AAL VARIABLE PRODUCT SERIES FUND INC
N-1A/A, 1996-04-29
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<PAGE>   1
   
    

   
    As filed with the Securities and Exchange Commission on April 29, 1996.
    

                                             1933 Act Registration No. 33-82056 
   
                                             1940 Act Registration No. 811-8662
    
===============================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               __________________

                                   FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933                 / /

     Pre-Effective Amendment No.                                        / /    
                                    -----
   
     Post-Effective Amendment No.     2                                 /X/ 
                                    -----
    

                                     and/or

REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940                                          /X/

   
     Amendment No.     3  
                     -----
    

                        (Check appropriate box or boxes)

                               __________________

                     AAL VARIABLE PRODUCT SERIES FUND, INC.
               (Exact name of registrant as specified in charter)


                            4321 NORTH BALLARD ROAD
                        APPLETON, WISCONSIN  54919-0001
               (Address of Principal Executive Offices)(Zip Code)

      Registrant's Telephone Number, including Area Code:  (414) 734-5721

   

                              WOODROW E. ENO, ESQ.
    
   
            Senior Vice President, Secretary and General Counsel of
    
                         AID ASSOCIATION FOR LUTHERANS
                     AAL VARIABLE PRODUCT SERIES FUND, INC.
                            4321 NORTH BALLARD ROAD
                         APPLETON, WISCONSIN 54919-0001
                    (Name and Address of Agent for Service)

                                    Copy to:

                            CONRAD G. GOODKIND, ESQ.
                                Quarles & Brady
                           411 East Wisconsin Avenue
                           Milwaukee, Wisconsin 53202


<PAGE>   2
   
Approximate Date of Proposed Public Offerings:  Continuous
                                              --------------
    

It is proposed that this filing will become effective:

   
<TABLE>
                    <S>      <C>
                             immediately upon filing pursuant to paragraph (b):
                    -----                                                      
                      X      on May 1, 1996 pursuant to paragraph (b)
                    -----                                            
                             60 days after filing pursuant to paragraph (a)(1)
                    -----                                                     
                             on (date) pursuant to paragraph (a)(1)
                    -----                                          
                             75 days after filing pursuant to paragraph (a)(2)
                    -----                                                     
                             on (date) pursuant to paragraph (a)(2) of Rule 485.
                    -----                                                       
</TABLE>
    


   
If appropriate, check the following box:
    

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

                               __________________

   
Registrant has registered an indefinite number or amount of its securities of
each of its five series under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940.  Registrant filed a Rule 24f-2 Notice
on February 20, 1996.
    



<PAGE>   3

                    THE AAL VARIABLE PRODUCT SERIES FUND,
                         INC.  CROSS REFERENCE SHEET

   
Pursuant to Rule 495 under the Securities Act of 1933 indicating the location
of the information called for by the Items of Parts A and B of Form N-1A.
    

   
<TABLE>
<CAPTION>
        Item No.      Caption                                        Location
        --------      -------                                        --------
        <S>           <C>                                            <C>
        Part A
        1.            Cover Page                                     Cover Page
        2.            Synopsis                                       Introduction
        3.            Condensed Financial Information                Financial Highlights; Introduction
        4.            General Description of Registrant,             Cover Page; Introduction; Investment
                       Depositor, and Portfolio Companies            Objectives and Policies; Other 
                                                                     Investment and Risk Factors Regarding 
                                                                     the Portfolios
        5.            Management of the Fund                         Management of the Fund
        5A.           Management's Discussion of Fund                Not Applicable
                       Performance
        6.            Capital Stock and Other Securities             Description of Shares; Shareholder
                                                                     Inquiries; Dividends, Distributions and Taxes
        7.            Purchase of Securities Being Offered           Purchase and Redemption of Shares;
                                                                     Net Asset Value
        8.            Redemption or Repurchase                       Purchase and Redemption of Shares;
                                                                     Other Investment and Risk Factors
                                                                     Regarding The Portfolios--Repurchase
                                                                     Agreements and Borrowing
        9.            Pending Legal Proceedings                      Not applicable

        Part B
        10.           Cover Page                                     Cover Page
        11.           Table of Contents                              Table of Contents
        12.           General Information and History                Not Applicable
        13.           Investment Objectives and Policies             Introduction; Investment Techniques;
                                                                     Options and Futures; Investment
                                                                     Restrictions
        14.           Management of the Fund                         Management of the Fund--Board of
                                                                     Directors and Executive Officers
        15.           Control Persons and Principal                  Management of the Fund--Principal
                       Holders of Securities                         Holders of Securities
        16.           Investment Advisory and Other Services         Management of the Fund--The
                                                                     Investment Adviser; Management of the
                                                                     Fund--Custodian, Transfer Agent and
                                                                     Independent Auditors for the Fund
        17.           Brokerage Allocation and Other                 Portfolio Transactions
                       Practices
        18.           Capital Stock and Other Securities             Not applicable
        19.           Purchase, Redemption and Pricing of            Purchases and Redemptions; Pricing
                       Securities Being Offered                      Considerations
        20.           Tax Status                                     Dividends and Distributions
        21.           Underwriters                                   Not applicable
        22.           Calculation of Performance Data                Calculation of Yield and Total
                                                                     Return
        23.           Financial Statements                           Financial Statements
</TABLE>
    

        Part C 
        Information required to be included in Part C is set forth under the
        appropriate Item, so numbered in Part C to this Registration Statement.





                                      -i-
<PAGE>   4
  
  
  
                          [AAL LOGO]                                PROSPECTUS
                       AID ASSOCIATION                             May 1, 1996
                        FOR LUTHERANS
                           THE AAL                               
                       VARIABLE ANNUITY                           AAL VARIABLE
                         PROVIDES YOU                        ANNUITY ACCOUNT 1
                     WITH THESE BENEFITS                               
                                                          --------------------
                         Tax-Deferred        
                      Growth of Earnings                           AAL VARIABLE 
                                                      PRODUCT SERIES FUND, INC. 
                      Convenient Premium                                        
                       Payment Options                 The AAL Variable Product 
                                                         Money Market Portfolio 
                         A Variety of                                           
                      Investment Options               The AAL Variable Product 
                                                                 Bond Portfolio 
                     Flexible Withdrawal                                        
                   and Distribution Options            The AAL Variable Product 
                                                             Balanced Portfolio 
                   Death Benefit Guarantee                                      
                        for Your Heirs                 The AAL Variable Product 
                                                  Large Company Stock Portfolio 
                                                                                
                                                       The AAL Variable Product 
                                                  Small Company Stock Portfolio 
                                                                                
                                                                    -----------
                                                    [AAL VARIABLE ANNUITY LOGO]
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
                                                 
<PAGE>   5




                          [AAL VARIABLE ANNUITY LOGO]
                     AAL VARIABLE PRODUCT SERIES FUND, INC.
                            4321 NORTH BALLARD ROAD                 PROSPECTUS
                            APPLETON, WI 54919-0007          DATED MAY 1, 1996
                                (414) 734-5721

The AAL Variable Product Series Fund, Inc. (the "Fund") is a corporation
organized on June 14, 1994, under the laws of the State of Maryland.  It is a
registered, diversified, open-end investment company.

The Fund presently consists of five separate investment portfolios
("Portfolios"). The Portfolios' names and objectives are as follows:

THE AAL VARIABLE PRODUCT MONEY MARKET PORTFOLIO seeks to provide maximum
current income to the extent consistent with liquidity and a stable net asset
value of $1.00 per share by investing in a diversified portfolio of
high-quality, short-term money market instruments.

THE AAL VARIABLE PRODUCT BOND PORTFOLIO seeks to achieve investment results
that approximate the total return of the Lehman Brothers Aggregate Bond Index
by investing primarily in bonds and other debt securities included in the
Index.

THE AAL VARIABLE PRODUCT BALANCED PORTFOLIO seeks to achieve investment results
that reflect investment in common stocks, bonds and money market instruments,
each of which will be selected consistent with the investment policies of the
AAL Variable Product Large Company Stock Portfolio, Bond Portfolio and Money
Market Portfolio, respectively.

THE AAL VARIABLE PRODUCT LARGE COMPANY STOCK PORTFOLIO seeks to achieve
investment results that approximate the performance of the Standard & Poor's
500 Composite Stock Price Index by investing primarily in common stocks
included in the Index.

THE AAL VARIABLE PRODUCT SMALL COMPANY STOCK PORTFOLIO seeks to achieve
investment results that approximate the performance of the Wilshire Small Cap
Index by investing primarily in common stocks included in the Index.

This prospectus provides purchasers of variable annuity certificates with basic
information they should know before allocating premium payments to the Fund.
The purchaser should read it and keep it for future reference. A Statement of
Additional Information, dated May 1, 1996 ("SAI"), containing additional
information about the Fund has been filed with the Securities and Exchange
Commission and is incorporated by reference into this prospectus in its
entirety. A copy of the SAI may be obtained without charge by calling or
writing the Fund at the AAL Variable Annuity Service Center, P.O. Box 419108,
Kansas City, Missouri, 64141-6108 or telephone number 1-800-778-1762.

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

WITH RESPECT TO THE AAL VARIABLE PRODUCT MONEY MARKET PORTFOLIO, AN INVESTMENT
IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.

                                                                 FUND PROSPECTUS
                                       1
<PAGE>   6
===============================================================================
                    A A L   V A R I A B L E   A N N U I T Y

                              TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                         Page
<S>                                                                       <C>
INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . .        3
                                                             
FINANCIAL HIGHLIGHTS  . . . . . . . . . . . . . . . . . . . . . . .        3
                                                             
INVESTMENT OBJECTIVES AND POLICIES  . . . . . . . . . . . . . . . .        5
   The AAL Variable Product Money Market Portfolio  . . . . . . . .        5
   The AAL Variable Product Bond Portfolio  . . . . . . . . . . . .        6
   The AAL Variable Product Balanced Portfolio  . . . . . . . . . .        7
   The AAL Variable Product Large Company Stock Portfolio . . . . .        8
   The AAL Variable Product Small Company Stock Portfolio . . . . .        9
                                                             
OTHER INVESTMENT AND RISK FACTORS REGARDING THE PORTFOLIOS  . . . .       10
                                                             
MANAGEMENT OF THE FUND  . . . . . . . . . . . . . . . . . . . . . .       12
                                                             
PURCHASE AND REDEMPTION OF SHARES . . . . . . . . . . . . . . . . .       14
                                                             
NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . .       14
                                                             
DIVIDENDS, DISTRIBUTIONS AND TAXES  . . . . . . . . . . . . . . . .       14
                                                             
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . .       15
                                                             
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . .       17
                                                             
CUSTODIAN, TRANSFER AGENT AND INDEPENDENT AUDITORS  . . . . . . . .       18
                                                             
SHAREHOLDER INQUIRIES . . . . . . . . . . . . . . . . . . . . . . .       18
</TABLE>

                                                                 FUND PROSPECTUS
                                       2
<PAGE>   7
===============================================================================
                   A A L   V A R I A B L E   A N N U I T Y          
                                                                       [AAL
                                                                        VARIABLE
                                                                        ANNUITY
                                                                        LOGO]


INTRODUCTION

Shares of the Fund are currently sold only to the AAL Variable Annuity Account
I (the "Variable Account") to fund benefits under certificates of membership
and flexible premium deferred variable annuity (the "Certificates") issued by
Aid Association for Lutherans ("AAL") and the Variable Account. The rights of
the Variable Account as shareholder of the Fund should be distinguished from
the rights of the Certificate Owners, which are described in the Certificates.
A prospectus with respect to the variable annuity Certificates accompanies this
prospectus and describes those rights in detail.

Certificates are available as a benefit to those eligible for membership in AAL
and to employees of AAL and its subsidiaries and affiliated companies who
reside in Wisconsin. AAL is a fraternal benefit society incorporated under the
laws of the state of Wisconsin.

Each Certificate Owner allocates variable annuity premiums relating to his or
her Certificate among five Subaccounts of the Variable Account or to a Fixed
Account. Fixed Account premiums will be invested by AAL as part of the general
account assets of AAL. The premiums allocated to the Subaccounts will be
invested in corresponding Portfolios of the Fund. The prospectus for the
Certificate describes the relationship between changes in the value of shares
of each Fund Portfolio and changes in the value or benefits payable under the
Certificate.

Performance results and financial statements of the Fund are included in the
Fund's SAI. Performance information is also provided in this prospectus for the
Standard & Poor's 500 Composite Stock Price Index, the Wilshire Small Cap Index
and the Lehman Brothers Aggregate Bond Index, since certain of the Portfolios
seek to achieve investment results that approximate the performance of these
indices. See "Performance Information." While this information may be helpful
in evaluating a Portfolio and its investment objectives, past performance
should not be regarded as a representation of future results of the Portfolios.

FINANCIAL HIGHLIGHTS

Set out below are the Financial Highlights for each Portfolio of the Fund
expressed in terms of one share outstanding for the period from June 14, 1995
(commencement of operations) through December 31, 1995. The information
contained in the Financial Highlights has been audited by Ernst & Young LLP,
the Fund's independent auditors, whose unqualified report thereon is contained
in the Fund's SAI. The Financial Highlights should be read in conjunction with
the Fund's audited financial statements, and notes thereto, which are contained
in the Fund's SAI. The SAI may be obtained, without charge, as indicated on
page 1 of this prospectus. Additional information about the performance of the
Fund and its Portfolios has been included in the Fund's annual report to
shareholders, which may also be obtained upon request, without charge. The
Financial Highlights presented herein are not necessarily indicative of future
results.

                                                                 FUND PROSPECTUS
                                       3
<PAGE>   8
===============================================================================
                   A A L   V A R I A B L E   A N N U I T Y          


FINANCIAL HIGHLIGHTS

Per share operating performance for a share outstanding throughout the period
from June 14, 1995 (commencement of operations) through December 31, 1995 is as
follows:


<TABLE>
<CAPTION>
                                                                                           LARGE          SMALL
                                                MONEY                                     COMPANY        COMPANY
                                                MARKET        BOND         BALANCED        STOCK          STOCK
                                              PORTFOLIO     PORTFOLIO     PORTFOLIO      PORTFOLIO      PORTFOLIO
                                              ---------     ---------     ---------      ---------      ---------
<S>                                           <C>          <C>           <C>            <C>            <C>
NET ASSET VALUE:
BEGINNING OF PERIOD . . . . . . . . . . .       $1.00        $10.00         $10.00        $10.00          $10.00
INCOME FROM INVESTMENT
OPERATIONS:
  Net investment income   . . . . . . . .        0.03         0.34           0.22           0.11           0.08
  Net realized and unrealized gains
     (losses) on investments  . . . . . .        0.00         0.23           0.92           1.52           0.99
  TOTAL FROM INVESTMENT
  OPERATIONS  . . . . . . . . . . . . . .        0.03         0.57           1.14           1.63           1.07
LESS DISTRIBUTIONS:
  From net investment income  . . . . . .       (0.03)       (0.34)         (0.21)        (0.11)          (0.07)
  From net realized capital gains   . . .        0.00         0.00          (0.01)        (0.01)          (0.01)
  TOTAL DISTRIBUTIONS   . . . . . . . . .       (0.03)       (0.34)         (0.22)        (0.12)          (0.08)
Net increase (decrease) in net
   asset value  . . . . . . . . . . . . .        0.00         0.23           0.92           1.51           0.99
NET ASSET VALUE: END OF PERIOD  . . . . .       $1.00        $10.23         $10.92        $11.51          $10.99
TOTAL RETURN (a)  . . . . . . . . . . . .       5.58%         5.80%         11.46%        16.39%          10.70%
NET ASSETS, END OF PERIOD . . . . . . . .     $7,044,642   $9,362,832    $28,758,722    $23,138,378    $15,665,864
RATIOS/SUPPLEMENTAL DATA:
Ratio of expenses to average
  net assets (b) (c)  . . . . . . . . . .       0.35%         0.35%         0.35%          0.35%          0.35%
Ratio of net investment income
   to average net assets (b) (c)  . . . .       5.71%         6.54%         4.07%          2.27%          1.43%
Portfolio turnover rate . . . . . . . . .        N/A          6.51%         2.29%          0.47%          2.85%
Average commission rate paid (d)  . . . .        N/A           N/A          $0.04          $0.04          $0.04
</TABLE>

- --------------
(a)     Total return does not reflect expenses that apply at the Variable
        Account level.  Inclusion of these expenses would reduce the total
        return for the period shown.  The Bond, Balanced, Large Company Stock,
        and Small Company Stock Portfolios are reported as period-to-date
        cumulative total returns, while the Money Market Portfolio is reported
        on an annualized total return basis.

