As filed with the Securities and Exchange Commission on
                                 April 6, 1999.
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM N-1A

                        REGISTRATION STATEMENT UNDER THE
                             SECURITIES ACT OF 1933

                              Pre-Effective Amendment No.        
                              Post-Effective Amendment No. 30    X

                                                 and/or

                        REGISTRATION STATEMENT UNDER THE
                         INVESTMENT COMPANY ACT OF 1940

                               Amendment No 32                   X

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


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

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

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

Approximate Date of Proposed Public Offerings:  Continuous

It is proposed that this filing will become effective:

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

If appropriate, check the following box:

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



                              THE AAL MUTUAL FUNDS

                                   PROSPECTUS
                              Class A and B Shares
                                  July 1, 1999


                          The AAL Small Cap Stock Fund

                           The AAL Mid Cap Stock Fund

                           The AAL International Fund

                           The AAL Capital Growth Fund

                           The AAL Equity Income Fund

                              The AAL Balanced Fund

                          The AAL High Yield Bond Fund

                           The AAL Municipal Bond Fund

                                The AAL Bond Fund

                            The AAL Money Market Fund




This  Fund  prospectus  provides  information  that  you  should  review  before
investing.  Please keep the  prospectus  for future  reference.  If you have any
questions  or want  additional  material,  please  call The AAL Mutual  Funds at
800-553-6319,  or  write  The AAL  Mutual  Funds  at 222  West  College  Avenue,
Appleton,  Wisconsin  54919-0007.  The  Telecommunications  Device  for the Deaf
("TDD") number is 800-684-3416.



As with other mutual  funds,  the  Securities  and Exchange  Commission  has not
approved or  disapproved  these  securities or determined if this  prospectus is
complete or  accurate.  If anyone  tells you  otherwise,  they are  committing a
crime.

TABLE OF CONTENTS

RISK/RETURN INFORMATION: INVESTMENT PROGRAMS AND PERFORMANCE

PROSPECTUS SUMMARY
     Reading the Prospectus
     The Funds
     Principal Risks Common to All Funds
     Class A Versus Class B Shares
     Institutional Shares

THE AAL SMALL CAP STOCK FUND
     Investment Objective
     Investment Strategies
     Primary Risk
     Past Performance
     Expenses

THE AAL MID CAP FUND
     Investment Objective
     Investment Strategies
     Primary Risk
     Past Performance
     Expenses

THE AAL INTERNATIONAL FUND
     Investment Objective
     Investment Strategies
     Primary Risk
     Past Performance
     Expenses

THE AAL CAPITAL GROWTH FUND
     Investment Objective
     Investment Strategies
     Primary Risk
     Past Performance
     Expenses

THE AAL EQUITY INCOME FUND
     Investment Objective
     Investment Strategies
     Primary Risk
     Past Performance
     Expenses

THE AAL BALANCED FUND
     Investment Objective
     Investment Strategies
     Primary Risk
     Past Performance
     Expenses

THE AAL HIGH YIELD BOND FUND
     Investment Objective
     Investment Strategies
     Primary Risk
     Past Performance
     Expenses

THE AAL MUNICIPAL BOND FUND
     Investment Objective
     Investment Strategies
     Primary Risk
     Past Performance
     Expenses

THE AAL BOND FUND
     Investment Objective
     Investment Strategies
     Primary Risk
     Past Performance
     Expenses

THE AAL MONEY MARKET FUND
     Investment Objective
     Investment Strategies
     Primary Risk
     Past Performance
     Expenses

MANAGEMENT AND CAPITAL STRUCTURE
     Investment Adviser
     Portfolio Management
     Adviser Fees per Fund
     The Aid Association for Lutherans Savings Plan
     Year 2000

SHAREHOLDER INFORMATION
     Pricing Funds' Shares
     How to Buy Shares
     How to Redeem (Sell) Shares

DIVIDENDS

TAX CONSIDERATIONS

DISTRIBUTION ARRANGEMENTS
     12b-1 Fees
     Distribution Fees
     Service Fees
     Shareholder Maintenance Agreement

FINANCIAL HIGHLIGHTS

RISK/RETURN INFORMATION: INVESTMENT PROGRAMS AND PERFORMANCE

PROSPECTUS SUMMARY

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

The Funds
In  this  prospectus,  we  provide  you  with  information  on:  the  investment
objectives and policies;  risks of investing in the Funds;  historic performance
information;  how to buy and sell  Class A and  Class B shares;  management  and
services provided to the Funds; and other information.

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

Principal Risks Common to All Funds
You assume certain risks when you invest in any of the Funds.  Risks specific to
each Fund are discussed on the following pages.  More generally,  the investment
style and strategies  that we use to select stocks,  bonds and other  securities
for each Fund  depends on our  ability to select  those that  perform  well over
time.   Our   selections  may  not  always  achieve  our  growth  and/or  income
expectations,  and securities we select could decline in value.  There can be no
assurance that any of the Funds will achieve its  objective,  and you could lose
money.

Class A Versus Class B Shares
Whether you should  purchase  Class A or Class B shares  depends on how long you
intend to own the shares and the size of your  investment.  If you intend to own
shares  for more than five  years and plan to  invest  less than  $100,000,  you
should  consider Class B shares.  If you plan to redeem shares in less than five
years or invest  $100,000  or more,  you  should  consider  Class A shares.  The
following  table  shows  some of the  differences  between  Class A and  Class B
shares:

CLASS A SHARES                              CLASS B SHARES
--------------------------------            -----------------------------------

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

Institutional Shares
We also offer an institutional class of shares  ("Institutional  shares").  They
are described in a separate  prospectus.  Institutional  shares are for Lutheran
organizations or enterprises with the minimum initial investment in the Funds of
$500,000.  We designed  Institutional shares to give Lutheran  organizations and
enterprises   (non-natural  persons)  or  financial  institutions  acting  in  a
fiduciary or agency  capacity  for these  organizations  a  convenient  means of
accumulating  an interest in The AAL Mutual  Funds.  Lutheran  organizations  or
enterprises  that invest in  Institutional  shares  purchase shares at net asset
value. They do not pay initial sales charges,  redemption fees or 12b-1fees. The
performance  of Class A,  Class B and  Institutional  shares  will vary based on
differences  in sales  charges  and fees.  For more  information  on the  Funds'
Institutional  shares and a  prospectus,  you may call our Mutual Funds  Service
Center at 800-553-6319.

THE AAL SMALL CAP STOCK FUND

Investment Objective
The AAL  Small  Cap Stock  Fund  seeks  long-term  capital  growth by  investing
primarily in small company common stocks, and securities  convertible into small
company common stocks.

Investment Strategies
Under normal circumstances, we invest at least 65% of the Fund's total assets in
small company common stocks. We may invest the remaining 35% of the Fund's total
assets  in  any  combination  of  small-cap,   mid-cap,  large-cap  stocks,  and
securities convertible into these stocks.

By small companies we mean those with market  capitalizations  of less than $1.5
billion.  We often refer to small company stocks as small cap stocks.  Small-cap
stocks  trade  in the  over-the-counter  market  as well  as on U.S.  securities
exchanges.  We focus on companies with market capitalizations  ranging from $100
million  to $1  billion.  Generally,  small  companies  have  not yet  gained  a
reputation for a quality. Further, small companies tend to be less recognizable,
than  companies  listed in the S&P 500(R)  Index or the S&P Mid Cap 400(R)
Index. We look for small companies (including companies initially offering stock
to the public) that, in our opinion:

(1)      are in the early stages of development or positioned in new and 
         emerging industries;
(2)      have an opportunity for rapid growth;
(3)      have capable management; and
(4)      are financially sound.

Due to certain market inefficiencies, we believe properly selected small company
stocks offer greater opportunities for long-term capital growth. We tend to sell
the  stocks of  companies  when we think  that other  investments  offer  better
opportunities. This investment strategy may result in short-term gains or losses
for the Fund.

Primary Risks

Financial  Risk:  When compared with large  companies,  small,  less-established
companies may have  relatively  lower  revenues,  limited  product  lines,  less
management depth and a lower share of the market for their products or services.
Because of these and other factors,  stocks of small companies present a greater
risk of losing value than stocks of larger, more established companies.

Market Risk:  Over time, the stock market tends to move in cycles,  with periods
when stock  prices rise and periods  when stock  prices  decline.  Historically,
small-cap  stocks  have  experienced  more price  volatility  than  mid-cap  and
large-cap stocks.

Small company  stocks tend to have greater price  volatility  than large company
stocks.  Generally,  the value of the Fund's  investments  tend to increase more
than the stock market,  as measured by the S&P 500(R)  Index,  in a period of
rising stock prices.  Conversely,  the value of the Fund's  investments  tend to
decrease  more than the stock in a period of declining  stock  prices.  However,
these price trends do not always  occur.  You could lose money  investing in the
Fund.

Past Performance
The  following  table and chart  reflect the Fund's  annual return and long-term
performance.  The bar chart and table show the risks of investing in the Fund by
demonstrating  the  variability in performance  from  year-to-year.  As with all
investments, past performance is not a guarantee of future results.

Year-by-Year Total Return
The following  chart shows  calendar year total returns for Class A shares since
the Fund started operations.  Total returns assume reinvestment of all dividends
and  distributions,  but do not reflect any deduction for sales charges.  If the
chart reflected sales loads, returns would be less than those shown.

Class A shares

[Bar chart with following data:]

         12/31/97          ____%
         12/31/98          ____%

The Fund's year to date return as of March 31st, 1999 was ______%.

Best and Worst Quarterly Returns

Best Quarter:              _____ Quarter of 19__              ______%
Worst Quarter:             _____ Quarter of 19__              ______%

Average Annual Total Return
The tables below compares the Fund's average annual total return for Class A and
B shares  with the S&P  Small  Cap  600(R)  Index.*  Performance  of the Fund
reflects the maximum sales load you would pay for the stated period. The average
annual return for both the Fund and the S&P Small Cap 600(R) Index is calculated
as of the close of the Fund's  fiscal year,  which ends April 30, 1999.  Returns
for Class A shares are shown for a one year  period  and since the Fund  started
operations.  For Class B shares,  returns  are shown for a  one-year  period and
since inception of Class B shares.

Small Cap Fund                               1 Year            Since Inception 

Class A Shares                               ____%             ____% (1)

S&P Small Cap 600(R) Index                   ____%             ____%


Small Cap Fund                               1 Year            Since Inception 

Class B Shares                               ____%             ____% (2)

S&P Small Cap 600(R) Index                   ____%             ____%

(1) Inception of the Fund, July 1, 1996 
(2) Inception of Class B Shares, January 8, 1997
* The S&P Small Cap 600(R) Index is an unmanaged  index  comprised of 600 stocks
designed to represent  performance of the small-cap  segment of the U.S.  equity
markets.

Please note, investment returns and principal value will fluctuate.  When shares
are redeemed, they may be worth more or less than the price you paid.

Expenses
Like any investor, you pay certain expenses related to your investments.  Annual
Fund and operating  expenses are paid from  portfolio  assets,  so they directly
reduce your share price. These expenses are outlined below.

Fee Table
This table  describes  the fees and expenses you may pay if you buy and hold the
Fund's shares:

Shareholder Fees
(fees paid directly from your investment)    Class A  Shares     Class B Shares

Maximum sales charge (load) imposed on
purchases (as a percentage of offering price)    4.00%               None

Maximum deferred sales charge (load)
(as a percentage of net asset value)             None                5.00%

Annual Fund Operating Expenses
(expenses deducted from Fund assets)         Class A  Shares     Class B Shares

Management Fees                                   ___%                ___%

Distribution and Service (12b-1) Fees             0.25%               1.00%

Other Expenses                                    ___%                ___%

Total Fund Operating Expenses                     ___%                ___%

Expense Example
This  example is intended to help you compare the costs of investing in the Fund
with the cost of investing in other mutual funds.  The example  assumes that you
invest $10,000 in the Fund for the time periods indicated,  that your investment
has a 5% return each year,  and that the Fund's  operating  expenses  remain the
same.  Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:

<TABLE>
<CAPTION>
<S>                            <C>                      <C>                             <C>   
Time Period                Class A Shares            Class B Shares         Class B Shares No Redemptions
---------------------------------------------------------------------------------------------------------

1 Year                         $____                    $____                           $____

3 Year                         $____                    $____                           $____

5 Year                         $____                    $____                           $____

After 10 years                 $____                     N/A*                            N/A*
</TABLE>


*Class B shares convert into Class A shares after five years.

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


THE AAL MID CAP STOCK FUND

Investment Objective
The AAL Mid Cap Stock Fund seeks long-term capital growth by investing primarily
in common stocks and securities  convertible  into common  stocks,  of mid-sized
companies.

Investment Strategies
Under normal circumstances, we invest at least 65% of the Fund's total assets in
mid-sized  company  stocks.  By mid-sized  companies,  we mean those with market
capitalizations  ranging from $100 million to $6 billion.  Within this category,
we generally focus on companies with market capitalizations  ranging from$400 to
$3.5  billion.  Mid-cap  companies  tend to be smaller  and  less-seasoned  than
large-cap  companies  listed in the S&P 500(R) Index.  Mid-cap  companies may
trade  in  the  over-the-counter  market  as  well  as  on  national  securities
exchanges.

We may invest the remaining 35% of the Fund's total assets in any combination of
additional mid-cap stocks, large-cap stocks and securities convertible into such
stocks. We look for mid-sized companies  (including companies initially offering
their stocks to the public) that, in our opinion:

(1) have  prospects  for  growth  in their  sales  and  earnings;  (2) are in an
industry with a good economic outlook; (3) have high quality management; and (4)
have a strong financial position.

We usually  pick  companies  in the middle  stages of their  development.  These
companies tend to have established a record of  profitability  and possess a new
technology,  unique product or market niche. We tend to sell stocks of companies
when we think other investments offer better opportunities.  Due to this policy,
the Fund may from time to time have short-term gains or losses.

Primary Risks

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

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

Past Performance
The  following  table and chart  reflect the Fund's  annual return and long-term
performance.  The bar chart and table show the risks of investing in the Fund by
demonstrating  the  variability in performance  from  year-to-year.  As with all
investments, past performance is not a guarantee of future results.

Year-by-Year Total Return
The following  chart shows  calendar year total returns for Class A shares since
the Fund started operations.  Total returns assume reinvestment of all dividends
and  distributions,  but do not reflect any deduction for sales charges.  If the
chart reflected sales loads, returns would be less than those shown.

Class A shares

[Bar chart with following data:]

         12/31/94          ____%
         12/31/95          ____%
         12/31/96          ____%
         12/31/97          ____%
         12/31/98          ____%

The Funds year to date return as of March 31st, 1999 was ______%.

Best and Worst Quarterly Returns

Best Quarter:              _____ Quarter of 19__              ______%
Worst Quarter:             _____ Quarter of 19__              ______%

Average Annual Total Return
The tables below compares the Fund's average annual total return for Class A and
B shares with the S&P Mid Cap 400(R) Index.* Performance of the Fund reflects
the maximum sales load you would pay for the stated  period.  The average annual
return for both the Fund and the S&P Mid Cap 400(R)  Index is  calculated  as of
the close of the Fund's  fiscal  year,  which ends April 30,  1999.  For Class A
shares,  returns  are shown for one and five  year  periods,  and since the Fund
started operations.  For Class B shares, returns are shown for a one-year period
and since inception of Class B shares.

Mid Cap Stock Fund                1 Year         5 Year          Since Inception
--------------------------------------------------------------------------------

Class A Shares                    ____%          ____%           ____% (1)

S&P Mid Cap 400(R) Index          ____%          ____%           ____%


Mid Cap Stock Fund                1 Year         Since Inception
-----------------------------------------------------------------------

Class B Shares                    ____%          ____% (2)

S&P Mid Cap 400(R) Index          ____%          ____%

(1)  Inception  of the  Fund,  June 30,  1993 
(2)  Inception  of Class B Shares, January 8, 1997
* The S&P Mid Cap  400(R)  Index is an unmanaged  index that  represents  the
average performance of a group of 400 medium-capitalization stocks.

Please note, investment returns and principal value will fluctuate.  When shares
are redeemed, they may be worth more or less than the price you paid.

Expenses
Like any investor, you pay certain expenses related to your investments.  Annual
Fund and operating  expenses are paid from  portfolio  assets,  so they directly
reduce your share price. These expenses are outlined below.

Fee Table
This table  describes  the fees and expenses you may pay if you buy and hold the
Fund's shares:

Shareholder Fees
(fees paid directly from your investment)     Class A  Shares     Class B Shares

Maximum sales charge (load) imposed on
purchases (as a percentage of offering price)     4.00%               None

Maximum deferred sales charge (load)
(as a percentage of net asset value)              None                5.00%

Annual Fund Operating Expenses
(expenses deducted from Fund assets)          Class A  Shares     Class B Shares

Management Fees                                   ___%                ___%

Distribution and Service (12b-1) Fees             0.25%               1.00%

Other Expenses                                    ___%                ___%

Total Fund Operating Expenses                     ___%                ___%

Expense Example
This  example is intended to help you compare the costs of investing in the Fund
with the cost of investing in other mutual funds.  The example  assumes that you
invest $10,000 in the Fund for the time periods indicated,  that your investment
has a 5% return each year,  and that the Fund's  operating  expenses  remain the
same.  Although your actual costs may be higher or lower, based on the foregoing
assumptions your costs would be:

Time Period     Class A Shares   Class B Shares    Class B Shares No Redemptions
--------------------------------------------------------------------------------

1 Year              $____           $____                    $____

3 Year              $____           $____                    $____

5 Year              $____           $____                    $____

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

*Class B shares convert into Class A shares after five years.

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


THE AAL INTERNATIONAL FUND

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

Investment Strategies
Under normal circumstances, we invest at least 65% of the Fund's total assets in
foreign stocks primarily  traded in at least three countries,  not including the
United  States.  We may not invest more than 25% of the Fund's assets in any one
country.  We do not have any other  limitations on how much of the Fund's assets
we may invest in securities primarily traded in any one country.  Typically,  we
consider an issuer as domiciled in a particular country if it:

(1)  is incorporated under the laws of that country;
(2)  has at least 50% of the value of its assets located in that country; or
(3)  derives  at  least  50% of its  income  from  operations  or  sales in that
     country.

We may  invest  the  remaining  35% of the Fund's  total  assets in:  additional
foreign stocks; U.S. stocks; structured notes and/or preferred stocks; and up to
20% of the  Fund's  total  assets in U.S.  and  foreign  bonds  and  other  debt
obligations,  including  lower-rated debt, commonly referred to as "junk bonds."
We do not place any  restrictions on the debt ratings of securities  acquired or
the portion of the Fund's assets we may invest in a particular  rating  category
for the Fund.

[Sidebar: Mature and Emerging Markets]

Mature Markets:  A mature market is generally  defined as a stable and efficient
country  economy  with well  developed  governmental  entities  and an  advanced
financial infrastructure.

Emerging Markets: An emerging market refers to lesser developed country economy.
An emerging market is characterized by relatively weak governmental entities and
a developing financial infrastruture with market inefficiencies.

The following examples help distinguish mature markets and emerging markets.

Mature Markets                      Emerging Markets

United States                       Czech Republic
Japan                               Poland
Canada                              Taiwan
United Kingdom                      Brazil

We focus on stocks  primarily  trading in the United  Kingdom,  Western  Europe,
Australia, Far East, Latin America and Canada. Many of these markets are mature,
while  others  are  emerging.  There are no limits on the extent to which we can
invest in either  mature or  emerging  markets.  We may invest up to 100% of the
Fund's total assets in emerging markets.

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

Primary Risks

Foreign  Investment  Risks:  The Fund faces  particular  risks  associated  with
foreign  investing.  Foreign  investment  risks  include  currency,   liquidity,
political,  economic  and  market  risks,  as  well  as  risks  associated  with
governmental regulation and non-uniform corporate disclosure standards.

Currency  Fluctuations:  A change in the value of a foreign currency against the
U.S.  dollar  may  affect the value (in terms of U.S.  Dollars)  of the  foreign
stocks  held by the Fund.  The value of the Fund's  foreign  stocks  also may be
affected  significantly by currency  restrictions and currency  exchange control
regulations enacted from time to time by foreign governments.

Market Characteristics and Liquidity:  Foreign exchanges and markets may be more
volatile than those in the United States,  and foreign stocks may be less liquid
than domestic securities. Settlement practices for transactions in foreign stock
markets may differ from those  practices in U.S. stock markets,  and may involve
delays beyond customary periods in the United States.

Political  and Economic  Factors:  The  economies of some foreign  countries may
differ  favorably or unfavorably from the United States economy in such respects
as growth of gross domestic product,  rate of inflation,  capital  reinvestment,
resource  self-sufficiency,  diversification  and balance of payments  position.
Also,  some foreign  governments  participate to a significant  degree,  through
ownership  interests  or  regulation,  in  their  economies.  Actions  by  these
governments could include restrictions on foreign investments,  nationalization,
expropriation  of goods or  imposition  of taxes,  and could have a  significant
effect  on the  prices of stocks  and the  payment  of  interest  on bonds.  The
economies of many foreign countries are highly dependent on international  trade
and therefore,  are affected by trade policies and economic  conditions of their
trading  partners.  If those  trading  partners  engage in  protectionist  trade
legislation,  the price of the stocks of the foreign  country and the markets in
which they trade could be affected.

Regulation:  Some foreign  countries  have less  supervision  and  regulation of
securities markets, broker/dealers and issuers of securities than is the case in
the United States.  Also, many foreign  countries do not require publicly traded
companies to disclose  information  which is as  extensive  and detailed as that
which public companies in the United States are required to disclose.  This lack
of regulation  and disclosure  makes our  assessment of the growth  potential of
stocks we select less certain than might be the case for domestic stocks.

These risks tend to be more pronounced in emerging  markets than is the case for
mature  markets.  We may invest up to 100% of the Fund's net assets in  emerging
growth countries.

Past Performance
The  following  table and chart  reflect the Fund's  annual return and long-term
performance.  The bar chart and table show the risks of investing in the Fund by
demonstrating  the  variability in performance  from  year-to-year.  As with all
investments, past performance is not a guarantee of future results.

Year-by-Year Total Return
The following  chart shows  calendar year total returns for Class A shares since
the Fund started operations.  Total returns assume reinvestment of all dividends
and  distributions,  but do not reflect any deduction for sales charges.  If the
chart reflected sales loads, returns would be less than those shown.

Class A shares

[Bar chart with following data:]

         12/31/97          ____%
         12/31/98          ____%

The Funds year to date return as of March 31st, 1999 was ______%.

Best and Worst Quarterly Returns

Best Quarter:              _____ Quarter of 19__              ______%
Worst Quarter:             _____ Quarter of 19__              ______%

Average Annual Total Return
The tables below compares the Fund's average annual total return for Class A and
B shares  with the  EAFE(R)  Index.*  Performance  of the Fund  reflects  the
maximum  sales  load you would pay for the stated  period.  The  average  annual
return for both the Fund and the EAFE(R)  Index is calculated as of the close of
the Fund's  fiscal year,  which ends April 30, 1999.  Returns for Class A shares
are shown for a one year period and since the Fund started operations. For Class
B shares, returns are shown for a one-year period and since inception of Class B
shares.

International Fund                 1 Year            Since Inception 

Class A Shares                     ____%             ____% (1)

EAFE(R) Index                      ____%             ____%


International Fund                 1 Year            Since Inception 

Class B Shares                     ____%             ____% (2)

EAFE(R) Index                      ____%             ____%

(1)  Inception  of the Fund,  August 1,  1995 
(2)  Inception  of Class B Shares, January 8, 1997
* The Morgan Stanley Capital International,  Europe,  Australia,  Far East Index
(EAFE(R)  Index) is a stock index designed to measure the investment  returns
of the developed countries outside North America. The EAFE(R) Index currently
includes stocks from 21 countries.

Please note, investment returns and principal value will fluctuate.  When shares
are redeemed, they may be worth more or less than the price you paid

Expenses
Like any investor, you pay certain expenses related to your investments.  Annual
Fund and operating  expenses are paid from  portfolio  assets,  so they directly
reduce your share price. These expenses are outlined below.

Fee Table
This table  describes  the fees and expenses you may pay if you buy and hold the
Fund's shares:

Shareholder Fees
(fees paid directly from your investment)    Class A  Shares      Class B Shares

Maximum sales charge (load) imposed on
purchases (as a percentage of offering price)         4.00%                None

Maximum deferred sales charge (load)
(as a percentage of net asset value)                  None                 5.00%

Annual Fund Operating Expenses
(expenses deducted from Fund assets)         Class A  Shares      Class B Shares

Management Fees                                       ___%                 ___%

Distribution and Service (12b-1) Fees                 0.25%                1.00%

Other Expenses                                        ___%                 ___%

Total Fund Operating Expenses                         ___%                 ___%

Expense Example
This  example is intended to help you compare the costs of investing in the Fund
with the cost of  investing in other  mutual  funds.  It assumes that you invest
$10,000 in the Fund for the time periods  indicated,  that your investment has a
5% return each year,  and that the Fund's  operating  expenses  remain the same.
Although  your  actual  costs may be higher  or  lower,  based on the  foregoing
assumptions your costs would be:

Time Period      Class A Shares   Class B Shares   Class B Shares No Redemptions
--------------------------------------------------------------------------------

1 Year               $____           $____                   $____

3 Year               $____           $____                   $____

5 Year               $____           $____                   $____

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

*Class B shares convert into Class A shares after five years.

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


THE AAL CAPITAL GROWTH FUND

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

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

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

Primary Risks

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

Market Risk:  Over time, the stock market tends to move in cycles,  with periods
when  stock  prices  rise  generally  and  periods  when  stock  prices  decline
generally.  The value of the Fund's  investments  may increase and decrease more
than the stock market in general, as measured by the S&P 500(R).

Past Performance
The  following  table and chart  reflect the Fund's  annual return and long-term
performance.  The bar chart and table show the risks of investing in the Fund by
demonstrating  the  variability in performance  from  year-to-year.  As with all
investments, past performance is not a guarantee of future results.

Year-by-Year Total Return
The following  chart shows  calendar year total returns for Class A shares since
the Fund started operations.  Total returns assume reinvestment of all dividends
and  distributions,  but do not reflect any deduction for sales charges.  If the
chart reflected sales loads, returns would be less than those shown.

Class A shares

[Bar chart with following data:]
         12/31/89          ____%
         12/31/90          ____%
         12/31/91          ____%
         12/31/92          ____%
         12/31/93          ____%
         12/31/94          ____%
         12/31/95          ____%
         12/31/96          ____%
         12/31/97          ____%
         12/31/98          ____%

The Funds year to date return as of March 31st, 1999 was ______%.

Best and Worst Quarterly Returns

Best Quarter:              _____ Quarter of 19__              ______%
Worst Quarter:             _____ Quarter of 19__              ______%

Average Annual Total Return
The tables below compares the Fund's average annual total return for Class A and
B shares with the S&P  500(R)  Index.*  Performance  of the Fund reflects the
maximum  sales  load you would pay for the stated  period.  The  average  annual
return is calculated as of the close of the Fund's fiscal year, which ends April
30,  1999.  Returns  for Class A shares  are shown  for one,  five and  ten-year
periods.  For Class B shares,  returns are shown for a one-year period and since
inception of Class B shares.

Capital Growth Fund                 1 Year            5 Year            10 Year
-------------------------------------------------------------------------------

Class A Shares                      ____%             ____%             ____%

S&P 500(R) Index                    ____%             ____%             ____%
 
Capital Growth Fund                 1 Year            Since Inception 

Class B Shares                      ____%             ____% (1)

S&P 500(R) Index                    ____%             ____%

(1) Inception of Class B Shares January 8, 1997
* The S&P  500(R)  Index is a  broad-based  composite  unmanaged  index  that
represents   the   average   performance   of  a  group   of  500   widely-held,
publicly-traded stocks.

Please note, investment returns and principal value will fluctuate.  When shares
are redeemed, they may be worth more or less than the price you paid.

Expenses
Like any investor, you pay certain expenses related to your investments.  Annual
Fund and operating  expenses are paid from  portfolio  assets,  so they directly
reduce your share price. These expenses are outlined below.

