy
              statement  includes any item relating to, or directed toward,  the
              sale of the Funds' shares;
         (d)  all legal and accounting  fees relating to the  preparation of any
              such reports, prospectuses, proxies and proxy statements;
         (e)  all fees and expenses  relating to the  qualification of the Funds
              and or their shares under the securities or "Blue Sky" laws of any
              jurisdiction;
         (f)  all fees under the Act and the Securities  Act of 1933,  including
              fees in connection with any application for exemption  relating to
              or directed toward the sale of the Funds' shares;
         (g)  all fees and  assessments of the Investment  Company  Institute or
              any successor organization or industry association irrespective of
              whether  some of its  activities  are  designed  to provide  sales
              assistance;
         (h)  all costs of preparing and mailing confirmations of shares sold or
              redeemed or share certificates and reports of share balances; and
         (i)  all  costs  of  responding  to  telephone  or  mail  inquiries  of
              shareholders.

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

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

          (a)  the amounts of all  payments,  the identity of recipients of each
               such payment,  the basis on which each such  recipient was chosen
               and the basis on which the amount of the payment was made;
         
          (b)  the amounts of expenses and the purpose of each such expense; and
                  
          (c)  all costs of the other  payments  specified  in the Plan  (making
               estimates  of such costs where  necessary or  desirable)  in each
               case during the preceding calendar or fiscal quarter.

   
The aggregate amount paid by the Funds to the distributor under the Plan for the
fiscal year ended April 30, 1998,  and the manner in which this amount was spent
is as follows:
    

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

Expenditures

Compensation to Registered Representatives                  $0

Other                                                       $0

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

         Other Service Providers

                  Transfer and Dividend Paying Agent and Custodian

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

As the transfer agent,  Firstar handles the  recordkeeping for the Funds' shares
and is authorized to make the transfers of and distributions for a Fund's shares
in accordance with  instructions  from the Funds.  As the custodian,  Firstar in
general  holds the assets of each Fund and  provides  safekeeping,  clearing and
other services for the Funds' portfolios.

                  Independent Accountants

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

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

BROKERAGE ALLOCATION AND OTHER PRACTICES

         Brokerage Transactions

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

         Commissions

   
Because the Target Funds portfolios invest in U.S. government securities,  which
generally  trade  on a  principal  basis  through  a  dealer  rather  than  on a
commission basis through a broker,  the Target Funds did not pay any commissions
for the past three years. The Trust,  which includes all of The AAL Mutual Funds
series,  paid a total of  $3,143,251,  $4,205,263  and  1,697,844  in  brokerage
commissions  in each of the past three  fiscal  years  ending on April 30, 1998,
1997 and 1996, respectively.
    

         Brokerage Selection

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

        (1)  the breadth of the market in the security;
        (2)  the price of the security;
        (3)  the financial condition and execution capability of the dealer; and
        (4)  the  reasonableness  of the  commission,  if any  (for the
             specific transaction and on a continuing basis).

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

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

CAPITAL STOCK AND OTHER SECURITIES

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

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

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

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

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

PURCHASES, REDEMPTIONS AND PRICING OF SHARES

Net Asset Value

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

                    NAV + Sales charge = Offering price.

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

                              NAV
                    ----------------------------   =   Public offering price.
                        100% - Sales charge %

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

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

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

    Assets (Cash + Current value of securities ) - Liabilities = NAV of Fund

                                   NAV of Fund
                         -------------------------------  =  NAV per share
                           Number of shares outstanding


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

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

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

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

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

Each Fund  reserves  the right to suspend  or  postpone  redemptions  during any
period  when:  (a)  trading  on the NYSE is  restricted,  as  determined  by the
Securities  and Exchange  Commission,  or that exchange is closed for other than
customary  weekend  and  holiday  closings;  (b)  the  Securities  and  Exchange
Commission  has by order  permitted  such  suspension;  or (c) an emergency,  as
determined by the Securities and Exchange Commission, exists, making disposal of
portfolio  securities  or  valuation  of net  assets of the Fund not  reasonably
practicable.