(b)     Calculated on an annualized basis.

(c)     Without reimbursements, the above ratios would have been, on an
        annualized basis, for the Money Market, Bond, Balanced, Large Company
        Stock, and Small Company Stock Portfolios, respectively:

<TABLE>
        <S>                                            <C>           <C>           <C>           <C>            <C>
        Ratio of expenses to average net assets:       1.40%         1.25%         1.15%         1.26%          1.37%
        Ratio of net investment income to
        average net assets:                            4.66%         5.64%         3.27%         1.37%          0.41%
</TABLE>

(d)     Amounts shown reflect the average brokerage commission paid on each
        share of stock traded by the Portfolio during the period presented.

                                                                 FUND PROSPECTUS
                                       4
<PAGE>   9
===============================================================================
                   A A L   V A R I A B L E   A N N U I T Y          
                                                                       [AAL     
                                                                        VARIABLE
                                                                        ANNUITY 
                                                                        LOGO]   
INVESTMENT OBJECTIVES AND POLICIES

The investment objective of each of the Portfolios is a fundamental policy
which cannot be changed without the vote of a majority of the outstanding
shares of a Portfolio. Except as otherwise indicated in this prospectus or in
the SAI, the investment policies of each Portfolio may be changed from time to
time by the Board of Directors of the Fund.

The variable annuity premiums from each Certificate Owner are invested in the
Variable Account in combination with those of many other Certificate Owners.
The Portfolios provide diversification by investing the Variable Account's
assets in the securities of different companies, government agencies, and other
types of debt securities. The Portfolios furnish experienced management to
select and monitor these investments.  Each Certificate Owner has an indirect
interest in each of the securities held by each Portfolio he or she selects.
Certificate Owners are not "shareholders" of the Fund. Rather, the Variable
Account of AAL is the shareholder, although it will generally pass through
voting rights to the Certificate Owners.

Because the Portfolios invest in securities such as stocks and bonds, the
yields and values of which fluctuate with market conditions, the value of
shares in the Portfolios will rise and fall over time resulting in increases
and decreases in the value of the Owner's Certificate.  AAL (the "Adviser") is
responsible for evaluating and selecting the securities held by the Portfolios
and will use its professional expertise and experience to try to meet the
Portfolios' objectives, although there can be no assurance that the Portfolios'
objectives will be attained.

THE AAL VARIABLE PRODUCT MONEY MARKET PORTFOLIO

OBJECTIVE: This Portfolio seeks to provide maximum current income, to the
extent consistent with liquidity and a stable net asset value of $1.00 per
share, by investing in a diversified portfolio of high quality, short-term
money market instruments.  

POLICIES: The Portfolio invests in a diversified portfolio of high-quality, 
short-term money market instruments, including:

(1)      Obligations issued or guaranteed by the U.S. Government, its agencies
         or instrumentalities, or shares of money market mutual funds that
         limit their investments to the foregoing securities. As to securities
         issued by U.S. Government agencies and instrumentalities, the degree
         of government support for such securities may vary;

(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. Issuing banks must have total
         assets at the time of purchase in excess of $1 billion, and be members
         of the Federal Deposit Insurance Corporation;

(3)      Commercial paper which at the date of investment is rated (or
         guaranteed by a company whose commercial paper is rated) in one of the
         two highest categories by a nationally recognized statistical rating
         organization, or, if unrated, issued by a corporation with outstanding
         short-term debt which has an equivalent or better rating at the time
         of investment;

(4)      Corporate obligations, including variable rate master notes, which, at
         the date of investment, are rated in one of the two highest categories
         by a nationally recognized statistical rating organization, or, if
         unrated, issued by a corporation with outstanding short-term debt
         which has an equivalent or better rating at the time of investment.
         Variable rate master notes are unsecured obligations, redeemable upon
         notice, that permit investment of fluctuating amounts, at varying
         rates of interest, pursuant to direct arrangements with the issuer;

(5)      Short-term Eurodollar and Yankee bank obligations. Eurodollar bank
         obligations are dollar-denominated certificates of deposit or time
         deposits issued outside the U.S. capital markets by foreign branches
         of U.S. banks or by foreign banks. Yankee bank obligations are
         dollar-denominated obligations issued in the U.S. capital markets by 
         foreign banks; and

(6)      Repurchase agreements that are collateralized by the securities listed
         in (1) and (2) above.

All of the Portfolio's investments will mature in 397 days or less and the
Portfolio will maintain a dollar-weighted average portfolio maturity of not
more than 90 days. In some instances, the Portfolio may purchase variable rate
securities with actual maturities of 397 days or more, but only under
conditions established by Securities and Exchange Commission rules that permit
such securities to be considered to have maturities of less than 397 days.



                                                                 FUND PROSPECTUS



                                       5

<PAGE>   10
===============================================================================
                   A A L   V A R I A B L E   A N N U I T Y          


The yield on these securities varies in relation to changes in specific money
market rates, such as the "Fed Funds Rate." These changes are reflected in
adjustments to the yields of the variable rate securities, and different
securities may have different adjustment rates.

A description of the ratings provided by certain nationally recognized
statistical rating organizations (Moody's, Duff & Phelps and S&P) is included
in "APPENDIX: SECURITIES RATINGS" in the SAI.

INVESTMENT RISKS: While the value of securities held by the AAL Variable
Product Money Market Portfolio may be less sensitive to interest rate changes,
shareholders should recognize that in periods of declining interest rates, this
Portfolio's yield may tend to be somewhat higher than prevailing money market
rates, and in periods of rising interest rates, this Portfolio's yield may tend
to be somewhat lower. Also, when interest rates are falling, the inflow of net
new money to this Portfolio from the continuous sales of its shares may be
invested in portfolio instruments producing lower yields than the balance of
its portfolio investments, thereby somewhat reducing its yield. In periods of
rising interest rates, the opposite may be true. Also, to the extent that this
Portfolio invests in Eurodollar and Yankee bank obligations, it may be subject
to risks of the type discussed under "OTHER INVESTMENT AND RISK FACTORS
REGARDING THE PORTFOLIOS--Foreign Securities." Finally, the Portfolio invests in
portfolio instruments of shorter durations in order to provide the flexibility
to redeem shares that the Variable Account purchases, pursuant to certain "free
look" provisions described in the accompanying prospectus relating to the
Certificates.

THE AAL VARIABLE PRODUCT BOND PORTFOLIO

OBJECTIVE: This Portfolio seeks to achieve investment results that approximate
the total return of the Lehman Brothers Aggregate Bond Index (the "Lehman Bond
Index") by investing primarily in bonds and other debt securities included in
the Index.

THE LEHMAN BOND INDEX:
This Index is a broad-based bond index that encompasses four major classes of
investment grade 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. As of December 31,
1995, these four classes represented the following proportions of the Index's
total market value:

                           LEHMAN BROTHERS AGGREGATE
                             BOND INDEX STATISTICS
                            As of December 31, 1995
<TABLE>
<CAPTION>
                                                                 SECURITIES AS A
                                                                PERCENT OF TOTAL
<S>                                                               <C>
U.S. Treasury & Government Agency                                  52.8%
Corporate                                                          17.5%
Mortgage-Backed                                                    28.4%
Asset-Backed                                                        1.3%
Total                                                             100.0%
</TABLE>

As of December 31, 1995, the effective average weighted maturity of the Index
was 8.5 years.

Lehman Brothers reserves the right to make changes to the Lehman Bond Index at
any time, and eligible investments for the Bond Portfolio will include any
additional asset classes included in the Lehman Bond Index.

POLICIES: The Portfolio will not invest in all of the individual issues that
comprise the Lehman Bond Index because of the large number of securities
(approximately 5,300) involved. Instead, the Portfolio will hold a
representative sample of fixed income and mortgage-backed securities included
in the Lehman Bond Index. The Portfolio will invest 80% or more of its assets
in securities included in the Lehman Bond Index. The securities included in the
Lehman Bond Index generally meet the following criteria, as defined by Lehman
Brothers: an effective maturity of not less than one year; an outstanding
market value of at least $100 million; and investment-grade quality (i.e.,
rated a minimum of Baa3 by Moody's Investors Service, Inc. or BBB- by Standard
& Poor's or BBB- by Duff & Phelps, Inc.). A description of the ratings provided
by Moody's, S&P and Duff & Phelps is included in "APPENDIX: SECURITIES RATINGS"
in the SAI.  

The Portfolio may purchase mortgage-backed securities issued by
the Government National Mortgage Association ("GNMA"), the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, and the
Federal Housing Authority. GNMA securities are guaranteed by the U.S.
Government as to the timely payment of principal and interest; securities from
other government-sponsored entities are generally not secured by an explicit
pledge of the U.S. Government. The Portfolio may also invest in conventional
mortgage-backed securities, which are packaged by private corporations and are
not guaranteed by the U.S.

                                                                 FUND PROSPECTUS
                                       6
<PAGE>   11
===============================================================================
                   A A L   V A R I A B L E   A N N U I T Y          
                                                                       [AAL     
                                                                        VARIABLE
                                                                        ANNUITY 
                                                                        LOGO]   


Government. The Portfolio will invest in the securities of a particular agency
only when the investment adviser is satisfied that the credit risk is minimal.
Mortgage-backed securities that are guaranteed by the U.S. Government are
guaranteed only as to the timely payment of principal and interest. The market
value of such securities is not guaranteed and may fluctuate. See "OTHER
INVESTMENT AND RISK FACTORS REGARDING THE PORTFOLIOS--Mortgage-Backed
Securities.

The Portfolio will, to the extent feasible, remain fully invested. The
Portfolio's ability to match the performance of the Lehman Bond Index will be
affected to some extent by the size and timing of cash flows into and out of
the Portfolio. The Portfolio will be managed to reduce such effects. Portfolio
turnover is expected to be less than 50% per year. Although the Portfolio will
attempt to achieve a high correlation with the target Lehman Bond Index, it
cannot guarantee that a high correlation will be achieved. Other factors that
will affect the Portfolio's ability to approximate the target index return are:
the size of the bid-ask spread associated with Portfolio investments and
Portfolio management expenses incurred. A portion of the assets, normally
expected to be less than 5% of the Portfolio's assets, may at times be invested
in money market investments of the types described above under "The AAL
Variable Product Money Market Portfolio." No securities, other than futures
contracts, will be purchased on margin.

INVESTMENT RISKS: By the nature of securities markets, holders of bonds bear
certain risks. Bond prices in general may decline over short or even extended
periods of time. Yearly rates of return may vary widely and can include
negative results. The Portfolio will not adopt a temporary or defensive
investment posture in times of generally declining market conditions and
investors in the Portfolio, therefore, will bear the risk of such market
conditions.

In order to provide additional revenue and to reduce the effect of price
fluctuations in the Portfolio's securities, the Portfolio may write (sell)
covered call options. As the writer of a covered call option, the Portfolio may
forego, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call option. Further information on
futures and options appears under "OTHER INVESTMENT AND RISK FACTORS REGARDING
THE PORTFOLIOS--Financial Futures Contracts and Options" in this prospectus and
additional information on futures, foreign securities, and covered call
options, including the risks thereof, is set forth in "OPTIONS AND FUTURES" in
the SAI.

As part of its effort to approximate the investment performance of the Lehman
Bond Index, the AAL Variable Product Bond Portfolio will invest in
mortgage-backed securities. Mortgage-backed securities represent an interest in
an underlying pool of mortgages. Unlike ordinary fixed income securities, which
generally pay a fixed rate of interest and return principal at predetermined
intervals or upon maturity, mortgage-backed securities repay both interest
income and principal as part of their periodic payments. Because the mortgages
underlying mortgage-backed certificates can be prepaid at any time by
homeowners or corporate borrowers, mortgage-backed securities give rise to
certain unique "prepayment" risks. See "OTHER INVESTMENT AND RISK FACTORS
REGARDING THE PORTFOLIOS--Mortgage-Backed Securities."

The Bond Portfolio is also subject to the risk of increasing levels of interest
rates. See "OTHER INVESTMENT AND RISK FACTORS REGARDING THE
PORTFOLIOS--Interest Rate Fluctuations."

THE AAL VARIABLE PRODUCT BALANCED PORTFOLIO

OBJECTIVE: This Portfolio seeks to achieve investment results that reflect
investment in common stocks, bonds and money market instruments, each of which
will be selected consistent with the investment policies of the AAL Variable
Product Large Company Stock Portfolio, Bond Portfolio and Money Market
Portfolio, respectively.

POLICIES: The AAL Variable Product Balanced Portfolio will be invested among
the following three asset classes:

(1)      Common stocks, including the securities in which the AAL Variable
         Product Large Company Stock Portfolio (discussed above) may invest;

(2)      Bonds and other debt securities with maturities generally exceeding
         one year, including the securities in which the AAL Variable Product
         Bond Portfolio (discussed above) 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 Variable Product Money Market Portfolio (discussed above) may
         invest.

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The AAL Variable Product Balanced Portfolio will periodically review and may
adjust the mix of investments among the three asset classes to capitalize on
perceived variations in return potential produced by the interaction of
changing financial markets and economic conditions. Under normal market
conditions, it is reasonable to expect that as a percentage of the portfolio,
common stocks would represent 50% to 60%, fixed income securities would
represent 30% to 40%, and money market instruments would represent 0% to 20%.
However, this Portfolio will at all times maintain an investment mix within the
following ranges: 35% to 75% common stocks; 25% to 50% in fixed-income
securities; and 0% to 40% in money market instruments. Changes in the
investment mix may occur several times within a year or over several years
depending upon market and economic conditions. It is expected that the
Portfolio's annual turnover rate will not exceed 50% within the common stock
and fixed income sectors.

The Balanced Portfolio's investment policies for each of the three asset
classes listed above are substantially identical to those discussed herein for
the AAL Variable Product Large Company Stock Portfolio, the AAL Variable
Product Bond Portfolio, and the AAL Variable Product Money Market Portfolio,
respectively. Investment decisions for the Balanced Portfolio are made by a
committee of AAL investment personnel.

INVESTMENT RISKS: The Balanced Portfolio is subject to both stock market and
interest rate (bond) risk because it invests in both stocks and bonds.
Fluctuating stock prices are expected to have a significant effect on the
Portfolio's share price, as the Portfolio invests 35% to 75% of its assets in
common stocks. Bond prices are affected primarily by changes in interest rates
and are expected to have a lesser influence on net asset value. In the past,
the stock and bond markets have, from time to time, fluctuated independently of
one another. As a result, with its mix of stocks and bonds, the Balanced
Portfolio is likely to entail less investment risk--and a potentially lower
return--than a portfolio investing exclusively in common stocks. Nevertheless,
the Balanced Portfolio will be subject in some degree to the same risks as are
the AAL Variable Product Large Company Stock, Bond and Money Market Portfolios.
For a discussion of these risks, see "OTHER INVESTMENT AND RISK FACTORS
REGARDING THE PORTFOLIOS" in this prospectus.

THE AAL VARIABLE PRODUCT LARGE COMPANY STOCK PORTFOLIO

OBJECTIVE: This Portfolio seeks to achieve investment results that approximate
the performance of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index") by investing primarily in common stocks included in the Index.