Fee Table
This table  describes  the fees and expenses you may pay if you buy and hold the
Fund's shares:

Shareholder Fees
(fees paid directly from your investment)    Class A  Shares      Class B Shares

Maximum sales charge (load) imposed on
purchases (as a percentage of offering price)    4.00%                None

Maximum deferred sales charge (load)
(as a percentage of net asset value)             None                 5.00%

Annual Fund Operating Expenses
(expenses deducted from Fund assets)         Class A  Shares      Class B Shares

Management Fees                                  ___%                  ___%

Distribution and Service (12b-1) Fees            0.25%                 1.00%

Other Expenses                                   ___%                  ___%

Total Fund Operating Expenses                    ___%                  ___%

Expense Example
This  example is intended to help you compare the costs of investing in the Fund
with the cost of  investing in other  mutual  funds.  It assumes that you invest
$10,000 in the Fund for the time periods  indicated,  that your investment has a
5% return each year,  and that the Fund's  operating  expenses  remain the same.
Although  your  actual  costs may be higher  or  lower,  based on the  foregoing
assumptions your costs would be:

Time Period     Class A Shares    Class B Shares   Class B Shares No Redemptions
--------------------------------------------------------------------------------

1 Year               $____            $____                   $____

3 Year               $____            $____                   $____

5 Year               $____            $____                   $____

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

*Class B shares convert into Class A shares after five years.

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


The AAL Equity Income Fund

Investment Objective
The AAL Equity Income Fund seeks  current  income,  long-term  income growth and
capital   growth  by  investing   primarily  in  a   diversified   portfolio  of
income-producing equity securities.

Investment Strategies
Under normal circumstances, we invest at least 65% of the Fund's total assets in
income-producing equity securities.  By "income-producing equity securities," we
mean equity securities,  including  securities  exchangeable or convertible into
equity  securities,  that offer dividend yields that exceed the average dividend
yields on stocks  comprising the S&P  500(R).  We may invest the remainder of
the Fund's total assets,  in whole or in part,  in  additional  income-producing
equity securities, bonds and commercial paper.

In selecting equity securities for the Fund, we look for companies that:

(1) have a good growth rate and return on capital;  
(2) have  favorable  aspects for  future  growth  and  dividends;   
(3)  are  financially   sound;  
(4)  have high-quality management; and 
(5) are in a favorable competitive environment.

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

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

Primary Risks

Industry  Concentration:  Although we intend to diversify the Fund's investments
in  securities  across  many  different  industries,   income-producing   equity
securities  tend to be more  prevalent in some market  sectors than others.  The
higher  dividend  yielding  securities  included in the S&P  500(R) are found
primarily  in the  services  (communications  and  retail),  energy,  utilities,
financial  services  and consumer  non-cyclical  and  cyclical  market  sectors.
Accordingly,  our investments for the Fund may tend to emphasize  certain market
sectors more than others.  Prices of stocks of companies in these industries may
not  always  move in tandem  with the  market,  generally,  causing  the  Fund's
performance to lag or outperform the overall market.

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

Interest Rate Risk:  Like bonds,  changes in the level of interest  rates affect
the value of  income-producing  equity securities and the value of the Fund as a
whole. Their values tend to move in the opposite direction of interest rates.

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

Past Performance
The  following  table and chart  reflect the Fund's  annual return and long-term
performance.  The bar chart and table show the risks of investing in the Fund by
demonstrating  the  variability in performance  from  year-to-year.  As with all
investments, past performance is not a guarantee of future results.

Year-by-Year Total Return
The following  chart shows  calendar year total returns for Class A shares since
the Fund started operations.  Total returns assume reinvestment of all dividends
and  distributions,  but do not reflect any deduction for sales charges.  If the
chart reflected sales loads, returns would be less than those shown.

Class A shares

[Bar chart with following data:]

         12/31/95          ____%
         12/31/96          ____%
         12/31/97          ____%
         12/31/98          ____%

The Funds year to date return as of March 31st, 1999 was ______%.

Best and Worst Quarterly Returns

Best Quarter:              _____ Quarter of 19__              ______%
Worst Quarter:             _____ Quarter of 19__              ______%

Average Annual Total Return
The tables below compares the Fund's average annual total return for Class A and
B shares with the S&P  500(R)  Index.*  Performance  of the Fund reflects the
maximum  sales  load you would pay for the stated  period.  The  average  annual
return for both the Fund and the S&P 500(R) Index is  calculated as of the close
of the Fund's fiscal year, which ends April 30, 1999. Returns for Class A shares
are shown for one and five-year periods,  and since the Fund started operations.
For Class B shares,  returns are shown for a one-year period and since inception
of Class B shares.

Equity Income Fund           1 Year            5 Year           Since Inception 
--------------------------------------------------------------------------------

Class A Shares               ____%             ____%            ____% (1)

S&P 500(R) Index             ____%             ____%            ____%


Equity Income Fund           1 Year            Since Inception

Class B Shares               ____%             ____% (2)

S&P 500(R) Index             ____%             ____%

(1)  Inception  of the Fund,  March 18,  1994 
(2)  Inception  of Class B Shares, January 8, 1997
*  The  S&P  500(R)  Index  is a  broad-based  composite  unmanaged  index  that
represents   the   average   performance   of  a  group   of  500   widely-held,
publicly-traded stocks.

Please note, investment returns and principal value will fluctuate.  When shares
are redeemed, they may be worth more or less than the price you paid.

Expenses
Like any investor, you pay certain expenses related to your investments.  Annual
Fund and operating  expenses are paid from  portfolio  assets,  so they directly
reduce your share price. These expenses are outlined below.

Fee Table
This table  describes  the fees and expenses you may pay if you buy and hold the
Fund's shares:

Shareholder Fees
(fees paid directly from your investment)    Class A  Shares      Class B Shares

Maximum sales charge (load) imposed on
purchases (as a percentage of offering price)     4.00%                None

Maximum deferred sales charge (load)
(as a percentage of net asset value)              None                 5.00%

Annual Fund Operating Expenses
(expenses deducted from Fund assets)         Class A  Shares      Class B Shares

Management Fees                                   ___%                  ___%

Distribution and Service (12b-1) Fees             0.25%                 1.00%

Other Expenses                                    ___%                  ___%

Total Fund Operating Expenses                     ___%                  ___%

Expense Example
This  example is intended to help you compare the costs of investing in the Fund
with the cost of  investing in other  mutual  funds.  It assumes that you invest
$10,000 in the Fund for the time periods  indicated,  that your investment has a
5% return each year,  and that the Fund's  operating  expenses  remain the same.
Although  your  actual  costs may be higher  or  lower,  based on the  foregoing
assumptions your costs would be:

Time Period     Class A Shares   Class B Shares    Class B Shares No Redemptions
--------------------------------------------------------------------------------

1 Year             $____           $____                      $____

3 Year             $____           $____                      $____

5 Year             $____           $____                      $____

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

*Class B shares convert into Class A shares after five years.

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


The AAL Balanced Fund

Investment Objective
The AAL Balanced Fund seeks  long-term  total return  through a balance  between
income and the potential for long-term capital growth by investing  primarily in
a diversified portfolio of common stocks, bonds and money market instruments.

Investment Strategies
Under normal circumstances, we invest from 50% to 60% of the Fund's total assets
in common stocks,  from 30% to 40% in  fixed-income  securities and up to 20% in
money market  instruments.  However, we will at all times maintain an investment
mix within the following ranges:

(1) 35% to 75% in common stocks; 
(2) 25% to 50% in fixed-income securities;  and
(3) 0% to 40% in money market instruments.

We select  investments  in each  category  of  security  by using the  following
criteria:

(1)  common  stocks,  including the  securities in which The AAL Capital  Growth
     Fund may invest;
(2)  bonds and other debt  securities with  maturities  generally  exceeding one
     year, including securities in which The AAL Bond Fund may invest; and
(3)  money  market   instruments  and  other  debt  securities  with  maturities
     generally not exceeding 397 days, including the securities in which The AAL
     Money Market Fund may invest.

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

Primary Risks

Stock Investment Risks

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

Market Risk:  Over time, the stock market tends to move in cycles,  with periods
when  stock  prices  rise  generally  and  periods  when  stock  prices  decline
generally.  The value of the Fund's  investments  may increase or decrease  more
than the stock market in general,  as measured by the S&P 500(R).  Because we
invest 35% to 75% of the Fund's assets in stocks,  fluctuating stock prices will
have a significant impact on the Fund's value (the price of the Fund's shares).

Bond and Money Market Instrument Investments Risks

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

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

Asset Allocation Risks
We may  shift  the  portfolio's  asset mix of  stocks,  bonds  and money  market
instruments based on existing or anticipated market conditions.  The returns you
receive will depend on how we have allocated the Fund's investments across these
asset categories. As the allocation fluctuates over time, your returns fluctuate
as well.  The Fund's  performance  will  depend on our  ability to  successfully
predict market and economic trends and to achieve optimal allocation.

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

Past Performance
The  following  table and chart  reflect the Fund's  annual return and long-term
performance.  The bar chart and table show the risks of investing in the Fund by
demonstrating  the  variability in performance  from  year-to-year.  As with all
investments, past performance is not a guarantee of future results.

Year-by-Year Total Return
The following  chart shows  calendar year total returns for Class A shares since
the Fund started operations.  Total returns assume reinvestment of all dividends
and  distributions,  but do not reflect any deduction for sales charges.  If the
chart reflected sales loads, returns would be less than those shown.

Class A shares

[Bar chart with following data:]

         12/31/98          ____%

The Funds year to date return as of March 31st, 1999 was ______%.

Best and Worst Quarterly Returns

Best Quarter:              _____ Quarter of 19__              ______%
Worst Quarter:             _____ Quarter of 19__              ______%

Average Annual Total Return
The tables below compares the Fund's average annual total return for Class A and
B shares with the S&P 500(R)  Index and the Lehman  Brothers  Aggregate  Bond
Index(R).*  Performance of the Fund reflects the maximum sales load you would
pay for the stated  period.  The  average  annual  return for the Fund,  the S&P
500(R)  Index  and  the  Lehman  Brothers  Aggregate  Bond  Index(R),   is
calculated as of the close of the Fund's fiscal year, which ends April 30, 1999.
Returns  for Class A shares  are shown for a one year  period and since the Fund
started operations.  For Class B shares, returns are shown for a one-year period
and since inception of Class B shares.

Balanced Fund                                 1 Year            Since Inception 

Class A Shares                                ____%             ____% (1)

S&P 500(R) Index                              ____%             ____%

Lehman Brothers Aggregate Bond Index(R)       ____%             ____%


Balanced Fund                                 1 Year            Since Inception

Class B Shares                                ____%             ____% (2)

S&P 500(R) Index                              ____%             ____%

Lehman Brothers Aggregate Bond Index(R)       ____%             ____%

(1)  Inception of the Fund,  December 29, 1997 
(2)  Inception of Class B shares, December 29, 1997
* The S&P  500(R)  Index is a  broad-based  composite  unmanaged  index  that
represents   the   average   performance   of  a  group   of  500   widely-held,
publicly-traded  stocks.  The Lehman Brothers  Aggregate Bond  Index(R) is an
unmanaged index that encompasses four classes of fixed-income  securities in the
United States:  U.S. Treasury and U.S.  government agency securities,  corporate
debt obligations, mortgage-backed securities and asset backed securities.

Please note, investment returns and principal value will fluctuate.  When shares
are redeemed, they may be worth more or less than the price you paid.

Expenses
Like any investor, you pay certain expenses related to your investments.  Annual
Fund and operating  expenses are paid from  portfolio  assets,  so they directly
reduce your share price. These expenses are outlined below.

Fee Table
This table  describes  the fees and expenses you may pay if you buy and hold the
Fund's shares:

Shareholder Fees
(fees paid directly from your investment)    Class A  Shares      Class B Shares

Maximum sales charge (load) imposed on
purchases (as a percentage of offering price)     4.00%                None

Maximum deferred sales charge (load)
(as a percentage of net asset value)              None                 5.00%

Annual Fund Operating Expenses
(expenses deducted from Fund assets)         Class A  Shares      Class B Shares

Management Fees                                   ___%                 ___%

Distribution and Service (12b-1) Fees             0.25%                1.00%

Other Expenses                                    ___%                 ___%

Total Fund Operating Expenses                     ___%                 ___%

Expense Example
This  example is intended to help you compare the costs of investing in the Fund
with the cost of  investing in other  mutual  funds.  It assumes that you invest
$10,000 in the Fund for the time periods  indicated,  that your investment has a
5% return each year,  and that the Fund's  operating  expenses  remain the same.
Although  your  actual  costs may be higher  or  lower,  based on the  foregoing
assumptions your costs would be:

Time Period    Class A Shares    Class B Shares    Class B Shares No Redemptions
--------------------------------------------------------------------------------

1 Year             $____            $____                      $____

3 Year             $____            $____                      $____

5 Year             $____            $____                      $____

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

*Class B shares convert into Class A shares after five years.

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


The AAL High Yield Bond Fund

Investment Objective
The AAL High Yield Bond Fund seeks high current income and  secondarily  capital
growth by investing  primarily  in a  diversified  portfolio of high risk,  high
yield bonds  commonly  referred to as "junk bonds." The Fund  actively  seeks to
achieve the secondary objective of capital growth to the extent it is consistent
with the primary objective of high current income.

Investment Strategies
Under normal circumstances, we invest at least 65% of the Fund's total assets in
high yield bonds.  We may invest the remaining 35% of the Fund's total assets in
any combination of:

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

We may invest up to 20% of the Fund's net assets in bonds of foreign issuers. In
evaluating  the quality of a particular  high yield bond for  investment  in the
Fund,  we do not  rely  exclusively  on  ratings  assigned  by the  NRSRO's.  In
appropriate  circumstances,  we perform our own credit analysis. We consider the
issuer's:

(1)  financial resources;
(2)  operating history;
(3)  sensitivity to economic conditions and trends;
(4)  management's abilities;
(5)  debt maturity schedules;
(6)  borrowing requirements; and
(7)  relative values based on anticipated cash flow, interest and asset coverage
     and earnings prospects.

We attempt  to  identify  those  issuers of high  yield  bonds  whose  financial
condition:  is (a) adequate to meet future obligations;  and (b) has improved or
is expected to improve in the future.  However, there are no restrictions on the
rating level of the securities in the Fund's portfolio,  and we may purchase and
hold securities in default.

We expect that portfolio turnover typically not to exceed ____%

[Sidebar: Junk Bonds]

High-yield  bonds have a higher  yield to  compensate  for greater risk that the
issuer might not make its interest and principal payments.  Most bonds are rated
by  national  rating  agencies  according  to the  issuers  ability to  maintain
interest payments and repay the principal amount at the time the bond comes due.
High-yield  bonds are speculative  and,  therefore,  typically  considered to be
below  investment-grade  bonds by national  ratings  agencies.  High yield bonds
include:

      fixed rate bonds;
      variable rate bonds;
      convertible bonds;
      zero coupon bonds;
      pay-in-kind bonds;
      floating rate interest debt obligations;
      deferred interest debt obligations;
      structured debt obligations;
      asset-backed debt obligations; and
      mortgage-backed debt obligations.

Primary Risks

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

Credit  Risk:  The primary  risk of  investing  in the high yield  sector is the
credit risk.  Bonds rated below  investment  grade have greater risks of default
than  investment  grade bonds and, may in fact,  be in default.  Issuers of high
yield  bonds  usually  do  not  have  strong  historical  financial  conditions,
requiring  them to offer  higher  yields to  compensate  for the greater risk of
default on the payment of interest and principal.  These bonds have  speculative
characteristics  or are speculative.  As a result,  their market values are less
sensitive to interest rate changes on a short-term  basis, but more sensitive to
adverse economic  developments or individual  corporate  developments because of
their lower  credit  quality.  During an  economic  downturn or period of rising
interest rates,  issuers of lower-rated  bonds may have more difficulty  meeting
their  principal  and  interest  payment  obligations  or  obtaining  additional
financing  to make the  interest  payments  on their  debt.  When  issuers  have
difficulty  meeting  projected  goals or  obtaining  additional  financing,  the
default rate on high yield bonds will likely rise.

Market Risk: Frequently,  high yield bonds have a less liquid resale market than
the market for investment grade bonds. In some cases, these bonds have no resale
market at all. As a result, we may have difficulty valuing portfolio securities,
choosing the securities to sell to meet  redemption  requests  and/or selling or
disposing of portfolio securities on favorable terms.

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

Past Performance
The  following  table and chart  reflect the Fund's  annual return and long-term
performance.  The bar chart and table show the risks of investing in the Fund by
demonstrating  the  variability in performance  from  year-to-year.  As with all
investments, past performance is not a guarantee of future results.

Year-by-Year Total Return
The following  chart shows  calendar year total returns for Class A shares since
the Fund started operations.  Total returns assume reinvestment of all dividends
and  distributions,  but do not reflect any deduction for sales charges.  If the
chart reflected sales loads, returns would be less than those shown.

Class A shares

[Bar chart with following data:]

         12/31/98          ____%

The Funds year to date return as of March 31st, 1999 was ______%.

Best and Worst Quarterly Returns

Best Quarter:              _____ Quarter of 19__              ______%
Worst Quarter:             _____ Quarter of 19__              ______%

Average Annual Total Return
The tables below compares the Fund's average annual total return for Class A and
B shares with the Merrill Lynch High Yield Master  Index(R).*  Performance of
the Fund  reflects the maximum  sales load you would pay for the stated  period.
The average  annual  return for both the Fund and the  Merrill  Lynch High Yield
Master  Index(R)  is  calculated  as of the close of the Fund's  fiscal year,
which ends April 30,  1999.  Returns for Class A shares are shown for a one year
period and since the Fund started  operations.  For Class B shares,  returns are
shown for a one-year period and since inception of Class B shares.

High Yield Bond Fund                         1 Year            Since Inception 

Class A Shares                               ____%             ____% (1)

Merrill Lynch High Yield Master Index(R)     ____%             ____%


High Yield Bond Fund                         1 Year            Since Inception

Class B Shares                               ____%             ____% (2)

Merrill Lynch High Yield Master Index(R)     ____%             ____%

(1)  Inception  of the Fund,  January 8, 1997 
(2)  Inception  of Class B Shares, January 8, 1997
* The  Merrill  Lynch  High  Yield  Master  Index(R)  is an  unmanaged  index
comprised of over 900  "cash-pay"  high yield bonds  representative  of the high
yield market as a whole.

Please note, investment returns and principal value will fluctuate.  When shares
are redeemed, they may be worth more or less than the price you paid.

Expenses
Like any investor, you pay certain expenses related to your investments.  Annual
Fund and operating  expenses are paid from  portfolio  assets,  so they directly
reduce your share price. These expenses are outlined below.

Fee Table
This table  describes  the fees and expenses you may pay if you buy and hold the
Fund's shares:

Shareholder Fees
(fees paid directly from your investment)    Class A  Shares     Class B Shares

Maximum sales charge (load) imposed on
purchases (as a percentage of offering price)     4.00%               None

Maximum deferred sales charge (load)
(as a percentage of net asset value)              None                5.00%

Annual Fund Operating Expenses
(expenses deducted from Fund assets)         Class A  Shares     Class B Shares

Management Fees                                   ___%                ___%

Distribution and Service (12b-1) Fees             0.25%               1.00%

Other Expenses                                    ___%                ___%

Total Fund Operating Expenses                     ___%                ___%

Expense Example
This  example is intended to help you compare the costs of investing in the Fund
with the cost of  investing in other  mutual  funds.  It assumes that you invest
$10,000 in the Fund for the time periods  indicated,  that your investment has a
5% return each year,  and that the Fund's  operating  expenses  remain the same.
Although  your  actual  costs may be higher  or  lower,  based on the  foregoing
assumptions your costs would be:

Time Period    Class A Shares     Class B Shares   Class B Shares No Redemptions
--------------------------------------------------------------------------------

1 Year             $____             $____                     $____

3 Year             $____             $____                     $____

5 Year             $____             $____                     $____

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

*Class B shares convert into Class A shares after five years.

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


The AAL Municipal Bond Fund

Investment Objectives
The AAL  Municipal  Bond Fund seeks a high level of current  income  exempt from
federal  income  taxes,   consistent  with  capital  preservation  by  investing
primarily in a diversified portfolio of municipal bonds.

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

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

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

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

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

Options and Futures
We may engage in  transactions  in  options,  futures  contracts  and options on
futures contracts to hedge against  anticipated  declines in the market value of
the Fund's  portfolio  securities or to manage the Fund's exposure to changes in
interest rates. We will not use these  instruments for speculation.  Our options
and futures  strategies  may include  selling  futures,  buying puts and writing
calls,  all of  which  tend  to  hedge  the  Fund's  investments  against  price
fluctuations. We may combine options and futures transactions with each other in
order to adjust  their risk and  return  characteristics  or the Fund's  overall
strategy. Successful hedging strategies depend on our skill in predicting future
movements in securities prices,  interest rates and other economic factors.  Our
use of these strategies may not be successful, and could reduce the Fund's total
return. In order to limit the Fund's exposure to these risks, we will not:

-    Make additional  investments in these  instruments  when the initial margin
     deposits and premiums paid for un-expired options and futures exceeds 5% of
     the Fund's total assets;
-    Commit more than 25% of the Fund's net assets to such instruments;
-    Commit more than 25% of the Fund's net assets to covered options; or
-    Commit  more than 5% of the Fund's net assets to  premiums  for put or call
     options.

[Sidebar:  Tax  Implications  of Options and Futures on The AAL  Municipal  Bond
Fund]

The use of options and futures for The AAL  Municipal  Bond Fund  portfolio  may
result in taxable  income.  You should  consult  your  personal  tax  adviser to
determine the consequences of federal, state and local taxes.

When-Issued and Delayed Delivery Securities
We may purchase  securities on a when-issued  or delayed  delivery  basis (i.e.,
obligate the Fund to purchase or sell  securities  with  delivery and payment to
occur at a later date in order to secure what we consider to be an  advantageous
price and yield at the time we enter  into the  transaction).  We will make such
commitments on behalf of the Fund only with the intention of actually  acquiring
the securities,  but we may sell the securities before the settlement date if we
later determine it is advisable to do so for investment reasons.

Primary Risks

Interest  Rate Risk:  Changes in interest  rate  levels  affect the value of the
bonds in the Fund's  portfolio and the value of the Fund as a whole.  Generally,
the value of bonds move in the opposite direction of interest rates

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

Tax Risk:  Changes  in federal  income  tax rates may affect  both the net asset
value  of the  Fund  and the  taxable  equivalent  interest  generated  from its
portfolio securities..

Past Performance
The  following  table and chart  reflect the Fund's  annual return and long-term
performance.  The bar chart and table show the risks of investing in the Fund by
demonstrating  the  variability in performance  from  year-to-year.  As with all
investments, past performance is not a guarantee of future results.

Year-by-Year Total Return
The following  chart shows  calendar year total returns for Class A shares since
the Fund started operations.  Total returns assume reinvestment of all dividends
and  distributions,  but do not reflect any deduction for sales charges.  If the
chart reflected sales loads, returns would be less than those shown.

Class A shares

[Bar chart with following data:]

         12/31/89          ____%
         12/31/90          ____%
         12/31/91          ____%
         12/31/92          ____%
         12/31/93          ____%
         12/31/94          ____%
         12/31/95          ____%
         12/31/96          ____%
         12/31/97          ____%
         12/31/98          ____%

The Funds year to date return as of March 31st, 1999 was ______%.

Best and Worst Quarterly Returns

Best Quarter:              _____ Quarter of 19__              ______%
Worst Quarter:             _____ Quarter of 19__              ______%

Average Annual Total Return
The tables below compares the Fund's average annual total return for Class A and
B shares with the Lehman Brothers  Municipal Bond  Index(R).*  Performance of
the Fund  reflects the maximum  sales load you would pay for the stated  period.
The average  annual  return is  calculated  as of the close of the Fund's fiscal
year,  which ends April 30, 1999.  Returns for Class A shares are shown for one,
five and ten-year periods. For Class B shares,  returns are shown for a one-year
period and since inception of Class B shares.

Municipal Bond Fund                           1 Year      5 Year        10 Year 
--------------------------------------------------------------------------------

Class A Shares                                ____%       ____%         ____%

Lehman Brothers Municipal Bond Index(R)       ____%       ____%         ____%


Municipal Bond Fund                           1 Year      Since Inception

Class B Shares                                ____%       ____% (1)

Lehman Brothers Municipal Bond Index(R)       ____%       ____%

(1) Inception of Class B Shares, January 8, 1997
* Lehman Brothers Municipal Bond Index(R) is a market value-weighted index of
investment grade municipal bonds with maturities of one year or more.

Please note, investment returns and principal value will fluctuate.  When shares
are redeemed, they may be worth more or less than the price you paid.

Expenses
Like any investor, you pay certain expenses related to your investments.  Annual
Fund and operating  expenses are paid from  portfolio  assets,  so they directly
reduce your share price. These expenses are outlined below.

Fee Table
This table  describes  the fees and expenses you may pay if you buy and hold the
Fund's shares:

Shareholder Fees
(fees paid directly from your investment)    Class A  Shares      Class B Shares

Maximum sales charge (load) imposed on
purchases (as a percentage of offering price)     4.00%                None

Maximum deferred sales charge (load)
(as a percentage of net asset value)              None                 5.00%

Annual Fund Operating Expenses
(expenses deducted from Fund assets)         Class A  Shares      Class B Shares

Management Fees                                   ___%                 ___%

Distribution and Service (12b-1) Fees             0.25%                1.00%

Other Expenses                                    ___%                 ___%

Total Fund Operating Expenses                     ___%                 ___%

Expense Example
This  example is intended to help you compare the costs of investing in the Fund
with the cost of  investing in other  mutual  funds.  It assumes that you invest
$10,000 in the Fund for the time periods  indicated,  that your investment has a
5% return each year,  and that the Fund's  operating  expenses  remain the same.
Although  your  actual  costs may be higher  or  lower,  based on the  foregoing
assumptions your costs would be:

Time Period     Class A Shares    Class B Shares   Class B Shares No Redemptions
--------------------------------------------------------------------------------

1 Year              $____            $____                     $____

3 Year              $____            $____                     $____

5 Year              $____            $____                     $____

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

*Class B shares convert into Class A shares after five years.

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


The AAL Bond Fund

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

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

(1)  bonds of U.S. and foreign issuers payable in U.S.  dollars rated within the
     four  highest  rating  categories  by at least two  NRSRO's  at the time of
     purchase; and
(2)  bonds or other securities issued or guaranteed by the U.S. government,  its
     agencies or instrumentalities,  primarily those securities supported by the
     full faith and credit of the U.S. Treasury.

We may invest the remaining 35% of the Fund's total assets in:

(1)  privately issued or guaranteed mortgage-related securities rated within the
     four highest categories by at least two NRSRO's or unrated mortgage-related
     securities,  if we  determine  at the time of purchase  that these  unrated
     securities have credit quality characteristics comparable to these ratings;
(2)  commercial  paper  rated in the  highest  rating  category  by a NRSRO,  or
     commercial  paper issued or guaranteed by a corporation who has outstanding
     debt  rated  in the  two  highest  categories  by a  NRSRO  at the  time of
     purchase;
(3)  bank obligations,  including repurchase  agreements,  of banks having total
     assets in excess of $1 billion; and
(4)  corporate  obligations,  including variable rate master notes, rated in the
     two  highest  categories  by a NRSRO,  or  issued  by a  corporation  whose
     outstanding debt has an equal or better rating at the time of purchase.

Although there are no restrictions on the maturity of the debt securities we may
purchase  for the Fund,  generally  we  maintain  a weighted  average  effective
maturity of between 5 and 10 years.  Effective maturity of a debt security takes
into account projected prepayments,  call dates, put dates and sinking funds, if
any, that reduce the stated maturity date of the bond.

We  anticipate  that during  normal  market  conditions  the  average  portfolio
maturity of the Fund will not exceed 20 years.  We use the stated final maturity
date  (rather  than  effective  maturity)  of a security  to  calculate  average
maturity, notwithstanding earlier call dates and possible prepayments.

Primary Risks

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.  Generally,  the
value of a bond moves in the opposite  direction of interest rates.  Longer term
bond prices tend to move more in response to interest  changes than shorter term
bonds.

Credit Risk: The creditworthiness of bond issuers will affect the value of their
bonds,  which may decline during the Fund's holding periods and affect the value
of the  Fund as a  whole.  The  risk,  generally,  is less  pronounced  for U.S.
Government  and U.S.  agency bonds than is the case for  municipal and privately
issued bonds.

Past Performance
The  following  table and chart  reflect the Fund's  annual return and long-term
performance.  The bar chart and table show the risks of investing in the Fund by
demonstrating  the  variability in performance  from  year-to-year.  As with all
investments, past performance is not a guarantee of future results.

Year-by-Year Total Return
The following  chart shows  calendar year total returns for Class A shares since
the Fund started operations.  Total returns assume reinvestment of all dividends
and  distributions,  but do not reflect any deduction for sales charges.  If the
chart reflected sales loads, returns would be less than those shown.