TAXATION OF THE FUNDS

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

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

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

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

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

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

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

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

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

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

UNDERWRITERS

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

<TABLE>
<CAPTION>
Time Period                              Aggregate Commissions           Retained Commissions

<S>                                      <C>                             <C>
For the fiscal year ended 4/30/96        $0                              $0

For the fiscal year ended 4/30/97        $0                              $0

   
For the fiscal year ended 4/30/98        $0                              $0
    
</TABLE>

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

CALCULATION OF PERFORMANCE DATA

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

         Standardized Performance Information

                  Average Annual Total Return

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

                   T = n/(ERV/P) - 1
Where:

          T=   average annual total return;

          n=   number of years and portion of a year;

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

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

   
Average Annual Total Return for the           Series 2001            Series 2006
Period Ended 4/30/98                        
                                            
1-Year (total return)                            3.96%                  9.83%
                                            
5-year                                           4.93%                  7.33%
                                            
From Inception                                   8.49%                  10.61%
                                        

                  Current Yield

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

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

          a=   dividends and interest earned during the period;

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

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

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

   
For  purposes  of  this  calculation,  income  earned  on  debt  obligations  is
determined  by  applying  a  calculated   yield-to-maturity  percentage  to  the
obligations  held during the period.  The yields for the Funds,  Series 2001 and
2006,  for the  30-day  period  ended  April 30,  1998,  were  4.61% and  4.78%,
respectively. When advertising yield, a Fund will not advertise a one-month or a
30-day  period  which  ends  more  than 45 days  before  the date on  which  the
advertisement is published.
    

         Other Performance Information

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

             Average Annual Total Return

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

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

     Where:

          T=   average annual total return;

          n=   number of years and portion of a year;

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

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

   
Average Annual Total Return ended         Series 2001           Series 2006
April 30, 1998                          
                                        
1-year (total return)                       9.17%                 15.30%
                                        
5-year                                      5.92%                 8.38%
                                        
From Inception (11/90)                      9.20%                 11.33%
                                     

             Anticipated Growth Rate

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

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

FINANCIAL STATEMENTS

The AAL Mutual Funds ("Trust") has filed audited financial statements,  notes to
financial statements and report of independent accountants for the Trust for the
fiscal year ended April 30,  1998,  for The AAL U.S.  Government  Target  Funds,
Series  2001  and  2006,   which  are   incorporated   by  reference  into  this
Post-Effective  Amendment to this Registration  Statement.  Class A, Class B and
Institutional shares for The AAL Small Cap Stock, Mid Cap Stock,  International,
Capital Growth, Equity Income,  Balanced,  High Yield Bond, Municipal Bond, Bond
and Money Market Funds are contained in separate prospectuses.


<PAGE>


                              THE AAL MUTUAL FUNDS

                                     PART C

OTHER INFORMATION

Item 23. Exhibits

Except as noted below, all required  exhibits 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.

         (j)  Consent of Independent Accountants; and

         (n)  Financial Data Schedule.

Item 24. Persons Controlled by or under Common Control with Registrant

                              The AAL Mutual Funds
                         (Massachusetts business trust)



                       Aid Association for Lutherans (AAL)
               (Fraternal benefit society - owns all shares of AAL
                                 Holdings Inc.)



                                AAL Holdings Inc.
    (Holding company - owns all shares of AAL Capital Management Corporation)



                       AAL Capital Management Corporation
               (Adviser and distributor for The AAL Mutual Funds)

AAL Capital Management  Corporation,  the adviser and distributor for 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  Trust's  Board of  Trustees,  AAL  Capital
Management   Corporation  provides  the  investment  advisory,   administrative,
shareholder, distribution and other services for the Funds.



<PAGE>



Item 25. Indemnification

Under Section 12 of Article  Seventh 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.

Advancements 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 26. Business and Other Connections of The Investment Adviser.

AAL Capital Management  Corporation is the investment 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 and sub-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 and sub-adviser.

Item 27. 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

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

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

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 President      Assistant Treasurer
222 West College Ave.
Appleton, WI 54919

Charles Friedman             Assistant Vice President      None
222 West College Ave.
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

Cindy Haas                   Assistant Vice President      None
222 West College Ave.
Appleton, WI 54919

Item 28. 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 29. Management Services

Not applicable

Item 30. Undertakings

The  Registrant  further  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.

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 ___ day
of June, 1998.