THE S&P 500 INDEX:
This Index is a standard used to obtain a broad index of larger capitalization
stocks. It is composed of 500 common stocks representing more than 70% of the
total market value of all U.S. publicly traded common stocks. The Index is
constructed by Standard & Poor's Corporation ("Standard & Poor's" or "S&P"),
which chooses stocks on the basis of market values and industry
diversification. Most of the largest 500 companies listed on U.S. stock
exchanges are included in the Index. Additional stocks that are not among the
500 largest stocks, by market value, are included in the S&P 500 Index for
diversification purposes. The Index is capitalization weighted--that is, stocks
with a larger capitalization (shares outstanding times current price) have a
greater weight in the Index. S&P periodically makes additions and deletions to
the Index. Selection of a stock for inclusion in the S&P 500 Index in no way
implies an opinion by S&P as to its attractiveness as an investment. Standard &
Poor's only relationship to the Portfolio is the licensing of the Standard &
Poor's marks and the S&P 500 Index, which is determined, composed and
calculated by Standard & Poor's without regard to the AAL Variable Product
Large Company Stock Portfolio. "Standard & Poor's(R)," "S&P(R)," "S&P 500(R),"
"Standard & Poor's 500," and "500" are trademarks of McGraw-Hill, Inc. and have
been licensed for use by AAL and the Fund. The Fund and the Certificates are
not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard &
Poor's makes no representation regarding the advisability of investing in the
Fund or the Certificates.

POLICIES: Stocks will be held approximately in proportion to their weight in
the Index. The Portfolio will seek to hold as high a percentage of the 500
issues in the Index as is practicable. The Large Company Stock Portfolio will
not be managed in the traditional sense using economic, financial and market
analysis. Stock selection in the Portfolio will be computer driven with the
criterion for selection being the achievement of high correlation with the
performance of the S&P 500 Index. Portfolio turnover is expected to be less
than 50% per year. As

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changes are made to the Index during the year, they will be reflected in the
Portfolio as soon as is practicable.

The Portfolio will, to the extent feasible, remain fully invested. The
Portfolio's ability to match the performance of the S&P 500 Index will be
affected to some extent by the size and timing of cash flows into and out of
the Portfolio. The Portfolio will be managed to reduce such effects. Although
the Portfolio will attempt to achieve a high correlation with the target S&P
500 Index, it cannot guarantee that a high correlation will be achieved. Other
factors that will affect the Portfolio's ability to approximate the target
index return are: commission expenses, other transaction fees, the size of the
bid-ask spread associated with stocks that are traded in the over-the-counter
market, and Portfolio management expenses incurred.  A portion of the assets,
normally expected to be less than 3% of the Portfolio's assets, may at times be
invested in money market investments of the types described above under "The
AAL Variable Product Money Market Portfolio." The Portfolio may invest up to
20% of its net assets, valued at the time of purchase, in securities of foreign
issuers, including American Depositary Receipts ("ADRs"), that are included in
the S&P 500 Index. No securities, other than futures contracts, will be
purchased on margin.

INVESTMENT RISKS: By the nature of securities markets, holders of stocks bear
certain risks. Stock prices in general may decline over short or even extended
periods of time. Yearly rates of return may vary widely and can include
negative results. The Portfolio will not adopt a temporary or defensive
investment posture in times of generally declining market conditions and
investors in the Portfolio, therefore, will bear the risk of such market
conditions.

The Portfolio may invest in foreign securities, but only if such securities are
listed and traded on a U.S. national securities exchange.  Investments in
foreign securities involve risks discussed under "Foreign Securities," below.
The Portfolio may also invest in Standard & Poor's Depositary Receipts
("SPDRs"). In order to provide additional revenue and to reduce the effect of
price fluctuations in the Portfolio's securities, the Portfolio may write
(sell) covered call options. As the writer of a covered call option, the
Portfolio may forego, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call option above
the sum of the premium and the exercise price of the call option.

Further information on futures and options appears under "OTHER INVESTMENT AND
RISK FACTORS REGARDING THE PORTFOLIOS--Financial Futures Contracts and Options"
in this prospectus and additional information on futures, foreign securities,
SPDRs, and options, including the risks thereof, is set forth in the SAI.

THE AAL VARIABLE PRODUCT SMALL COMPANY STOCK PORTFOLIO

OBJECTIVE: This Portfolio seeks to achieve investment results that approximate
the performance of the Wilshire Small Cap Index by investing primarily in
common stocks included in the Index.

THE WILSHIRE SMALL CAP INDEX:
This Index is a creation of Wilshire Associates Incorporated, the Pacific Stock
Exchange and the Chicago Board of Trade. The Index is comprised of 250 stocks
weighted by their market capitalization and its component stocks are selected
according to liquidity, industry sector and market capitalization parameters.
It is a custom-designed index intended to represent the performance attributes
of the smaller capitalization segment of the U.S. equity markets.

POLICIES: Stocks will be held approximately in proportion to their weight in
the Index. The Portfolio will seek to hold as high a percentage of the issues
in the Index as is practicable. The Small Company Stock Portfolio will not be
managed in the traditional sense using economic, financial and market analysis.
Stock selection in the Portfolio will be computer driven with the criterion for
selection being the achievement of high correlation with the performance of the
Wilshire Small Cap Index. Portfolio turnover is expected to be less than 50%
per year. As changes are made to the Index during the year, they will be
reflected in the Portfolio as soon as is practicable.

The Portfolio will, to the extent feasible, remain fully invested. The
Portfolio's ability to match the performance of the Wilshire Small Cap Index
will be affected to some extent by the size and timing of cash flows into and
out of the Portfolio. The Portfolio will be managed to reduce such effects.
Although the Portfolio will attempt to achieve a high correlation with the
target Wilshire Small Cap Index, it cannot guarantee that a high correlation
will be achieved. Other factors that will affect the Portfolio's ability to
approximate the target index return are: commission expenses, other transaction
fees, the size of the bid-ask spread associated with stocks that are traded in
the over-the- counter market, and Portfolio management
                                                                 FUND PROSPECTUS
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expenses incurred. A portion of the assets, normally expected to be less than
3% of the Portfolio's assets, may at times be invested in money market
investments of the types described above under "The AAL Variable Product Money
Market Portfolio." The Portfolio may invest up to 20% of its net assets, valued
at the time of purchase, in securities of foreign issuers, including ADRs, that
are included in the Wilshire Small Cap Index. No securities, other than futures
contracts, will be purchased on margin.

INVESTMENT RISKS: Historically, small capitalization stocks, which constitute
the Portfolio's primary investments, have been more volatile in price than the
larger capitalization stocks included in the S&P 500 Index. Among the reasons
for the greater price volatility of these small company stocks are the less
certain growth prospects of smaller firms, the lower degree of liquidity in the
markets for such stocks, and the greater sensitivity of small companies to
changing economic conditions. In addition, small company stocks may, to a
degree, fluctuate independently of larger company stocks. Therefore, investment
return may be more volatile and significantly different from that achieved with
larger stock indices such as the S&P 500 Index or the Dow Jones Industrial
Average. The Portfolio will not adopt a temporary or defensive investment
posture in times of generally declining market conditions and investors in the
Portfolio, therefore, will bear the risk of such market conditions.

The Portfolio may invest in foreign securities, but only if such securities are
listed and traded on a U.S. national securities exchange.  Investments in
foreign securities involve risks that are discussed under "OTHER INVESTMENT AND
RISK FACTORS REGARDING THE PORTFOLIOS--Foreign Securities," below. In order to
provide additional revenue and to reduce the effect of price fluctuations in
the Portfolio's securities, the Portfolio may write (sell) covered call
options. As the writer of a covered call option, the Portfolio may forego,
during the option's life, the opportunity to profit from increases in the
market value of the security covering the call option above the sum of the
premium and the exercise price of the call option.

Further information on futures and options appears under "OTHER INVESTMENT AND
RISK FACTORS REGARDING THE PORTFOLIOS--Financial Futures Contracts and Options"
in this prospectus and additional information on futures, foreign securities,
the Wilshire Small Cap. Index, and options, including the risks thereof, is set
forth in the SAI.

OTHER INVESTMENT AND RISK FACTORS REGARDING THE PORTFOLIOS

INTEREST RATE FLUCTUATIONS
With respect to the AAL Variable Product Bond Portfolio and, to a lesser
extent, the AAL Variable Product Balanced Portfolio, it can be expected that a
decline in prevailing levels of interest rates generally will increase the
value of securities held in the Portfolios and an increase in rates generally
will reduce the value of these securities. As a result, interest rate
fluctuations will affect these Portfolios' net asset values. Because yields on
the securities available for purchase by the Portfolios will vary over time, no
specific yield on shares of the Portfolios can be assured.

MORTGAGE-BACKED SECURITIES
Certain mortgage-backed securities purchased by the AAL Variable Product Bond
Portfolio and the bond component of the AAL Variable Product Balanced Portfolio
provide for a right to prepay and for amortized payments of both interest and
principal over the term of the security.  Prepayments are particularly likely
during times of declining interest rates.  The yield on the original investment
in mortgage-backed securities applies only to the unpaid principal balance, as
the Portfolios must reinvest the principal payments at prevailing market
interest rates which may be higher or lower than the rate on the original
security. In times of falling interest rates, the yield is likely to be lower
than that received from the original investment. If these instruments are
purchased at a premium in the market, and if prepayment occurs, such
prepayments will be at par or stated value, which will result in reduced return
on such transactions. Finally, the risk of prepayment tends to cause the value
of a Portfolio's investments in mortgage-backed securities to increase less in
times of decreasing interest rates and decline more in times of increasing
interest rates. On the other hand, these securities tend to have a higher yield
than do securities with no prepayment feature.

FOREIGN SECURITIES
Holding securities of foreign issuers, including ADRs, entails special risks.
Non-U.S. dollar-denominated foreign securities may be affected favorably or
unfavorably by changes in currency exchange rates and exchange control
regulations (including currency blockage) and a Portfolio may incur costs in
connection with conversions between various currencies. Foreign securities may
also involve risks due to changes in the political or economic

                                                                 FUND PROSPECTUS

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conditions of such foreign countries, the possible expropriation or
nationalization of assets, possible difficulty in obtaining and enforcing
judgments against foreign entities, reduced levels of information about and
regulation of foreign issuers, difficulties in repatriation of capital invested
abroad, foreign withholding taxes, and differing accounting, auditing, and
financial standards.

REPURCHASE AGREEMENTS AND BORROWING
The Portfolios may from time to time enter into repurchase agreements. Under
the terms of a typical repurchase agreement, a Portfolio would acquire an
underlying obligation for a relatively short period (usually from one to seven
days) subject to an obligation of the seller to repurchase, and the Portfolio
to resell, the obligation at an agreed-upon price and time, thereby determining
the yield during the Portfolio's holding period. This arrangement results in a
fixed rate of return that is not subject to market fluctuations during the
Portfolio's holding period. The Portfolios require the sellers to post
collateral (in cash, U.S. Government securities, or obligations issued by
banks) in an amount at all times equal to, or in excess of, the market value of
the securities which are the subject of the agreement. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, there may be
delays and expenses in liquidating the securities, decline in their value and
loss of interest. The Portfolios maintain procedures for evaluating and
monitoring the creditworthiness of firms with which they enter into repurchase
agreements. No Portfolio may invest more than 15% (10% in the case of the AAL
Variable Product Money Market Portfolio) of its total assets in repurchase
agreements maturing in more than seven days or in securities that are subject
to legal or contractual restrictions on resale or are otherwise illiquid.

The AAL Variable Product Money Market Portfolio may enter into reverse
repurchase agreements, subject to its investment restrictions. A reverse
repurchase agreement involves a sale by the Portfolio of securities that it
holds concurrently with an agreement by the Portfolio to repurchase the same
securities at an agreed upon price and date. The Portfolio uses the proceeds of
reverse repurchase agreements to provide liquidity to meet redemption requests
and to make cash payments of dividends and distributions when the sale of the
Portfolio's securities is considered to be disadvantageous. Cash, U.S.
government securities or other liquid high grade debt obligations equal in
value to the Portfolio's obligations with respect to the reverse repurchase
agreements, are segregated and maintained with the Fund's custodian. The Money
Market Portfolio's obligations under reverse repurchase agreements will be
counted towards the limitation on the Portfolio's borrowings, described below.

Each Portfolio may borrow, but only from banks, for temporary or emergency
purposes in amounts not exceeding 10% of a Portfolio's total assets.  Any
borrowings will be repaid before any further purchase of securities are made by
the Portfolio. Interest paid on such borrowings will reduce a Portfolio's net
income.

WHEN-ISSUED PURCHASES
The AAL Variable Product Bond Portfolio and AAL Variable Product Balanced
Portfolio may purchase securities on a when-issued or delayed delivery basis.
Although the payment and interest terms of these securities are established at
the time the purchaser enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase, when their
value may have changed. The Portfolios make such commitments only with the
intention of actually acquiring the securities, but may sell the securities
before settlement date if it is deemed advisable for investment reasons.

FINANCIAL FUTURES CONTRACTS AND OPTIONS
The AAL Variable Product Large Company Stock, Small Company Stock, Bond, and
Balanced Portfolios may utilize futures contracts and options to a limited
extent. Specifically, each Portfolio may enter into futures contracts provided
that not more than 5% of its assets are required as a futures contract margin
deposit; in addition, a Portfolio may enter into futures contracts and options
transactions only to the extent that obligations under such contracts or
transactions represent no more than 33% of the Portfolio's assets.

Futures contracts and options may be used by the Portfolios for several
reasons: to maintain cash reserves while simulating full investment, to
facilitate trading, to reduce transaction costs, to generate additional income,
or to hedge against price movements. While futures contracts and options can be
used as leveraged investments, no Portfolio will use futures contracts or
options transactions to leverage its net assets.

The primary risks associated with the use of futures contracts and options are:
(i) imperfect correlation between the change in market value of the stocks held
or eligible to be purchased by a Portfolio and the prices of futures contracts
and options; and (ii) possible lack of a liquid secondary market for a futures
or options contract and the resulting inability to close a position prior to
its
                                                                 FUND PROSPECTUS

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maturity date. The risk of imperfect correlation will be minimized by using
only those contracts whose behavior is expected to resemble that of a
Portfolio's underlying securities or that are eligible to be purchased by the
Portfolio. The risk that a Portfolio will be unable to close out a futures or
options position will be minimized by entering into such transactions only on a
national exchange with an active and liquid secondary market.

The risk of loss in investing in futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (or gain) to the investor. When purchasing futures contracts,
a Portfolio will segregate with its custodian (or to the extent legally
permitted, a broker purchasing) cash or cash equivalents in the amount of the
underlying obligation. See "OPTIONS AND FUTURES" in the SAI.

LENDING PORTFOLIO SECURITIES
In order to generate additional income, the Portfolios may from time to time
lend securities from their portfolios to brokers, dealers and financial
institutions such as banks and trust companies, subject to restrictions that
are described in "INVESTMENT RESTRICTIONS" in the SAI.

INVESTMENT RESTRICTIONS
In addition to those policies noted above with respect to specific investments,
the Portfolios are subject to certain investment restrictions.  Among other
things, these limitations generally prohibit a Portfolio from investing more
than 25% of its assets in a single industry or in securities of issuers in
which the Portfolio has invested more than 5% of its total assets. These
limitations do not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. A description of other
investment restrictions applicable to the Fund is included in the SAI. The
Fund's policies and investment restrictions are not deemed fundamental
policies, and, therefore, may be changed by the Board of Directors without
shareholder approval, except to the extent that such approval may be legally
required.

MANAGEMENT OF THE FUND

The Fund's Board of Directors decides matters of general policy and reviews the
activities of the Fund's Adviser and the Fund's officers conduct and supervise
the daily business operations of the Fund.