Class A shares

[Bar chart with following data:]

         12/31/89          ____%
         12/31/90          ____%
         12/31/91          ____%
         12/31/92          ____%
         12/31/93          ____%
         12/31/94          ____%
         12/31/95          ____%
         12/31/96          ____%
         12/31/97          ____%
         12/31/98          ____%

The Funds year to date return as of March 31st, 1999 was ______%.

Best and Worst Quarterly Returns

Best Quarter:              _____ Quarter of 19__              ______%
Worst Quarter:             _____ Quarter of 19__              ______%

Average Annual Total Return
The tables below compares the Fund's average annual total return for Class A and
B shares with the Lehman Brothers  Aggregate Bond  Index(R).*  Performance of
the Fund  reflects the maximum  sales load you would pay for the stated  period.
The average  annual  return is  calculated  as of the close of the Fund's fiscal
year,  which ends April 30, 1999.  Returns for Class A shares are shown for one,
five and ten-year periods. For Class B shares,  returns are shown for a one-year
period and since inception of Class B shares.

Bond Fund                                  1 Year       5 Year        10 Year 
------------------------------------------------------------------------------

Class A Shares                             ____%        ____%         ____%

Lehman Brothers Aggregate Bond Index(R)    ____%        ____%         ____%


Bond Fund                                  1 Year       Since Inception

Class B Shares                             ____%        ____% (1)

Lehman Brothers Aggregate Bond Index(R)    ____%        ____%

(1) Inception of Class B Shares, January 8, 1997
* The  Lehman  Brothers  Aggregate  Bond  Index(R)  is an  unmanaged  index that
encompasses four classes of fixed-income  securities in the United States:  U.S.
Treasury and U.S.  government  agency  securities,  corporate debt  obligations,
mortgage-backed securities and asset backed securities.

Please note, investment returns and principal value will fluctuate.  When shares
are redeemed, they may be worth more or less than the price you paid.

Expenses
Like any investor you, pay certain expenses related to your investments.  Annual
Fund and operating  expenses are paid from  portfolio  assets,  so they directly
reduce your share price. These expenses are outlined below.

Fee Table
This table  describes  the fees and expenses you may pay if you buy and hold the
Fund's shares:

Shareholder Fees
(fees paid directly from your investment)    Class A  Shares      Class B Shares

Maximum sales charge (load) imposed on
purchases (as a percentage of offering price)    4.00%                None

Maximum deferred sales charge (load)
(as a percentage of net asset value)             None                 5.00%

Annual Fund Operating Expenses
(expenses deducted from Fund assets)         Class A  Shares      Class B Shares

Management Fees                                  ___%                 ___%

Distribution and Service (12b-1) Fees            0.25%                1.00%

Other Expenses                                   ___%                 ___%

Total Fund Operating Expenses                    ___%                 ___%

Expense Example
This  example is intended to help you compare the costs of investing in the Fund
with the cost of  investing in other  mutual  funds.  It assumes that you invest
$10,000 in the Fund for the time periods  indicated,  that your investment has a
5% return each year,  and that the Fund's  operating  expenses  remain the same.
Although  your  actual  costs may be higher  or  lower,  based on the  foregoing
assumptions your costs would be:

Time Period     Class A Shares   Class B Shares    Class B Shares No Redemptions
--------------------------------------------------------------------------------

1 Year              $____           $____                      $____

3 Year              $____           $____                      $____

5 Year              $____           $____                      $____

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

*Class B shares convert into Class A shares after five years.

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


The AAL Money Market Fund

Investment Objective
The  AAL  Money  Market  Fund  seeks  a high  level  of  current  income,  while
maintaining  liquidity  and a  constant  net  asset  value of $1.00 per share by
investing in a diversified  portfolio of high quality,  short-term  money market
instruments.

[Sidebar:  Important Information Concerning The AAL Money Market Fund]

This portfolio is a mutual fund, not a savings account. It consists of a pool of
investments  that  are  professionally  managed.  You  should  not  consider  an
investment in the Fund a deposit or other  obligation of any bank,  credit union
or any affiliated  entity.  Neither the Federal Deposit Insurance Company (FDIC)
nor any other government  agency insures or protects your investment.  We cannot
guarantee  that the Fund will  achieve its goal of  maintaining  a constant  net
asset value of $1.00 per share.

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

(1)  obligations  issued or guaranteed by the U.S.  government,  its agencies or
     instrumentalities;
(2)  certificates of deposit,  bankers  acceptances  and similar  obligations of
     U.S.  banks,  savings  associations,  foreign  branches  of U.S.  banks and
     domestic branches of foreign banks, which have total assets of more than $1
     billion at the time of purchase, and who are members of the Federal Deposit
     Insurance Corporation (FDIC);
(3)  commercial  paper that at the time of  purchase is defined as First Tier or
     "Second Tier" by the  Investment  Company Act of 1940, as long as we do not
     invest more than 5% of the Fund's  total  assets in Second Tier  commercial
     paper; and
(4)  corporate  obligations,  including  variable  rate master notes that at the
     time of purchase are in one of the two highest  categories of a NRSRO,  or,
     if  unrated,  issued by a  corporation  with  outstanding  debt that has an
     equivalent or better rating at the time of purchase.

We make  investments for the Fund consistent with Rule 2a-7 under the Investment
Company Act of 1940. As such,  we invest in  securities  maturing in 397 days or
less and maintain a dollar-weighted  average portfolio maturity of not more than
90 days. By limiting the maturity of the Fund's  investments,  we seek to lessen
the changes in asset values caused by fluctuations in short-term interest rates.
Part of the Fund's objective is to maintain a constant net asset value per share
of $1.00.

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

Primary Risks

Interest Rate Risk: Changes in interest rate levels affect the yield.  Increases
in short-term  interest  rates  generally  cause the Fund's assets to decline in
value. The relatively short maturity of the Fund as a whole tends to reduce this
volatility,  and  minimizes  the risk that the Fund's per share net asset  value
will deviate from $1.00.

Credit Risk: The price of a security that the Fund holds may decline in response
to a  deterioration  of the  creditworthiness  of an issuer,  or the provider of
credit support or a maturity-shortening structure for that security.

Financial  Services  Exposure:  Changes in  government  regulations  or economic
downturns  can have a  significant  negative  effect on issuers of money  market
instruments in the financial services sector.  The Fund frequently  concentrates
its investments in this sector.

Past Performance
The  following  table and chart  reflect the Fund's  annual return and long-term
performance.  The bar chart and table show the risks of investing in the Fund by
demonstrating  the  variability in performance  from  year-to-year.  As with all
investments, past performance is not a guarantee of future results.

Year-by-Year Total Return
The following  chart shows  calendar year total returns for Class A shares since
the Fund started operations.  Total returns assume reinvestment of all dividends
and  distributions.  There is no front-end  sales charge or contingent  deferred
sales charge on the Fund's Class A shares.

Class A shares

[Bar chart with following data:]

         12/31/89          ____%
         12/31/90          ____%
         12/31/91          ____%
         12/31/92          ____%
         12/31/93          ____%
         12/31/94          ____%
         12/31/95          ____%
         12/31/96          ____%
         12/31/97          ____%
         12/31/98          ____%

The Funds year to date return as of March 31st, 1999 was ______%.

Best and Worst Quarterly Returns

Best Quarter:              _____ Quarter of 19__              ______%
Worst Quarter:             _____ Quarter of 19__              ______%

Average Annual Total Return
The tables below compares the Fund's average annual total return for Class A and
B shares with the Salomon Brothers Short-Term Index(R).* Performance of the Fund
reflects the maximum sales load you would pay for the stated period. The average
annual return is calculated as of the close of the Fund's fiscal year which ends
April 30, 1999.  Returns for Class A shares are shown for one, five and ten-year
periods.  For Class B shares,  returns are shown for a one-year period and since
inception of Class B shares.

Money Market Fund                          1 Year        5 Year        10 Year 
--------------------------------------------------------------------------------

Class A Shares                             ____%         ____%         ____%

Salomon Brothers Short-Term Index(R)       ____%         ____%         ____%


Money Market Fund                          1 Year        Since Inception 

Class B Shares                             ____%         ____% (1)

Salomon Brothers Short-Term Index(R)       ____%         ____%

(1) Inception of Class B Shares, January 8, 1997
* The Salomon  Brothers  Short-Term  Index(R) is an unmanaged  index composed of
1-month U.S. Treasury Bills.

The Fund attempts to maintain a stable net asset value per share value of $1.00.

Expenses
Like any investor you, pay certain expenses related to your investments.  Annual
Fund and operating  expenses are paid from  portfolio  assets,  so they directly
reduce your yield. These expenses are outlined below.

Fee Table
This table  describes  the fees and expenses you may pay if you buy and hold the
Fund's shares:

Shareholder Fees
(fees paid directly from your investment)    Class A  Shares      Class B Shares

Maximum sales charge (load) imposed on
purchases (as a percentage of offering price)     4.00%                None

Maximum deferred sales charge (load)
(as a percentage of net asset value)              None                 5.00%

Annual Fund Operating Expenses
(expenses deducted from Fund assets)         Class A  Shares      Class B Shares

Management Fees                                   ___%                  ___%

Distribution and Service (12b-1) Fees             0.25%                 1.00%

Other Expenses                                    ___%                  ___%

Total Fund Operating Expenses                     ___%                  ___%

Expense Example
This  example is intended to help you compare the costs of investing in the Fund
with the cost of  investing in other  mutual  funds.  It assumes that you invest
$10,000 in the Fund for the time periods  indicated,  that your investment has a
5% return each year,  and that the Fund's  operating  expenses  remain the same.
Although  your  actual  costs may be higher  or  lower,  based on the  foregoing
assumptions your costs would be:

Time Period     Class A Shares    Class B Shares   Class B Shares No Redemptions
--------------------------------------------------------------------------------

1 Year              $____            $____                     $____

3 Year              $____            $____                     $____

5 Year              $____            $____                     $____

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

*Class B shares convert into Class A shares after five years.

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


MANAGEMENT, ORGANIZATION, AND CAPITAL STRUCTURE

Investment Adviser
AAL Capital  Management  Corporation (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), a fraternal benefit society,  owns all of AAL CMC's shares. AAL
is a non-profit, non-stock, membership organization licensed to do business as a
fraternal  benefit  society in all  states.  AAL has  approximately  1.7 million
members and is one of the world's largest  fraternal benefit society in terms of
assets and life insurance in force. AAL ranks in the top two percent of all life
insurers in the United  States 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 United  States.  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 __________,
1999, AAL CMC managed over $____ billion for The AAL Mutual Funds.

The adviser's principal address is:

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

AAL's principal address is:

                  Aid Association for Lutherans
                  4321 North Ballard Road
                  Appleton, Wisconsin 54919-0001.

Pursuant to an investment advisory agreement with the Funds, AAL CMC manages the
investment  and  reinvestment  of the Funds'  assets.  AAL CMC also provides the
Funds with personnel,  facilities,  administrative  services, and supervises the
Funds' daily  business  affairs.  Services  provided by AAL CMC to the Funds are
subject to the  supervision of the 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.

Adviser Fees per Fund
The table below  reflects  advisory  fees paid by each Fund as a  percentage  of
average daily net assets, for the fiscal year ended April 30, 1999.

THE AAL SMALL CAP STOCK FUND            ____% on the average daily net assets

THE AAL MID CAP STOCK FUND              ____% on the average daily net assets

THE AAL INTERNATIONAL FUND              0.80% on the average daily net assets
         Sub-Adviser Fees
         Oechsle International Advisers ____% on the average daily net assets

THE AAL CAPITAL GROWTH FUND             ____% on the average daily net assets

THE AAL EQUITY INCOME FUND              0.45% on the average daily net assets

THE AAL BALANCED FUND                   0.55% on the average daily net assets

THE AAL HIGH YIELD BOND FUND            0.55% on the average daily net assets

THE AAL MUNICIPAL BOND FUND             0.45% on the average daily net assets

THE AAL BOND FUND                       0.45% on the average daily net assets

THE AAL MONEY MARKET FUND               ____% on the average daily net assets

Portfolio Management

THE AAL SMALL CAP STOCK FUND
Kevin  Schmitting,  CFA, has managed the day-to-day Fund  investments  since its
inception  on July 1, 1996.  Mr.  Schmitting  also managed the AAL Mid Cap Stock
Fund from November 1, 1995,  through March 17, 1997.  Prior to November 1, 1995,
Mr. Schmitting served as investment director and in other investment  capacities
for the State of Wisconsin Investment Board from 1984 through 1995.

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

THE AAL INTERNATIONAL FUND
Oechsle LLC makes the day-to-day investment decisions for the International Fund
portfolio  under AAL CMC's direction and control.  Oechsle LLC determines  which
securities  to purchase  and sell,  arranges the  purchases  and sales and gives
other help in  formulating  and  implementing  the  investment  program  for the
International Fund portfolio.

The portfolio  managers for The AAL  International  Fund are Kathleen Harris and
Sean Roche.  Ms. Harris has been a Portfolio  Manager at Oechsle since  January,
1995. Prior to this, she was portfolio  manager and Investment  Director for the
State of Wisconsin  Investment  Board and a Fund Manager and Equity  Analyst for
Northern  Trust  Company.  Mr.  Roche has been a general  partner and  portfolio
manager with Oechsle since 1986.

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

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

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

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

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

THE AAL BOND FUND
Michael R. Hilt, CFA, has managed the day-to-day Fund investments since November
1, 1995.  From April 1994  through  August  1995,  Mr. Hilt served as  portfolio
manager and  quantitative  analyst for Conseco  Capital  Management,  Inc.  From
August  1992  through  April  1994,  he  served  as  a  portfolio   manager  and
quantitative  analyst for PPM America,  Inc. Mr. Hilt also manages The AAL Money
Market Fund.

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

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 and dividend distribution 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. In addition,  there
can be no  assurances  that Year 2000  issues will not affect the  companies  in
which the Funds invest, or worldwide markets and economies.


SHAREHOLDER INFORMATION

PRICING 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
(normally  3:00 p.m.  Central Time) on the New York Stock Exchange  (NYSE).  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 under  policies and
guidelines  approved by 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 next  determined  after the Funds  receive your  payment or your  redemption
request.

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

Buying Class A Shares
Class A shares have an up-front sales charge which is commonly  referred to as a
front-end  load.  You buy Class A shares of each Fund at net asset value ("NAV")
plus a maximum sales  charge,  front-end  load, of 4.00% of the public  offering
price ("POP") incurred at the time of purchase.  As a result, we do not impose a
sales charge when an investor redeems Class A shares of a Fund. We may reduce or
waive sales charges on certain purchases. The chart below shows the sales charge
percentage for Class A shares imposed at different dollar level purchases.

                                   Breakpoints

<TABLE>
<CAPTION>
<S>                           <C>              <C>               <C>              <C>      
Your                          Sales Charge     Sales Charge      50%Sales         50% Sales
Investment                    as a percent     as a percent      Charge as a      Charge as a percent
Amount                        of POP*          of Net Amount     percent of       of Net Amount
                                               Invested*         POP*             Invested*
--------------------------------------------------------------------------------------------------------
Less than $25,000             4.00%            4.17%             2.00%             2.04%

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

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

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

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

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


* Registered Representatives may receive compensation of 55% of the sales charge
on  amounts  purchased,  plus a  bonus  based  on  total  commissions.  Further,
Registered  Representatives  may  receive  compensation  of .50 of 1% on amounts
invested of $500,000 or more.

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

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

Reducing Your Sales Charge
We may reduce your sales  charges on purchases  of Class A shares under  certain
circumstances, described below. If you are eligible for one of these reductions,
you must  tell us or your  Registered  Representative  at the time you  purchase
Class A shares or you may or may not receive the reduction.  Trustees, directors
and employees of the Funds and the Adviser and Sub-Advisers,  as well as persons
licensed  to receive  commissions  for sales of the  Funds,  may not pay a sales
charge on their  purchases or on purchases  made by family  members  living with
them. We reserve the right to stop or change these reductions at any time.

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

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

Letter of Intent
To reduce your sales charge on purchases above the breakpoints listed above, you
can sign a letter of intent if you intend to invest more than the dollar  amount
at any one  breakpoint  during  the  next 13  months.  Class A or  Class B share
purchases  fulfill the Letter of Intent,  but you receive a reduced sales charge
on Class A shares  only.  You can include  purchases in accounts you have linked
for purposes of the right of  accumulation,  as well as,  purchases  made in the
last 90 days. We will not recalculate the sales charge on prior purchases.

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

Share  purchases in The AAL Money Market Fund do not apply toward your Letter of
Intent,  unless you originally purchased shares in another Fund and paid a sales
charge, and later exchanged those shares for your shares of The AAL Money Market
Fund.

Buying Class B Shares
Class B shares  have a  contingent  deferred  sales  charge,  which is  commonly
referred to as a back-end load. You buy Class B shares of each Fund at net asset
value with no initial sales charge.  However,  you may pay a contingent deferred
sales charge  (expressed  as a percentage of the lesser of the current net asset
value or original cost) of up to 5% if you redeem shares within five years after
purchase.  We do not impose a  contingent  deferred  sales  charge on shares you
acquire through the  reinvestment of dividends and capital gains. To reduce your
cost,  when you redeem shares in a Fund,  you will redeem either shares that are
not subject to a contingent  deferred  sales charge (i.e.,  those bought through
reinvestment  of  dividends  and  capital  gains)  or  shares  with  the  lowest
contingent  deferred sales charge. We waive the contingent deferred sales charge
upon redemption of shares  following the death or disability of a shareholder or
for mandatory or hardship  distributions  from retirement plans, IRAs and 403(b)
plans or to meet  certain  retirement  plan  requirements.  Also,  we reduce the
amount of a contingent  deferred  sales charge  depending on the amount of years
from the purchase of Class B shares until the sale of those shares  according to
the following table:

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

*Registered  Representatives  may receive  compensation upon the sale of Class B
shares in the amount of up to 1.25% of the purchase  amount,  plus a bonus based
on total commissions,  even if such shares are not redeemed within five years of
purchase  and thus not subject to a back-end  load.  We base the sales charge on
the lesser of the net asset  value of the shares at the time of the  purchase or
at the time of the sale.

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

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

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

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.

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

(1)  after reviewing this prospectus,  complete an AAL Mutual Funds  Application
     and New Account Form, which should be attached to the prospectus, for every
     different account registration.  For example, you need separate application
     for an individual  account in The AAL Bond Fund and a separate  application
     for IRA  account  invested  in The AAL Bond  Fund.  Remember  to  designate
     whether you are purchasing Class A shares or Class B shares.  If you do not
     complete  the  application  properly,  your  purchase  may  be  delayed  or
     rejected;

(2)  Make your check payable to the Fund you are buying,  for example,  "The AAL
     Bond Fund." If you are buying more than one Fund,  make your check  payable
     to "THE AAL MUTUAL  FUNDS."  DO NOT MAKE YOUR  CHECK  PAYABLE TO AAL OR AAL
     CAPITAL MANAGEMENT CORPORATION; and

(3)  Mail your completed application and check to:

     THE AAL MUTUAL FUNDS
     222 W. COLLEGE AVE.
     P. O. BOX 8004
     APPLETON, WI 54913-8004.

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

Purchasing New Shares for the First Time By Wire
If your bank is a member of or has a corresponding relationship with a member of
the Federal Reserve System,  you can buy shares of the Funds by wire transfer by
following these steps:

(1)  Call AAL Capital  Management  Corporation at  800-553-6319  (The AAL Mutual
     Funds  Service  Center  ("Service   Center"))  and  provide  the  following
     information:

        your account registration;
        the name of the Fund(s) in which you want to invest and whether you wish
          to buy Class A or Class B shares;
        your address;
        your Social Security or tax identification number;
        the dollar amount;
        the name of the wiring bank; and
        the name and the  telephone  number of the  person at your bank who the
          Funds can contact about your purchase.

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

(2) Instruct your bank to use the following instructions when wiring funds:

     WIRE TO: FIRSTAR BANK MILWAUKEE, N. A.  ABA #075000022
     CREDIT:  FIRSTAR TRUST COMPANY ACCOUNT 112-952-137
     FURTHER CREDIT:  NAME OF FUND (SHAREHOLDER ACCOUNT NUMBER) 
                      (SHAREHOLDER REGISTRATION)

     Please call (800)  553-6319  prior to sending the wire in order to obtain a
     confirmation number and to ensure prompt and accurate handling of funds.

     The Fund and its transfer agent are not responsible for the consequences of
     delays  resulting from the banking or Federal Reserve Wire system,  or from
     incomplete wiring instructions.

(3) Complete The AAL Mutual Funds Application and mail it immediately to:

     THE AAL MUTUAL FUNDS
     222 W. COLLEGE AVE.
     P. O. BOX 8004
     APPLETON, WI 54913-8004.

Purchasing Shares for the First Time by Mail
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,  along with a completed  shareholder  application and new
account form to:

     New Accounts
     AAL Capital Management Corporation
     222 West College Avenue
     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.  Money  received after the close of the
NYSE will go toward the purchase of shares the next day at that day's price.

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

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

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

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

Automatic Investment Plans
The Funds offer several  automatic  investment  plans available to make periodic
investing more convenient. These plans do not need an initial investment.

Please note, 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 Small Cap Stock,  Mid Cap Stock,
International,  Capital  Growth,  Equity  Income,  Balanced,  High  Yield  Bond,
Municipal  Bond,  and Bond Funds by  redemption  of shares  from their AAL Money
Market Fund  Account.  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) Plans

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

Purchases
Your  purchase  must be in U.S.  dollars  and your check must be drawn on a U.S.
bank. We do not accept cash or traveler's  checks. If your check does not clear,
we will  cancel  your  purchase  and  hold you  liable  for any  losses  and any
applicable  fees.  When you buy  shares by any type of check,  electronic  funds
transfer or  automatic  investment  purchase,  you may not be able to redeem the
shares you purchased  for 12 days or until your check has cleared,  whichever is
later.  This does not limit your right to redeem shares.  Rather, it operates to
make sure that payment for the shares redeemed has been received by the Transfer
Agent.

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

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

Other Information
The U.S.  Postal  Service or  private  delivery  services  are not agents of the
Funds,  the  Distributor,  or the Transfer Agent. We do not legally receive your
purchase application or your request for redemption when you deposit them in the
mail, send them with a private  delivery service or when you deposit them in our
Post Office Box. We must have  physical  possession  of your request to consider
your request  received.  Current law will  determine the legal effect of posting
for deadline purposes.

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

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
You can sell your shares on any business  day.  When you sell your  shares,  you
receive the net asset  value per share,  except for Class B shares for which you
will  receive  the net asset value per share minus the  back-end  load,  if any,
depending on how long you own have held the shares  redeemed.  If we receive you
request in good order;  which means including all the information  listed below,
before the close of the NYSE (normally 3:00 p.m.  Central Time) you will receive
that day's  price.  If we  receive  your  redemption  request in good order on a
holiday,  weekend or day the NYSE is closed,  we will process  your  transaction
request on the next business day. You can sell shares several ways.  Please note
that  transfers via Electronic  Funds Transfer (EFT)  generally take up to three
business days to reach your bank account.

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

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

You may redeem shares of any of the Funds by mail, by sending a written  request
or 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 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.

Systematic Withdrawal Plan (Usually Only Appropriate for Class A Shares)
You can have money automatically withdrawn from your AAL Mutual Funds account(s)
on a regular basis by using our systematic  withdrawal plan. The plan allows you
to receive funds or pay a bill at regular intervals.  The following rules and/or
guidelines apply:

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

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

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

    To stop or change your plan, you must notify us at least 5 business days 
    prior to the next withdrawal; and

    Because of sales charges, you must consider carefully the costs of frequent
    investments in and withdrawals from your account.

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

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

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

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

    Unless you purchased  shares by bank wire,  you must wait 12 days after you
    purchase  The AAL Money  Market Fund shares to write  checks  against  that
    purchase; and

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

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

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

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

Exchange Privilege

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

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

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.

Exchanges by Telephone 
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.

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

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

Telephone  exchanges will be permitted only if you elect the telephone  exchange
option on your 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

The Funds endeavor to qualify  annually for, and elect tax treatment  applicable
to, a regulated  investment  company under  Subchapter M of the Internal Revenue
Code of 1986 as amended  ("Code").  Pursuant to the requirements of the Code, we
intend to distribute  substantially  all of the Funds' net investment income and
net realized  capital gains, if any, less any available  capital loss carryover,
to  shareholders  annually.  We do this to avoid paying income tax on the Funds'
net  investment  income and net  realized  capital  gains or being  subject to a
federal  excise tax on  undistributed  net  investment  income and net  realized
gains.  Annually, we intend to comply with all of the requirements to qualify as
a  regulated  investment  company  for each  Fund.  We  provide  you  with  full
information  on dividends  and capital gains  distributions  for each Fund on an
annual basis.

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

The AAL Small Cap Stock, Mid Cap Stock,  International,  Capital Growth,  Equity
Income,  Balanced,  High Yield Bond,  Bond and Money Market Funds The  dividends
from net  investment  income of each of these Funds,  including  net  short-term
capital gains,  are taxable as ordinary income to  shareholders  whether paid in
additional  shares  or in cash.  Any  long-term  capital  gains  distributed  to
shareholders are taxable as capital gains to shareholders,  whether they receive
them in cash or in  additional  shares,  and  regardless of the length of time a
shareholder has owned the shares.

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

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

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

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

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

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

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


TAX CONSIDERATIONS

As with all funds distributing taxable income, you as a tax-paying investor will
be subject to income taxes on all  dividends  and  distributions,  regardless of
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 31st 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.  The  shareholder  returns that we
project at maturity  assume 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 our  projections 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.  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.

This discussion  provides no information as to state and local tax  consequences
of  ownership  of shares of the Funds.  You should  consult  your  personal  tax
adviser to determine the  consequences of state and local taxes,  and for a more
detailed   assessment   of  federal  tax   consequences   for  your   particular
circumstances.


DISTRIBUTION ARRANGEMENTS

12b-1 Fees
In addition to the sales charge  deducted at the time of purchase,  each Fund is
authorized,  pursuant to a Rule 12b-1  Distribution  Plan it has adopted ("12b-1
Distribution Plan" or "Plan"), to use a portion of its assets to cover the costs
of certain activities relating to the distribution of its shares to investors.

The 12b-1  Distribution  Plan permits each Fund to reimburse the Distributor for
expenses incurred in distributing the Funds' shares to investors, which includes
expenses relating to: sales representative  compensation  (excluding the initial
sales charge); advertising; preparation and distribution of sales literature and
prospectuses to prospective investors;  implementing and operating the Plan; and
performing  other  promotional  or  administrative  activities  on behalf of the
Funds.

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

Except for The AAL Money Market Fund, each Fund pays a service fee of up to 0.25
of 1% of its  average  daily net assets for Class A and Class B shares.  The AAL
Money  Market Fund pays a service fee of up to 0.125 of 1% of the average  daily
net assets for Class A and Class B shares. We use the shareholder  servicing fee
to  compensate  for  certain  shareholder  services.  The table  below shows the
maximum 12b-1 distribution and servicing fee paid by each Fund.

Distribution Fees

Fund                                Class A shares            Class B shares

The AAL Small Cap Stock Fund        None                      0.75%
The AAL Mid Cap Stock Fund          None                      0.75%
The AAL International Fund          None                      0.75%
The AAL Capital Growth Fund         None                      0.75%
The AAL Equity Income Fund          None                      0.75%
The AAL Balanced Fund               None                      0.75%
The AAL High Yield Bond Fund        None                      0.75%
The AAL Municipal Bond Fund         None                      0.75%
The AAL Bond Fund                   None                      0.75%
The AAL Money Market Fund           None                      0.75%

Service Fees

Fund                                Class A shares            Class B shares

The AAL Small Cap Stock Fund        0.25%                     0.25%
The AAL Mid Cap Stock Fund          0.25%                     0.25%
The AAL International Fund          0.25%                     0.25%
The AAL Capital Growth Fund         0.25%                     0.25%
The AAL Equity Income Fund          0.25%                     0.25%
The AAL Balanced Fund               0.25%                     0.25%
The AAL High Yield Bond Fund        0.25%                     0.25%
The AAL Municipal Bond Fund         0.25%                     0.25%
The AAL Bond Fund                   0.25%                     0.25%
The AAL Money Market Fund           0.125%                    0.125%

Shareholder Maintenance Agreement
Under  contracts  approved  by the Board of  Trustees,  AAL  Capital  Management
Corporation  provides  certain  shareholder  maintenance  services.  AAL Capital
Management Corporation receives an annual fee for providing these services. This
fee is based upon,  and limited by, the difference  between the current  account
fees  charged  and the  normal  full-service  fee  schedule  established  by our
Transfer Agent. It also includes reimbursement for out-of-pocket costs including
postage  and   telephone   charges.   This   account   differential,   including
reimbursement for expenses, is currently $____ per account per year.