THE AAL MUTUAL FUNDS



---------------------------------------------------
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/ John H. Pender*                          Trustee               June __, 1998
-----------------------------
John H. Pender

/s/ John O. Gilbert*                         Trustee               June __, 1998
-----------------------------
John O. Gilbert

/s/ Richard L. Gady*                         Trustee               June __, 1998
-----------------------------
Richard L. Gady

/s/ D. W. Russler*                           Trustee               June __, 1998
-----------------------------
D. W. Russler

/s/ Lawrence M. Woods*                       Trustee               June __, 1998
-----------------------------
Lawrence M. Woods

/s/ F. Gregory Campbell*                     Trustee               June __, 1998
-----------------------------
F. Gregory Campbell


                                             Principal             June __, 1998
-----------------------------                Financial and
Terrance P. Gallagher                        Accounting Officer


                                             Trustee and           June __, 1998
-----------------------------                President
Ronald G. Anderson, Trustee

*Pursuant to Powers of Attorney


<PAGE>


POWER OF ATTORNEY

KNOW ALL MEN BY THESE  PRESENTS  that the person whose  signature  appears below
authorizes Ronald G. Anderson or John O. Gilbert to act as attorney-in-fact  and
agent, with full power of substitution and re-substitution,  for such person and
in such person's name,  place and stead, in any and all capacities,  to sign any
or all amendments) to the Registration  Statement on Form N-1A of The AAL Mutual
Funds, and to 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 for all intents and
purposes  as such  person  might or could do in  person,  hereby  ratifying  and
confirming  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
authorizes Ronald G. Anderson or John O. Gilbert to act as attorney-in-fact  and
agent, with full power of substitution and re-substitution,  for such person and
in such person's name,  place and stead, in any and all capacities,  to sign any
or all amendments) to the Registration  Statement on Form N-1A of The AAL Mutual
Funds, and to 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 for all intents and
purposes  as such  person  might or could do in  person,  hereby  ratifying  and
confirming  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
authorizes Ronald G. Anderson or John O. Gilbert to act as attorney-in-fact  and
agent, with full power of substitution and re-substitution,  for such person and
in such person's name,  place and stead, in any and all capacities,  to sign any
or all amendments) to the Registration  Statement on Form N-1A of The AAL Mutual
Funds, and to 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 for all intents and
purposes  as such  person  might or could do in  person,  hereby  ratifying  and
confirming  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
authorizes Ronald G. Anderson or John O. Gilbert to act as attorney-in-fact  and
agent, with full power of substitution and re-substitution,  for such person and
in such person's name,  place and stead, in any and all capacities,  to sign any
or all amendments) to the Registration  Statement on Form N-1A of The AAL Mutual
Funds, and to 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 for all intents and
purposes  as such  person  might or could do in  person,  hereby  ratifying  and
confirming  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
authorizes Ronald G. Anderson or John O. Gilbert to act as attorney-in-fact  and
agent, with full power of substitution and re-substitution,  for such person and
in such person's name,  place and stead, in any and all capacities,  to sign any
or all amendments) to the Registration  Statement on Form N-1A of The AAL Mutual
Funds, and to 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 for all intents and
purposes  as such  person  might or could do in  person,  hereby  ratifying  and
confirming  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
authorizes John O. Gilbert to act as attorney-in-fact and agent, with full power
of substitution and re-substitution,  for such person and in such person's name,
place and stead,  in any and all  capacities,  to sign any or all amendments) to
the Registration Statement on Form N-1A of The AAL Mutual Funds, and to 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 for all intents and purposes as such
person might or could do in person,  hereby  ratifying and confirming  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. Ronald G. Anderson
---------------------
Ronald G. Anderson
as Trustee, but not
individually

<PAGE>


POWER OF ATTORNEY

KNOW ALL MEN BY THESE  PRESENTS  that the person whose  signature  appears below
authorizes  Ronald G. Anderson to act as  attorney-in-fact  and agent, with full
power of substitution and re-substitution,  for such person and in such person's
name, place and stead, in any and all capacities, to sign any or all amendments)
to the Registration  Statement on Form N-1A of The AAL Mutual Funds, and to 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 for all  intents  and
purposes  as such  person  might or could do in  person,  hereby  ratifying  and
confirming  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 O. Gilbert
---------------------
John O. Gilbert
as Trustee, but not
individually

<PAGE>


Exhibit Index

Item 23

(j)   Consent of Independent Auditors; and

(n)  Financial Data Schedule.