THE ADVISER
Aid Association for Lutherans ("AAL" or "Adviser") is the investment adviser to
the Fund. AAL was organized on November 24, 1902. The Adviser is a fraternal
benefit society under Internal Revenue Code section 501(c)(8) and incorporated
under the laws of the state of Wisconsin. As of December 31, 1995, AAL had
approximately 1.7 million members and is the world's largest fraternal benefit
society in terms of assets (over $15.4 billion) and life insurance in force
($75.6 billion), ranking it in the top two percent of all life insurers in the
United States in terms of ordinary life insurance in force. Membership is open
to Lutherans and their families. AAL offers life, disability income insurance
and annuities to its members. All members are part of one of over 9,152 local
AAL branches throughout the United States. AAL has extensive experience in
investment management matters and staff professionals associated with the
Adviser have previous experience in the management of financial assets. AAL
manages assets in excess of $14.6 billion for its insurance portfolios. The
principal address of the Adviser is 4321 North Ballard Road, Appleton,
Wisconsin 54919-0001.

Pursuant to an Investment Advisory Agreement, dated September 27, 1994, as
amended February 28, 1996, with the Fund (the "Advisory Agreement"), the
Adviser manages the investment and reinvestment of the Fund's assets, provides
the Fund with office space, executive and other personnel, facilities and
administrative services, and supervises the Fund's daily business affairs, all
subject to the supervision of the Fund's Board of Directors. The Adviser
formulates and implements a continuous investment program for the Portfolios
consistent with each Portfolio's investment objectives, policies and
restrictions.

The Adviser receives an investment advisory fee as compensation for its
services to the Fund. The fee is a daily charge equal to an annual rate of .35%
of the average daily net assets of each Portfolio up to $250,000,000 and .30%
of the average daily net assets of each Portfolio in excess of that amount.

In addition to the investment advisory fee, subject to the expense
reimbursement arrangement discussed below, each Portfolio will bear all of its
operating expenses that are not specifically assumed by the Adviser, including
the following: (i) interest and taxes; (ii) brokerage
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commissions; (iii) insurance premiums; (iv) compensation and expenses for those
Directors who are not affiliated with the Adviser; (v) independent legal and
audit expenses; (vi) fees and expenses of the Fund's custodian, shareholder
servicing or transfer agent and accounting services agent; (vii) expenses
incident to the issuance of its shares, including stock certificates and
issuance of shares on the payment of, or reinvestment of dividends; (viii) fees
and expenses incident to the registration under Federal or state securities
laws of the Fund or its shares; (ix) Fund or Portfolio organizational expenses;
(x) expenses of preparing, printing and mailing Fund reports, notices, proxy
material and prospectuses to shareholders of the Fund; (xi) all other expenses
incidental to holding meetings of the Fund's shareholders; (xii) dues of, or
assessments of, or contributions to, the Investment Company Institute or any
successor or other industry association; (xiii) such non-recurring expenses as
may arise, including litigation affecting the Fund and the legal obligations
which the Fund may have to indemnify its officers and Directors with respect
thereto; and (xiv) cost of daily valuation of each of the Portfolio's
securities and net asset value per share.

The Advisory Agreement provides that, notwithstanding the foregoing, the
Adviser will reimburse the Fund for substantially all of its operating
expenses, other than investment advisory fees, brokerage commissions, and any
extraordinary items such as litigation expenses or income tax liabilities. The
Adviser may withdraw this undertaking on 30 days' written notice to the Fund.
The Adviser has informed the Fund's Board of Directors that it currently
intends to bear all of the Fund's operating expenses, other than those
specified immediately above, through at least December 31, 1996.

THE ADMINISTRATOR

Pursuant to an Administrative Services Agreement between the Adviser and AAL
Capital Management Corporation (the "Administrator"), a wholly-owned indirect
subsidiary of the Adviser, the Administrator has agreed to perform certain
services that the Adviser has contracted to provide to the Fund under the
Investment Advisory Agreement, including portfolio accounting, expense accrual,
valuation and financial reporting, and tax accounting services for each
Portfolio. The Adviser pays the Administrator at a specified rate not to exceed
the rates charged by unaffiliated vendors for comparable services, plus
reimbursable expenses, as may be approved annually by a majority of the Fund's
Board of Directors. 

The Fund does not directly reimburse the Adviser for the cost of these
services provided by the Administrator. The Administrative Services Agreement
provides that it will continue in effect from year to year with respect to any
Portfolio, so long as such continuation is specifically approved at least
annually by the Fund's Board of Directors or by a vote of a majority of the
outstanding voting securities of such Portfolio, and, in either case, a
majority of the Fund's disinterested Directors.

PORTFOLIO TRANSACTIONS

The Adviser directs the placement of orders for the purchase and sale of the
Funds' portfolio securities. In doing so, the best combination of price and
execution is sought, which involves a number of judgmental factors. When the
Adviser believes that more than one broker or dealer is capable of providing
the best combination of price and execution in a particular portfolio
transaction, normally a broker or dealer is selected that has furnished
brokerage and research services.

It is possible that from time to time the Adviser may make similar investment
decisions for one or more Portfolios, for the Adviser's own account, and, when
applicable, for its other clients where it is consistent with their respective
investment objectives and policies. If these entities desire to buy or sell the
same portfolio securities at about the same time, combined purchases and sales
may be made and allocated at the average net unit price for the securities and,
as nearly as practicable, on a pro-rata basis in proportion to the amounts
desired to be purchased or sold by each entity. While it is conceivable that in
certain instances this procedure could have a detrimental effect on the price
or volume of the security to be purchased or sold, as far as a Portfolio is
concerned, it is believed that this procedure would generally contribute to
better overall execution of the Fund's portfolio transactions, including, but
not limited to, the realization of lower commission rates and advantageous
prices. For example, coordination with transactions for other clients and the
ability to participate in volume transactions could benefit the Fund. Where
combined purchases and sales are not made, volume transactions and any
resulting benefit, of course, would not be available. AAL does not expect that
the opportunity to make such combined purchases and sales will arise in the
ordinary course.

                                                                 FUND PROSPECTUS

                                       13
<PAGE>   18
===============================================================================
                   A A L   V A R I A B L E   A N N U I T Y          


PURCHASE AND REDEMPTION OF SHARES

Shares of all Portfolios are continuously offered and redeemed by the Fund,
without sales charge, at prices equal to the respective per share net asset
value ("NAV") of each Portfolio. Shares of the Fund are currently offered only
to AAL Variable Annuity Account I to fund benefits payable under the
Certificates. The Fund may, at some later date, also offer its shares to other
separate accounts of AAL or a subsidiary or affiliated company of AAL. Shares
of the Fund were sold directly to AAL in connection with the initial
capitalization of the Portfolios.

The Variable Account transmits to the Fund any orders to purchase or redeem
shares of the Portfolio based on the completed purchase payments, redemption
(surrender) requests and transfer requests from Certificate Owners, annuitants
or beneficiaries on the day after AAL receives such orders. The Variable
Account purchases and redeems shares of each Portfolio at the Portfolio's NAV
per share calculated as of the day AAL receives its orders. Orders to purchase
or redeem Fund shares which are not based on actions by Certificate Owners,
annuitants or beneficiaries or routine deductions of charges by AAL will be
effected at the Portfolio's NAV per share next computed after the order is
placed.

The Fund is required to pay the proceeds for redemption of all full and
fractional shares of the Fund within seven days after the date as of which the
redemption is priced. The right to redeem shares or to receive payment with
respect to any redemption may be suspended only for any period during which
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission or when such exchange is closed (other than
customary weekend and holiday closings), for any period during which an
emergency exists as defined by the Securities and Exchange Commission as a
result of which disposal of a Portfolio's securities or determination of the
Portfolio's NAV is not reasonably practicable, and for such other periods as
the Securities and Exchange Commission may by order permit for the protection
of shareholders of any Portfolio.

NET ASSET VALUE

The NAV per share of any Portfolio is determined once daily at the close of
regular trading on the New York Stock Exchange, currently 4:00 p.m., New York
time, on each day that AAL is open for business. NAV will not be determined on
holidays observed by the Exchange. The NAV of shares is computed by adding the
sum of the value of the securities held by each Portfolio plus any cash or
other assets it holds, less all of that Portfolio's liabilities, and dividing
the result by the total number of outstanding shares of that Portfolio at such
time. Securities owned by the Fund for which market quotations are readily
available are valued at current market value. However, all securities of the
AAL Variable Product Money Market Portfolio are valued on the basis of their
amortized cost, which approximates market value. All other securities and
assets are valued at fair value as determined in good faith by or under the
direction of the Fund's Board of Directors.

DIVIDENDS, DISTRIBUTIONS AND TAXES

Each Portfolio 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 Portfolios themselves. Each
Portfolio will be treated as a separate regulated investment company under the
requirements of the Code.

The Fund intends to distribute as dividends substantially all the net
investment income, if any, of each Portfolio. For dividend purposes, net
investment income of each Portfolio, other than the AAL Variable Product Money
Market Portfolio, will consist of all payments of dividends (other than stock
dividends) or interest received by such Portfolio less the estimated expenses
of such Portfolio (including fees payable to the Adviser). Net investment
income of the AAL Variable Product Money Market Portfolio consists of (i)
interest accrued and/or discount earned (including both original issue and
market discount), (ii) plus or minus all realized gains and losses, (iii) less
the estimated expenses of the Portfolio (including the fees payable to the
Adviser).

Shares of a Portfolio will begin accruing dividends on the day following the
date as of which the shares are credited to the Variable Account.  Dividends
will generally be declared and reinvested daily on the AAL Variable Product
Money Market Portfolio, and monthly on all other Portfolios, although the Fund
may make distributions of dividends on any Portfolio more or less frequently,
as appropriate. The Fund will also declare and distribute annually all net
realized capital gains of the Fund, other than short-term gains of the Money
Market

                                                                 FUND PROSPECTUS

                                       14
<PAGE>   19
===============================================================================
                   A A L   V A R I A B L E   A N N U I T Y          
                                                                       [AAL     
                                                                        VARIABLE
                                                                        ANNUITY 
                                                                        LOGO]   


Portfolio, which are declared as dividends daily. A capital gain distribution
will usually be made in December.

All income dividends and capital gains distributions are reinvested in full and
fractional shares of a Portfolio at NAV, without any charges, on the payment
date, unless an election is made on behalf of the Variable Account to receive
distributions in cash.

Purchases of securities for each of the Portfolios also will be limited in
accordance with the diversification requirements for insurance products
established pursuant to Section 817(h) of the Code. To comply with the
regulations under Section 817(h), each Portfolio is required to diversify its
investments so that on the last day of each quarter of a calendar year, no more
than 55% of the value of its total assets is represented by any one investment,
no more than 70% is represented by any two investments, no more than 80% is
represented by any three investments, and no more than 90% is represented by
any four investments. In calculating these percentages, securities of a given
issuer generally are treated as one investment, but each U.S. Government agency
and instrumentality is treated as a separate issuer. Any security issued,
guaranteed, or insured (to the extent so guaranteed or insured) by the United
States or an agency or instrumentality of the United States, is treated as a
security issued by the U.S. Government, agency or instrumentality, whichever is
applicable. Failure to comply with these diversification requirements may
result in immediate taxation to the Certificate Owners of returns credited to
Certificates.

PERFORMANCE INFORMATION

The Portfolios may, from time to time, include quotations of their total return
or yield in connection with the total return for the Variable Account in
advertisements, sales literature, or reports to Certificate Owners or to
prospective investors. Total return and yield quotations reflect only the
performance of a hypothetical investment in the Portfolio during a specified
period. Such quotations do not in any way indicate or project future
performance. Quotations of total return and yield regarding a Portfolio do not
reflect charges or deductions against the Variable Account or charges and
deductions against the Certificates. Where relevant, the prospectus and SAI for
the Certificate contain additional performance information.

The total return of a Portfolio refers to the average annual percentage change
in value of an investment in the Portfolio held for various periods of time,
including, but not limited to, one year, five years, ten years or such shorter
period as the Portfolio has been in operation, as of a stated ending date. When
the Portfolio has been in operation for these periods, the total return for
such periods will be provided if performance information is quoted. Total
return quotations are expressed as average annual compound rates of return for
each of the periods quoted, reflect the deduction of a proportional share of
Portfolio expenses and assume that all dividends and capital gains
distributions during the period are reinvested in the Portfolio when made.

A Portfolio may, from time to time, disclose in advertisements, sales
literature and reports to Certificate Owners or to prospective investors, total
return for the Portfolio for periods in addition to those required to be
presented, or disclose other nonstandardized data such as cumulative total
returns, actual year-by-year returns, or any combination thereof.

A Portfolio may also, from time to time, compare the performance of the
Portfolio in advertisements, sales literature and reports to Certificate Owners
or to prospective investors to: (1) the S&P 500 Index, the Wilshire Small Cap
Index, the Lehman Bond Index, the Dow Jones Industrial Average, or other widely
recognized indices; (2) other mutual funds whose performance are reported by
Lipper Analytical Services, Inc., ("Lipper"), Variable Annuity Research & Data
Service ("VARDS") and Morningstar, Inc. ("Morningstar"), or reported by other
services, companies, individuals or other industry or financial publications of
general interest, such as Forbes, Money, The Wall Street Journal, Business
Week, Barron's, Changing Times and Fortune, which rank and/or rate mutual funds
by overall performance or other criteria; and (3) the Consumer Price Index.
Lipper, VARDS and Morningstar are widely quoted independent research firms
which rank mutual funds by overall performance, investment objectives, and
assets. Unmanaged indices may assume the reinvestment of dividends but usually
do not reflect any deduction for the expense of operating or managing a fund.

The Portfolio yield quotation refers to the income generated by a hypothetical
investment in the Portfolio over a specified thirty-day (seven-day for the
Money Market Portfolio) period expressed as a percentage rate of return for
that period. The yield is calculated by dividing the net investment income per
share for the period by the price per share on the last day of that period.

                                                                 FUND PROSPECTUS

                                       15
<PAGE>   20
===============================================================================
                   A A L   V A R I A B L E   A N N U I T Y          


For more information about the Portfolios' performance, see the SAI and the
Fund's annual report to shareholders.

PERFORMANCE OF THE S&P 500 INDEX

The table below shows annual total returns for the S&P 500 Index for the past
15 years. These returns show the change in value for the S&P 500 Index assuming
reinvestment of all dividends paid by stocks included in the Index. Tax
consequences are not included in the illustration, nor are brokerage or other
fees included in the S&P 500 Index return figures. The results shown below
should not be considered representative of the return which may be generated by
the S&P 500 Index or any Portfolio in the future.

                    HISTORICAL ANNUAL TOTAL RATES OF RETURN
                             FOR THE S&P 500 INDEX

<TABLE>
<CAPTION>
YEAR               RETURN                YEAR            RETURN            YEAR           RETURN
- ----               ------                ----            ------            ----           ------
<S>                 <C>                  <C>              <C>              <C>              <C>
1995                37.6%                1990             -3.1%            1985             31.6%
1994                 1.3%                1989             31.7%            1984              6.1%
1993                10.1%                1988             16.6%            1983             22.4%
1992                 7.6%                1987              5.1%            1982             21.4%
1991                30.5%                1986             18.6%            1981             -5.0%
</TABLE>

S&P 500 Index historical annualized compound rates of return for the past
5-year, 10-year, and 15-year periods were 16.6%, 14.9%, and 14.7% respectively.
These compound rates of return are greater than historical returns measured
over longer periods of time based on Ibbotson Associates data. For example,
during the 70-year period from 1926 through 1995, Ibbotson Associates indicates
the compound rate of return on the S&P 500 Index was 10.5% per year.

Had the AAL Variable Product Large Company Stock Portfolio been in existence
and achieved the above returns, such returns would have been reduced by the
fees of the Adviser and other costs associated with the administration of the
Portfolio. See "MANAGEMENT OF THE FUND" for more information.


PERFORMANCE OF THE WILSHIRE SMALL CAP INDEX
The table below shows annual total returns for the Wilshire Small Cap Index for
the past 15 years. These returns show the change in value for the Wilshire
Small Cap Index assuming reinvestment of all dividends paid by stocks included
in the Index. Tax consequences are not included in the illustration, nor are
brokerage or other fees included in the Wilshire Small Cap Index figures. The
results shown below should not be considered representative of the return which
may be generated by the Wilshire Small Cap Index or any Portfolio in the
future.