FINANCIAL HIGHLIGHTS INFORMATION

The financial  highlights  table is intended to help you  understand  the Fund's
financial  performance for the past five years or, if shorter, the period of the
Fund's operations.  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  reinvestments
of all dividends and  distributions).  This  information has been audited by the
accounting  firm of  PriceWaterhouseCoopers  LLP, whose report,  along with each
Fund's  financial  statements  are  included  in the  annual  report,  which  is
available upon request.

THE AAL SMALL CAP STOCK FUND

                                                   Period   Period   Period from
                                                   Ended    Ended    7/1/96 to
                                                   4/30/99  4/30/98  4/30/97
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                  _____    _____    _____
Income from Investment Operations
     Net Investment Income (Loss)                  _____    _____    _____
     Net Realized and Unrealized Gain (Loss)       _____    _____    _____
Total From Investment Operations                   _____    _____    _____
Distributions
     Dividends from Investment Income - Net        _____    _____    _____
     Distributions from Capital Gains              _____    _____    _____
Total Dividends and Distributions                  _____    _____    _____
Net Asset Value - End of Period                    _____    _____    _____
Total Return (1)                                   _____    _____    _____

Supplemental Data and Ratios
Net Assets at End of Period                        _____    _____    _____
Ratio of Expenses to Average Net Assets (2)*       _____    _____    _____
Ratio of Investment Income (Loss)   to
     Average Net Assets (2)*                       _____    _____    _____
Portfolio Turnover Rate                            _____    _____    _____

                                                   Period   Period   Period from
                                                   Ended    Ended    1/8/97 to
                                                   4/30/99  4/30/98  4/30/97

CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                  _____    _____    _____
Income from Investment Operations
     Net Investment Income (Loss)                  _____    _____    _____
     Net Realized and Unrealized Gain (Loss)       _____    _____    _____
Total From Investment Operations                   _____    _____    _____
Distributions
     Dividends from Investment Income - Net        _____    _____    _____
     Distributions from Capital Gains              _____    _____    _____
Total Dividends and Distributions                  _____    _____    _____
Net Asset Value - End of Period                    _____    _____    _____

Supplemental Data and Ratios
Net Assets at End of Period                        _____    _____    _____
Ratio of Expenses to Average Net Assets (2)*       _____    _____    _____
Ratio of Investment Income (Loss)   to
     Average Net Assets (2)*                       _____    _____    _____
Portfolio Turnover Rate                            _____    _____    _____

* If the Fund had paid all of its expenses  for Class A and Class B shares,  the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets(2):  ____% , ____%, and
____%
Class B shares - Ratio of Expenses to Average Net Assets(2):  ____%,  ____%, and
____%
Class A shares - Ratio of Net  Investment  Income{Loss)  Average Net  Assets(2):
____%, ____%, and ____%
Class B shares - Ratio of Net  Investment  Income{Loss)  Average Net  Assets(2):
____%, ____%, and ____%
(1) Total Return assumes  reinvestment  of all dividends and  distributions  but
does not reflect any deduction for sales charge. The aggregates,  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.


THE AAL MID CAP STOCK FUND
<TABLE>

<CAPTION>
<S>                                               <C>      <C>      <C>      <C>     <C>    
                                                  Period   Period   Period   Period  Period
                                                  Ended    Ended    Ended    Ended   Ended
                                                  4/30/99  4/30/98  4/30/97  4/30/96 4/30/95
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                 _____    _____    _____    _____   _____
Income from Investment Operations
     Net Investment Income (Loss)                 _____    _____    _____    _____   _____
     Net Realized and Unrealized Gain (Loss)      _____    _____    _____    _____   _____
Total From Investment Operations                  _____    _____    _____    _____   _____
Distributions
     Dividends from Investment Income - Net       _____    _____    _____    _____   _____
     Distributions from Capital Gains             _____    _____    _____    _____   _____
Total Dividends and Distributions                 _____    _____    _____    _____   _____
Net Asset Value - End of Period                   _____    _____    _____    _____   _____
Total Return (1)                                  _____    _____    _____   _____    _____

Supplemental Data and Ratios
Net Assets at End of Period                       _____    ____     _____    _____   _____
Ratio of Expenses to Average Net Assets*          _____    ____     _____    _____   _____
Ratio of Investment Income (Loss)   to
     Average Net Assets*                          _____    ____     _____    _____   _____
Portfolio Turnover Rate                           _____    ____     _____    _____   _____
</TABLE>

                                                   Period   Period   Period from
                                                   Ended    Ended    1/8/97 to
                                                   4/30/99  4/30/98  4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                  _____    _____    _____
Income from Investment Operations
     Net Investment Income (Loss)                  _____    _____    _____
     Net Realized and Unrealized Gain (Loss)       _____    _____    _____
Total From Investment Operations                   _____    _____    _____
Distributions
     Dividends from Investment Income - Net        _____    _____    _____
     Distributions from Capital Gains              _____    _____    _____
Total Dividends and Distributions                  _____    _____    _____
Net Asset Value - End of Period                    _____    _____    _____
Total Return (1)                                   _____    _____    _____

Supplemental Data and Ratios
Net Assets at End of Period                        _____    _____    _____
Ratio of Expenses to Average Net Assets (2)*       _____    _____    _____
Ratio of Investment Income (Loss)   to
     Average Net Assets (2)*                       _____    _____    _____
Portfolio Turnover Rate                            _____    _____    _____

* If the Fund had paid all of its expenses  for Class A and Class B shares,  the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets:  ____%,  ____%, ____%,
____%, and ____%.
Class B shares - Ratio of  Expenses to Average Net  Assets:  ____%,  ____%,  and
____%.
Class A shares - Ratio of Net  Investment  Income{Loss)  Average Net  Assets:  :
____%, ____%, ____%, ____%, and ____%.
Class B shares - Ratio of Net  Investment  Income{Loss)  Average Net  Assets:  :
____%, ____%, and ____%.
(1) Total Return assumes  reinvestment  of all dividends and  distributions  but
does not reflect any deduction for sales charge.
(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.


THE AAL INTERNATIONAL FUND
<TABLE>
<CAPTION>
<S>                                               <C>      <C>      <C>      <C>   
                                                  Period   Period   Period   Period from
                                                  Ended    Ended    Ended    8/1/95 to
                                                  4/30/99  4/30/98  4/30/97  4/30/96
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                 ____     ____     ____     ____
Income from Investment Operations
     Net Investment Income (Loss)                 ____     ____     ____     ____
     Net Realized and Unrealized Gain (Loss)      ____     ____     ____     ____
Total From Investment Operations                  ____     ____     ____     ____
Distributions
     Dividends from Investment Income - Net       ____     ____     ____     ____
     Distributions from Capital Gains             ____     ____     ____     ____
Total Dividends and Distributions                 ____     ____     ____     ____
Net Asset Value - End of Period                   ____     ____     ____     ____
Total Return(1)                                   ____     ____     ____     ____

Supplemental Data and Ratios
Net Assets at End of Period                       ____     ____     ____     ____
Ratio of Expenses to Average Net Assets(2)*       ____     ____     ____     ____
Ratio of Investment Income (Loss)   to
     Average Net Assets(2)*                       ____     ____     ____     ____
Portfolio Turnover Rate                           ____     ____     ____     ____
</TABLE>

                                                   Period   Period   Period from
                                                   Ended    Ended    1/8/97 to
                                                   4/30/99  4/30/98  4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                  ____     ____     ____
Income from Investment Operations
     Net Investment Income (Loss)                  ____     ____     ____
     Net Realized and Unrealized Gain (Loss)       ____     ____     ____
Total From Investment Operations                   ____     ____     ____
Distributions
     Dividends from Investment Income - Net        ____     ____     ____
     Distributions from Capital Gains              ____     ____     ____
Total Dividends and Distributions                  ____     ____     ____
Net Asset Value - End of Period                    ____     ____     ____
Total Return (1)                                   ____     ____     ____

Supplemental Data and Ratios
Net Assets at End of Period                        ____     ____     ____
Ratio of Expenses to Average Net Assets(2)*        ____     ____     ____
Ratio of Investment Income (Loss)   to
     Average Net Assets(2)*                        ____     ____     ____
Portfolio Turnover Rate                            ____     ____     ____

* If the Fund had paid all of its expenses  for Class A and Class B shares,  the
ratios would be as follows:
Class A shares - Ratio of  Expenses  to Average  Net  Assets(2):  ____%,  ____%,
____%, and ____%.
Class B shares - Ratio of Expenses to Average Net Assets(2):  ____%,  ____%, and
____%.
Class A shares - Ratio of Net  Investment  Income{Loss)  Average Net  Assets(2):
____%, ____%, ____%, and ____%.
Class B shares - Ratio of Net  Investment  Income{Loss)  Average Net  Assets(2):
____%, ____% and ____%
(1) Total Return assumes  reinvestment  of all dividends and  distributions  but
does not reflect any deduction for sales charge. The aggregates,  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.


THE AAL CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
<S>                                               <C>      <C>      <C>     <C>      <C>   
                                                  Period   Period   Period  Period   Period
                                                  Ended    Ended    Ended   Ended    Ended
                                                  4/30/99  4/30/98  4/30/97 4/30/96  4/30/95
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                 _____    _____    _____   _____    _____
Income from Investment Operations
     Net Investment Income (Loss)                 _____    _____    _____   _____    _____
     Net Realized and Unrealized Gain (Loss)      _____    _____    _____   _____    _____
Total From Investment Operations                  _____    _____    _____   _____    _____
Distributions
     Dividends from Investment Income - Net       _____    _____    _____   _____    _____
     Distributions from Capital Gains             _____    _____    _____   _____    _____
Total Dividends and Distributions                 _____    _____    _____   _____    _____
Net Asset Value - End of Period                   _____    _____    _____   _____    _____
Total Return (1)                                  _____    _____    _____   _____    _____

Supplemental Data and Ratios
Net Assets at End of Period                       _____    _____    _____   _____    _____
Ratio of Expenses to Average Net Assets*          _____    _____    _____   _____    _____
Ratio of Investment Income (Loss)   to
     Average Net Assets*                          _____    _____    _____   _____    _____
Portfolio Turnover Rate                           _____    _____    _____   _____    _____
</TABLE>

                                                   Period   Period   Period from
                                                   Ended    Ended    1/8/97 to
                                                   4/30/99  4/30/98  4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                  _____    _____    _____
Income from Investment Operations
     Net Investment Income (Loss)                  _____    _____    _____
     Net Realized and Unrealized Gain (Loss)       _____    _____    _____
Total From Investment Operations                   _____    _____    _____
Distributions
     Dividends from Investment Income - Net        _____    _____    _____
     Distributions from Capital Gains              _____    _____    _____
Total Dividends and Distributions                  _____    _____    _____
Net Asset Value - End of Period                    _____    _____    _____
Total Return (1)                                   _____    _____    _____

Supplemental Data and Ratios
Net Assets at End of Period                        _____    _____    _____
Ratio of Expenses to Average Net Assets (2)*       _____    _____    _____
Ratio of Investment Income (Loss)   to             _____    _____    _____
     Average Net Assets (2)*                       _____    _____    _____
Portfolio Turnover Rate                            _____    _____    _____

* If the Fund had paid all of its expenses  for Class A and Class B shares,  the
ratios would be as follows:
Class A shares - Ratio of  Expenses  to  Average  Net  Assets:  _____%,  _____%,
_____%, _____%, and _____%.
Class B shares - Ratio of Expenses to Average Net Assets:  _____%,  _____%,  and
_____%
Class A  shares - Ratio  of Net  Investment  Income{Loss)  Average  Net  Assets:
_____%, _____%, _____%, _____%, and ____%
Class B  shares - Ratio  of Net  Investment  Income{Loss)  Average  Net  Assets:
_____%, _____%, and _____%
(1) Total Return assumes  reinvestment  of all dividends and  distributions  but
does not reflect any deduction for sales charge. The aggregates,  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.


THE AAL EQUITY INCOME FUND
<TABLE>
<CAPTION>
<S>                                               <C>      <C>      <C>     <C>      <C>   
                                                  Period   Period   Period  Period   Period
                                                  Ended    Ended    Ended   Ended    Ended
                                                  4/30/99  4/30/98  4/30/97 4/30/96  4/30/95
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                 _____    _____    _____   _____    _____
Income from Investment Operations
     Net Investment Income (Loss)                 _____    _____    _____   _____    _____
     Net Realized and Unrealized Gain (Loss)      _____    _____    _____    _____   _____
Total From Investment Operations                  _____    _____    _____   _____    _____
Distributions
     Dividends from Investment Income - Net       _____    _____    _____    _____   _____
     Distributions from Capital Gains             _____    _____    _____   _____    _____
Total Dividends and Distributions                 _____    _____    _____   _____    _____
Net Asset Value - End of Period                   _____    _____    _____   _____    _____
Total Return (1)                                  _____    _____    _____   _____    _____

Supplemental Data and Ratios
Net Assets at End of Period                       _____    _____    _____   _____    _____
Ratio of Expenses to Average Net Assets*          _____    _____    _____   _____    _____
Ratio of Investment Income (Loss)   to
     Average Net Assets*                          _____    _____    _____   _____    _____
Portfolio Turnover Rate                           _____    _____    _____   _____    _____
</TABLE>


                                                   Period   Period   Period from
                                                   Ended    Ended    1/8/97 to
                                                   4/30/99  4/30/98  4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                  _____    _____    _____
Income from Investment Operations
     Net Investment Income (Loss)                  _____    _____    _____
     Net Realized and Unrealized Gain (Loss)       _____    _____    _____
Total From Investment Operations                   _____    _____    _____
Distributions
     Dividends from Investment Income - Net        _____    _____    _____
     Distributions from Capital Gains              _____    _____    _____
Total Dividends and Distributions                  _____    _____    _____
Net Asset Value - End of Period                    _____    _____    _____
Total Return (1)                                   _____    _____    _____

Supplemental Data and Ratios
Net Assets at End of Period                        _____    _____    _____
Ratio of Expenses to Average Net Assets (2)*       _____    _____    _____
Ratio of Investment Income (Loss)   to
     Average Net Assets (2)*                       _____    _____    _____
Portfolio Turnover Rate                            _____    _____    _____

* If the Fund had paid all of its expenses  for Class A and Class B shares,  the
ratios would be as follows:
Class A shares - Ratio of  Expenses  to  Average  Net  Assets:  _____%,  _____%,
_____%, _____%, _____%, and _____%
Class B shares - Ratio of Expenses to Average Net Assets:  _____%,  _____%,  and
_____%
Class A  shares - Ratio  of Net  Investment  Income{Loss)  Average  Net  Assets:
_____%, _____%, _____%, _____%, and _____%.
Class B  shares - Ratio  of Net  Investment  Income{Loss)  Average  Net  Assets:
_____%, _____%, and _____%
(1) Total Return assumes  reinvestment  of all dividends and  distributions  but
does not reflect any deduction for sales charge. The aggregates,  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.


THE AAL BALANCED FUND
                                                       Period   Period from
                                                       Ended    12/29/97 to
                                                       4/30/99  4/30/98
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                      ____     ____
Income from Investment Operations
     Net Investment Income (Loss)                      ____     ____
     Net Realized and Unrealized Gain (Loss)           ____     ____
Total From Investment Operations                       ____     ____
Distributions
     Dividends from Investment Income - Net            ____     ____
     Distributions from Capital Gains                  ____     ____
Total Dividends and Distributions                      ____     ____
Net Asset Value - End of Period                        ____     ____
Total Return (1)                                       ____     ____

Supplemental Data and Ratios
Net Assets at End of Period                            ____     ____
Ratio of Expenses to Average Net Assets (2)*           ____     ____
Ratio of Investment Income (Loss)   to
     Average Net Assets (2)*                           ____     ____
Portfolio Turnover Rate                                ____     ____

                                                       Period   Period from
                                                       Ended    12/29/97 to
                                                       4/30/99  4/30/98
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                      ____     ____
Income from Investment Operations
     Net Investment Income (Loss)                      ____     ____
     Net Realized and Unrealized Gain (Loss)           ____     ____
Total From Investment Operations                       ____     ____
Distributions
     Dividends from Investment Income - Net            ____     ____
     Distributions from Capital Gains                  ____     ____
Total Dividends and Distributions                      ____     ____
Net Asset Value - End of Period                        ____     ____
Total Return (1)                                       ____     ____

Supplemental Data and Ratios
Net Assets at End of Period                            ____     ____
Ratio of Expenses to Average Net Assets (2)*           ____     ____
Ratio of Investment Income (Loss)   to
     Average Net Assets (2)*                           ____     ____
Portfolio Turnover Rate                                ____     ____

* If the Fund had paid all of its expenses  for Class A and Class B shares,  the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets: ____% and ____%
Class B shares - Ratio of Expenses to Average Net Assets: ____% and ____%
Class A shares - Ratio of Net Investment  Income{Loss) Average Net Assets: ____%
and ____%
Class B shares - Ratio of Net Investment  Income{Loss) Average Net Assets: ____%
and ____%
(1) Total Return assumes  reinvestment  of all dividends and  distributions  but
does not reflect any deduction for sales charge. The aggregates,  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.


THE AAL HIGH YIELD BOND FUND
                                                   Period   Period   Period from
                                                   Ended    Ended    1/8/97 to
                                                   4/30/99  4/30/98  4/30/97
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                  ____     ____     ____
Income from Investment Operations
     Net Investment Income (Loss)                  ____     ____     ____
     Net Realized and Unrealized Gain (Loss)       ____     ____     ____
Total From Investment Operations                   ____     ____     ____
Distributions
     Dividends from Investment Income - Net        ____     ____     ____
     Distributions from Capital Gains              ____     ____     ____
Total Dividends and Distributions                  ____     ____     ____
Net Asset Value - End of Period                    ____     ____     ____
Total Return (1)                                   ____     ____     ____

Supplemental Data and Ratios
Net Assets at End of Period                        ____     ____     ____
Ratio of Expenses to Average Net Assets (2)*       ____     ____     ____
Ratio of Investment Income (Loss)   to
     Average Net Assets (2)*                       ____     ____     ____
Portfolio Turnover Rate                            ____     ____     ____

                                                   Period   Period   Period from
                                                   Ended    Ended    1/8/97 to
                                                   4/30/99  4/30/98  4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                  ____     ____     ____
Income from Investment Operations
     Net Investment Income (Loss)                  ____     ____     ____
     Net Realized and Unrealized Gain (Loss)       ____     ____     ____
Total From Investment Operations                   ____     ____     ____
Distributions
     Dividends from Investment Income - Net        ____     ____     ____
     Distributions from Capital Gains              ____     ____     ____
Total Dividends and Distributions                  ____     ____     ____
Net Asset Value - End of Period                    ____     ____     ____
Total Return (1)                                   ____     ____     ____

Supplemental Data and Ratios
Net Assets at End of Period                        ____     ____     ____
Ratio of Expenses to Average Net Assets (2)*       ____     ____     ____
Ratio of Investment Income (Loss)   to
     Average Net Assets (2)*                       ____     ____     ____
Portfolio Turnover Rate                            ____     ____     ____

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

Class A shares - Ratio of  Expenses to Average Net  Assets:  ____%,  ____%,  and
____%

Class B shares - Ratio of  Expenses to Average Net  Assets:  ____%,  ____%,  and
____%

Class A shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, and ____%

Class B shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, and ____%

(1) Total Return assumes  reinvestment  of all dividends and  distributions  but
does not reflect any deduction for sales charge. The aggregates,  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.


THE AAL MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S>                                             <C>      <C>      <C>      <C>     <C>    
                                                Period   Period   Period   Period  Period
                                                Ended    Ended    Ended    Ended   Ended
                                                4/30/99  4/30/98  4/30/97  4/30/96 4/30/95
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period               ____     ____     ____     ____    ____
Income from Investment Operations
     Net Investment Income (Loss)               ____     ____     ____     ____    ____
     Net Realized and Unrealized Gain (Loss)    ____     ____     ____     ____    ____
Total From Investment Operations                ____     ____     ____     ____    ____
Distributions
     Dividends from Investment Income - Net     ____     ____     ____     ____    ____
     Distributions from Capital Gains           ____     ____     ____     ____    ____
Total Dividends and Distributions               ____     ____     ____     ____    ____
Net Asset Value - End of Period                 ____     ____     ____     ____    ____
Total Return (1)                                ____     ____     ____     ____    ____

Supplemental Data and Ratios
Net Assets at End of Period                     ____     ____     ____     ____    ____
Ratio of Expenses to Average Net Assets *       ____     ____     ____     ____    ____
Ratio of Investment Income (Loss)   to
     Average Net Assets *                       ____     ____     ____     ____    ____
Portfolio Turnover Rate                         ____     ____     ____     ____    ____
</TABLE>


                                                   Period   Period   Period from
                                                   Ended    Ended    1/8/97 to
                                                   4/30/99  4/30/98  4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                  ____     ____     ____
Income from Investment Operations
     Net Investment Income (Loss)                  ____     ____     ____
     Net Realized and Unrealized Gain (Loss)       ____     ____     ____
Total From Investment Operations                   ____     ____     ____
Distributions
     Dividends from Investment Income - Net        ____     ____     ____
     Distributions from Capital Gains              ____     ____     ____
Total Dividends and Distributions                  ____     ____     ____
Net Asset Value - End of Period                    ____     ____     ____
Total Return (1)                                   ____     ____     ____

Supplemental Data and Ratios
Net Assets at End of Period                        ____     ____     ____
Ratio of Expenses to Average Net Assets (2)*       ____     ____     ____
Ratio of Investment Income (Loss)   to
     Average Net Assets (2)*                       ____     ____     ____
Portfolio Turnover Rate                            ____     ____     ____

* If the Fund had paid all of its expenses  for Class A and Class B shares,  the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets:  ____%,  ____%, ____%,
____%, and ____%
Class B shares - Ratio of  Expenses to Average Net  Assets:  ____%,  ____%,  and
____%
Class A shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, ____%, ____%, and ____%
Class B shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, and ____%
(1) Total Return assumes  reinvestment  of all dividends and  distributions  but
does not reflect any deduction for sales charge. The aggregates,  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.


THE AAL BOND FUND
<TABLE>
<CAPTION>
<S>                                                  <C>      <C>      <C>      <C>     <C>    
                                                     Period   Period   Period   Period  Period
                                                     Ended    Ended    Ended    Ended   Ended
                                                     4/30/99  4/30/98  4/30/97  4/30/96 4/30/95
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                    ____     ____     ____     ____    ____
Income from Investment Operations
     Net Investment Income (Loss)                    ____     ____     ____     ____    ____
     Net Realized and Unrealized Gain (Loss)         ____     ____     ____     ____    ____
Total From Investment Operations                     ____     ____     ____     ____    ____
Distributions
     Dividends from Investment Income - Net          ____     ____     ____     ____    ____
     Distributions from Capital Gains                ____     ____     ____     ____    ____
Total Dividends and Distributions                    ____     ____     ____     ____    ____
Net Asset Value - End of Period                      ____     ____     ____     ____    ____
Total Return (1)                                     ____     ____     ____     ____    ____

Supplemental Data and Ratios
Net Assets at End of Period                          ____     ____     ____     ____    ____
Ratio of Expenses to Average Net Assets *            ____     ____     ____     ____    ____
Ratio of Investment Income (Loss)   to
     Average Net Assets *                            ____     ____     ____     ____    ____
Portfolio Turnover Rate                              ____     ____     ____     ____    ____
</TABLE>


                                                   Period   Period   Period from
                                                   Ended    Ended    1/8/97 to
                                                   4/30/99  4/30/98  4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                  ____     ____     ____
Income from Investment Operations
     Net Investment Income (Loss)                  ____     ____     ____
     Net Realized and Unrealized Gain (Loss)       ____     ____     ____
Total From Investment Operations                   ____     ____     ____
Distributions
     Dividends from Investment Income - Net        ____     ____     ____
     Distributions from Capital Gains              ____     ____     ____
Total Dividends and Distributions                  ____     ____     ____
Net Asset Value - End of Period                    ____     ____     ____
Total Return (1)                                   ____     ____     ____

Supplemental Data and Ratios
Net Assets at End of Period                        ____     ____     ____
Ratio of Expenses to Average Net Assets (2)*       ____     ____     ____
Ratio of Investment Income (Loss)   to
     Average Net Assets (2)*                       ____     ____     ____
Portfolio Turnover Rate                            ____     ____     ____

* If the Fund had paid all of its expenses  for Class A and Class B shares,  the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets:  ____%,  ____%, ____%,
____%, and ____%
Class B shares - Ratio of  Expenses to Average Net  Assets:  ____%,  ____%,  and
____%
Class A shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, ____%, ____%, and ____%
Class B shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, and ____%
(1) Total Return assumes  reinvestment  of all dividends and  distributions  but
does not reflect any deduction for sales charge. The aggregates,  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.


THE AAL MONEY MARKET FUND
<TABLE>
<CAPTION>
<S>                                               <C>      <C>      <C>      <C>     <C>   
                                                  Period   Period   Period   Period  Period
                                                  Ended    Ended    Ended    Ended   Ended
                                                  4/30/99  4/30/98  4/30/97  4/30/96 4/30/95
CLASS A SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                 ____     ____     ____     ____    ____
Income from Investment Operations
     Net Investment Income (Loss)                 ____     ____     ____     ____    ____
     Net Realized and Unrealized Gain (Loss)      ____     ____     ____     ____    ____
Total From Investment Operations                  ____     ____     ____     ____    ____
Distributions
     Dividends from Investment Income - Net       ____     ____     ____     ____    ____
     Distributions from Capital Gains             ____     ____     ____     ____    ____
Total Dividends and Distributions                 ____     ____     ____     ____    ____
Net Asset Value - End of Period                   ____     ____     ____     ____    ____
Total Return (1)                                  ____     ____     ____     ____    ____

Supplemental Data and Ratios
Net Assets at End of Period                       ____     ____     ____     ____    ____
Ratio of Expenses to Average Net Assets *         ____     ____     ____     ____    ____
Ratio of Investment Income (Loss)   to
     Average Net Assets *                         ____     ____     ____     ____    ____
Portfolio Turnover Rate                           ____     ____     ____     ____    ____
</TABLE>

                                                   Period   Period   Period from
                                                   Ended    Ended    1/8/97 to
                                                   4/30/99  4/30/98  4/30/97
CLASS B SHARES
Per-Share Data [in $ dollars]
Net Asset Value - Start of Period                  ____     ____     ____
Income from Investment Operations
     Net Investment Income (Loss)                  ____     ____     ____
     Net Realized and Unrealized Gain (Loss)       ____     ____     ____
Total From Investment Operations                   ____     ____     ____
Distributions
     Dividends from Investment Income - Net        ____     ____     ____
     Distributions from Capital Gains              ____     ____     ____
Total Dividends and Distributions                  ____     ____     ____
Net Asset Value - End of Period                    ____     ____     ____
Total Return (1)                                   ____     ____     ____

Supplemental Data and Ratios
Net Assets at End of Period                        ____     ____     ____
Ratio of Expenses to Average Net Assets (2)*       ____     ____     ____
Ratio of Investment Income (Loss)   to
     Average Net Assets (2)*                       ____     ____     ____
Portfolio Turnover Rate                            ____     ____     ____

* If the Fund had paid all of its expenses  for Class A and Class B shares,  the
ratios would be as follows:
Class A shares - Ratio of Expenses to Average Net Assets:  ____%,  ____%, ____%,
____%, and ____%
Class B shares - Ratio of  Expenses to Average Net  Assets:  ____%,  ____%,  and
____%
Class A shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, ____%, ____%, and ____%
Class B shares - Ratio of Net Investment Income{Loss) Average Net Assets: ____%,
____%, and ____%
(1) Total Return assumes  reinvestment  of all dividends and  distributions  but
does not reflect any deduction for sales charge. The aggregates,  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.


[INSIDE BACK COVER PAGE]

TRANSFER AGENT, CUSTODIAN AND INDEPENDENT ACCOUNTANTS

Transfer Agent

FIRSTAR TRUST COMPANY
P. O. BOX 2981
615 E. MICHIGAN ST.
MILWAUKEE, WI 53201-2981

Custodian

CITIBANK, N.A.
111 WALL STREET
NEW YORK, NY 10043

Independent Accountants

PRICEWATERHOUSECOOPERS LLP
100 E. WISCONSIN AVE. SUITE 1500
MILWAUKEE, WI 53202






You will find additional  information in the statement of additional information
and the 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.



                              THE AAL MUTUAL FUNDS
                              222 West College Ave.
                             Appleton, WI 54919-0007
                            Telephone: (800) 553-6319
                                TDD: 800-684-3416






                              The AAL Mutual Funds
                             222 West College Avenue
                             Appleton, WI 54919-0007
                     Telephone (920) 734-7633, 800-553-6319
                                TDD 800-684-3416

                       STATEMENT OF ADDITIONAL INFORMATION
                              Class A and B Shares
                               Dated July 1, 1999


Equity-Oriented Funds

The AAL Small Cap Stock Fund:

The AAL Mid Cap Stock Fund:

The AAL International Fund:

The AAL Capital Growth Fund:

The AAL Equity Income Fund:

The AAL Balanced Fund:


Income-Oriented Funds

The AAL High Yield Bond Fund:

The AAL Municipal Bond Fund:

The AAL Bond Fund:

The AAL Money Market Fund:



This  Statement  of  Additional  Information  is not a  prospectus.  It provides
additional  information on the securities offered in the prospectus.  You should
read this statement of additional information in conjunction with The AAL Mutual
Funds' prospectus, Class A and B shares, dated July 1, 1999, and any supplements
thereto. You may obtain a prospectus at no charge by writing or telephoning your
AAL Capital Management Corporation ("AAL CMC") Registered  Representative or the
AAL Mutual Funds ("Funds" or "Trust") at the above address and telephone number.


TABLE OF CONTENTS

FUNDS HISTORY

INVESTMENT STRATEGIES AND RISKS

MANAGEMENT OF THE FUNDS

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

INVESTMENT ADVISORY AND OTHER SERVICES

BROKERAGE ALLOCATION AND OTHER PRACTICES

CAPITAL STOCK AND OTHER SECURITIES

PURCHASE, REDEMPTION, AND PRICING OF SHARES

TAXATION OF THE FUNDS

UNDERWRITERS

CALCULATION OF PERFORMANCE DATA

FINANCIAL STATEMENTS




FUNDS HISTORY

The AAL Mutual Funds (the "Trust" or "Funds") was  organized as a  Massachusetts
Business Trust on March 31, 1987,  and is registered as an open-end  diversified
management company under the Investment Company Act of 1940. The Trust commenced
operations  on July 16, 1987,  and  currently  consists of twelve series (each a
"Fund"  and   collectively,   the   "Funds"):   The  AAL  Small  Cap,  Mid  Cap,
International,  Capital  Growth,  Equity  Income,  Balanced,  High  Yield  Bond,
Municipal Bond, Bond, Money Market, and U.S. Government Zero Coupon Target Funds
2001 and 2006 Funds.

On January 8, 1997,  the Trust  began  issuing two classes of Fund shares of The
AAL Small Cap, Mid Cap, International,  Capital Growth, Equity Income, Balanced,
High Yield Bond,  Municipal  Bond,  Bond,  and Money Market  Funds.  The Class A
shares are subject to maximum  4.00% sales  charge of the  offering  price and a
0.25% annual  service fee.  Class B shares are offered at net assets value and a
1.00% annual 12b-1and service fee. In addition, Class B shares have a contingent
deferred  sales charge of 5% declining 1% each year upon  redemption  during the
first five years.  The AAL Balanced  Fund added Class B shares on its  inception
date of December 29,1997.

On  December  29,  1997,  the Trust  began  issuing a third class of Fund shares
(institutional) in of The AAL Small Cap, Mid Cap, International, Capital Growth,
Equity Income, Balanced, High Yield Bond, Municipal Bond, Bond, and Money Market
Funds.  The  Institutional  shares are  offered  at net asset  value and have no
annual  12b-1 fees or  charges.  Each class of shares has  identical  rights and
privileges  except with  respect to voting  matters  affecting a single class of
shares and the exchange privilege of each class of shares.


INVESTMENT STRATEGIES AND RISKS
Each of the Funds is an open-end management  investment  company.  The following
information  supplements  our  discussion of the Funds'  investment  objectives,
policies  and  strategies  described in the  prospectus.  In pursuing the Funds'
objectives,  we invest as described  below and employ the investment  techniques
described  in the  prospectus  and  elsewhere in this  statement  of  additional
information.

Investment Objectives
The following  information  supplements our discussion of the Funds'  investment
objectives  and  policies  described in the  prospectus.  In pursuing the Funds'
objectives,  we invest as described  below and employ the investment  techniques
described  in the  prospectus  and  elsewhere in this  Statement  of  Additional
Information.  Except for The AAL Balanced and High Yield Bond Funds, each Fund's
investment  objective  is a  fundamental  policy.  As  such,  only a  vote  of a
"majority  of  outstanding  voting  securities"  can change a Fund's  investment
objective.  A majority  means the  approval of the lesser of: (1) 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
(2) more than 50% of the outstanding voting securities of a Fund.

Investment Restrictions
In addition to those  policies  noted in the  Prospectus,  each Fund must follow
certain  investment  restrictions.  We operate  under the  following  investment
restrictions. For any Fund, we may not:

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

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

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

(4)  make loans to other  persons,  except  that we  reserve  freedom of action,
     consistent with a Fund's other investment  policies and restrictions and as
     described in the prospectus  and this statement of additional  information,
     to:  (a)  invest  in debt  obligations,  including  those  that are  either
     publicly  offered  or of a  type  customarily  purchased  by  institutional
     investors,  even though the purchase of such debt obligations may be deemed
     the making of loans;  (b) enter into  repurchase  agreements;  and (c) lend
     portfolio securities, provided we may not loan securities for a Fund if, as
     a result,  the aggregate value of all securities loaned would exceed 33% of
     its total assets (taken at market value at the time of such loan);

(5)  issue senior securities or borrow,  except that we may borrow for a Fund in
     amounts not in excess of 10% of its net assets, taken at current value, and
     then only from banks as a temporary  measure for extraordinary or emergency
     purposes  (we will not borrow money for the Funds to increase  income,  but
     only to meet  redemption  requests that  otherwise  might require  untimely
     dispositions of portfolio  securities;  interest paid on any such borrowing
     will reduce a Fund's net income);

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

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

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

(9)  purchase or sell commodities or commodity  contracts,  except that a we may
     purchase or sell  futures and options  thereon for hedging  purposes  for a
     Fund as described this statement of additional information;

(10) invest  more  than 25% of a Fund's  net  assets  (or 25% or more of The AAL
     Small Cap Stock,  International,  Balanced or High Yield Bond Funds'  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  (or 25% or more of The  AAL  Small  Cap  Stock,
     International,  Balanced  or High Yield  Bond  Funds'  total  assets in any
     single  industry  or issuer  except  the U.S.  government  or any agency or
     instrumentality thereof);

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

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

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

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

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

Each of the  above  restrictions  (1)  through  (15),  as  well  as each  Fund's
investment objective,  except for The AAL Balanced and High Yield Bond Funds, is
a fundamental policy.


Investment Techniques
We may use the following techniques described in the prospectus and statement of
additional Information in pursuing the Funds' investment objectives.

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

- securities  issued or  guaranteed  by the U.S.  government  or its agencies or
instrumentalities;  -  commercial  paper  rated at the time of  purchase  in the
highest rating category by NRSRO's; and - bank obligations, including repurchase
agreements, of banks having total assets in excess of $1 billion.

We may invest up to 100% of The AAL  International  Fund's  total assets in U.S.
securities or in securities  primarily traded in one or more foreign  countries,
or in debt securities to a greater extent than 20%.

Lending Portfolio Securities
Subject to the fundamental  investment  restriction (4) listed under "Investment
Restrictions," we may lend a Fund's portfolio  securities to broker-dealers  and
financial  institutions,  such as banks and trust companies.  As the adviser, we
will  monitor  the  creditworthiness  of any firm with  which a Fund  engages in
securities  lending  transactions.  We  would  continuously  secure  the loan by
collateral in cash or cash  equivalents  maintained  (on a current  basis) in an
amount equal to or greater than the market value of the  securities  loaned.  We
would  continue to receive the  equivalent of the interest or dividends  paid by
the  issuer to the Fund on the  securities  loaned.  We would also  receive  any
additional  returns,  such as a fixed fee or a percentage of the collateral.  We
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. Generally, we would not have
the right to vote the Fund's loaned securities during the existence of the loan.
However, we would call the loan to permit voting if, in our judgment, a material
event  requiring a shareholder  vote would  otherwise occur before the repayment
date.

In the event of the borrower's  default or bankruptcy,  we could experience both
delays in liquidating  the loan  collateral or recovering the loaned  securities
and  losses for a Fund.  For  example,  during the period  when we would seek to
enforce the Fund's rights to the loaned securities, the collateral's value could
decline.  We might  receive  subnormal  levels of  income or no income  from the
loaned  securities.  We also would  incur the  expense of  enforcing  the Fund's
rights to the loaned securities.

Repurchase Agreements and Borrowing
To earn income on available  cash or for temporary  defensive  purposes,  we may
invest in repurchase agreements for the Funds. We must hold an amount of cash or
government  securities at least equal to the market value of the securities held
pursuant to the  agreement.  In the event of a bankruptcy  or other default of a
seller of a  repurchase  agreement,  we may  experience  delays and  expenses in
liquidating  the  securities,  declines  in the  securities'  value  and loss of
interest for a Fund. We maintain  procedures  for  evaluating and monitoring the
creditworthiness of firms with which we enter into repurchase agreements for the
Funds.  We may not invest  more than 10% of a Fund's  net  assets in  repurchase
agreements maturing in more than seven days.

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

When-Issued and Delayed Delivery Securities
We may purchase  securities on a  when-issued  or  delayed-delivery  basis for a
Fund,  as described in the  prospectus.  We only  purchase on a  when-issued  or
delayed delivery basis with the intention of actually  acquiring the securities,
including  when-issued  securities with long-term issue dates of a year or more.
However,  we may  sell  such  securities  before  settlement  date if we deem it
advisable for investment reasons.

At the time of  purchase we identify  liquid  assets  having a value at least as
great  as the  purchase  price.  We have the  custodian  hold  these  securities
identified throughout the period of the obligation.  Purchasing on a when-issued
or delayed  basis as we have  described  may increase the Fund's net asset value
fluctuation or volatility.

Investment Grade and Medium Grade Bond Investments
We may purchase investment grade bonds for The AAL International, Equity Income,
Balanced,  High  Yield  Bond,  Municipal  Bond and Bond  Funds.  A debt or other
fixed-income  security is considered  investment grade if it is rated investment
grade by a NRSRO,  such as BBB or better by Duff and  Phelps  Credit  Rating Co.
("D&P")  and S&P or Baa or better by  Moody's.  Securities  rated in the  fourth
highest  category,  such as BBB by D&P or S&P or Baa by Moody's,  are considered
medium grade bonds and have more sensitivity to economic changes and speculative
characteristics.  If a bond in a Fund  has  lost its  rating  or has its  rating
reduced,  the Fund  does not have to sell the  security,  but the  Adviser  will
consider  the lost or reduced  rating in  determining  whether  that Fund should
continue to hold the bond.

Rated Securities
If a NRSRO reduces or eliminates its rating of a Fund  security,  we do not have
to sell the security.  However,  we consider such fact in determining whether we
should  continue to hold the  security  for the Fund.  For The AAL Money  Market
Fund, we sell downgraded  commercial paper to the extent required to comply with
Rule 2a-7 under the Investment Company Act of 1940 (the "Act").

At times a NRSRO changes its ratings for debt  securities as a result of changes
at the  organization or in its rating system.  When this happens,  we attempt to
use  comparable  NRSRO ratings in reassessing  investments  for a Fund in accord
with its investment policies.

Bond Ratings
Moody's Rating Scale Definitions

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

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

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

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

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

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

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

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

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

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

S&P Rating Scale Definitions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Commercial Paper Ratings

Moody's Commercial Paper Ratings

Moody's commercial paper ratings are opinions of the ability to repay punctually
promissory   obligations.   Moody's   employs  the  following   three   category
designations,  all judged to be  investment  grade,  to  indicate  the  relative
repayment capacity of rated issuers:

PRIME 1:    Highest quality;

PRIME 2:    Higher quality; and

PRIME 3:    High quality.

S&P Commercial Paper Ratings

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

A: Issues  assigned the highest rating  category,  A, are regarded as having the
greatest  capacity for timely  payment.  Issues in this category are  delineated
with the numbers "1", "2" and "3" to indicate the relative degree of safety.

A-1: The  designation A-1 indicates that the degree of safety  regarding  timely
payment is either  overwhelming or very strong.  A "+" designation is applied to
those issues rated "A-1" that possess extremely strong safety characteristics.

A-2: Capacity for timely payment on issues with the designation "A-2" is strong.
However,  the relative degree of safety is not as high as for issues  designated
A-1.

A-3: Issues carrying the designation A-3 have a satisfactory capacity for timely
payment.  They are,  however,  somewhat more vulnerable to the adverse effect of
changes in circumstances than obligations carrying the higher designations.

Other Ratings
Moody's Municipal Note Ratings

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

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

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

Moody's Ratings of the Demand Features On Variable Rate Demand Securities

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

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

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

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

S&P Note Ratings

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

SP-2: Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating.  Notes maturing
beyond  three years  normally  receive a bond  rating,  although  the  following
criteria are used in making that assessment:  (1) the amortization schedule (the
larger the final  maturity  relative  to other  maturities,  the more likely the
issue  will be  rated  as a note);  (2) and the  source  of  payment  (the  more
dependent  the issue is on the market for its  refinancing,  the more  likely it
will be rated as a note).

S&P Ratings of the Demand Features on Variable Rate Demand Securities

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

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

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

Mortgage-Backed Securities
For The AAL  Balanced,  High  Yield  Bond  and  Bond  Funds,  we may  invest  in
mortgage-backed  securities with amortizing payments consisting of both interest
and principal and prepayment  privileges (the ability to prepay the principal or
a  portion  thereof  without  penalty).  Mortgaged-backed  securities  represent
interest  in pools of  mortgage  loans made by lenders  such as savings and loan
institutions, mortgage bankers, commercial banks and others. Various government,
government-related and private organizations combine these mortgages for sale to
investors  (i.e.,  the  Government   National  Mortgage   Association   ("GNMA")
guarantees and issues mortgage-backed  securities).  Mortgage-backed  securities
generally  provide for a "pass  through" of monthly  payments made by individual
borrowers  on their  residential  mortgage  loans,  net of any fees  paid to the
issuer or guarantor of the  securities.  The yield on these  securities  applies
only to the unpaid  principal  balance.  We reinvest  the  periodic  payments of
principal and interest and prepayments,  if any, in securities at the prevailing
market interest rates. The prevailing rates may be higher or lower than the rate
on  the  original  investment.  During  periods  of  declining  interest  rates,
prepayment  of  mortgages   underlying   mortgage-backed   securities   tend  to
accelerate.  Accordingly,  any prepayments on mortgage-backed securities that we
hold for a Fund  reduce our  ability to  maintain  positions  in  high-yielding,
mortgage-backed  securities and reinvest the principal at comparable  yields for
the Fund. If we buy any mortgage-backed  securities for a Fund at a premium, the
Fund  receives  prepayments,  if any, at par or stated  value,  which lowers the
return on the Fund.

High Yield Bond Market -- The AAL  International,  Equity  Income and High Yield
Bond Funds
We may invest in high risk, high yield bonds for The AAL  International,  Equity
Income and High Yield Bond  Funds.  We  normally  invest at least 65% of The AAL
High  Yield  Bond  Fund's  total  assets  in such  securities.  As stated in the
prospectus,  investing in high yield bonds involves  market risk. The market for
high yield  bonds has  existed for many years and has  weathered  downturns.  In
particular  during  the late  1980s  and  early  1990s,  the high  yield  market
experienced a significant downturn. Many corporations had dramatically increased
their  use of  high  yield  bonds  to fund  highly  leveraged  acquisitions  and
restructuring.  As a result,  from 1989 to 1991, the percentage of lower-quality
securities  that defaulted rose  significantly  above previous  default  levels.
After this period, default rates decreased.

We may invest in lower-rated  asset and  mortgage-backed  securities for The AAL
High Yield Bond Fund. These securities include interests in pools of lower-rated
bonds,   consumer   loans  or  mortgages,   or  complex   instruments   such  as
collateralized  mortgage  obligations  ("CMOs")  and  stripped   mortgage-backed
securities  (the separate income or principal  components).  Changes in interest
rates, the market's  perception of the issuers and the  creditworthiness  of the
parties  involved may  significantly  affect the value of these  bonds.  Some of
these securities may have structures that makes their reaction to interest rates
and other factors difficult to predict,  causing high volatility in their market
value.  These bonds also carry  prepayment  risk.  During  periods of  declining
interest  rates,   prepayment  of  the  loans  and  mortgages  underlying  these
securities tend to accelerate.  Investors tend to refinance their mortgages (pay
the old  mortgage  off with a new  mortgage at a lower rate) to lower  payments.
Accordingly,  any  prepayment  on the existing  securities  we hold for the Fund
reduces our  ability to maintain  positions  in  high-yielding,  mortgage-backed
securities and reinvest the principal at comparable yields.

Certain high yield bonds carry particular  market risks.  Zero coupon,  deferred
interest  and  payment-in-kind  ("PIK")  bonds  issued  at  deep  discounts  may
experience  greater  volatility  in  market  value.  Asset  and  mortgage-backed
securities,  including  CMOs,  in  addition  to  greater  volatility,  may carry
prepayment risks.

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

A CMO  contains a series of bonds or  certificates  issued in multiple  classes.
Each CMO class (referred to as "tranche") has a specified coupon rate and stated
maturity or final  distribution  date. When people start prepaying the principal
on the collateral  underlying a CMO (such as mortgages  underlying a CMO),  some
classes  may retire  substantially  earlier  than the stated  maturity  or final
distribution dates. The issuer structures a CMO to pay or accrue interest on all
classes on a monthly,  quarterly or semi-annual  basis.  The issuer may allocate
the principal and interest on the underlying mortgages among the classes in many
ways. In a common  structure,  the issuer applies the principal  payments on the
underlying mortgages to the classes according to scheduled cash flow priorities.

There are many classes of CMOs.  Interest only classes ("IOs") entitle the class
shareholders to receive distributions consisting solely or primarily of all or a
portion of the interest in an  underlying  pool of mortgages or  mortgage-backed
securities ("mortgage assets"). Principal only classes ("POs") entitle the class
shareholders to receive distributions consisting solely or primarily of all or a
portion of the  underlying  pool of  mortgage  assets.  In  addition,  there are
"inverse  floaters," which have coupon rates that move in the reverse  direction
to an applicable index, and accrual (or "Z") bonds (described below).

At any one time, we may not invest more than 7.5% of a Fund's net assets in IOs,
POs, inverse floaters or accrual bonds individually or more than 15% in all such
obligations combined.

Inverse  floating  CMO  classes  are  typically  more  volatile  than  fixed  or
adjustable  rate CMO classes.  We would only invest in inverse  floating CMOs to
protect  against  a  reduction  in the  income  earned on  investments  due to a
predicted  decline in interest rates. In the event interest rates increased,  we
would lose money on  investments  in inverse  floating CMO classes.  An interest
rate  increase  would cause the coupon rate on an inverse CMO class to decrease,
and, like other mortgage-backed securities, the value would decrease as interest
rates increase.

Cash flow and yields on IO and PO classes are  extremely  sensitive to principal
payment  rates  (including  prepayments)  on the  underlying  mortgage  loans or
mortgage-backed  securities.  For example, rapid or slow principal payment rates
may adversely affect the yield to maturity of IO or PO bonds,  respectively.  If
the underlying  mortgage assets experience greater than anticipated  prepayments
of principal, the holder of an IO bond may incur substantial losses in value due
to the  lost  interest  stream  even if the IO  bond  has a AAA  rating.  If the
underlying  mortgage assets  experience  slower than anticipated  prepayments of
principal,  the PO bond  will  incur  substantial  losses  in value  due to lost
prepayments.  Rapid or slow  principal  payment  rates  may cause IO and PO bond
holders  to incur  substantially  more  losses in market  value than if they had
invested  in  traditional  mortgage-backed  securities.  On the other  hand,  if
interest  rates rise,  the value of an IO might  increase and  partially  offset
other bond value  declines in a Fund's  portfolio.  If interest  rates fall, the
value of a PO might increase  offsetting  lower  reinvestment  rates in a Fund's
portfolio.

An accrual or Z bondholder  does not receive cash payments  until one or more of
the other  classes  have  received  their full  payments on the  mortgage  loans
underlying the CMO. During the period when the Z bondholders do not receive cash
payments, interest accrues on the Z class at a stated rate. The accrued interest
is added to the amount of principal due to the Z class.  After the other classes
have received their payments in full, the Z class begins receiving cash payments
until it receives its full amount of principal  (including the accrued  interest
added to the principal amount) and interest at the stated rate.  Generally,  the
date when cash payments begin on the Z class depends on the  prepayment  rate of
the mortgage loans  underlying the CMO. A faster  prepayment  rate results in an
earlier  commencement of cash payments on the Z class.  Like a zero coupon bond,
during its accrual period the Z class has the advantage of eliminating  the risk
of  reinvesting  interest  payments at lower rates  during a period of declining
interest  rates.  Like a zero coupon  bond,  the market  value of a Z class bond
fluctuates  more  widely with  changes in  interest  rates than would the market
value of bond from a class that pays interest currently. Changing interest rates
influence  prepayment  rates. As noted above,  such changes in prepayment  rates
affect  the date at which  cash  payments  begin on a Z  tranche,  which in turn
influences its market value.

Structured Securities -- The AAL International and High Yield Bond Funds
We  may  invest  in  structured  notes  and/or  preferred  stocks  for  The  AAL
International  and High Yield Bond Funds.  The issuer of a  structured  security
links the security's  coupon,  dividend or redemption amount at maturity to some
sort of financial  indicator.  Such financial indicators can include currencies,
interest rates,  commodities and indices. The coupon, dividend and/or redemption
amount at maturity may increase or decrease depending on the value of the linked
or underlying instrument.

Investments in structured  securities  involve certain risks. In addition to the
normal  credit  and  interest  rate risks  inherent  with a debt  security,  the
redemption  amount may increase or decrease as a result of price  changes in the
underlying  instrument.  Depending  on how the issuer  links the  coupon  and/or
dividend to the underlying instrument, the amount of the dividend may be reduced
to zero. Any further declines in the value of the underlying instrument may then
reduce the redemption  amount at maturity.  Structured  securities may have more
volatility than the price of the underlying instrument.

Variable Rate Demand Notes
We may purchase  variable rate, master demand notes for the Funds. The notes are
unsecured instruments that permit the amount of the debt to vary and provide for
periodic  adjustments in the interest rate.  Variable rate,  master demand notes
normally  do not trade and do not have a  secondary  market.  However,  the note
holder may demand principal  payment at any time.  Except for The AAL High Yield
Bond  Fund,  we  purchase  notes  rated  only in one of the two  highest  rating
categories  by a NRSRO.  We also may purchase  notes for a Fund where the issuer
has a received a rating in the top two categories for a class of short term debt
obligations  comparable in priority and security with the notes. If an issuer of
a variable rate, master demand note defaults on its payment  obligation,  we may
not be able to dispose of the note due to the absence of a secondary  market. As
a result,  we might  suffer a loss for a Fund to the extent of the  default.  We
invest in variable  rate master  demand notes for a Fund only when we believe it
involves minimal credit risk.

In some  instances,  we may purchase  variable rate securities for The AAL Money
Market Fund with actual maturities greater than or equal to 397 days. Generally,
a money  market fund is limited to  investments  with  maturities  less than 397
days.  Variable rate, money market  securities have yields that vary in relation
to changes in specific  money market rates,  such as the prime rate. To purchase
variable rate money market instruments with maturities greater than 397 days, we
must be able to consider these securities as having  maturities of less than 397
days pursuant to  Securities  and Exchange  Commission  ("SEC")  rules.  We only
invest in these  longer-term,  variable rate securities for the Fund when we can
take  advantage  of the higher  yield  paid on them as  compared  to  short-term
securities.  We only  invest  when it appears to us that the  variable  rates on
these  securities  may  reduce  the  fluctuations  in market  value  typical  of
longer-term  securities.  We may purchase  variable rate  securities  with a put
option for a Fund. The put option may reduce the risk of  fluctuations in market
value,  because the put option allows us to sell the security back to the issuer
at a set price.

Variable  Rate  Demand   Notes--The   AAL  Small  Cap  Stock,   Mid  Cap  Stock,
International,  Capital Growth, Equity Income,  Balanced,  High Yield Bond, Bond
and Money Market Funds We may purchase variable rate master demand notes for The
AAL Small Cap  Stock,  Mid Cap  Stock,  International,  Capital  Growth,  Equity
Income,  Balanced,  High Yield Bond, Bond and Money Market Funds. Variable rate,
master  demand  notes are  unsecured  instruments  that permit the  indebtedness
thereunder to vary and provide for period  adjustments in the interest rate. The
extent to which we can purchase these securities for the Funds listed is subject
to Rule 2a-7 under the Investment  Company Act of 1940.  These notes normally do
not trade and there is no secondary market for the notes. However, we may demand
payment  of the  principal  for a Fund at any time.  We limit our  purchases  of
variable rate,  master demand notes for a Fund to those: (1) rated in one of the
two highest  rating  categories  by a NRSRO;  or (2) that have been issued by an
issuer  that has  received  a rating  from  the  requisite  NRSRO in the top two
categories  with  respect  to a class of  short-term  debt  obligations  that is
comparable  in priority  and  security  with the  instrument.  If an issuer of a
variable rate, master demand note defaulted on its payment obligation,  we might
not be able to dispose of the note for a Fund due to the  absence of a secondary
market.  We might  suffer a loss to the extent of the default  for the Fund.  We
only invest in variable  rate master  demand notes and only when we deem them to
involve minimal credit risk.

Portfolio  Turnover Rates -- The AAL Small Cap Stock, Mid Cap Stock,  High Yield
Bond,  Municipal Bond and Bond Funds We expect The AAL Small Cap Stock,  Mid Cap
Stock, High Yield Bond, Municipal Bond and Bond Funds to have portfolio turnover
greater than 100%, and the other Funds to have a portfolio turnover of less than
100%.  We do not  calculate a portfolio  turnover  rate for The AAL Money Market
Fund because of the short maturities of its investments.  Due to the high volume
of buying and selling  activity in a portfolio  with turnover in excess of 100%,
we may pay more  commissions  for a Fund. We also may realize more taxable gains
than in  portfolios  with less  turnover,  which may result in an  increase in a
Fund's expenses and lower returns for shareholders. We may trade for a Fund at a
portfolio rate significantly exceeding 100% (i.e., 400% or more for The AAL Bond
Fund),  when we believe the  benefits of  short-term  investments  outweigh  any
increase in transactions costs or capital gains.

For the fiscal  year ended April 30,  1999,  The AAL Small Cap Stock and Mid Cap
Stock Funds had portfolio turnover rates of _____% and _____%, respectively. The
rates  reflected our growth  investment  styles for the Funds. We also purchased
stocks in initial  public  offerings  and sold them  shortly  thereafter.  Stock
prices in initial public  offerings tend to appreciate or decline  significantly
after the  offering  and then  level off in price.  The rates also  reflect  the
volatility of small and mid cap stock prices.

The  portfolio  turnover  rates for The AAL  Municipal  Bond and Bond Funds were
_____% and _____%,  respectively.  The rate for The AAL Bond Fund  reflects  our
active selection of the individual bonds that we believe provide the best income
within the Fund's  investment  parameters at any one time for The AAL Bond Fund,
we may have a  portfolio  turnover  rate for the next  fiscal  year in excess of
300%,  and as high as 600% or more. Our turnover rate for The AAL Municipal Bond
Fund also reflects our active  selection of the individual bonds that we believe
provide  the  best  income  and  chance  for  capital  appreciation  and,  thus,
preservation,  at any one time.  We try to  exploit  pricing  inefficiencies  we
believe exist in the municipal securities market.

The  portfolio  turnover  rate for The AAL High Yield  Bond Fund was  ____%.  In
seeking  its  objectives,  we buy or  sell  portfolio  securities  whenever  the
portfolio manager believes it appropriate. Generally, how long we have owned the
security for the Fund does not  influence the  portfolio  manager's  decision on
when we will  trade  the  security.  From time to time,  we will buy  securities
intending to seek short-term  trading profits.  As a result,  The AAL High Yield
Bond Fund's  portfolio  turnover  rate may be higher  than that of other  mutual
funds  in this  category.  The  turnover  rate  is not a  limiting  factor  when
considering a change in the Fund's portfolio.