                    HISTORICAL ANNUAL TOTAL RATES OF RETURN
                        FOR THE WILSHIRE SMALL CAP INDEX


<TABLE>
<CAPTION>
YEAR               RETURN                YEAR            RETURN            YEAR           RETURN
- ----               ------                ----            ------            ----           ------
<S>                 <C>                  <C>             <C>               <C>              <C>
1995                26.5%                1990            -15.1%            1985             32.9%
1994                -3.1%                1989             20.5%            1984              0.0%
1993                18.0%                1988             21.4%            1983             30.3%
1992                14.6%                1987             -3.3%            1982             29.7%
1991                51.8%                1986             10.0%            1981              3.9%
</TABLE>

Wilshire Small Cap Index historical annualized compound rates of return for the
past 5-year, 10-year, and 15-year periods were 20.3%, 12.8%, and 14.6%
respectively. These compound rates of return are greater than historical
returns measured over longer periods of time based on Ibbotson Associates data.
For example, during the 70-year period from 1926 through 1995, Ibbotson
Associates indicates the compound rate of return on Small Company Stocks was
12.5% per year.

Had the AAL Variable Product Small Company Stock Portfolio been in existence
and achieved the above returns, such returns would have been reduced by the
fees of the Adviser and other costs associated with the administration of the
Portfolio. See "MANAGEMENT OF THE FUND" for more information.

PERFORMANCE OF THE LEHMAN BOND INDEX
The table below shows annual total returns for the Lehman Bond Index for the
past 15 years. These returns show the change in value for the Lehman Bond Index
assuming reinvestment of all interest paid by securities held by the Index. Tax
consequences are not included in the illustration, nor are brokerage or other
fees included in the Lehman Bond Index figures. The results shown below should
not be considered representative of the return which may be generated by the
Lehman Bond Index or any Portfolio in the future.

                                                                 FUND PROSPECTUS

                                       16
<PAGE>   21
===============================================================================
                   A A L   V A R I A B L E   A N N U I T Y          
                                                                       [AAL     
                                                                        VARIABLE
                                                                        ANNUITY 
                                                                        LOGO]   

                    HISTORICAL ANNUAL TOTAL RATES OF RETURN
                           FOR THE LEHMAN BOND INDEX

<TABLE>
<CAPTION>
YEAR               RETURN                YEAR            RETURN            YEAR           RETURN
- ----               ------                ----            ------            ----           ------
<S>                 <C>                  <C>              <C>              <C>              <C>
1995                18.5%                1990              9.0%            1985             22.1%
1994                -2.9%                1989             14.5%            1984             15.2%
1993                 9.0%                1988              7.9%            1983              8.4%
1992                 7.4%                1987              2.8%            1982             32.6%
1991                16.0%                1986             15.3%            1981              6.5%
</TABLE>

Lehman Bond Index historical annualized compound rates of return for the past
5-year, 10-year, and 15-year periods were 9.48%, 9.61%, and 11.86%
respectively. These compound rates of return are greater than historical
returns measured over longer periods of time based on Ibbotson Associates data.
For example, during the 70-year period from 1926 through 1995, Ibbotson
Associates indicates the compound rate of return has been 5.3% per year on
Intermediate-term Government Bonds and 5.7% per year on Long-term Corporate
Bonds.

Had the AAL Variable Product Bond Portfolio been in existence and achieved the
above returns, such returns would have been reduced by fees of the Adviser and
other costs associated with the administration of the Portfolio. See
"MANAGEMENT OF THE FUND" for more information.

DESCRIPTION OF SHARES

The Fund may issue up to 2 billion shares of common stock, $.001 par value, in
one or more series (Portfolios) as the Board of Directors may authorize.
Currently, the Board has authorized five series which bear the designation of
the names of the respective Portfolios.

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

AAL provided the initial capitalization of each Portfolio and, as of March 29,
1996, beneficially owned more than 25% of the shares of the AAL Variable
Product Bond Portfolio and AAL Variable Product Balanced Portfolio. As a result
of such ownership, AAL may be deemed to be in control of those Portfolios.

VOTING PRIVILEGES

The voting privileges of Certificate Owners, and limitations on those
privileges, are explained in the accompanying prospectus relating to the
Certificates. AAL, as the owner of the assets in the Variable Account, will
attend shareholder meetings and will vote all of the shares of the Portfolios
held to fund the benefits under the Certificates, but it will generally do so
in accordance with the instructions of the Certificate Owners. Any such shares
of a Portfolio attributable to a Certificate for which no timely voting
instructions are received, and any shares of the Portfolio held by AAL or any
of its subsidiaries or affiliates for their own account, will be voted by AAL
in proportion to the voting instructions that are received with respect to all
Certificates participating in that Portfolio. Under certain circumstances
described in "VOTING PRIVILEGES" in the Fund's SAI, however, AAL may disregard
voting instructions received from Certificate Owners.

Shareholders are entitled to one vote for each share held. Because the per
share purchase price of shares of different Portfolios will not, generally, be
the same (the initial NAV established for shares of the AAL Variable Product
Large Company Stock Portfolio, Small Company Stock Portfolio, Bond Portfolio
and Balanced Portfolio was $10.00 per share, as compared to $1 per share for
the AAL Variable Product Money Market Portfolio), the number of votes obtained
as a result of a particular amount invested will generally vary depending upon
which Portfolio's shares are purchased (for example, using the initial NAVs set
forth above, a $100 investment in the AAL Variable Product Money Market
Portfolio would result in 100 votes, whereas the same investment in any one of
the other Portfolios would result in only 10 votes).

The Fund is not required to hold annual shareholder meetings. However, special
meetings may be called for purposes such as electing or removing Directors,
changing fundamental policies, or approving an investment advisory contract.
Shares of each series are entitled to vote as a series only to the extent
required by the 1940 Act and rules thereunder or as permitted by the Directors.
No matter required to be submitted to shareholder vote is deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding voting securities of each series that may be affected by the matter
differently from another series. On matters affecting an individual Portfolio,
such as approvals of investment advisory agreements and changes in investment
objectives, a separate vote of the shares of
                                                                 FUND PROSPECTUS

                                       17
<PAGE>   22

that Portfolio is required. Shares of a Portfolio are not entitled to vote on
any matter not affecting that Portfolio. The shares of all the Portfolios vote
together on matters that do not affect one Portfolio differently from another,
such as the election of Directors and ratification of the Fund's auditors.

INDEMNITY AND LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
To the fullest extent permitted by Maryland and federal law, the Fund will
indemnify and limit the liability of Directors and officers of the Fund from
any personal liability to the Fund or the holders of shares of its series or
classes for money damages.  However, this limitation and indemnification does
not protect any Director or officer from liability to which the Director or
officer would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct
of his or her office.

CUSTODIAN, TRANSFER AGENT AND INDEPENDENT AUDITORS

Harris Trust & Savings Bank, 111 W. Monroe Street, Chicago, IL 60690, serves as
Custodian for the Fund. AAL serves as Transfer Agent for the Fund. Ernst &
Young LLP, 111 East Kilbourn Avenue, Suite 900, Milwaukee, Wisconsin 53202,
serves as independent auditors for the Fund. The Financial Highlights included
in this prospectus and the financial statements of the Fund included in the SAI
have been audited by Ernst & Young LLP, and have been so included in reliance
on the report of Ernst & Young LLP, given upon the authority of such firm as
experts in accounting and auditing.

SHAREHOLDER INQUIRIES

All inquiries from Certificate Owners regarding the Fund should be directed to
the Fund at the address and telephone number shown on the back cover of this
prospectus.
                                                                 FUND PROSPECTUS

                                       18
<PAGE>   23
   
    


                     AAL VARIABLE PRODUCT SERIES FUND, INC.

                            4321 North Ballard Road
                        Appleton, Wisconsin  54919-0001
                                 (414) 734-5721

                      STATEMENT OF ADDITIONAL INFORMATION
   
                               Dated May 1, 1996
    


   
This Statement of Additional Information ("SAI") is not a prospectus but
provides additional information which should be read in conjunction with the
Prospectus of the AAL Variable Product Series Fund, Inc., dated May 1, 1996.
Capitalized terms used in this SAI that are not otherwise defined herein have
the same meaning given to them in the Prospectus.  The Fund's Prospectus may be
obtained at no charge by writing or telephoning the Fund at the address and
telephone number above.
    

The investment objectives of the Portfolios are as follows:

The AAL VARIABLE PRODUCT MONEY MARKET PORTFOLIO seeks to provide maximum
current income, to the extent consistent with liquidity and a stable net asset
value of $1.00 per share, by investing in a diversified portfolio of high
quality, short-term money market instruments.

The AAL VARIABLE PRODUCT BOND PORTFOLIO seeks to achieve investment results
that  approximate the total return of the Lehman Brothers Aggregate Bond Index
by investing primarily in bonds and other debt securities included in the
Index.

The AAL VARIABLE PRODUCT BALANCED PORTFOLIO seeks to achieve investment results
that reflect investment in common stocks, bonds, and money market instruments,
each of which will be selected consistent with the investment policies of the
AAL Variable Product Large Company Stock Portfolio, Bond Portfolio, and Money
Market Portfolio,  respectively.

The AAL VARIABLE PRODUCT LARGE COMPANY STOCK PORTFOLIO seeks to achieve
investment results that approximate the performance of the Standard & Poor's
500 Composite Stock Price Index by investing primarily in common stocks
included in the Index.

The AAL VARIABLE PRODUCT SMALL COMPANY STOCK PORTFOLIO seeks to achieve
investment results that approximate the performance of the Wilshire Small Cap
Index by investing primarily in common stocks included in the Index.
<PAGE>   24

                      STATEMENT OF ADDITIONAL INFORMATION
                               Table of Contents


   
<TABLE>                                                                    
<CAPTION>                                                                  
                                                                                    Page
<S>                                                                               <C>
                                                                           
                                                                           
INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  SAI-3
                                                                           
VOTING PRIVILEGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  SAI-3
                                                                           
INVESTMENT TECHNIQUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  SAI-3
                                                                           
THE S&P 500 INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  SAI-5
                                                                           
THE WILSHIRE SMALL CAP INDEX  . . . . . . . . . . . . . . . . . . . . . . . . . .  SAI-5
                                                                           
OPTIONS AND FUTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  SAI-6
                                                                           
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-11
                                                                           
PURCHASES AND REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-13
                                                                           
MANAGEMENT OF THE FUND  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-14
                                                                           
PORTFOLIO TRANSACTIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-19
                                                                           
DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-21
                                                                           
CALCULATION OF YIELD AND TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . SAI-21
                                                                           
PRICING CONSIDERATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-23
                                                                           
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-24
                                                                           
APPENDIX: SECURITY RATINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-25
                                                                           
FINANCIAL STATEMENTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SAI-28
</TABLE>                                                                   
    
                                                                           


                                    SAI-2
<PAGE>   25

INTRODUCTION

The following information supplements the discussion in the Fund's Prospectus
of the Portfolios' respective investment objectives and policies and other
aspects of the Fund's management and operations.


VOTING PRIVILEGES

Each Portfolio's investment objective is a fundamental policy, which may not be
changed without the approval of a "majority of the outstanding voting
securities" of that Portfolio.  A "majority of the outstanding voting
securities" means the approval of the lesser of (i) 67% or more of the voting
securities at a meeting if the holders of more than 50% of the outstanding
voting securities of a Portfolio are present or represented by proxy or (ii)
more than 50% of the outstanding voting securities of a Portfolio.

While AAL, as the owner of the assets of its AAL Variable Annuity Account I
(the "Variable Account"), is entitled to vote all of the shares of a Portfolio
held to fund the benefits under variable annuity certificates funded through
the Variable Account (the "Certificates"), it will generally do so in
accordance with the instructions of Certificate owners ("Owners").  However,
AAL may disregard voting instructions received from Owners that would require
shares to be voted to (i) disapprove a change from a diversified to a
non-diversified investment company (or vice versa) or a change in investment
objective, if such change is required by an insurance regulatory authority;
(ii) approve any investment advisory agreement that has been disapproved by an
insurance regulatory authority; (iii) approve any change in investment
objective or policies that would violate state law or result in the purchase of
securities that vary from the general quality and nature of investments or
investment techniques used by any other separate accounts of AAL or its
affiliates that have similar investment objectives; (iv) approve a change in
any principal underwriter of the Fund that is reasonably disapproved by AAL; or
(v) approve a change in the Fund's investment adviser initiated by insurance
contract owners or the Fund's Board of Directors, if the proposed advisory fee
exceeds any applicable maximums specified in any insurance contract
participating in the Fund or if the proposed investment adviser may be expected
to use investment techniques different from those generally used by the current
adviser or to advise the purchase or sale of securities which would not be
consistent with the investment objectives of the Fund or which would vary from
the quality and nature of the investments made by any other separate accounts
of AAL and its affiliates that have similar investment objectives.

Any such shares of a Portfolio attributable to a Certificate for which no
timely voting instructions are received, and shares of that Portfolio held by
AAL or any of its subsidiaries or affiliated companies for their own account,
will be voted by AAL in proportion to the voting instructions that are received
with respect to all Certificates participating in that Portfolio.


INVESTMENT TECHNIQUES

Each Portfolio may use the following techniques in pursuit of its investment
objective.

LENDING PORTFOLIO SECURITIES

Subject to restriction (4) under "INVESTMENT RESTRICTIONS," a Portfolio may
lend its portfolio securities to broker-dealers and banks.  Any such loan must
be continuously secured by collateral in cash or cash equivalents maintained on
a current basis in an amount at least equal to the market value of the
securities loaned by the Portfolio.  The Portfolio would continue to receive
the equivalent of the





                                     SAI-3
<PAGE>   26
interest or dividends paid by the issuer on the securities loaned, and would
also receive an additional return which may be in the form of a fixed fee or a
percentage of the collateral.  The Portfolio would have the right to call the
loan and obtain the securities loaned at any time on notice of not more than
five business days.  The Portfolio would not have the right to vote the
securities during the existence of the loan but would call the loan to permit
voting of securities during the existence of the loan if, in the Adviser's
judgment, a material event requiring a shareholder vote would otherwise occur
before the loan was repaid.  In the event of bankruptcy or other default of the
borrower, the Portfolio could experience both delays in liquidating the loan
collateral or recovering the loaned securities and losses including (a)
possible decline in the value of the collateral or in the value of the
securities loaned during the period while the Portfolio seeks to enforce its
rights thereto, (b) possible subnormal levels of income and lack of access to
income during this period, and (c) expenses of enforcing its rights.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

A Portfolio may purchase securities on a when-issued or delayed delivery basis,
as described in the Prospectus.  A Portfolio makes such commitments only with
the intention of actually acquiring the securities, but may sell the securities
before settlement date if the Adviser deems it advisable for investment
reasons.  At the time a Portfolio enters into a binding obligation to purchase
securities on a when-issued basis, liquid high-grade debt obligations of the
Portfolio, having a value at least as great as the purchase price of the
securities to be purchased, will be identified on the books of the Portfolio
and held by the Portfolio's custodian throughout the period of the obligation.
The use of these investment strategies may increase NAV fluctuation.

RATED SECURITIES

   
For a description of certain ratings applied by rating services to debt
securities, please refer to the Appendix to this SAI.  The rated debt
securities described under "Investment Objectives and Policies" in the
Prospectus for each Portfolio include securities given a rating conditionally
by Moody's Investors Service, Inc. ("Moody's"), or provisionally by Standard
and Poor's Corporation ("S&P") or Duff & Phelps, Inc. ("Duff & Phelps").  If
the rating of a security held by a Portfolio is lost or reduced, the Portfolio
is not required to sell the security, but the Adviser will consider such fact
in determining whether that Portfolio should continue to hold the security.  To
the extent that the ratings accorded by Moody's, S&P, or Duff & Phelps for debt
securities may change as a result of changes in such organization, or changes
in their rating systems, a Portfolio will attempt to use comparable ratings as
standards for its investments in debt securities in accordance with its
investment policies.
    