Options and Futures
The following sections pertain to options and futures.  Except for The AAL Money
Market  Fund,  we  may  engage  in  options,  futures  and  options  on  futures
transactions  for the Funds.  We may engage in options and futures  transactions
for bona fide hedging or other  permissible risk management  reasons  (including
enhancing returns for a Fund). When entering into these transactions,  we follow
the SEC and the Commodities  Futures  Trading  Commission  requirements  and set
aside  liquid  assets  in a  separate  account  to  secure  a  Fund's  potential
obligations under such contracts. We cannot sell securities held in a segregated
account while the futures or options strategy is outstanding,  unless we replace
such assets with other suitable assets. As a result, there is a possibility that
segregation  of a large  percentage  of a Fund's  assets could impede  portfolio
management or our ability to meet redemption requests or other obligations for a
Fund.

We may try to  enhance  returns  or hedge  against a  decline  in the value of a
Fund's  securities  by writing  (selling)  and  purchasing  options  and futures
contracts.  For  example,  during a neutral  or  declining  market,  we may gain
additional income by writing options and receiving  premiums for a Fund. When we
write (sell) covered call options for a Fund, we forgo the opportunity to profit
from increases in the market value of the underlying securities above the sum of
the options'  premium and the exercise  price.  On the other hand, we reduce the
amount of any decline in the value of the underlying securities to the extent of
the premium we receive from writing the call for a Fund. During a rising market,
we may gain incremental  income by purchasing call options and futures contracts
for a Fund.

We also may use  options  and  futures  to hedge  against an  anticipated  price
increase in a security we plan to buy for a Fund.

If new types of options and futures contracts become available,  we may use them
for the Funds. Prior to their use, however,  we must obtain a determination from
the Funds' Board of Trustees that their use would be consistent  with the Fund's
investment objectives and policies.

Options on Securities and Indexes
An option  contract on a security (or index)  gives the holder,  in return for a
premium,  the right to buy from (call) or sell to (put) the option writer of the
underlying  security (or cash value of underlying index) at a specified exercise
price at any time during the option term.

Upon  exercise of a call  option,  the writer  (seller)  has the  obligation  to
deliver the  underlying  security to the  holder;  provided  the holder pays the
exercise price. Upon exercise of a put option,  the writer has the obligation to
pay the holder the exercise price upon delivery of the underlying security.

Upon the  exercise  of an index  options,  the  writer  must pay the  difference
between the cash value of the index and the  exercise  price  multiplied  by the
specified multiplier for the index option. (An index is a statistical  composite
that measures  changes in the economy or financial  market,  usually  reflecting
specified  facets  of a  particular  securities  market,  a  specific  group  of
financial instruments, securities or economic indicators.).

Options and futures  exist on debt,  equity,  indexes  and other  securities  or
instruments. They may take the form of standardized contracts traded on national
securities exchanges,  boards of trade or similar entities.  They also may trade
in the over-the-counter market. Some debt instruments, such as bonds, trade with
cash put options,  which generally allow the holder to sell the security back to
the issuer at a specified price for a specified amount of time.

When we write options, we may only write "covered" calls or puts for a Fund.

A call option for a Fund is covered if we hold the security  underlying the call
for the Fund.  Also a call  option for a Fund is covered if we have an  absolute
and immediate right to acquire the security for the Fund without additional cash
consideration  upon  conversion  or  exchange  of other  securities  held in the
portfolio.  If additional cash  consideration is required,  we hold cash or cash
equivalents in such an amount in a segregated account with the Fund's custodian.
An index call  option is covered  if we hold cash or cash  equivalents  with the
Fund's  custodian  equal to the contract value. A written call option is covered
if we hold a call option on the same security or index under two conditions. The
first condition is where the exercise price of the call purchased is equal to or
less than the exercise price of the call written. The second conditions is where
the exercise  price of the call  purchased is greater than the exercise price of
the call  written;  provided  that we maintain  the  difference  with the Fund's
custodian in cash or cash equivalents in a segregated account.

A put option on a security  or an index is covered if we  maintain  cash or cash
equivalents equal to the exercise price in a segregated  account with the Fund's
custodian.  A put  option is covered  if we hold a put on the same  security  or
index as the put written under two conditions.  The first condition is where the
exercise  price of the put is equal to or greater than the exercise price of the
put written. The second condition is where the exercise price of the put is less
than the exercise  price of the put written;  provided we maintain  cash or cash
equivalents with the Fund's custodian in a segregated account.

Prior to the expiration or exercise of an option, we may close the option out by
entering  into  an  offsetting  transaction.   We  would  affect  an  offsetting
transaction  for a Fund by  purchasing  or selling an option of the same  series
(type,  exchange,  underlying security or index, exercise price and expiration).
Due to market factors,  we may not be able to affect a closing  purchase or sale
at the time we would like to for a Fund.

We realize a capital gain from a closing purchase transaction if the premium for
purchasing the closing option is less than the premium received from writing the
option.  If the premium for  purchasing the closing option is more, we realize a
capital  loss  for  the  Fund.  If the  premium  received  from a  closing  sale
transaction  is more than the premium paid to purchase the option,  we realize a
capital gain for the Fund. If the premium is less, we realize a capital loss for
the Fund.

If an option we write for a Fund expires unexercised,  we realize a capital gain
equal to the premium  received.  If an option we  purchased  for a Fund  expires
unexercised,  we  realize a capital  loss  equal to the  premium we paid for the
option.

The principal factors affecting the market value of a put or call option include
supply and demand,  interest  rates,  the current market price of the underlying
security  or  index  in  relation  to the  exercise  price  of the  option,  the
volatility of the underlying  security or index and the time remaining until the
expiration date.

We record a premium  paid for an option  purchased by us for a Fund as an asset.
We record  the  premium  received  for an option  written  by us for a Fund as a
deferred  liability.  We  mark-to-market  the  value of an option  purchased  or
written  on a daily  basis  at the  closing  price on the  exchange  on which it
traded.  If the option was not traded on an exchange or a closing  price was not
available,  we would value the option at the mean between the last bid and asked
prices.

Risks Associated with Options on Securities and Indexes
Options  transactions have risks. A decision as to whether,  when and how we use
options  involves the exercise of skill and judgment.  For example,  significant
differences  could exist  between  the market for the  underlying  security  (or
index) and the market for the  overlying  options.  These  differences,  such as
differences  in the way the  underlying  securities  are trading and the way the
options on the securities are trading,  could result in an imperfect correlation
between the markets. As a result, we might not be able to achieve our objectives
in an options  transaction for the Fund.  Market behavior and unexpected  events
may hinder our otherwise  well-conceived  options  transactions  we have entered
into for a Fund.

We cannot  assure you that a liquid  market will exist when we seek to close out
an  option  position  for a Fund.  If we could  not  close  out an option we had
purchased for a Fund, we would have to exercise the option to realize any profit
or let the option  expire  worthless.  If we could not close out a covered  call
option that we had written for a Fund, we could not sell the underlying security
unless the option had expired not exercised.

When we write a covered  call  option for a Fund,  we forgo the  opportunity  to
profit from increases in the covering  security's  market value above the sum of
the premium and the call's exercise price.

If the exchange (or Board of Trade)  suspends  trading in an option we purchased
for a Fund, we cannot enter into a closing transaction during the suspension. If
the exchange imposes restrictions on the option's exercise, we might not be able
to exercise an option we have purchased for a Fund.  Except to the extent that a
call  option on an index  written  by a Fund is covered by an option on the same
index  purchased  by a Fund,  movements  in the index may  result in a loss to a
Fund. Such losses may be mitigated by changes in the value of a Fund's portfolio
securities during the period the option was outstanding.

Futures Contracts and Options on Futures Contracts
In addition to foreign  currency futures  contracts,  which we discuss below, we
may enter into interest rate and index  futures  contracts.  An interest rate or
index futures contract provides for the future sale by one party and purchase by
another  party of a specified  quantity of a  financial  instrument  or the cash
value of an index at a specified price and time. A futures  contract on an index
is an agreement by which two parties agree to take or make delivery of an amount
of cash equal to the  difference  between the closing  value of the index on the
contract's  last  trading  day and  the  original  price  entered  into  for the
contract. Although the index's value may reflect the value of certain underlying
securities, the party responsible for delivery delivers cash (not the underlying
securities).

A public market exists in futures contracts covering a number of indexes as well
as other financial  instruments.  Such instruments include: U.S. Treasury bonds;
U.S. Treasury notes; GNMA certificates;  three-month U.S. Treasury bills; 90-day
commercial paper; bank certificates of deposit;  and Eurodollar  certificates of
deposit.  Boards of trade and other  issuers may develop and trade other futures
contracts.  As with options, if new types of futures contracts become available,
we may use them for the Funds.  Prior to their use,  however,  we must  obtain a
determination  from the  Funds'  Board  of  Trustees  that  their  use  would be
consistent with the Fund's investment objectives and policies.

We may purchase and write call and put futures  options for a Fund.  Our ability
to write call and put futures, however, depends on whether the Commodity Futures
Trading  Commission grants certain  regulatory relief (such as an exemption from
being considered a commodities pool operator).

Options  on  futures  possess  many of the same  characteristics  as  options on
securities and indexes.  A futures option gives the holder the right,  in return
for the premium paid, to assume a long position  (call) or short  position (put)
in a futures  contract  at a  specified  exercise  price at any time  during the
period of the option. Upon exercise of a call option, the holder acquires a long
position in the futures  contract and the writer is assigned the opposite  short
position. In the case of a put option, the opposite is true.

As long as  regulatory  authorities  require,  we limit our use of  futures  and
options on futures to hedging  transactions.  We might use futures  contracts to
hedge  against  anticipated  interest  rate changes we believe  might  adversely
affect  either the value of a Fund's  securities  or the price of  securities we
intend to purchase for a Fund. Our hedging strategy may include sales of futures
contracts to offset the effect of expected interest rate increases.  It also may
include purchases of futures contracts to offset the effect of expected interest
rate  declines.  Although  we could  use  other  techniques  to  reduce a Fund's
exposure  to  interest  rate  fluctuations,  we may be  able to  hedge a  Fund's
exposure  more  effectively  and  perhaps at a lower cost by using  futures  and
options on futures.

The success of any hedging technique depends on our ability to correctly predict
changes in the level and direction of interest rates and other  factors.  Should
our predictions prove incorrect,  the Fund's return might be lower than it would
have been had we not tried the hedging strategy.  However, in the absence of the
ability to hedge, we might have to take portfolio actions in anticipation of the
same market  movements with similar  investment  results at potentially  greater
transaction costs.

We only enter into  standardized  futures or options on futures  contracts  that
trade on U.S. exchanges,  boards of trade, or similar entities, or are quoted on
an automated quotation system.

When we  purchase or sell a futures  contract  for a Fund,  we deposit  with the
custodian (or broker,  if legally  permitted) a specified amount of cash or U.S.
government  securities  ("initial  margin").  The  exchange or board of trade on
which the futures contract trades sets the margin requirement.  The exchange may
modify the margin requirement during the term of a futures contract. The initial
margin is in the  nature of a  performance  bond or good  faith  deposit  on the
futures  contract.  The  custodian  or broker  returns the margin to a Fund upon
termination  of  the  contract,  assuming  we  have  fulfilled  all  contractual
obligations  for the  Fund.  We expect to earn  interest  income on the  initial
margin  deposit  for a Fund.  We value a futures  contract  held for a Fund on a
daily basis at the official settlement price of the exchange on which it trades.
Each day a we pay or receive cash for the Fund, called "variation margin," equal
to the daily change in value of the futures  contract.  This process is known as
"marking to market."  Variation margin does not represent a borrowing or loan by
us for a Fund, but is instead a settlement  between a Fund and the broker of the
amount one would owe the other if the futures  contract  expired.  In  computing
daily net asset value, we mark-to-market a Fund's open futures positions.

We are  required to deposit and  maintain  margin on any put and call options on
futures  contracts  that we have written for a Fund.  Such margin  deposits vary
depending  on the nature of the  underlying  futures  contract  (and the related
initial  margin  requirements),  the option's  current  market and other futures
positions we hold for the Fund.

Some  futures  contracts  call for making or taking  delivery of the  underlying
securities.  Generally we would close out these obligations prior to delivery by
making  offsetting  purchases  or  sales of  matching  futures  contracts  (same
exchange,  underlying  security or index, and delivery month).  If an offsetting
purchase  price is less than the original sale price,  we realize a capital gain
for the Fund.  If the  offsetting  purchase  price is more, we realize a capital
loss for the Fund.  Conversely,  if an  offsetting  sale  price is more than the
original purchase price, we realize a capital gain for a Fund. If the offsetting
sale price is less,  we realize a capital  loss for a Fund.  We must include the
transaction costs in calculating a gain or loss on the offsetting transactions.

Risks Associated with Futures
There are several risks  associated with using futures  contracts and options on
futures as hedging  techniques.  Our purchase or sale of a futures  contract may
result in losses in excess of the amount we invested in the futures contract for
a Fund. We cannot  guarantee  how price  movements in the market for the hedging
vehicle and market for the  underlying  portfolio  securities  being hedged will
correlate.  Significant  differences  exist between the  securities  and futures
markets that could result in an imperfect  correlation.  These differences could
cause a given  hedging  strategy we have  entered into for a Fund to not achieve
its objectives.  The degree of imperfect  correlation  depends on  circumstances
such as the variations in the  speculative  market demand for the futures and/or
futures options contracts used to hedge the underlying portfolio  securities.  A
decision as to whether, when and how we hedge involves the exercise of skill and
judgment.  Our hedges may be  unsuccessful  to some degree because of unexpected
market behavior or interest rate trends.

Futures  exchanges may limit the amount of price  fluctuation  in a contract for
trading in a single day. An exchange  establishes  a daily limit on the amount a
contract's  price may vary either up or down from the previous day's  settlement
price.  Once the futures  contract  trades above or below the daily  limit,  the
exchange stops trading beyond the limit. The daily limit governs price movements
during a  particular  trading  day but does not limit  potential  losses for the
contract holders. The daily limit may prevent us from being able to liquidate an
unfavorable  position for a Fund. For example,  futures prices have occasionally
moved to the daily limit for several  consecutive trading days with little or no
trading,  thereby preventing prompt liquidation of positions and subjecting some
holders of futures contracts to substantial losses.

We cannot  ensure a liquid market will exist at a time when we seek to close out
a futures or futures  options  position for a Fund.  If a liquid  market did not
exist,  we would have to continue  meeting  margin  requirements  until we could
close the position.  We also cannot ensure that an active  secondary market will
develop or  continue to exist for the  futures  and  futures  options  discussed
above.

Limitations on Options and Futures
We do not enter into an open  futures  contract  position or purchase an option:
the initial  margin  deposit plus the premiums paid less the amount by which any
such position is "in the money" exceeds 5% of a Fund's net assets. A call option
is "in the money" if the value of the  futures  contract  that is the subject of
the option  exceeds the  exercise  price.  A put option is "in the money" if the
exercise price exceeds the value of the futures  contract that is the subject of
the option.

When purchasing a futures  contract or writing a put on a futures  contract,  we
must maintain with the Fund's custodian (or broker,  if legally  permitted) cash
or cash  equivalents  (including  any margin)  equal to the market value of such
contract. When writing a call option on a futures contract, we maintain with the
Fund's  custodian cash or cash  equivalents  (including any margin) equal to the
amount such option is in the money until the option  expires or we have  entered
into an offsetting transaction closing out the option for the Fund.

We may not  maintain  open short  positions in futures  contracts,  call options
written on futures  contracts or call options written on indexes for a Fund, if,
in the  aggregate,  the  market  value of all such open  positions  exceeds  the
current value of the Fund's portfolio. In valuing the portfolio, we have to take
into account  unrealized  gains and losses on the open  positions and adjust for
the historical relative volatility of the relationship between the portfolio and
the positions. To the extent we have written call options on specific securities
in a  Fund's  portfolio,  we  deduct  the  value of  those  securities  from the
portfolio's current market value.

We  avoid  being  deemed a  "commodity  pool  operator"  by  complying  with the
Commodity  Futures  Trading  Commission  Rules.  As such,  we do not invest in a
commodity  contract for a Fund where the  "underlying  commodity  value" of each
long position at any time exceeds the sum of:

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

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

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

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

Taxation of Options and Futures
If we  exercise a call option for a Fund,  we add the premium  paid for the call
option to the cost of the security  purchased.  If we exercise a put option,  we
deduct the  premium  paid for the put option from the  proceeds of the  security
sold.  For index options and futures,  which are settled in cash, the difference
between the cash  received at exercise and the premium paid is a capital gain or
loss.

Our entry into  closing  purchase  transactions  for a Fund results in a capital
gain or loss.  If an option was "in the money"  when we wrote it and we held the
security  covering  the  option for more than one year  before  writing it for a
Fund, any loss realized in a closing purchase transaction would be long-term for
federal tax purposes.  The holding period of the securities  covering an "in the
money" option does not include the time period the option was outstanding.

When we hold a futures  contract  for a Fund until  delivery,  we will realize a
capital gain or loss on the futures contract.  The capital gain or loss is equal
to the  difference  between  the price at the time we entered  into the  futures
contract  for the Fund and the  settlement  price on the earlier of the delivery
notice date or  expiration  date.  If we deliver  securities  for a Fund under a
futures  contract,  we  realize  a  capital  gain or loss  for the Fund on those
securities.

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

We  distribute  any  recognized  net  capital  gains for a Fund,  including  any
recognized  net  capital  gains  (including  year-end  mark-to-market  gains) on
options and futures transactions for federal income tax purposes. We combine and
distribute a Fund's  capital gains on its options and futures  transactions  and
its  capital  gains on other  investments.  We also advise  shareholders  on the
nature of these distributions for a Fund.

Federal Tax Treatment of Forward Foreign Exchange Contracts
We may enter into certain forward foreign exchange contracts for a Fund that the
Internal Revenue Service will treat as Section 1256 contracts or straddles under
the Internal Revenue Code.

We must consider  these Section 1256  contracts as having been closed at the end
of a Fund's  fiscal  year and we must  recognize  any  gains or  losses on these
contracts  for tax purposes at that time.  The IRS  characterizes  such gains or
losses from the normal  closing or settlement of such  transactions  as ordinary
gain or loss. We are required to distribute  any net gains on such  transactions
to the Fund's  shareholders  even if we have not actually closed the transaction
and received cash to pay for the distribution.

We may consider forward foreign exchange  contracts that offset a foreign dollar
denominated bond or currency position as straddles for tax purposes. Considering
these  contracts  as  straddles  allows us to defer a loss on any  position in a
straddle to the extent of unrealized gain in an offsetting position.

For a Fund  to  continue  qualifying  for  federal  income  tax  treatment  as a
regulated  investment  company,  it must derive at least 90% of its gross income
from qualifying income (i.e., dividends,  interest, income derived from loans of
securities  and gains from the sale of  securities or  currencies).  Pending tax
regulations could limit the extent that net gains realized from options, futures
or foreign forward  exchange  contracts on currencies are qualifying  income for
purposes of 90% requirement.

Foreign Securities

The AAL Small Cap Stock, Mid Cap Stock, Capital Growth, Balanced and Bond Funds
We may invest in foreign  securities  trading  domestically  through  depository
receipts or on a U.S. national securities exchange or Nasdaq National Market for
The AAL Small Cap  Stock,  Mid Cap Stock and  Capital  Growth  Funds.  We do not
intend to invest more than 10% of their net assets in such  foreign  securities.
We may invest up to 20% of The AAL Bond Fund's net assets in debt  securities of
foreign issuers payable in U.S. dollars. We may invest in foreign securities for
The AAL Balanced Fund to the extent The AAL Capital  Growth and Bond Funds allow
investments in foreign securities for the common stock and fixed-income  sectors
of the Fund,  respectively.  Foreign  securities may present a greater degree of
risk  (including  risks relating to tax provisions or  expropriation  of assets)
than do securities of domestic issuers.

Foreign  Securities - The AAL  International,  Equity Income and High Yield Bond
Funds We  normally  invest at least 65% of The AAL  International  Fund's  total
assets  in  foreign  securities  primarily  trading  in  at  least  3  different
countries, not including the U.S.

We may  invest up to 15% of The AAL Equity  Income  Fund's net assets in foreign
securities.  We also may  invest  in  foreign  securities  trading  domestically
through  depository  receipts and securities of foreign issuers traded on a U.S.
national securities exchange or Nasdaq National Market without regard to the 15%
limitation.  For purposes of diversification  for a Fund, we consider depository
receipts as investments in the underlying stocks.

We may invest up to 15% of The AAL High Yield Bond  Fund's net assets in foreign
bonds.  At this time, we intend to limit our foreign bond purchases for the Fund
to those trading in the U.S.

Foreign  investing  involves  risks in  addition  to the risks  inherent in U.S.
investing.  Foreign countries tend to disseminate less public  information about
their issuers.  Many foreign countries do not subject their companies to uniform
accounting,  auditing and financial  reporting  standards.  The value of foreign
investments may rise or fall because of changes in currency exchange rates. As a
result,  we may incur  costs in  converting  securities  denominated  in foreign
currencies  into U.S.  dollars  for a Fund.  Dividends  and  interest on foreign
securities  may be subject to foreign  withholding  taxes,  which would reduce a
Fund's income without providing a tax credit to shareholders. When necessary, we
may have more difficulty obtaining and enforcing judgments in foreign countries.
We also would  incur more  expense.  Even  though we mainly  intend to invest in
securities  trading  in  stable  and  developed  countries,  we  still  face the
possibility of expropriation,  confiscatory taxation, nationalization,  currency
blockage or political or social  instability  that could affect  investments  in
such countries.

We may invest in American Depository Receipts ("ADRs") for The AAL International
and Equity Income Funds without limit. ADR facilities may be either  "sponsored"
or "un-sponsored."  While sponsored and un-sponsored ADR facilities are similar,
distinctions  exist  between  the rights and  duties of ADR  holders  and market
practices.  Sponsored  facilities  have  the  backing  or  participation  of the
underlying   foreign   issuers.   Un-sponsored   facilities   do  not  have  the
participation by or consent of the issuer of the deposited shares.  Un-sponsored
facilities usually request a letter of non-objection from the issuer.

Holders of un-sponsored ADRs generally bear all the costs of such facility.  The
costs  of the  facility  can  include  deposit  and  withdrawal  fees,  currency
conversion and other service fees. The  depository of an  un-sponsored  facility
may not have a duty to distribute shareholder  communications from the issuer or
to pass  through  voting  rights.  Issuers of  un-sponsored  ADRs do not have an
obligation to disclose  material  information  about the foreign  issuers in the
U.S. As a result,  the value of the  un-sponsored ADR may not correlate with the
value of the  underlying  security  trading  abroad or any material  information
about the security or the issuer disseminated abroad.

Sponsored  facilities  enter into an  agreement  with the  issuer  that sets out
rights  and  duties  of the  issuer,  the  depository  and the ADR  holder.  The
sponsored  agreement  also  allocates  fees among the  parties.  Most  sponsored
agreements  provide that the depository  will  distribute  shareholder  notices,
voting instructions and other  communications.  The AAL International and Equity
Income Funds may invest in sponsored and un-sponsored ADRs.

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

Foreign Currency Transactions

Foreign Currency Spot Transactions and Forward Contracts
To manage the currency risk accompanying  investments in foreign  securities and
to  facilitate  the  purchase and sale of foreign  securities,  we may engage in
foreign currency transactions on a spot (cash) basis for all Funds, unless there
are  investment  restrictions  to the  contrary.  We  invest  at the  spot  rate
prevailing  in the  foreign  currency  exchange  market.  We also may enter into
contracts  to purchase or sell  foreign  currencies  at a future date  ("forward
foreign currency" contracts or "forward" contracts).

A forward contract involves an obligation to purchase or sell a specific foreign
currency at a future date at a set price. Forward contracts principally trade in
the  inter-bank  market and are  conducted  directly  between  currency  traders
(usually  large  commercial  banks)  and their  customers.  A  forward  contract
generally has no deposit requirement and no commissions are charged at any stage
for trades.

Whenever  we intend to  purchase  or sell a  security  denominated  in a foreign
currency  for a Fund,  we may want to "lock  in" the  U.S.  dollar  price of the
security.  We can protect a Fund by  entering  into a forward  contract  for the
purchase  or sale of a fixed  amount  of U.S.  dollars  equal to the  amount  of
foreign currency involved in the underlying security transaction. With a forward
contract,  we can protect the Fund  against a possible  loss  resulting  from an
adverse  change in the  relationship  between  the U.S.  dollar and the  subject
foreign currency between the date the security is purchased or sold and the date
on which the payment is made or received.

We may use  forward  contracts  for a Fund  when we  believe  that a  particular
foreign currency may suffer a substantial  decline against the U.S.  dollar.  In
this situation, we would enter into a forward contract to sell a fixed amount of
the  foreign  currency  approximating  the  value  of some or all of the  Fund's
portfolio securities denominated in such foreign currency.  We, however,  cannot
precisely  match the forward  contract  amounts and the value of the  securities
involved.  The  securities'  values change as a consequence of market  movements
between  the  date we  entered  into the  forward  contract  for the  underlying
currency and the date it matures.

Due to the fact that  movement in the  short-term  currency  market is extremely
difficult to predict,  successful  execution of a short-term hedging strategy is
highly uncertain.  Therefore, we do not enter into forward contracts or maintain
a net exposure to such contracts where  completion  would obligate us to deliver
foreign currency in excess of the value of the Fund's securities or other assets
denominated  in that  currency.  Under  normal  circumstances,  we consider  the
long-term prospects for a particular currency. We incorporate the prospects into
our overall long-term diversification strategies. However, we believe that it is
important to have the  flexibility to enter into such forward  contracts when we
determine that it is in the Fund's best interest.

At the maturity of a forward  contract for a Fund,  we may either:  (1) sell the
portfolio  securities and make delivery of the foreign  currency;  or (2) retain
the securities and terminate our  contractual  obligation to deliver the foreign
currency by purchasing an "offsetting"  contract  obligating us to purchase,  on
the same maturity date, the same amount of foreign currency.

If we retain the portfolio  securities  and engage in an offsetting  transaction
for the Fund,  we will incur a gain or a loss to the extent  that there has been
movement in forward contract prices. If we enter into an offsetting transaction,
we may subsequently  enter into a forward contract to sell the foreign currency.
Should  forward  prices decline during the period when we entered into a forward
contract to sell a foreign  currency and the date we entered into an  offsetting
contract  to buy a foreign  currency,  we will  realize a gain to the extent the
price of the  currency we agreed to sell  exceeds  the price of the  currency we
agreed to buy.  Should  forward  prices  increase,  we will suffer a loss to the
extent that the price of the  currency we agreed to buy exceeds the price of the
currency  we  agreed to sell for a Fund.  We may not be able to hedge  against a
currency  devaluation  at a price  above the level  where the market  itself has
anticipated the currency's devaluation.

A foreign  currency  hedge  transactions  does not protect  against or eliminate
fluctuations in the prices of particular  portfolio  securities.  For example, a
foreign  currency hedge  transaction does not prevent a security's price decline
due to an issuer's deteriorating credit situation.  We also cannot forecast with
precision  the  market  value  of  securities  at the  expiration  of a  forward
contract.  Accordingly,  we may have to purchase  additional foreign currency on
the spot market (and bear the expense of such purchase) if: (1) the market value
of the Fund's securities are less than the amount of the foreign currency we are
obligated  to  deliver  for the  Fund;  and (2) we made a  decision  to sell the
foreign  securities and make delivery of the foreign currency upon expiration of
the  contract  for the  Fund.  Conversely,  we may have to sell some of a Fund's
foreign  currency  received upon the sale of a portfolio  security if the market
value of the Fund's  securities  exceed the  amount of foreign  currency  we are
obligated  to deliver for the Fund.  We limit our  dealings  in forward  foreign
currency exchange contracts for a Fund to the transactions described above.

Although we value the Funds'  assets daily in terms of U.S.  dollars,  we do not
intend to convert their holdings of foreign  currencies  into U.S.  dollars on a
daily  basis.  From time to time,  however,  we will  convert  a Fund's  foreign
currency holdings into U.S. dollars.  There are costs associated with converting
foreign  currencies  into U.S.  dollars and you should be award of these  costs.
Although  foreign  exchange  dealers  do not charge a fee for  conversion,  they
realize a profit based on the difference  (the  "spread")  between the prices at
which they are buying and selling various  currencies.  Thus, a dealer may offer
to sell a foreign currency to us for a Fund at one rate, while offering a lesser
rate of exchange  should we desire to resell that currency to the dealer for the
Fund.

Options and Futures Relating to Foreign Currencies
We may  purchase  and sell  currency  futures and  purchase  and write  currency
options  to  increase  or  decrease  a  Fund's  exposure  to  different  foreign
currencies.  We also may purchase and write currency options in conjunction with
the currency futures or forward  contracts of the Fund's other series.  The uses
and risks of currency  options and futures are similar to options and futures on
securities or indices, as discussed above.

Currency futures  contracts are similar to forward foreign  currency  contracts,
except that they are traded on exchanges (and have margin  requirements) and are
standardized  as to contract  size and  delivery  date.  Most  currency  futures
contracts call for payment or delivery in U.S. dollars.

The  underlying  instrument of a currency  option  generally is either a foreign
currency or a currency futures contract. The purchaser of a currency call option
obtains  the right to purchase  the  underlying  currency.  The  purchaser  of a
currency put option obtains the right to sell the underlying currency.

Currency futures and options values correlate with exchange rates.  However, the
futures  and  options  values do not reflect  other  factors  affecting a Fund's
investment  value.  A currency  hedge,  for example,  should  protect a Japanese
Yen-denominated security from a decline in the Yen. The currency hedge, however,
will not protect the particular  Fund's Yen  denominated  investments  against a
price decline in the Yen denominated  security  resulting from  deterioration in
the issuers' creditworthiness. Because the value of a Fund's foreign-denominated
investments  change in response to many factors  other than exchange  rates,  we
have  difficulty  matching the exact value of any hedge in currency  options and
futures to the value of our foreign investments for a Fund over time.

Privately Issued Securities:  The AAL Money Market Fund
We may invest in securities issued by major  corporations  without  registration
under the  Securities  Act of 1933 for The AAL Money  Market Fund in reliance on
certain  exemptions,  including the "private  placement"  exemption  afforded by
Section 4(2) of that Act.  Section 4(2) paper is  restricted  as to  disposition
under the federal  securities  laws in that any resale must be made in an exempt
transaction.  This paper  normally  is resold to other  institutional  investors
through or with the  assistance of  investment  dealers who make a market in it,
thus providing liquidity. In our opinion (as the Adviser), Section 4(2) paper is
no  less  liquid  or  salable  than   commercial   paper  issued  without  legal
restrictions  on  disposition.  However,  should we deem that section 4(2) paper
issue is illiquid, we would purchase such security for a Fund only in accordance
with our limitations on illiquid securities.

Investments In Other Investment Companies
Due to the administration  and distribution  expenses of managing a mutual fund,
our investments in other investment  companies (mutual funds,  which are limited
by  fundamental  investment  restriction  14  above)  may  cause us to  increase
payments of such expenses for a Fund.


Risks
Each of the previously  described  investment  techniques contains an element of
risk.  You  should  also be  aware of the  following  risks  associated  with an
investment in the Funds.

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

Longer-term  bonds are more sensitive to interest rate changes than shorter-term
bonds, reflecting the greater risk of holding these bonds for a longer period of
time.  Longer-term  bond prices increase more  dramatically  when interest rates
fall and  decrease  more  dramatically  when  interest  rates  rise.  Prices  of
short-term debt, such as money market  instruments,  are less price sensitive to
interest rate changes because of their short duration.  Securities that pay high
dividends,  like bonds,  are more  sensitive to interest  rate levels than other
equity securities that pay low dividends.

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


MANAGEMENT OF THE FUNDS

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

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

Ronald G. Anderson                          President and Trustee*              President and Chief Executive
d/o/b  10/2/48                                                                  Officer, AAL Capital Management
                                                                                Corporation

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

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

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

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

D.W. Russler**                              Trustee                             Retired; formerly Senior
d/o/b  10/28/28                                                                 Vice-President Finance and
24 Turnbridge Drive                                                             Administration NCR Corporation
Hilton Head, SC 29928                                                           (computers and related equipment);
                                                                                Member, Advisory Board -
                                                                                Saratoga Partners II (corporate -
                                                                                buyout Limited Partnership)

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

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

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

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

Joseph F. Wreschnig**                       Assistant Secretary                 Assistant Vice-President, Fund and
d/o/b  6/30/50                                                                  Adviser Administration, AAL
                                                                                Capital Management Corporation

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

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


*    Denotes Directors who are "interested  persons" of the Funds, as defined in
     the Investment Company Act of 1940.
**   As of December 31, 1998, Mr. Russler retired from the Board of Trustees and
     Mr. Smeds joined the Board of Trustees.  Also, as of December 31, 1998, Mr.
     Wreschnig  resigned as Assistant  Secretary of The AAL Mutual Funds and was
     replaced by Mr. Eno and Mr. Fredricks.

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

<TABLE>
<CAPTION>
<S>                        <C>              <C>                  <C>                 <C>    
                                            Pension or                               Total
                                            Retirement                               Compensation
                           Aggregate        Benefits Accrued     Estimated Annual    From Funds and
                           Compensation     As Part of Funds     Benefits Upon       Fund Complex*
Name, Position             from Funds       Expenses             Retirement          Paid to Trustees

Ronald G. Anderson         - 0 -            - 0 -                - 0 -               - 0 -

F. Gregory Campbell        $25,000          - 0 -                - 0 -               $30,000

Richard L. Gady            $25,000          - 0 -                - 0 -               $30,000

John O Gilbert             - 0 -            - 0 -                - 0 -               - 0 -

John H. Pender             $25,000          - 0 -                - 0 -               $25,000

D.W. Russler**             $18,750          - 0 -                - 0 -               $22,500

Edward W. Smeds**          $6,250           - 0 -                - 0 -               $7,500

Lawrence M. Woods          $25,000          - 0 -                - 0 -               $30,000
</TABLE>


*    The Fund Complex includes the AAL Variable Product Series Fund, Inc..
**   As of December 31, 1998, Mr. Russler retired from the Board of Trustees and
     Mr. Smeds joined the Board of Trustees


CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of April 30, 1999,  the Trust's  officers and Trustees  owned less than 1% of
the shares of any Funds. As of April 30, 1999, no account holders held in excess
of 5% of any Fund's shares:


INVESTMENT ADVISORY AND OTHER SERVICES

Investment Adviser
Please refer to our  description  of the adviser,  advisory  agreement  and fees
under "Management,  Organization,  and Capital Structure" in the prospectus.  We
have incorporated the prospectus herein by reference.

Affiliated Persons
The  following  executive  officer  of the Trust  also  serves as an  officer or
director of the adviser, AAL CMC, as shown:

Ronald G. Anderson
222 West College Avenue
Appleton, WI 54919-0007
dob 10/2/48

Adviser Fees
The adviser,  AAL CMC,  furnishes and pays for all office space and  facilities,
equipment and clerical personnel necessary for carrying out the adviser's duties
under  the  advisory  agreement.  The  adviser  also  pays all  compensation  of
Trustees,  officers and employees of the Trust who are the adviser's  affiliated
persons.  All costs and expenses not expressly  assumed by the adviser under the
advisory  agreement  are paid by the Funds,  including,  but not limited to: (a)
interest and taxes;  (b)  brokerage  commissions;  (c) insurance  premiums;  (d)
compensation  and expenses of the Funds'  Trustees  other than those  affiliated
with the  adviser;  (e) legal and audit  expenses;  (f) fees and expenses of the
Trust's  custodian and transfer agent; (g) expenses  incident to the issuance of
the Trust's shares,  including stock  certificates and issuance of shares on the
payment of, or reinvestment of, dividends; (h) fees and expenses incident to the
registration  under Federal or state securities laws of the Trust or its shares;
(i) expenses of  preparing,  printing and mailing  reports and notices and proxy
material to the  Trust's  shareholders;  (j) all other  expenses  incidental  to
holding  meetings of the Trust's  shareholders;  (k) dues or  assessments  of or
contributions  to the Investment  Company  Institute or its successor,  or other
industry organizations;  (l) such non-recurring expenses as may arise, including
litigation affecting the Trust and the legal obligations that the Trust may have
to  indemnify  its  officers and  Trustees  with  respect  thereto;  and (m) all
expenses that the Trust agrees to bear in any  distribution  agreement or in any
plan adopted by the Trust pursuant to Rule 12b-1 under the Act.

Adviser Fees per Fund

<TABLE>
<CAPTION>
<S>                                          <C>                        
THE AAL SMALL CAP STOCK FUND                 0.70% on the first $200 million
                                             0.65% on the average daily net assets over $200 million

THE AAL MID CAP STOCK FUND                   0.70% on the first $200 million
                                             0.65% on the average daily net assets over $200 million

THE AAL INTERNATIONAL FUND                   0.80% on the average daily net assets
         Sub-Adviser Fees
         Oechsle International Advisers      0.40% on the first $50 million
                                             0.35% on the average daily net assets over $50 million

THE AAL CAPITAL GROWTH FUND                  0.65% on the first $500 million
                                             0.575% on the next $500 million
                                             0.50% on the average daily net assets over $1 billion

THE AAL EQUITY INCOME FUND                   0.45% on the average daily net assets

THE AAL BALANCED FUND                        0.55% on the average daily net assets

THE AAL HIGH YIELD BOND FUND                 0.55% on the average daily net assets

THE AAL MUNICIPAL BOND FUND                  0.45% on the average daily net assets

THE AAL BOND FUND                            0.45% on the average daily net assets

THE AAL MONEY MARKET FUND                    0.50% on the first $500 million
                                             0.45% on the average daily net assets over $500 million
</TABLE>


The adviser may waive its advisory  fees for,  assume or reimburse  the expenses
of, any Fund at any time.  As of September 1, 1997,  the adviser is waiving .225
of 1% of its .50 of 1%  maximum  advisory  fee for The AAL  Money  Market  Fund.
Effectively,  the  adviser is charging  only a 0.275 of 1% advisory  fee for the
Fund. The adviser is reimbursing The AAL High Yield Bond Fund expenses in excess
of 1.00% and 1.75% for Class A and Class B shares, respectively. Any fee waivers
or  expense  assumptions  the  adviser  makes are  voluntary.  The  adviser  may
discontinue  any fee waivers or expense  reimbursements  at any time.  The Funds
have paid advisory fees net of reimbursements to the adviser, for the past three
fiscal years ended April 30, 1999, as follows:


Funds                      April 30, 1999     April 30, 1998      April 30, 1997
-----                      --------------     --------------      --------------

Small Cap Stock Fund       $___________       $690,590            $159,016

Mid Cap Stock Fund         $___________       $4,070,582          $3,188,294

International Fund         $___________       $1,280,101          $873,585

Capital Growth Fund        $___________       $12,742,588         $9,121,422

Equity Income Fund         $___________       $809,233            $643,683

Balanced Fund              $___________       $27,618             N/A

High Yield Bond Fund       $___________       $522,217            $60,205

Municipal Bond Fund        $___________       $2,163,729          $2,153,751

Bond Fund                  $___________       $1,921,733          $2,214,486

Money Market Fund          $___________       $1,088,957          $780,148

The  sub-advisory fee for The AAL  International  Fund is payable from the 0.80%
annual advisory fee paid to the adviser. The advisory agreement and sub-advisory
agreement for The AAL  International  Fund provide that subject to Section 36 of
the Act,  neither the adviser nor  sub-Adviser  shall be liable to the Trust for
any error of  judgment  or  mistake  of law or for any loss  arising  out of any
investment  or for any act or  omission in the  management  of the Trust and the
performance  of their  duties under the  advisory  agreement  except for willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of  reckless  disregard  of their  obligations  and  duties  under the
agreements.

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

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

-    The AAL Mid Cap Stock Fund by the Board of  Trustees on May 18,  1993,  and
     the sole shareholder on June 30, 1993;

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

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

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

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

-    The AAL Balanced  Fund by the Board of Trustees on November  19, 1997,  and
     the sole shareholder on January 2, 1998.

On  October  16,  1995,  the  Board  of  Trustees  terminated  the  sub-advisory
agreements (effective November 1, 1995) with, and approved the assumption of the
duties by us (as the adviser)  of, the  sub-advisers,  Duff & Phelps  Investment
Management Co., and Pilgrim Baxter & Associates Ltd., for The AAL Mid Cap Stock,
Capital Growth, Equity Income,  Municipal Bond, Bond and Money Market Funds. The
Board of Trustees also approved reductions in the advisory fees for these Funds.

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

On October  30,  1998,  The AAL  International  Fund's  shareholders  approved a
sub-advisory  agreement with Oechsle International  Advisers LLC. On November 1,
1998, Oechsle replaced SoGen as the sub-adviser for The AAL International Fund.

The advisory  agreement and sub-advisory  agreement will continue in effect from
year to year only so long as such  continuances  are  specifically  approved  at
least annually by the Board of Trustees.  The vote for approval must include the
approval  of a majority  of the  Trustees  who are not  interested  persons  (as
defined in the Act).  The advisory and  sub-advisory  agreements  are terminable
upon assignment.  The advisory  agreement is also terminable at any time without
penalty by the Board of  Trustees or by vote of the holders of a majority of the
outstanding  voting  securities of the Trust. With respect to a particular Fund,
the advisory or sub-advisory  agreement,  if any, is terminable by the vote of a
majority of the  outstanding  shares of such Fund. The adviser may terminate the
agreement on 60 days written notice to the Trust.

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

The  Distribution  Plan  authorizes  the  distributor,  AAL CMC, to make certain
payments  (either  as a  "12b-1  distribution  fee" or a  "service  fee") to any
qualified  recipient.  As defined in the Plan, the qualified recipient must have
rendered assistance in the distribution of the Funds' shares (such as selling or
placing the Funds'  shares,  or  providing  administrative  assistance,  such as
maintaining   sub-accounting   or  other  records).   The  Plan  authorizes  the
distributor  to purchase  advertising  for the Funds'  shares,  to pay for sales
literature  and other  promotional  material,  and to make payments to the sales
personnel.  The  Distribution  Plan does not cover  Institutional  shares.  As a
result,  the Funds may not make any payments  pursuant to the Plan in connection
with Institutional shares.

The Funds  reimburse  any payments made or expenses  incurred  under the Plan to
qualified recipients for Class A and Class B shares as follows:

Class A Shares - All Funds
In a given fiscal year,  the Funds,  pursuant to the Plan,  pay up to a limit of
0.25 of 1% of the average net assets (0.125 of 1% for The AAL Money Market Fund)
as a  service  fee for Class A shares.  The  Funds do not  reimburse  or pay for
expenses of past fiscal years or in  contemplation of expenses for future fiscal
years.  Since  September 1, 1997, the  distributor has waived 0.100 of 1% of the
0.125 of 1% maximum  12b-1 service fee for Class A shares under the Plan for The
AAL Money Market Fund (prior to January 8, 1997,  12b-1 service fees for Class A
shares were described as 12b-1 distribution fees),  effectively charging a 0.025
of 1%, 12b-1 service fee. This continuing  reimbursement  (waiver) is voluntary.
The distributor may modify or discontinue its reimbursements at any time.

Class B Shares - All Funds
In a given fiscal year, the Funds pay up to a limit of 0.75 of 1% of the average
daily net assets as a 12b-1  distribution fee and up to a limit of 0.25 of 1% of
the average  daily net assets as a service  fee for Class B shares.  Pursuant to
the Plan, the Funds do not reimburse or pay for expenses of past fiscal years or
in contemplation  of expenses for future fiscal years.  Since September 1, 1997,
the  distributor has waived 0.100 of 1% of the 0.125 of 1% maximum 12b-1 service
fee for Class B shares under the Plan for The AAL Money Market Fund, effectively
charging  a 0.025  of 1%,  12b-1  service  fee.  This  continuing  reimbursement
(waiver)  is  voluntary.   The   distributor   may  modify  or  discontinue  its
reimbursements at any time.

The Plan authorizes without limit any payments by a Fund for Class A and Class B
shares that are "primarily intended to result in the sale of shares" issued by a
Fund within the meaning of the Rule under the Plan.  Such payments  shall not be
included in the limitations contained in the Plan,  including:  (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 the Fund or
other  funds or other  investments;  (b) the costs of  preparing,  printing  and
mailing  of all  prospectuses  to  shareholders;  (c) the  costs  of  preparing,
printing  and  mailing of any proxy  statements  and  proxies,  irrespective  of
whether any such proxy  statement  includes  any item  relating  to, or directed
toward,  the sale of the  Fund's  shares;  (d) all  legal  and  accounting  fees
relating to the preparation of any such reports, prospectuses, proxies and proxy
statements; (e) all fees and expenses relating to the qualification of the Funds
and or their shares under the securities or "Blue Sky" laws of any jurisdiction;
(f) all fees under the Act and the  Securities  Act of 1933,  including  fees in
connection with any application for exemption relating to or directed toward the
sale of the  Fund's  shares;  (g) all fees  and  assessments  of the  Investment
Company  Institute  or  any  successor   organization  or  industry  association
irrespective  of whether some of its  activities  are designed to provide  sales
assistance,  (h) all costs of preparing and mailing confirmations of shares sold
or redeemed or share  certificates  and reports of share  balances;  and (i) all
costs of responding to telephone or mail inquiries of shareholders.

The Plan also states  that the  distribution  costs of the  Trust's  Class A and
Class B shares are expected to exceed the sum of permitted  payments,  permitted
expenses,  and the portion of the sales charge retained by the distributor.  The
adviser's profits,  if any, are primarily dependent 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  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 payments were made;  (b) the amounts of expenses and the
purpose of each such expense;  and (c) all costs of the other payments specified
in the 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 Class A shares for the
fiscal year ended April 30, 1999,  and the manner in which this amount was spent
is as follows:

                                 CLASS A SHARES

Gross 12b-1 Fees Paid by the Funds for Class A Shares            $________

     Expenditures

Compensation to Registered Representatives                       $________
Other                                                            $________

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

                                 CLASS B SHARES

Gross 12b-1 Fees Paid by the Funds for Class B shares            $________

     Expenditures

Compensation to Registered Representatives                       $________
Other                                                            $________

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

The  Trust's  shareholders  approved  the Plan at the Trust's  first  meeting of
shareholders  held on  September  13,  1988.  The Plan at that time and up until
January 8, 1997,  included only the shares now referred to as Class A shares. As
of January 8, 1997,  the Plan includes  Class B shares.  The Plan as Amended and
Restated was approved by the sole  shareholder  of the Trust's Class B shares on
January 8, 1997. The Plan will continue in effect from year-to-year only so long
as such  continuance is specifically  approved at least annually by the Board of
Trustees and the Qualified Trustees (as defined in the Plan) cast in person at a
meeting  called for the purpose of voting on such  continuance.  The Plan may be
terminated at any time without  penalty by a vote of a majority of the Qualified
Trustees  . The Plan  also may be  terminated  by the vote of the  holders  of a
majority of the  outstanding  voting  securities for each class of shares of the
Trust.  The Plan may be  terminated  with  respect  to any Fund by the vote of a
majority of the outstanding shares for each class of such Fund. The Plan may not
be amended to  increase  materially  the amount of  payments  to be made for the
separate class shares without shareholder  approval of the class. While the Plan
is in  effect,  the  selection  and  nomination  of those  Trustees  who are not
interested  persons  of the  Trust  is  committed  to  the  discretion  of  such
disinterested  Trustees.  Nothing in the Plan will  prevent the  involvement  of
others  in such  selection  and  nomination  if the final  decision  on any such
selection  and  nomination  is  approved  by a  majority  of such  disinterested
Trustees.

Additional Information

Custodian
The custodian for the Funds is Citibank,  N.A.. The custodian is responsible for
holding the Funds' assets.

Administrative Services Agreement
AAL CMC provides certain administrative,  accounting and pricing services to the
Funds.  These  administrative  services include  calculating the daily net asset
value per class share;  maintaining original entry documents and books of record
and general ledgers;  posting cash receipts and disbursements;  reconciling bank
account  balances  monthly;  recording  purchases and sales based on sub-adviser
communications  (Oechsle's communications regarding The AAL International Fund);
and  preparing  monthly and annual  summaries  to assist in the  preparation  of
financial  statements  of, and  regulatory  reports  for,  the Funds.  Formerly,
Firstar,  provided these administrative  services.  However, the Funds' Trustees
and shareholders  approved an administrative  services agreement with AAL CMC to
provide these administrative services for the Funds. The Administrative Services
Agreement  was approved by a majority of the Trustees of the Funds,  including a
majority of the Trustees who are not  interested  persons of the Funds or of the
Adviser and was approved by the  shareholders  of The AAL Municipal Bond Fund on
November 27, 1990 and of The AAL Capital Growth,  Bond and Money Market Funds on
December 20, 1990. The Board of Trustees  approved the addition of the following
Funds to this agreement on the following dates:

     The AAL Mid Cap Stock Fund on May 18, 1993;  
     The AAL Equity  Income Fund on February  24, 1994;  
     The AAL International  Fund on May 23, 1995;  
     The AAL Small Cap Stock Fund on February 28, 1996;  
     The AAL High Yield Bond Fund on May 29, 1996; and 
     The AAL Balanced Fund on November 19, 1997.

The  principal  motivation  for having AAL CMC,  as the  adviser  for the Funds,
provide these services was cost. AAL CMC has agreed to provide these services at
rates  that  would not exceed the rates  charged  by  unaffiliated  vendors  for
similar services. The annual rates of payment approved by the Trustees presently
are:

     The AAL Small Cap Stock Fund - $40,000 
     The AAL Mid Cap Stock Fund - $40,000
     The AAL International  Fund - $45,000 
     The AAL Capital Growth Fund - $40,000
     The AAL Equity  Income Fund - $40,000 
     The AAL  Balanced  Fund - $40,000 
     The AAL High Yield Bond Fund - $40,000 
     The AAL  Municipal  Bond Fund - $40,000
     The AAL Bond Fund - $40,000 
     The AAL Money Market Fund - $40,000
     The AAL U. S. Government Zero Coupon Target Fund Series 2001 - $2,500
     The AAL U. S. Government Zero Coupon Target Fund Series 2006 - $2,500

The  agreement  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
also be approved at least  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 AAL CMC nor its  personnel  shall be liable for
any error of judgment  or mistake of law or for any loss  arising out of any act
or omission in the  execution  and the  discharge of its  obligations  under the
agreement, except for willful misfeasance,  bad faith or gross negligence in the
performance  of  their  duties  or by  reason  of  reckless  disregard  of their
obligations and duties under the agreement.

Shareholder Maintenance Agreement
The Board of Trustees  authorized the Funds to contract with AAL CMC for certain
shareholder  maintenance  services,  effective April 1, 1995. These  shareholder
services  include  answering  customer   inquiries   regarding  account  status,
explaining and assisting  customers  with the exercise of their account  options
and facilitating shareholder telephone transaction requests.

The annual fee payable to AAL CMC for  providing  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
$___ per account,  effective  ______________,  1999. The shareholder maintenance
agreement  continues  in effect from year to year,  as long as it is approved at
least  annually by the Funds' Board of Trustees or by a vote of the  outstanding
voting  securities of the Funds.  In either case, the agreement must be approved
annually by a majority of the Trustees  who are not parties to the  agreement or
interested persons of any such party. The agreement terminates  automatically if
either party  assigns the  agreement.  The  agreement  also  terminates  without
penalty by either party on 60-days notice.  The Agreement  provides that neither
the  Adviser  nor its  personnel  shall be liable for any error of  judgment  or
mistake  of law or for  any  loss  arising  out of any  act or  omission  in the
execution and the discharge of its obligations  under the Agreement,  except for
willful  misfeasance,  bad faith or gross negligence in the performance of their
duties or by reason of reckless  disregard of their obligations and duties under
the Agreement.  These fees are not currently  assessed against the Funds but may
be in the future.

Independent Accountants
The    Trust's    independent    accountants,     PriceWaterhouseCoopers     LLP
("PriceWaterhouseCoopers"),  examine  the Funds'  annual  financial  statements.
PriceWaterhouseCoopers also assists in the preparation of certain reports to the
SEC and reviews the Trust's state and federal tax returns.


BROKERAGE ALLOCATION AND OTHER PRACTICES
AAL  CMC,  as  the  adviser,  and  Oechsle,  as  the  sub-adviser  for  The  AAL
International  Fund, direct the placement of orders for the purchase and sale of
the Funds' portfolio securities.

The securities  transaction  costs for each Fund consist  primarily of brokerage
commissions or dealer or underwriter spreads. Bonds and money market instruments
generally trade on a net basis and do not involve either  brokerage  commissions
or transfer taxes.

Occasionally,  we may purchase  securities  directly from the issuer for a Fund.
For securities traded primarily in the over-the-counter market, we deal with the
sellers who make a market in the securities  directly  unless we can find better
prices and execution available elsewhere. Such dealers usually act as principals
for their own  account.  In  placing  portfolio  transactions,  we seek the best
combination of price and execution.

In determining which brokers provide best execution,  AAL CMC looks primarily at
the prices quoted by the brokers.  Normally, we place orders with the broker who
has the most  favorable  prices.  Ordinarily,  we expect to  execute  securities
transactions  in the  primary  markets.  In  assessing  the best net  price,  we
consider  all  relevant  factors.  The  relevant  factors  include the  security
market's  breadth,  the  security's  price,  the  broker or  dealer's  financial
condition and execution capability and the reasonableness of the commission,  if
any (for the specific  transaction and on a continuing  basis).  Although we are
the sole  distributors  for the Funds'  shares,  we (as the  adviser) may in the
future consider the willingness of particular  brokers to sell the Funds' shares
as a factor in the selection of brokers for the Funds'  portfolio  transactions.
However  our  selection  would  still be subject to the  overall  best price and
execution standard.

Assuming equal  execution  capabilities,  we may take into  consideration  other
factors in selecting brokers or dealers. We 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 us or the  sub-adviser  for The AAL  International  Fund (or  their
affiliates).  We may also cause a Fund to pay to a broker or dealer who provides
such  brokerage  and research  services a commission  for  executing a portfolio
transaction  which is in excess of the amount of  commission  another  broker or
dealer would have charged for effecting that transaction.  We must determine, in
good faith,  however,  that such  commission  was  reasonable in relation to the
value of the brokerage and research  services  provided.  The commission must be
reasonable  in  terms  of that  particular  transaction  or in  terms of all the
accounts over which we, as an adviser,  exercise  investment  discretion.  It is
possible  that  certain  of  the  services  received  by  us  attributable  to a
particular  transaction benefit one or more other accounts for which we exercise
investment discretion.  The Funds paid the following in brokerage commissions in
each of the past three fiscal years ended April 30, 1999:

                          April 30, 1999      April 30, 1998      April 30, 1997
                          --------------      --------------      --------------

The AAL Mutual Funds      $___________        $3,143,251          $4,205,263


CAPITAL STOCK AND OTHER SECURITIES
The AAL Mutual  Funds'  Declaration  of Trust  permits the  Trustees to issue an
unlimited  number of full and  fractional  shares of  beneficial  interest.  The
Declaration  also  permits  the  Trustees to divide or combine the shares into a
greater or lesser number of shares without  thereby  changing the  proportionate
beneficial  interest in a Fund.  Pursuant to this  authority,  the Trustees have
issued Class A, Class B and Institutional  shares for the Funds,  except for The
AAL U.S.  Government Zero Coupon Target Funds,  Series 2001 and 2006. Each class
share represents an interest in a Fund proportionately  equal to the interest of
each other share in its class.  If the Trust  liquidated the Funds' shares,  all
shareholders  of a Fund  would  share pro rata in its net  assets  for the class
available for distribution to shareholders.  If the Board deems it advisable and
in the best interests of shareholders,  it may create  additional share classes.
These share  classes may differ from each other only as to  dividends  or, as is
the case with the  Funds,  as to assets and  liabilities.  Where  share  classes
differ in regards to assets and liabilities,  the different classes are referred
to as the different  series of the Funds (e.g., The AAL Bond Fund is a series of
The AAL Mutual Funds).  Within each series,  the different classes of shares are
referred  to  as  different  share  classes,  such  as  Class  A,  Class  B  and
Institutional  shares.  Shares of each  series are  entitled to vote as a series
only to the extent required by the '40 Act or as permitted by the Trustees.  The
Trustees  allocate  income and operating  expenses  among the  different  Funds'
series and classes of shares fairly.

Except for the  election  of  Trustees  and  ratification  of the  selection  of
accountants,   any  matter  that  the  Funds  are  required  to  submit  to  the
shareholders  for a vote is not deemed to be  effective  unless  approved by the
holders of a  "majority"  (as defined in the Rule) of the voting  securities  of
each Series affected by the matter.

Except for The AAL Small Cap Stock, Mid Cap Stock, Balanced, and High Yield Bond
Funds, each Fund's investment objective is a fundamental policy. As such, only a
vote of a  "majority  of  outstanding  voting  securities"  can  change a Fund's
investment objective. A majority means the approval of the lesser of: (1) 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 (2) more than 50% of the outstanding voting securities of a Fund.


PURCHASE, REDEMPTION, AND PRICING OF SHARES
Purchases and  redemptions  are discussed in the Prospectus  under the headings;
"Purchasing  Shares"  and  "How to  Redeem  Shares,"  and  that  information  is
incorporated herein by reference.