FOREIGN SECURITIES

The AAL Variable Product Large Company and Small Company Portfolios and the
stock component of the Balanced Portfolio may invest in the common stock of
foreign corporations, including American Depositary Receipts ("ADRs"), but only
if such securities are listed and traded on a U.S.  national securities
exchange.  The AAL Variable Product Bond Portfolio and bond component of the
AAL Variable Product Balanced Portfolio may invest in debt securities of
foreign issuers that are payable in U.S. dollars.  The AAL Variable Product
Money Market Portfolio and the money market component of the AAL Variable
Product Balanced Portfolio may invest in short-term Eurodollar and Yankee bank
obligations.  Foreign securities may represent a greater degree of risk
(including risks relating to tax provisions or expropriation of assets) than do
securities of domestic issuers.

ADRs are certificates issued by a United States bank or trust company and
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a United States bank.  ADRs are traded on a
United States exchange or in the domestic over-the-counter market.  Investment
in ADRs has certain advantages over direct investment in the underlying foreign
securities since:  (i)





                                     SAI-4
<PAGE>   27

   
ADRs are U.S. dollar-denominated investments that are easily transferable and
for which market quotations are readily available, and (ii) issuers whose
securities are represented by ADRs are, in some cases, subject to auditing,
accounting and financial reporting standards similar to those applied to
domestic issuers.
    

PRIVATELY ISSUED SECURITIES:  THE AAL VARIABLE PRODUCT MONEY MARKET PORTFOLIO

Commercial paper and other securities in which the AAL Variable Product Money
Market Portfolio may invest include securities issued by major corporations
without registration under the Securities Act of 1933 in reliance on certain
exemptions, including the "private placement" exemption afforded by Section
4(2) of that Act.  Section 4(2) paper is restricted as to disposition under the
federal securities laws in that any resale must be made in an exempt
transaction.  This paper normally is resold to other institutional investors
through, or with, the assistance of investment dealers who make a market in it,
thus providing liquidity.  In the opinion of the Adviser, Section 4(2) paper is
no less liquid or saleable than commercial paper issued without legal
restrictions on disposition.  However, regulatory interpretations currently in
effect require that the Portfolio will not purchase Section 4(2) paper if more
than 10% of its total assets would consist of such paper and illiquid
(including other restricted) securities.

   
STANDARD & POOR'S DEPOSITARY RECEIPTS
    

The AAL Variable Product Large Company Stock Portfolio may, consistent with its
objectives, purchase Standard & Poor's Depositary Receipts ("SPDRs").  SPDRs
are American Stock Exchange-traded securities that represent ownership in the
SPDR Trust, a trust which has been established to accumulate and hold a
portfolio of common stocks that is intended to track the price performance and
dividend yield of the S&P 500 Index.  This trust is sponsored by a subsidiary
of the American Stock Exchange.  SPDRs may be used for several reasons,
including but not limited to: facilitating the handling of cash flows or
trading, or  reducing transaction costs.  The use of SPDRs would introduce
additional risk to the Portfolio as the price movement of the instrument does
not perfectly correlate with the price action of the underlying index.

THE S&P 500 INDEX

   
The S&P 500 Index is a broad index of larger capitalization stocks.  It is
composed of 500 common stocks representing more than 70% of the total market
value of all publicly traded common stocks.  The Index is constructed by
Standard & Poor's Corporation, which chooses stocks on the basis of market
values and industry diversification.  Most of the largest 500 companies listed
on U.S. stock exchanges are included in the Index.  Most stocks in the Index
are listed on the New York Stock Exchange.  A much smaller number come from the
American Stock Exchange and the over-the-counter market.  Additional stocks
that are not among the 500 largest stocks, by market value, are included in the
S&P 500 Index for diversification purposes.  The Index is capitalization
weighted--that is, stocks with a larger capitalization (shares outstanding
times current price) have a greater weight in the Index.  Market
capitalizations of stocks in the Index as of December 1995 range from a maximum
of $120 billion to a minimum of about $100 million.  The average capitalization
was $9.2 billion and the median capitalization was $4.7 billion.  S&P
periodically makes additions and deletions to the Index.  Selection of a stock
for inclusion in the S&P 500 Index in no way implies an opinion by Standard &
Poor's as to its attractiveness as an investment.
    

THE WILSHIRE SMALL CAP INDEX

The AAL Variable Product Small Company Stock Portfolio attempts to generate an
investment return comparable to that of the Wilshire Small Cap Index.  This
Index was created through an association





                                     SAI-5
<PAGE>   28

   
between Wilshire Associates Incorporated, the Pacific Stock Exchange and the
Chicago Board of Trade.  Wilshire Associates ranks the 2500 largest
capitalization stocks traded on the U.S. stock exchanges to create its Wilshire
2500 Index.  It breaks this index into two component indices:  (1) the Wilshire
Top 750, comprised of the largest 750 stocks, by capitalization, traded on the
exchanges, and (2) the Wilshire Next 1750, comprised of the next 1750 largest
stocks or those ranked from 751 to 2500 in terms of capitalization.  The
Wilshire Small Cap Index is a subset of this Next 1750.  The Wilshire Small Cap
Index is comprised of 250 stocks weighted by their market capitalization and
its component stocks are selected according to liquidity, industry sector and
market capitalization parameters.  The Wilshire Small Cap Index attempts to
capture the return profile and fundamental characteristics of the Wilshire Next
1750.  The Index is recreated annually at the end of June based on market
values as of that date.  The Index is rebalanced quarterly to reflect periodic
changes in shares outstanding.  No names are added or deleted as a result of
the rebalancing process.  Stocks may be dropped from the Index at any time due
to merger or acquisition or any other event which causes the company to cease
to exist as an ongoing concern.  In that event, a new name is added to maintain
the total at 250.
    


OPTIONS AND FUTURES

The AAL Variable Product Large Company Stock Portfolio, Small Company Stock
Portfolio, Bond Portfolio and Balanced Portfolio may write (sell) covered call
options to provide additional revenue and to reduce the effect of price
fluctuations in that Portfolio's securities.  In addition, through the
purchase of options and the purchase and sale of futures contracts and related
options, these Portfolios may at times seek to enhance current returns or to
hedge against a decline in the value of currently-owned securities or an
increase in the price of securities intended to be purchased.  Options and
futures contracts may also be used to facilitate trading, reduce transaction
costs or to simulate full investment while maintaining cash reserves.

   
Additional types of options, futures contracts, futures options and related
strategies that are not described in the Fund's Prospectus or this SAI also may
be employed if approved by the Board of Directors and if their use is
consistent with the Portfolio's investment objective.
    

OPTIONS ON SECURITIES AND INDEXES

Options may be purchased and sold on debt or other securities or indexes in
standardized contracts traded on national securities exchanges, boards of
trade, or similar entities, or quoted on NASDAQ.  In addition, agreements
sometimes called cash puts may accompany the purchase of a new issue of bonds
from a dealer.

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

A Portfolio will write call options and put options only if they are "covered."
In the case of a call option on a security, the option is covered if the
Portfolio owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if





                                     SAI-6
<PAGE>   29

additional cash consideration is required, cash or cash equivalents in such
amount are held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio.  For a call option on an
index, the option is covered if the Portfolio maintains, in a segregated
account with its custodian, cash or cash equivalents equal to the contract
value.  A call option also is covered if the Portfolio holds a call on the same
security or index as the call written where the exercise price of the call held
is (i) equal to or less than the exercise price of the call written, or (ii)
greater than the exercise price of the call written provided the difference is
maintained by the Portfolio in cash or cash equivalents in a segregated account
with its custodian.  A put option on a security or an index is covered if the
Portfolio maintains cash or cash equivalents equal to the exercise price in a
segregated account with its custodian.  A put option also is covered if the
Portfolio holds a put on the same security or index as the put written where
the exercise price of the put held is (i) equal to or greater than the exercise
price of the put written, or (ii) less than the exercise price of the put
written, provided the difference is maintained by the Portfolio in cash or cash
equivalents in a segregated account with its custodian.

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

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

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

RISKS ASSOCIATED WITH OPTIONS ON SECURITIES AND INDEXES

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

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

If trading were suspended in an option purchased by a Portfolio, the Portfolio
would not be able to close out the option.  If restrictions on exercise were
imposed, the Portfolio might be unable to exercise an option it has purchased.
Except to the extent that a call option on an index written by the Portfolio is





                                     SAI-7
<PAGE>   30

covered by an option on the same index purchased by the Portfolio, movements in
the index may result in a loss to the Portfolio; however, such losses may be
mitigated by changes in the value of the Portfolio's securities during the
period the option was outstanding.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

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

Use of futures could facilitate the handling of portfolio cash flows and
trading and reduce transaction costs.  Futures would not be used by the Large
Company Common Stock, Small Company Common Stock and Bond Portfolios for
hedging purposes but to gain exposure to the underlying indices with available
cash.  The S&P 500 Index Future would be the instrument used to gain S&P 500
Index exposure in the AAL Variable Product Large Company Stock Portfolio.  The
Russell 2000 Index future would be the instrument used to gain small
capitalization market exposure in the AAL Variable Product Small Company Stock
Portfolio.  The Russell 2000 Index futures was introduced on the Chicago
Mercantile Exchange on February 3, 1993 and has become the most liquid of the
small capitalization index futures.

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

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

Each Portfolio will only enter into futures contracts and futures options which
are standardized and traded on a U.S. exchange, board of trade, or similar
entity, or quoted on an automated quotation system.  Options on futures
contracts may be liquidated without exercise if the Fund enters into an
offsetting position in the identical option prior to the expiration date.

When a purchase or sale of a futures contract is made by a Portfolio, the
Portfolio is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or U.S. Government securities ("initial
margin").  The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract.  The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied.  A Portfolio expects to earn interest income on its initial margin
deposits.  A futures contract held by a Portfolio is valued daily at the
official settlement price of the exchange on which it is traded.  Each day the
Portfolio pays or receives cash, called "variation margin," equal to the daily
change in value of the





                                     SAI-8
<PAGE>   31

futures contract.  This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by a Portfolio but is instead
settlement between the Portfolio and the broker of the amount one would owe the
other if the futures contract expired.  In computing daily net asset value,
each Portfolio will mark to market its open futures positions.

In similar fashion, a Portfolio also is required to deposit and maintain margin
with respect to put and call options on futures contracts written by it.  Such
margin deposits will vary depending on the nature of the underlying futures
contract (and the related initial margin requirements), the current market
value of the option, and other futures positions held by the Portfolio.

RISKS ASSOCIATED WITH FUTURES

There are several risks associated with the use of futures contracts and
futures options.  A purchase or sale of a futures contract may result in losses
in excess of the amount invested in the futures contract.  There can be no
guarantee that there will be a correlation between price movements in the
futures contract and in the underlying index or debt instrument.  There are
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets.  The degree of
imperfection of correlation depends on circumstances such as: variations in
speculative market demand for futures, futures options and debt securities,
including technical influences in futures and futures options trading and
differences between the financial instruments owned or eligible to be acquired
by the Portfolios and the instruments underlying the standard contracts
available for trading, in such respects as interest rate levels, maturities,
and creditworthiness of issuers.

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

There can be no assurance that a liquid market will exist at a time when a
Portfolio seeks to close out a futures or futures option position, and the
Portfolio would continue to be required to meet margin requirements until the
position is closed.  In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history.  As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.

LIMITATIONS ON OPTIONS AND FUTURES

A Portfolio will not enter into a futures contract or purchase or write an
option thereon if, immediately thereafter, the initial margin deposits for
futures contracts held and options thereon written by that Portfolio plus
premiums paid by it for open futures options positions, less the amount by
which any such positions are "in the money," would exceed 5% of the Portfolio's
net assets.  A call option is "in the money" if the price 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 price of the futures
contract that is the subject of the option.

When purchasing a futures contract or writing a put on a futures contract, a
Portfolio must maintain, in a segregated account with its custodian, cash or
cash equivalents which, when added to the related





                                     SAI-9
<PAGE>   32

initial margin maintained by the Portfolio, equals the market value of such
contract.  When writing a call option on a futures contract, the Portfolio
similarly will maintain with its custodian cash or cash equivalents which, when
added to the related initial margin maintained by the Portfolio, at all times
equals the amount such option is in the money until the option expires or is
closed out by the Portfolio.

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

TAXATION OF OPTIONS AND FUTURES

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

If a call or put option written by a Portfolio is exercised, the premium is
included in the proceeds of the sale of the underlying security (call) or
reduces the cost of the security purchased (put).  For cash settlement options
and futures options, the difference between the cash paid at exercise and the
premium received is a capital gain or loss.

A Portfolio will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Portfolio will realize a capital loss.  If
the premium received from a closing sale transaction is more than the premium
paid to purchase the option, the Portfolio will realize a capital gain or, if
it is less, the Portfolio will realize a capital loss.  If an option was "in
the money" at the time it was written and the security covering the option was
held for more than six months prior to the writing of the option, any loss
realized as a result of a closing purchase transaction will be long term.  The
holding period of the securities covering an "in the money" option will not
include the period of time the option is outstanding.

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

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

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





                                     SAI-10
<PAGE>   33

For federal income tax purposes, a Portfolio generally is required to recognize
as income for each taxable year its net unrealized gains and losses as of the
end of the year on options (other than an option on a stock), futures and
futures options positions ("year-end mark to market").  Generally, any gain or
loss recognized with respect to such positions (either by year end mark to
market or by actual closing of the positions) is considered to be 60% long term
and 40% short term, without regard to the holding periods of the contracts.
However, in the case of positions classified as part of a "mixed straddle," the
recognition of losses on certain positions (including options, futures and
futures options positions, the related securities and certain successor
positions thereto) may be deferred to a later taxable year.  Sale of futures
contracts or writing of call options (or futures call options) or buying put
options (or futures put options) which are intended to hedge against a change
in the value of securities held by a Portfolio: (1) will affect the holding
period of the hedged securities; and (2) may cause unrealized gain or loss on
such securities to be recognized upon entry into the hedge.

In order for each Portfolio to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income:  i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities.  In addition, gains realized on the sale or other disposition of
securities held for less than three months must be limited to less than 30% of
the Portfolio's annual gross income.  Any net gain realized from futures (or
futures options) contracts will be considered gain from the sale of securities
and therefore be qualifying income for purposes of the 90% requirement.  In
order to avoid realizing excessive gains on securities held less than three
months, the Portfolio may be required to defer the closing out of certain
positions beyond the time when it would otherwise be advantageous to do so.
Year-end mark to market gains on positions open for less than three months as
of the end of a Portfolio's fiscal year are considered gains on securities held
three months or more for purposes of the 30% test.

Each Portfolio distributes to shareholders annually any net capital gains which
have been recognized for federal income tax purposes (including year-end mark
to market gains) on options and futures transactions. Such distributions are
combined with distributions of capital gains realized on the Portfolio's other
investments and shareholders are advised of the nature of the payments.


INVESTMENT RESTRICTIONS

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

         (1)     make any investment if, immediately thereafter, less than 75%
                 of its total assets would be represented by (a) cash,
                 receivables and other cash items, (b) securities issued by the
                 U.S. Government, its agencies or instrumentalities, and (c)
                 other securities limited in respect of any one issuer to an
                 amount not greater in value than 5% of such total assets.  For
                 purposes of this restriction, repurchase agreements fully
                 collateralized by securities of the U.S. Government, its
                 agencies and instrumentalities shall be considered to be
                 securities issued by the governmental entity in question,
                 rather than by the repurchase agreement obligor;

         (2)     purchase securities on margin, except for use of short term
                 credit necessary for clearance of purchases and sales of
                 portfolio securities, but it may, to the extent consistent
                 with its investment objectives and policies, make margin
                 deposits in connection with transactions in options, futures
                 and options on futures;





                                     SAI-11
<PAGE>   34

         (3)     make short sales of securities or maintain a short position,
                 or write, purchase, or sell puts, calls, straddles, spreads,
                 or combinations thereof, except, to the extent consistent with
                 its investment objectives and policies, transactions in
                 options on securities or indexes, interest rate and index
                 futures and options on such futures;
   
         (4)     make loans to other persons, except that the Portfolios
                 reserve freedom of action, consistent with their other
                 investment policies and restrictions and as described in the
                 Prospectus and this SAI, to (i) invest in debt obligations,
                 including those which are either publicly offered or of a type
                 customarily purchased by institutional investors, even though
                 the purchase of such debt obligations may be deemed the making
                 of loans, (ii) enter into repurchase agreements, and (iii)
                 lend portfolio securities, provided that no Portfolio may lend
                 securities if, as a result, the aggregate value of all
                 securities loaned would exceed 33% of its total assets (taken
                 at market value at the time of such loan);
    

         (5)     issue senior securities or borrow, except that a Portfolio may
                 borrow in amounts not in excess of 10% of its total assets,
                 taken at current value, and then only from banks, as a
                 temporary measure for extraordinary or emergency purposes.
                 The Portfolios will not borrow to increase income but may
                 borrow, among other things, to meet redemption requests which
                 otherwise might require untimely dispositions of portfolio
                 securities;

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

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

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

         (9)     purchase or sell commodities or commodity contracts, except
                 that, to the extent consistent with its investment objective
                 and policies, a Portfolio may purchase or sell interest rate
                 and index futures and options thereon.   For purposes of this
                 restriction, foreign exchange contracts are not considered to
                 be commodities contracts;

         (10)    invest more than 25% of its total assets (taken at current
                 value at the time of each investment) in securities of issuers
                 whose principal business activities are in the same industry.
                 For purposes of this restriction, telephone, water, gas and
                 electric public utilities are each regarded as separate
                 industries, and wholly-owned finance subsidiaries are
                 considered to be in the industry of their parents if their
                 activities are primarily related to financing the activities
                 of their parents.  Nor does this restriction apply to
                 investments by a Portfolio in obligations of the U.S.
                 Government or any of its agencies or instrumentalities.  Nor,
                 with respect to the AAL Variable Product Money Market
                 Portfolio, does this restriction apply to certificates of
                 deposit, bankers' acceptances or similar obligations of
                 domestic banking institutions;





                                     SAI-12
<PAGE>   35

         (11)    invest in oil, gas or mineral related programs or leases;

         (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 15%
                 of a Portfolio's total assets (10% in the case of the AAL
                 Variable Product Money Market Portfolio), taken at current
                 value at the time of such investment, would be invested in
                 such securities;

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

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

For purposes of any restrictions or limitations to which the Fund is subject,
no Portfolio, by entering into any futures contract or acquiring or writing any
option thereon or on any security or market index, shall be deemed:

         (1)     to have acquired or invested in any securities of any exchange
                 or clearing corporation for any such instrument; or

         (2)     to have acquired or invested in any debt obligations or in any
                 stocks comprising indexes on which such instrument is based,
                 but which the Portfolio does not hold directly in its
                 portfolio.

   
In pursuing their respective objectives, each Portfolio may employ the
investment techniques described in the Prospectus and elsewhere in this SAI.
Each Portfolio's investment objective is a fundamental policy, which may not be
changed without the approval of a "majority of the outstanding voting
securities" of that Portfolio.  Each of the restrictions (1) through (14),
above, are not deemed fundamental policies, and therefore, may be changed
without shareholder approval, except to the extent such approval is legally
required.
    


PURCHASES AND REDEMPTIONS

Purchases and redemptions are discussed in the Prospectus under the headings
"Purchase and Redemption of Shares," "Description of Shares," and "Net Asset
Value," and that information is incorporated herein by reference.

   
The Fund's net asset value is determined only on days on which the New York
Stock Exchange (the "Exchange") is open for trading and on which AAL is open
for business.  The Exchange is regularly closed on Saturdays and Sundays and on
New Year's Day, the third Monday in February, Good Friday, the last Monday in
May, Independence Day, Labor Day, Thanksgiving, and Christmas.  If one of these
holidays falls on a Saturday or Sunday, the Exchange will be closed on the
preceding Friday or the following Monday, respectively.  In addition to the
foregoing, during 1996, AAL will be closed for business on the Fridays after
Independence Day and Thanksgiving, and the day before Christmas.
    





                                     SAI-13
<PAGE>   36


The Fund intends to pay all redemption proceeds in cash.   However, redemptions
may be paid wholly or partly by a distribution "in-kind" of securities if the
Fund's Board of Directors deems this to be in the best interest of the Fund or
its shareholders.  If redemptions were made in kind, the redeeming shareholders
might incur brokerage fees in selling the securities received in the
redemptions.

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

THE AAL VARIABLE PRODUCT MONEY MARKET PORTFOLIO--AMORTIZED COST VALUATION

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

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


MANAGEMENT OF THE FUND

BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

   
The Directors and executive officers of the Fund and their principal
occupations during the past five years are described below.  Unless otherwise
specified, the business address of all directors and officers is 4321 North
Ballard Road, Appleton, WI 54919-0001:
    





                                     SAI-14
<PAGE>   37

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

 Richard L. Gunderson (62)         Director*                Chief Executive Officer and
                                                            Chairman of the Board
                                                            Aid Association for Lutherans
                                                            (fraternal benefit society)

 John O. Gilbert (53)              Director*                President and Chief
                                                            Operating Officer
                                                            Aid Association for Lutherans

 John H. Pender (65)               Director*                Retired; formerly
 105 Kay Drive                                              Senior Vice President and
 Dunbar, WV 25064                                           Chief Investment Officer
                                                            Aid Association for Lutherans

 Richard L. Gady (53)              Director                 Vice President
 One Con Agra Drive                                         Public Affairs and Chief Economist
 Omaha, NE 68102-5001                                       ConAgra, Inc. (agribusiness)

 F. Gregory Campbell (56)          Director                 President
 2001 Alford Park Drive                                     Carthage College
 Kenosha, WI 53140

 D. W. Russler (67)                Director                 Retired; formerly Senior Vice President
 24 Turnbridge Drive                                        Finance and Administration
 Hilton Head Island, SC 29928                               NCR Corporation (computers and related
                                                            equipment); Member, Advisory
                                                            Board - Saratoga Partners II
                                                            (corporate-buyout Limited
                                                            Partnership)

 Lawrence M. Woods (64)            Director                 Retired; formerly
 524 Sunset Drive                                           Executive Vice President and Director
 Worland, WY 82401                                          Mobil Oil Corporation

 D. Charles DeVries (51)           President                Vice President,
                                                            Retirement Products
                                                            Aid Association for Lutherans

 H. Michael Spence (60)            Vice President           President
                                                            AAL Capital Management Corporation,
                                                            (mutual fund and variable
                                                            annuity distributor)

 Carl J. Rudolph (50)              Treasurer                Vice President and Controller
                                                            Aid Association for Lutherans

 James H. Abitz (50)               Assistant Treasurer      Vice President, Securities
                                                            Aid Association for Lutherans

</TABLE>
    




                                     SAI-15
<PAGE>   38

   
<TABLE>
 <S>                               <C>                      <C>
 Mark J. Mahoney (42)              Secretary                Assistant General Counsel
                                                            Insurance Products and Securities
                                                            Aid Association for Lutherans

 Carl M. Rizzo (44)                Assistant Secretary;     Assistant General Counsel,
                                   Compliance Officer       Securities and Compliance
                                                            Aid Association for Lutherans
</TABLE>
    

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

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

The following table shows the compensation paid to the Directors* of the Fund
for the period beginning June 14, 1995 (commencement of operations) and ended
December 31, 1995:

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

 Richard L.                     -0-                   -0-                   -0-                   -0-
 Gunderson,
 Director

 John O. Gilbert,               -0-                   -0-                   -0-                   -0-
 Director

 John H. Pender,                -0-                   -0-                   -0-                   -0-
 Director

 Richard L. Gady,             $6,000                  -0-                   -0-                 $23,000
 Director

 F. Gregory                   $6,000                  -0-                   -0-                 $22,000
 Campbell,
 Director

 D.W. Russler,                $6,000                  -0-                   -0-                 $23,000
 Director

 Lawrence M. Woods,           $6,000                  -0-                   -0-                 $23,000
 Director                  
- ---------------------------
</TABLE>

*       The Fund did not pay any compensation to its executive officers during
        this period.
    


THE INVESTMENT ADVISER

   
Please refer to the description of the Adviser, its Advisory Agreement with the
Fund, and fees under "MANAGEMENT OF THE FUND" in the Prospectus, which is
incorporated herein by reference.
    





                                     SAI-16
<PAGE>   39

The Advisory Agreement provides that, subject to Section 36 of the Investment
Company Act of 1940 (the "1940 Act"), the Adviser shall not be liable to the
Fund 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 Fund and the
performance of its duties under the Agreement except for willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the Agreement.

In the event the expenses of a Portfolio (including the fees of the Adviser and
amortization of organization expenses, but excluding interest, taxes, brokerage
commissions, extraordinary expenses and sales charges and distribution fees)
for any fiscal year exceed the limits set by applicable regulations of state
securities commissions, the Adviser will reduce its fee by up to the amount of
such excess.  Any such reductions are subject to readjustment during the year.
The payment of the management fee at the end of any month will be reduced or
postponed or, if necessary, a refund will be made to a Portfolio so that at no
time will there by any accrued, but unpaid, liability under this expense
limitation.

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

   
The Advisory Agreement was most recently approved by the Board of Directors of
the Fund, including a majority of the Directors who are not interested persons
(as defined in the 1940 Act) of any party to the Agreement, on February 28,
1996, and was approved by Fund shareholders on April 24, 1996.  The Advisory
Agreement terminates automatically upon assignment or at any time without
penalty by vote of the Fund's Board of Directors or, with respect to any
Portfolio, by the vote of a majority of the outstanding shares of such
Portfolio, or by the Adviser, in each case on 60 days' written notice to the
other party.
    

   
AAL received the following investment advisory fees for the period from June
14, 1995 (commencement of operations) through December 31, 1995:
    

   
<TABLE>
         <S>                                                       <C>
         AAL Variable Product Large Company Stock Portfolio         $26,916
         AAL Variable Product Small Company Stock Portfolio         $17,641
         AAL Variable Product Bond Portfolio                        $12,744
         AAL Variable Product Balanced Portfolio                    $35,948
         AAL Variable Product Money Market Portfolio                $ 8,720
</TABLE>
    

   
Please refer to the Prospectus for a description of the administrative services
provided to the Fund by AAL Capital Management Corporation, the Fund's
Administrator, pursuant to its Administrative Services Agreement with AAL.  For
services rendered for the period from June 14, 1995 (commencement of
operations) through December 31, 1995, the Administrator received fees from AAL
in the amount of $35,000 per Portfolio.  None of these fees resulted in
additional charges to any Portfolio.
    

CUSTODIAN, TRANSFER AGENT AND INDEPENDENT AUDITORS FOR THE FUND

   
Harris Trust & Savings Bank, 111 West Monroe Street, Chicago, Illinois, 60690,
serves as Custodian for the Fund.  The Custodian is responsible for holding the
Funds' assets and provides certain administrative and accounting services to
the Fund, including maintaining the 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 Adviser communications; and preparing monthly and annual summaries to assist
in the preparation of financial statements of, and regulatory reports for, the
Fund.
    





                                     SAI-17
<PAGE>   40


   
AAL serves as Transfer Agent and Dividend Disbursing Agent for the Fund.  In
its capacity as Transfer Agent, AAL is responsible for, among other things,
issuing shares of the Fund, recording the issuance of those shares, computing
the number of issuable shares in the case of an order for a specific dollar
amount of shares, processing redemptions and repurchases of shares, maintaining
certain shareholder records, mailing proxy cards supplied by the Fund in
connection with Fund shareholder meetings, examining and tabulating those
proxies that have been returned, and certifying the vote of each Portfolio of
the Fund.  In its capacity as Dividend Disbursing Agent, AAL is responsible for
distributing or crediting income or capital gains payments, as the case may be.
AAL receives no monetary compensation for serving as Transfer Agent and
Dividend Disbursing Agent for the Fund.
    

   
Ernst & Young LLP, 111 East Kilbourn Avenue, Suite 900, Milwaukee, Wisconsin
53202, independent auditors for the Fund, examine and audit the Fund's annual
financial statements and assist in the preparation of certain reports to the
Securities and Exchange Commission and the Fund's federal and state tax
returns.
    

   
PRINCIPAL HOLDERS OF SECURITIES
    

   
As of March 29, 1996, AAL owned of record and beneficially the percentages of
each Portfolio's outstanding shares as shown below.  As a result of such
beneficial ownership, AAL may be presumed to control the Bond Portfolio and 
the Balanced Portfolio.  Such control may dilute the effect of the votes of 
other shareholders of each Portfolio.  AAL, which was organized in 1902 under 
the laws of the State of Wisconsin, is located at 4321 North Ballard Road, 
Appleton, Wisconsin 54919.
    


   
<TABLE>
                 <S>                                                               <C>
                 AAL Variable Product Bond Portfolio                                 41.22%
                 AAL Variable Product Balanced Portfolio                             28.36%
                 AAL Variable Product Large Company Stock Portfolio                  23.82%
                 AAL Variable Product Small Company Stock Portfolio                  22.57%
                 AAL Variable Product Money Market Portfolio                         18.24%
</TABLE>
    


   
As of March 29, 1996, the Variable Account owned of record the percentages of
each Portfolio's outstanding shares as shown below.  The Variable Account is
located at 4321 North Ballard Road, Appleton, Wisconsin 54919.  Certificate
Owners may be deemed to beneficially own shares of one or more of the
Portfolios, to the extent that they are given the right to provide voting
instructions with regard to shares of those Portfolios.  To the knowledge of
the Fund, no Certificate Owner beneficially owns five percent or more of any
Portfolio.
    


   
<TABLE>
                 <S>                                                               <C>
                 AAL Variable Product Money Market Portfolio                         81.76%
                 AAL Variable Product Small Company Stock Portfolio                  77.43%
                 AAL Variable Product Large Company Stock Portfolio                  76.18%
                 AAL Variable Product Balanced Portfolio                             71.64%
                 AAL Variable Product Bond Portfolio                                 58.78%
</TABLE>
    


As of March 29, 1996, the Directors and officers of the Fund as a group owned
beneficially less than 1% of the outstanding shares of any Portfolio.





                                     SAI-18
<PAGE>   41


PORTFOLIO TRANSACTIONS

For more information, please refer to "MANAGEMENT OF THE FUND - - Portfolio
Transactions," in the Prospectus, which is incorporated herein by reference.

The Adviser directs the placement or orders for the purchase and sale of the
Funds' portfolio securities.

The costs of securities transactions for each Portfolio will consist primarily
of brokerage commissions or dealer or underwriter spreads.  Bonds and money
market instruments are generally traded on a net basis and do not normally
involve brokerage commissions.  Occasionally, securities may be purchased
directly from the issuer, which does not involve the payment of commissions.

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

In determining which brokers and dealers provide best price and execution, the
Adviser looks primarily to the price quoted by the broker or dealer, and
normally places orders with the broker or dealer through which the most
favorable price can be obtained.  It is expected that securities will
ordinarily be purchased in the primary markets, and that in assessing the best
net price and execution available to a Portfolio, the Adviser will consider all
factors deemed relevant, including the breadth or the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer and the reasonableness of the commission, if any (for the
specific transaction and on a continuing basis).

   
Assuming equal execution capabilities and price, other factors may be taken
into account in selecting brokers or dealers to execute particular transactions
and in evaluating the best net price and execution available.  The Adviser 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 Portfolios' net asset
values, and other information provided to the Fund or to the Adviser.  The
Adviser may also cause a Portfolio to pay to a broker who provides brokerage
and research services a commission for executing a portfolio transaction which
is in excess of the amount of commission another broker would have charged for
effecting that transaction.  The Adviser must determine, in good faith,
however, that such commission  is reasonable in relation to the value of the
brokerage and research services provided, viewed in terms of that particular
transaction or in terms of all the accounts over which the Adviser exercises
investment discretion.  It is possible that certain of the services received by
the Adviser attributable to a particular transaction will benefit one or more
other accounts for which investment discretion is exercised by the Adviser.
    