We determine the Funds' net asset value only on the days when the New York Stock
Exchange ("NYSE") is open for trading. The NYSE is regularly closed on Saturdays
and Sundays and on New Years' Day, the third  Monday in  February,  Good Friday,
the last Monday in May, Independence Day, Labor Day, Thanksgiving and Christmas.
If one of these holidays  falls on a Saturday or Sunday,  the NYSE closes on the
preceding Friday or the following Monday, respectively.

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

Many long-term corporate bonds and notes,  certain preferred stocks,  tax-exempt
securities and foreign securities do not have reliable market quotations and are
not considered to be readily available for purchase or sale.

To determine the current or fair market value for debt  securities,  we may, and
generally  will,  use a pricing  service or  services  approved  by the Board of
Trustees.  A pricing  service  generally  will determine  valuations  based upon
normal,  institutional-size  trading  units  of  such  securities  using  market
transactions  for  comparable   securities  and  various  relationships  between
securities generally recognized by institutional traders.

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

Foreign  securities  may not be traded on all days when the NYSE is open.  Also,
foreign  securities  may trade on Saturdays  and other days when the NYSE is not
open and when we do not calculate the Funds' net asset values.  We value foreign
securities  primarily listed and/or traded in foreign markets at the price as of
the close on its primary market.  Unless we determine  (under the supervision of
the Board of Trustees) that material events have occurred affecting the value of
a Fund's foreign  securities  between the time the foreign  securities'  primary
market  closed and the close of the NYSE,  we will not reflect the change in the
Fund's  net  asset  value.  As a  result,  trading  on  days  when a Fund is not
accepting  purchases or redemptions may significantly  affect a Fund's net asset
value.

Generally, U.S. government securities and other fixed income securities complete
trading  at  various  times  prior to the close of the  NYSE.  For  purposes  of
computing net asset value,  we use the market value of any such securities as of
the time their  trading day ends.  Occasionally,  events  affecting the value of
such securities may occur between the times these markets close and the time the
NYSE closes.  We generally will not reflect these events in the computation of a
Fund's net asset value, unless they are material.  If there is a material event,
we will value such securities at their fair value as determined in good faith by
the Board of Trustees.

We intend to pay all  redemptions  in cash.  We are  obligated to redeem  shares
solely in cash up to the lesser of  $250,000 or one percent of the net assets of
a Fund during any 90-day  period for any one  shareholder.  However,  we may pay
redemptions in excess of such limit in whole or part by a  distribution  in kind
of  securities.  If and to the  extent  we  redeem  shares  in kind,  you,  as a
redeeming  shareholder  might incur  brokerage  fees in selling  the  securities
received.

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

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

Although  we  cannot  assure  you that we will be able to do so, we will use our
best efforts to maintain a net asset value of $1.00 per share for  purchases and
redemptions of The AAL Money Market Fund. The Board of Trustees has  established
procedures for this purpose. These procedures require us to review the extent of
any deviation in the Fund's net asset value per share, based on available market
quotations, from the $1.00 amortized cost per share. Should the deviation exceed
1/2 of 1% for the Fund, the Board of Trustees will promptly  consider whether we
should initiate efforts to eliminate or reduce material dilution or other unfair
results to shareholders.  Such action may include  redemption of shares in kind,
selling  portfolio  securities  prior  to  maturity,   reducing  or  withholding
dividends,  and  utilizing  a net asset value per share as  determined  by using
available market  quotations.  We maintain a  dollar-weighted  average portfolio
maturity of 90 days or less for the Fund. We also do not purchase any instrument
deemed to have a remaining  maturity  greater than 397 days. We limit  portfolio
investments,  including  repurchase  agreements,  to  those  dollar  denominated
instruments that the Board of Trustees  determines  present minimal credit risks
pursuant to our advise as the Adviser.  We also comply with the SEC requirements
on the quality of certain portfolio  securities for money market funds using the
amortized  cost method of  valuation.  We also comply with the SEC reporting and
record keeping  procedures  regarding  money market funds.  We cannot assure you
that we can  maintain a  constant  net asset  value at all  times.  In the event
amortized cost ceases to represent  fair value,  the Board of Trustees will take
appropriate action.

Letter of Intent
Under a Letter of Intent, as described in the prospectus,  shares totaling 5% of
the dollar amount indicated in the letter will be held in escrow by the transfer
agent in the name of the purchaser.  A Letter of Intent neither obligates you to
purchase nor requires us to sell the indicated  amount. If you do not invest the
amount indicated within the 13-month period, you, as the purchaser, are required
to pay the difference between the sales commission  otherwise  applicable to the
purchases  made during this period and sales  charges  actually  paid.  When the
Letter of Intent expires, we liquidate sufficient shares in escrow to obtain the
difference.

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


TAXATION OF THE FUNDS
The  following  is  only a  summary  of  certain  tax  considerations  generally
affecting the Funds and  shareholders.  We urge you to consult your tax advisors
with specific  reference to your own tax  situations,  including state and local
tax liability.

Dividends, Distributions and Taxes

The AAL Small Cap Stock, Mid Cap Stock,  International,  Capital Growth,  Equity
Income,  Balanced,  High Yield Bond,  Bond and Money  Market Funds -- Except for
dividends  from The AAL Municipal  Bond Fund,  any dividends from net investment
income and short-term capital gains  (collectively  "income  dividends") that we
distribute to you from the Funds are taxable to you as ordinary  income  whether
we have paid these  distributions  in cash or additional  shares.  Any long-term
capital gains ("capital gains distributions") that we distribute to you from the
Funds are taxable to you as long-term capital gains,  whether we have paid these
distributions in cash or additional shares.  Long-term capital gains are treated
as long-term  capital gains  regardless of the length of time you have owned the
shares. We distribute  substantially all of the Funds' net investment income and
net realized  long-term  capital gains to avoid the imposition of federal income
and excise tax liability.  We pay any dividends for The AAL Small Cap Stock, Mid
Cap Stock and  International  Funds  annually.  We pay any dividends for The AAL
Capital  Growth Fund  semi-annually  and we pay any dividends for the AAL Equity
Income and Balanced Funds  quarterly.  We accrue income  dividends daily and pay
any dividends  monthly for The AAL High Yield Bond, Bond and Money Market Funds.
We expect to distribute any capital gains annually for these Funds.

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

You may not be able to deduct any interest  expense you incur on money  borrowed
to purchase or carry  shares of the Fund for federal  income tax  purposes.  You
also may be  subject  to state  and local  taxes on  dividends  from this  Fund,
including those which are exempt from federal income tax.

If you or your  entity are  "substantial  users" (or  persons who are related to
"substantial  users") of facilities financed by industrial revenue bonds, you or
your entity should consult your tax advisers before purchasing shares of The AAL
Municipal Bond Fund. The term "substantial user" is defined generally to include
a  "nonexempt  person"  who  regularly  uses in  trade or  business  a part of a
facility financed from the proceeds of industrial development revenue bonds.

The 1986 Tax Reform Act subjects  tax-exempt  interest  attributable  to certain
"private  activity  bonds" to the individual and corporate  alternative  minimum
tax. Such tax-exempt  interest includes,  in the case of a regulated  investment
company  receiving   interest  on  such  bonds,  a  proportionate  part  of  the
exempt-interest  dividends  paid by that  company.  We limit our  investment  in
private  activity  bonds  to no more  than  20% of the  Fund's  assets.  Certain
corporate  shareholders  may be  subject to a federal  "environmental"  tax with
respect to their receipt of dividends and distributions.

The use of options and futures for The AAL  Municipal  Bond Fund  portfolio  may
result in taxable  income.  You should  consult  your  personal  tax  adviser to
determine the consequences of federal, state and local taxes.

The AAL International Fund -- Foreign Withholding Tax
We may be subject to income and  withholding  taxes on income and gains  derived
from The AAL International  Fund's  investments  outside the U.S. Our payment of
such foreign taxes reduces the yield on  investments  for the Fund. Tax treaties
between  certain  countries  and the U.S. may reduce or eliminate  these foreign
withholding taxes. If more than 50% of the Fund's total asset value at the close
of any taxable year consists of foreign corporate stocks or other securities, we
may elect (for U.S.  federal  income tax purposes) to treat any foreign  country
income  or  withholding  taxes we have paid on behalf of the Fund as paid by the
Fund's shareholders.  The foreign income or withholding taxes must be those that
could be treated as income taxes under U.S. income tax principles.  For any year
we make such an election for the Fund,  the  shareholder  must include as income
(in addition to taxable  dividends  received) his pro rata share of such foreign
income and withholding  taxes.  The shareholder is entitled,  subject to certain
limitations,  to credit his  portion of these  foreign  taxes  against  his U.S.
federal  income tax due or deduct it (as an  itemized  deduction)  from his U.S.
taxable income.  Generally, this foreign tax credit is subject to the limitation
that it may not exceed the  shareholder's  U.S. tax  attributable to his foreign
source taxable income.

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

Corporations  and  individuals can use the foreign tax credit to offset only 90%
of any alternative  minimum tax (as computed under the Code for purposes of this
limitation) imposed upon them. If we do not make the pass through election,  the
foreign  taxes  we  pay  for  the  Fund  will  reduce  the  Fund's  income.  Any
distributions we make for the Fund will be treated as U.S. source income.

We will  notify  each  shareholder  within 60 days after the close of the Fund's
taxable year whether, pursuant to the election described above, we will make the
pass through  election  and treat any foreign  taxes paid by the Fund as paid by
its  shareholders for that year. If we make the pass through  election,  we will
designate the  shareholder's  portion of the foreign taxes paid to such country.
We also will  designate the portion of the Fund's  dividends  and  distributions
that represent income derived from sources within such country.

Our investments in certain foreign  corporations  that generate  largely passive
investment  type income,  or that hold a significant  percentage of assets which
generate passive income ("passive foreign investment  companies" or "PFICs") are
subject to special tax rules.  These  special tax rules are  designed to prevent
deferral of U.S.  taxation  on the Fund's  share of the PFICs  earnings.  In the
absence of certain  elections to report these  earnings on a current  basis,  we
would  have to  report  certain  "excess  distributions"  and any gain  from the
disposition  of PFICs stock as ordinary  income.  We would have to report  these
excess  distributions  and gains as  ordinary  income  regardless  of whether we
actually  received any  distributions  from the PFIC.  We would have to allocate
this ordinary  income ratably  throughout the holding period for the stocks.  We
would have to pay taxes for the Fund on any amounts allocable to a prior taxable
year at the highest  applicable  tax rate from that year.  We also would have to
increase this rate by an interest  charge  determined as though the amounts were
an  underpayment  of the tax for that year. We would have to include the amounts
allocated  to the year of the  distribution  or  disposition  in the  Fund's net
investment  income for that  year.  To the extent  the  amounts  allocated  were
distributed as a dividend to  shareholders  such amounts would not be taxable to
the Fund.


UNDERWRITERS
The  distributor,  AAL CMC,  is the  exclusive  underwriter  for the Funds.  The
distributor has a written distribution  agreement with the Funds, dated June 15,
1987,  as  amended.  The  distributor  offers  the  Funds'  shares for sale on a
continuous basis through its field sales force.

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

The distributor does not receive compensation in connection with redemptions and
repurchases  or  brokerage  commissions  for  Class  A  shares.  The  amount  of
underwriting  commissions  received and retained by the distributor for the past
three years ended April 30, 1999 for Class A Shares were as follows:

                                 Class A Shares

For the Fiscal Year Ended      Aggregate Commissions        Retained Commissions

April 30, 1999                     $_________                    $________

April 30, 1998                     $18,088,340                   $7,783,221

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

Class B Shares
The public  offering price of a Fund's Class B share is the net asset value (see
"Purchasing   Shares"  in  the  prospectus).   The  aggregate   redemption  fees
(underwriting  commissions)  received  and retained by the  distributor  were as
follows:

                                 Class B Shares

For the Fiscal Year Ended      Aggregate Commissions        Retained Commissions

April 30, 1999                     $______                       $______

April 30, 1998                     $36,668                       $36,668

April 30, 1997*                    $71                           $71

*The distributor began offering Class B shares for the Funds on January 8, 1997.
This row reflects the period from January 8, 1997, through April 30, 1997.

Compensation
The amount of underwriting  commissions received and retained by the distributor
for the period through the fiscal year ended April 30, 1999 were as follows:

<TABLE>
<CAPTION>
<S>                        <C>                       <C>                        <C>   
                           Net Underwriting          Compensation on            Class B Shares
Name of                    Discounts and             Class B Redemptions        Brokerage
Principal Underwriter      Commissions               and Repurchases            Commissions

AAL CMC                    _____________             ______________             ____________
</TABLE>

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

CALCULATION OF PERFORMANCE DATA
From time to time we advertise the yields and total returns for the Funds' Class
A and Class B shares for various investment  periods.  We always include uniform
performance  calculations based on standardized  methods established by the SEC.
These calculations reflect the front-end sales charge on a Class A share and the
contingent  deferred  sales  charge  ("CDSC")  on a Class B  share.  We also may
include other total return  information  without giving effect to sales charges.
Yields  and total  returns  are  calculated  based on  historical  earnings  and
appreciation.  We do not  intend  any  yield or  total  return  calculations  to
indicate  future  performance.  You should consider  performance  information in
light  of:  the   particular   Fund's   investment   objectives   and  policies;
characteristics and quality of the Fund's portfolio  securities;  and the market
conditions during the applicable period. You should not consider the performance
information  as a  representation  of what may be achieved  in the future.  When
comparing any such  performance  information to published  performance  data for
alternative investments, you should consider the differences in the methods used
in calculating performance  information,  and the impact of taxes on alternative
investments in addition to the factors listed.

Standardized Performance Information

Average Annual Total Return
For each of the  Funds,  except  The AAL  Money  Market  Fund,  we  compute  the
standardized   average  annual  total  return  by  finding  the  average  annual
compounded  rates of return for Class A and Class B shares  over the 1, 5 and 10
year  periods  (or the  portion  thereof  during  which  the  Fund  has  been in
existence)  that would equate the initial  amount  invested in each class to the
ending redeemable value according to the following formula:

         P(1+T)^n = ERV

Where:

P =      A hypothetical $1,000 initial payment;

T =      Average annual total return for the class;

n =      Number of years;

ERV =    Ending  redeemable  value for the class (of the  hypothetical  $1,000
         payment)  at the end of the 1, 5 and 10  year  periods  (or  fractional
         portion thereof),  after deduction of all non-recurring charges for the
         class (CDSC for Class B shares),  assuming redemption at the end of the
         period;

^ =      raised to the power of.


        Annual Returns for the 1 and 5-Year, 10-Year and Since Inception
        Periods Ended April 30, 1999, for Class A Shares Based on Gross
                                 Amount Invested

<TABLE>
<CAPTION>
<S>                 <C>                 <C>                 <C>                 <C>   
The AAL             Total Return        Average Annual      Average Annual      Average Annual
Mutual Fund         for the             Return for the      Return for the      Return for the
and Inception       1-Year Period       5-Year Period       10-Year Period      Period Since
Date                                                                            Inception for
                                                                                Funds in existence for less
                                                                                than 10 years

Small Cap Stock     ____%               N/A                 N/A                 ____%
7/1/96

Mid Cap Stock       ____%               N/A                 N/A                 ____%
6/30/96

International       ____%               N/A                 N/A                 ____%
8/1/95

Capital Growth      ____%               ____%               ____%               ____%
7/16/87

Equity Income       ____%               N/A                 N/A                 ____%
3/18/94

Balanced            ____%               N/A                 N/A                 ____%
12/29/97

High Yield Bond     ____%               N/A                 N/A                 ____%
1/8/97

Municipal Bond      ____%               ____%               ____%               ____%
7/16/87

Bond                ____%               ____%               ____%               ____%
</TABLE>


                Annual Returns for the 1-Year and Since Inception
           Periods Ended April 30, 1999, for Class B Shares Based on
                             Gross Amount Invested*

The AAL Mutual Fund and       Total Return for the     Average Annual Return
Inception Date                1-Year Period            for the Period Since
Inception

Small Cap Stock                    ____%                    ____%
1/8/97

Mid Cap Stock                      ____%                    ____%
1/8/97

International                      ____%                    ____%
1/8/97

Capital Growth                     ____%                    ____%
1/8/97

Equity Income                      ____%                    ____%
1/8/97

Balanced                           ____%                    ____%
12/29/97

High Yield Bond                    ____%                    ____%
1/8/97

Municipal Bond                     ____%                    ____%
1/8/97

Bond                               ____%                    ____%
1/8/97

* There is no standardized  average annual return  information for the five-year
and 10-year  periods,  which is based on gross amount  invested,  available  for
Class B shares. Class B shares first became available to investors on January 8,
1997.

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

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

Where:

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

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

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

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

^ =      to the power of.

For  purposes  of this  calculation,  we  determine  the  income  earned on debt
obligations  by  applying  a  calculated  yield-to-maturity  percentage  to  the
obligations  held  during  the  period.  We  calculate  the  Interest  earned on
mortgage-backed  securities by using the coupon rate and principal  amount after
adjustment  for a monthly pay down.  We determine the income earned on stocks by
using the stated annual dividend rate applied over the performance  period.  The
current  yields  for The AAL  Small Cap  Stock,  Mid Cap  Stock,  International,
Capital Growth,  Equity Income,  Balanced,  High Yield Bond,  Municipal Bond and
Bond Funds for the 30-day period ended April 30, 1999, for Class A shares were:

                              The AAL Mutual Funds
                              Class A Share Yields
                           30-day period ended 4/30/99

Small Cap Stock            ____%            Balanced          ____%

Mid Cap Stock              ____%            High Yield Bond   ____%

International              ____%            Municipal Bond    ____%

Capital Growth             ____%            Bond              ____%

Equity Income              ____%

The current  yields for the AAL Small Cap Stock,  Mid Cap Stock,  International,
Equity Income,  Balanced, High Yield Bond, Municipal Bond and Bond Funds for the
30-day period ended April 30, 1999 for Class B shares were:

                              The AAL Mutual Funds
                              Class B Share Yields
                           30-day period ended 4/30/99


Small Cap Stock            ____%            Balanced          ____%

Mid Cap Stock              ____%            High Yield Bond   ____%

International              ____%            Municipal Bond    ____%

Capital Growth             ____%            Bond              ____%

Equity Income              ____%

When we are advertising yield for a Fund, we will not advertise a one-month or a
30-day  period  that  ends  more  than 45 days  before  the  date on  which  the
advertisement is published.

Tax Equivalent Yield
We calculate a tax  equivalent  yield for The AAL Municipal Bond Fund based on a
30-day (or one-month)  period for Class A and Class B shares. We compute the tax
equivalent yield by dividing the portion of the Fund's yield for the share class
(computed as described  above) that is  tax-exempt  by one minus a stated income
tax rate and adding  the  quotient  to the  portion of the yield that is not tax
exempt. The formula for computation of the tax equivalent yield is:

         X = ( N/1-F) + T

Where:

N =      % of yield for the class derived from tax-exempt income;

F =      federal income tax rate; and

T =      % of yield for the class derived from taxable income.

The tax  equivalent  yield at 31% tax rate for the 30-day period ended April 30,
1999,  for a Class A share and a Class B share for The AAL  Municipal  Bond Fund
were ____% and ____%, respectively.

Current and Effective Yield - The AAL Money Market Fund
We may quote a current or effective  yield for The AAL Money Market Fund's Class
A and Class B shares from time-to-time. The current yield is an annualized yield
based on the net change in account value for each class for a seven-day  period.
The effective yield is an annualized  yield based on a daily  compounding of the
current yield for each share class. We compute these yields by first determining
the "Net  Change in  Account  Value"  for each  share  class for a  hypothetical
account  having a share  balance of one share at the  beginning  of a  seven-day
period ("Beginning Account Value"), excluding capital changes. The Net Change in
Account  Value always  equals the total  dividends  declared with respect to the
account. We compute the yields for each share class as follows:

     Current Yield = (Net Change in Account Value per Class/Beginning Account 
                     Value per Class) x (365/7)

     Effective Yield = [(Net Change in Account Value per Class/Beginning Account
                       Value per Class)]^(365/7)] - 1

For the seven-day  period ended April 30, 1999, the current and effective yields
of The AAL  Money  Market  Fund  for  Class  A  shares  were  ____%  and  ____%,
respectively, and for Class B shares ____% and ____%, respectively.

Normal changes in the income earned and expenses affect the Fund's yield.  Also,
any efforts we  undertake  to restrict or  supplement  the Fund's  dividends  to
maintain  its net asset value at $1.00 will affect the Fund's  yield.  (See "Net
Asset Value" in the prospectus and in this statement of additional information.)
Any portfolio  changes we make due to net purchases or  redemptions  will affect
the Fund's  yield.  Accordingly,  the Fund's yield may vary from day to day. The
yield  stated for a  particular  past period is not a  representation  as to its
future yield.  We do not guarantee the Fund's yield and the Fund's  principal is
not insured.  Although  there is no assurance  that we will be able to do so, we
use our best  efforts to  maintain a net asset  value of $1.00 per share for the
Fund.

Other Performance Information
We  may  from  time  to  time,  include  in  the  Funds'  sales  literature  and
advertisements:  (1) total return quotations computed for different time periods
or by a method that differs from the computations described in the section above
for Class A and B shares;  (2)  calculations  of the growth of an investment (or
series of investments),  at various assumed  interest rates and compounding,  to
show the effect of the length of time,  interest  rate and/or tax deferral on an
investment  for Class A and B  shares;  (3)  illustrate  the  concepts  of asset
allocation  by use of  hypothetical  case studies  using various risk levels and
life cycles,  as well as illustrating the effect of various tax brackets and tax
deferrals on hypothetical  systematic  investing for Class A and Class B shares;
and (4)  performance  relative to the performance of other  investments  such as
stocks,  bonds,  closed end funds,  certificates of deposit,  as well as various
indices  such as the  Consumer  Price Index and indices  generated by lbbotson &
Associates and Chase Global Data and Research Products for Class A and B shares.

Average Annual Total Return on Net Amount Invested
Except for The AAL Money Market Fund, we may  advertise an average  annual total
return  calculation  for Class A and  Class B shares  for any  appropriate  time
period,  based upon the value of a net investment in the Fund for the class.  We
deduct the maximum sales charge for Class A shares and deduct the CDSC for Class
B shares.  We advertise  average  annual  total  return for net amount  invested
according to the following formula:

         P(1+T)^n = ERV

Where:

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

T =      Average annual total return for the class;

n =      Number of years;

ERV =    Ending  redeemable  value for the class (of the  hypothetical  $1,000
         payment)  at the end of the 1, 5 and 10  year  periods  (or  fractional
         portion thereof),  after deduction of all non-recurring charges for the
         class (CDSC for Class B shares),  assuming redemption at the end of the
         period;

^ =      raised to the power of.

       Annual Returns for the 1-Year, 5-Year, 10-Year and Since Inception
         Periods Ended April 30, 1999, for Class A Shares Based on Net
                                 Amount Invested

<TABLE>
<CAPTION>
<S>                      <C>                 <C>                 <C>                 <C>    
The AAL                  Total Return        Average Annual      Average Annual      Average Annual
Mutual Fund              for the             Return for the      Return for the      Return for the
and Inception            1-Year Period       5-Year Period       10-Year Period      Period Since
Date                                                                                 Inception for
                                                                                     Funds in existence for less
                                                                                     than 10 years

Small Cap Stock          ____%               N/A                  N/A                ____%
7/1/96

Mid Cap Stock            ____%               N/A                  N/A                ____%
6/30/96

International            ____%               N/A                  N/A                ____%
8/1/95

Capital Growth           ____%               ____%                ____%              ____%
7/16/87

Equity Income            ____%               N/A                  N/A                ____%
3/18/94

Balanced                 ____%               N/A                  N/A                ____%
12/29/97

High Yield Bond          ____%               N/A                  N/A                ____%
1/8/97

Municipal Bond           ____%               ____%                ____%              ____%
7/16/87

Bond                     ____%               ____%                ____%              ____%
</TABLE>


                Annual Returns for the 1-Year and Since Inception
                Periods Ended April 30, 1999, for Class B Shares
                         Based on Net Amount Invested*

The AAL Mutual Fund and       Total Return for the     Average Annual Return
Inception Date                1-Year Period            for the Period Since
Inception

Small Cap Stock                    ____%                      ____%
1/8/97

Mid Cap Stock                      ____%                      ____%
1/8/97

International                      ____%                      ____%
1/8/97

Capital Growth                     ____%                      ____%
1/8/97

Equity Income                      ____%                      ____%
1/8/97

Balanced                           ____%                      ____%
12/29/97

High Yield Bond                    ____%                      ____%
1/8/97

Municipal Bond                     ____%                      ____%
1/8/97

Bond                               ____%                      ____%
1/8/97

* There is no standardized  average annual return  information for the five-year
and 10-year  periods,  which is based on gross amount  invested,  available  for
Class B shares. Class B shares first became available to investors on January 8,
1997.

Performance  information  for Class A and B shares for the Funds may be compared
to various unmanaged indexes, such as Morgan Stanley's EAFE and World, Dow Jones
Industrial  and  Averages,  the S&P 500, S&P MidCap 400, S&P Small Cap or Lehman
Brothers  High Yield  Index,  Lehman  Brothers  Aggregate  or other  Lehman Bond
Indexes, as well as indices of similar mutual funds, and various foreign country
and  currency  indices.  The Funds may  include  in their  advertising  rankings
published by recognized  statistical services or publishers such as Morningstar,
Lipper Analytical Services,  Inc., Weisenberger Investment Companies Services or
rankings shares published by other comparable national services that rank mutual
funds.  They  also  may use  information  from  publications  such as  Barron's,
Business Week, The Economist,  Financial  World,  Forbes,  Fortune,  Kiplinger's
Personal  Finance,  Money,  Smart Money,  the Star,  The Wall Street  Journal or
Worth,  and  from  videotapes  of  television  shows  and  interviews  involving
investment  experts,  including  employees of the adviser and/or sub-adviser for
The AAL International Fund. Advertisements may depict performance graphically.


FINANCIAL STATEMENTS

The following audited financial statements and footnotes thereto for each of the
Funds are not yet available. The following financial statements will be filed as
an  Annual  Report  as  required  under  rule  30d-1  intended  to  be  made  in
June, 1999.

1.     Schedules of Investments as of April 30, 1999.
2.     Statement of Assets and Liabilities as of April 30, 1999.
3.     Statement of Operations for fiscal year ended April 30, 1999.
4.     Statement of Changes in Net Assets for fiscal year ended April 30, 1999.
5.     Notes to Financial Statements





PART C: OTHER INFORMATION
Class A and Class B Shares


Item 23.       Exhibits

Except as noted below, all required  exhibits have been previously filed and are
incorporated by reference from the Funds' Registration  Statement on Form N-1(A)
(File No.  33-12911),  as amended:  
(d)(i)    Investment  Advisory  Agreement,  as amended  
(d)(ii)   Sub-Advisory   Agreement   between  AAL  Capital   Management 
               Corporation and Oechsle  International  Advisers LLC 
(g)(i)    Global Custodial Services  Agreement between the Funds and  Citibank  
(h)(i)    Administrative  Services  Agreement with AAL
(h)(ii)   Shareholder  Maintenance  Agreement,  as  amended  
(n)       Financial  Data Schedule, to be filed by later Amendment 
(p)       Power of Attorney for Ed Smeds

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

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


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


Item 25.       Indemnification

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

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

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

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


Item 26.       Business and Other Connections of the Investment Adviser

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


Item 27.       Principal Underwriters

(a)  Not Applicable

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

<TABLE>
<CAPTION>
<S>                                      <C>                                    <C>    
Name and Principal                       Position and Offices                   Position and Offices
Business Address                         with AAL CMC                           with Fund
---------------------------------------- -------------------------------------- -----------------------------

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

Robert G. Same                           Asst. Secretary                        Secretary
222 W. College Ave.
Appleton, WI 54919

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



Item 28.       Location of Accounts and Records

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


Item 29.       Management Services

Not Applicable


Item 30.       Undertakings

Not Applicable


SIGNATURES

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

                                        THE AAL MUTUAL FUNDS

                                        By:  /s/ Ronald G. Anderson 
                                             ---------------------------------- 
                                             Ronald G. Anderson
                                             President

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

/s/ Ronald G. Anderson             President                     April 6, 1999
-------------------------------    (Principal Executive Officer)
Ronald G. Anderson                   




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


All of the Board of Trustees:

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

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


/s/ Ronald G. Anderson                                           April 6, 1999
-------------------------------
Ronald G. Anderson
Attorney-in-Fact