   
Brokerage commissions paid by each of the Portfolios listed below were as
follows for the period from June 14, 1995 (commencement of operations) through
December 31, 1995:
    


   
<TABLE>
         <S>                                                                        <C>
         AAL Variable Product Small Company Stock Portfolio                          $28,386
         AAL Variable Product Large Company Stock Portfolio                          $16,760
         AAL Variable Product Balanced Portfolio                                     $11,899
         AAL Variable Product Bond Portfolio                                            N/A
         AAL Variable Product Money Market Portfolio                                    N/A
    
</TABLE>





                                     SAI-19
<PAGE>   42

   
Certain Portfolios paid brokerage commissions in connection with brokerage
transactions that were directed to brokers because of brokerage and research
services provided by such brokers.  During the period from June 14, 1995
(commencement of operations) through December 31, 1995, the amount of such
brokerage transactions and related commissions paid by these Portfolios were as
follows:
    

   
<TABLE>
<CAPTION>
                                                                                     Transaction
                                                                    Commissions        Amounts
                                                                    -----------        -------
         <S>                                                         <C>             <C>
         AAL Variable Product Large Company Stock Portfolio           $16,760        $ 8,203,474
         AAL Variable Product Small Company Stock Portfolio           $16,286        $19,706,574
         AAL Variable Product Balanced Portfolio                      $ 6,142        $ 7,299,889
</TABLE>
    

   
Certain of the Portfolios acquired securities of their regular brokers or
dealers, or their parents, during the period from June 14, 1995 (commencement
of operations) through December 31, 1995.  As of December 31, 1995 the market
value of each Portfolio's aggregate holdings of each broker's securities was as
follows:
    

   
AAL Variable Product Large Company Stock Portfolio:
    

   
<TABLE>
<CAPTION>
Broker                            Market Value
- ------                            ------------
<S>                               <C>
Merrill Lynch & Co.               $ 45,900 (common stock)
Lehman Brothers Holdings          $264,822 (commercial paper)
Salomon, Inc.                     $ 17,750 (common stock)
</TABLE>
    


   
AAL Variable Product Small Company Stock Portfolio:
    

   
<TABLE>
<CAPTION>
Broker                            Market Value
- ------                            ------------
<S>                              <C>
Lehman Brothers Holdings          $404,728 (commercial paper)
</TABLE>                          
    


   
AAL Variable Product Balanced Portfolio:
    

   
<TABLE>
<CAPTION>
Broker                            Market Value
- ------                            ------------
<S>                               <C>
Merrill Lynch & Co.               $ 30,600 (common stock)
                                  $ 99,612 (commercial paper)
Lehman Brothers Holdings          $319,785 (commercial paper)
Salomon, Inc.                     $ 10,650 (common stock)
</TABLE>
    


   
AAL Variable Product Money Market Portfolio:
    

   
<TABLE>
<CAPTION>
Broker                            Market Value
- ------                            ------------
<S>                               <C>
Merrill Lynch & Co.               $189,475 (commercial paper)
Lehman Brothers Holdings          $199,570 (commercial paper)
C.S. First Boston                 $199,426 (commercial paper)
</TABLE>
    





                                     SAI-20
<PAGE>   43

DIVIDENDS AND DISTRIBUTIONS

Each of the Portfolios' dividends from net investment income together with
distributions of short-term capital gains (collectively "income dividends") are
taxable as ordinary income to AAL as sole shareholder, whether reinvested in
additional shares or paid in cash.  Any long-term capital gains ("capital gain
distributions") distributed to shareholders are treated as such by the
shareholder, whether received in cash or in additional shares, regardless of
the length of time a shareholder has owned the shares.  All of the Portfolios
intend to distribute all their net investment income and net realized long-term
capital gains.  The AAL Variable Product Small and Large Company Stock, Bond
and Balanced Portfolios expect to pay any income dividends monthly.  The AAL
Variable Product Money Market Portfolio will accrue income dividends daily and
expects to pay these dividends daily.  All of the Portfolios expect to
distribute long-term capital gains, if any, annually.

The fact that dividends and distributions may be taxable to AAL as sole
shareholder does not necessarily imply a tax consequence to the Owner.  For
information regarding tax consequences to Owners, please refer to "FEDERAL TAX
STATUS" in the Certificate Prospectus.


CALCULATION OF YIELD AND TOTAL RETURN

From time to time the Fund may advertise yield and total return for various
periods of investment.  Such advertisements will always include uniform
performance calculations based on standardized methods established by the
Securities and Exchange Commission, and may also include other total return
information.  Performance information should be considered in light of the
particular Portfolio's investment objectives and policies, characteristics and
quality of its portfolio securities and the market conditions during the
applicable periods and should not be considered as a representation of what may
be achieved in the future.  Investors should consider these factors, in
addition to differences in the methods used in calculating performance
information and the impact of taxes on alternative investments, when comparing
a particular Portfolio's performance to any performance data published for
alternative investments.

STANDARDIZED PERFORMANCE INFORMATION

AVERAGE ANNUAL TOTAL RETURN.  For each of the Portfolios, except the AAL
Variable Product Money Market Portfolio, standardized average annual total
return is computed by finding the average annual compounded rates of return
over the 1, 5 and 10 year periods (or, in the case of a start-up Fund such as
this, the portion thereof during which the Fund has been in existence) that
would equate the initial amount invested to the ending redeemable value
according to the following formula:
                          n
                 P (1 + T)  =  ERV

Where:

         P       =        A hypothetical $1,000 initial payment;
         T       =        Average annual total return;
         n       =        Number of years;
         ERV     =        Ending redeemable value of a hypothetical $1,000 
                          payment made at the beginning of the 1, 5 and 10 
                          year periods (or fractional portion thereof).

   
For the period from June 14, 1995 (commencement of operations) through December
31, 1995, the average annual total return* for each Portfolio was as follows:
    





                                     SAI-21
<PAGE>   44


   
<TABLE>
<CAPTION>
                                                                    
         
                                                                    Average Annual
         Portfolio                                                   Total Return* 
         ---------                                                  --------------
<S>                                                                  <C>
AAL Variable Product Large Company Stock Portfolio                      16.39%
AAL Variable Product Small Company Stock Portfolio                      10.70%
AAL Variable Product Bond Portfolio                                      5.80%
AAL Variable Product Balanced Portfolio                                 11.46%
AAL Variable Product Money Market Portfolio                              5.58%
</TABLE>
    

___________________________

   
*        The total return figures provided for each Portfolio (except for the
         Money Market Portfolio) are provided on an unannualized, or cumulative
         basis, for the period indicated.  The total return figure for the
         Money Market Portfolio is provided on an annualized basis; on an
         unannualized basis the total return for the Money Market Portfolio for
         the period indicated would be 3.02%.  Additionally, these values
         reflect the deduction of a .35% annual management fee, but do not
         reflect Portfolio expenses which are voluntarily paid by AAL or
         reimbursed by AAL.  Without the payment and reimbursement of expenses
         by AAL, which can be changed on 30 days notice, these total returns
         would have been lower.
    


CURRENT YIELD.  Current yield quotations for the Portfolios, except the AAL
Variable Product Money Market Portfolio, are  based on a 30-day (or one-month)
period, and are computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last day of
the period, according to the following formula:

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


         a =     Dividends and interest earned during the period;
         b =     Expenses accrued for the period (net of reimbursements);
         c =     The average daily number of shares outstanding during the
                 period that were entitled to receive dividends; and
         d =     The maximum offering price per share on the last day of the
                 period.

For purposes of this calculation, income earned on debt obligations is
determined by applying a calculated yield-to-maturity percentage to the
obligations held during the period.  Interest earned on mortgage-backed
securities will be calculated using the coupon rate and principal amount after
adjustment for a monthly paydown.  Income earned on common and preferred stocks
is determined by using the stated annual dividend rate applied over the
performance period.

   
For the one-month period ended December 31, 1995, the current yield for the AAL
Variable Product Bond Portfolio was 5.80% and for the AAL Variable Product
Balanced Portfolio was 3.84%.
    

CALCULATION OF YIELD -- AAL VARIABLE PRODUCT MONEY MARKET PORTFOLIO

The AAL Variable Product Money Market Portfolio may quote a "Current Yield" or
"Effective Yield" from time to time.  The Current Yield is an annualized yield
based on the net change in account value for a seven day period.  The Effective
Yield is an annualized yield based on a daily compounding of the Current Yield.
These yields are each computed by first determining the "Net Change in Account
Value"





                                     SAI-22
<PAGE>   45

for a hypothetical account having a balance of one share at the beginning of a
seven-day period ("Beginning Account Value"), excluding capital changes.

The yields then are computed as follows:

         Current Yield  =     (Net Change in Account Value)      X     (365)
                               ---------------------------              ---
                               Beginning Account Value                   7


         Effective Yield =   [(Net Change in Account Value) 365/7]  - 1
                               ---------------------------             
                               1 + Beginning Account Value             


In addition to fluctuations reflecting changes in net income of the Portfolio
resulting from changes in income earned on its portfolio securities and in its
expenses, the Portfolio's yield also would be affected if the Portfolio were to
restrict or supplement its dividends in order to maintain its NAV at $1.00 per
share.  See "PURCHASES AND REDEMPTIONS--The AAL Variable Product Money Market
Portfolio--Amortized Cost Valuation."  Portfolio changes resulting from net
purchases or net redemptions of Portfolio shares may affect yield.
Accordingly, the Portfolio's yield may vary from day to day and the yield
stated for a particular past period is not a representation as to its future
yield.  The Portfolio's yield is not guaranteed, nor is its principal insured;
however, the Portfolio will attempt to maintain its NAV per share at $1.00.

   
For the seven days ended December 31, 1995, the Current and Effective Yields of
the AAL Variable Product Money Market Portfolio were 5.46% and 5.61%,
respectively.
    

OTHER PERFORMANCE INFORMATION

All of the Portfolios may, from time to time, include in their advertisements,
total return quotations computed for a time period, or by a method which
differs from the computations described in the foregoing section.  Calculations
of the growth of an investment, at various assumed interest rates and
compounding, may be used to show the effect of the length of time, interest
rate and/or tax deferral on an investment.

Comparison of the Portfolio's yield with those of alternative investments (such
as savings accounts, various types of bank deposits, and other money market
funds) should consider differences between the Portfolio and the alternative
investments, differences in the periods and methods used in the calculation of
the yields being compared, and the impact of taxes on alternative investments.

The Portfolios may, from time to time, illustrate the benefits of tax deferral
by comparing taxable investments to investments made in tax deferred retirement
plans and may illustrate in graph or chart form, or otherwise, the benefit of
dollar cost averaging by comparing investments made pursuant to a systematic
investment plan.

The Portfolios may also, from time to time, illustrate the concepts of asset
allocation by use of hypothetical case studies representing various life cycles
and/or risk levels of an Owner.


PRICING CONSIDERATIONS

Reliable market quotations are not considered to be readily available for many
long-term corporate bonds and notes, certain preferred stocks, or certain
foreign securities.  These investments are stated





                                     SAI-23
<PAGE>   46

at fair value on the basis of valuations furnished by pricing services approved
by the Directors, which determine valuations for normal, institutional-size
trading units of such securities using methods based on market transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders.

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


GENERAL

The Fund's Articles and Bylaws permit its Directors to issue up to 2 billion
shares of common stock on a full or fractional share basis, and to divide or
combine the shares into a greater or lesser number of shares without thereby
changing the proportionate beneficial interest in a Portfolio.  Each share
represents an interest in a Portfolio proportionately equal to the interest of
each other share.  If the Fund were to liquidate, all shareholders of a
Portfolio would share pro rata in its net assets available for distribution to
shareholders. If they deem it advisable and in the best interests of
shareholders, the Board may create additional classes of shares which may
differ from each other only as to dividends or, as is the case with the
Portfolios, have separate assets and liabilities (in which case any such class
would have a designation including the word "series").

Income and operating expenses are generally allocated to the Portfolio in which
the related assets are held.  In the event that there are any assets, income,
liabilities, or expenses which are not readily identifiable as belonging to any
particular Portfolio, the Directors will allocate them among any one or more of
the Portfolios in such manner and on such basis as the Directors, in their sole
discretion, deem fair and equitable.





                                     SAI-24
<PAGE>   47

APPENDIX: SECURITY RATINGS

RATINGS IN GENERAL

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

The following is a description of the characteristics of ratings used by
Moody's,  S&P and Duff & Phelps:


CORPORATE BOND RATINGS

RATINGS BY MOODY'S

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

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

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

BAA -- Bonds 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 may have
speculative characteristics as well.

Moody's applies numerical modifiers "l," "2," and "3" to the Aa, A and Baa
rating classifications.  The modifier "1" indicates that the security 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 issue ranks in the
lower end of its generic rating category.





                                     SAI-25
<PAGE>   48


RATINGS BY STANDARD & POOR'S

AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation.   Extremely strong capacity to pay principal and interest.

AA -- Bonds rated AA also qualify as high-quality debt obligations.  Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.

A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.

BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest.  Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than for bonds in higher rated categories.

S&P ratings may be modified by the addition of a plus (+) or minus (-) sign to
show relative standing within the major ratings categories.

RATINGS BY DUFF & PHELPS

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

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

A -- Good quality investment grade securities.  Protection factors are average
but adequate.  However, risk factors are more variable and greater in periods
of economic stress.

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

The Duff & Phelps ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major ratings categories.

COMMERCIAL PAPER RATINGS

RATINGS BY MOODY'S

Moody's commercial paper ratings are opinions of the ability to repay
punctually the obligations.  Moody's employs the following three investment
grade designations to indicate the relative repayment capacity of the rated
issuers:  Prime 1 (Highest Quality);  Prime 2 (Higher Quality);  Prime 3 (High
Quality).

The rating Prime is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
evaluation of the management of the issuer; economic evaluation of the issuer's
industry or industries and an appraisal of speculative-type risks which may be
inherent in certain areas; evaluation of the issuer's products in relation to
competition and customer acceptance;  liquidity; amount and quality of
long-term debt;  trend of earnings over a period of 10 years; financial
strength of any parent company and the relationships which





                                     SAI-26
<PAGE>   49

exist with the issuer; and recognition by the management of obligations which
may be present or may arise as a result of public interest questions and
preparations to meet such obligations.  These factors are all considered in
determining whether the relative repayment capacity of the issuer is rated
Prime-1 (Highest Quality), Prime-2 (Higher Quality), or Prime-3 (High Quality).
The Portfolios will not invest in commercial paper rated Prime-3.

RATINGS BY S & P

Issues assigned the highest rating, A, are regarded as having the greatest
capacity for timely payment.  Issues in this category are delineated with the
numbers "1," "2," and "3" to indicate the relative degree of safety.  The
designation A-1 indicates that the degree of safety regarding timely payment is
either overwhelming or very strong.  A "+" designation is applied to those
issues rated "A-l" which possess overwhelming safety characteristics.  Capacity
for timely payment on issues with the designation "A-2" is strong.  However,
the relative degree of safety is not as high as for issues designated A-1.  The
Portfolios will not invest in commercial paper rated A-3.

RATINGS BY DUFF & PHELPS

Category 1:      Top Grade

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

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

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

Category 2:      Good Grade

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





                                     SAI-27
<PAGE>   50

FINANCIAL STATEMENTS

   
The financial statements of the Fund for the period from June 14, 1995
(commencement of operations) through December 31, 1995, and the report of the
Fund's independent auditors thereon, are set out in the pages that follow.
    





                                     SAI-28
<PAGE>   51
 
<TABLE> 
<CAPTION> 
=================================================================================================

                    A A L   V A R I A B L E   A N N U I T Y


[LOGO OF AAL VARIABLE ANNUITY]
Money Market Portfolio
                           
Schedule of Investments as of December 31, 1995


PRINCIPAL                                                         INTEREST   MATURITY  MARKET
AMOUNT                                                            RATE       DATE      VALUE
 .................................................................................................
<C>            <S>                                                <C>        <C>       <C>
               Commercial Paper (80.6%)
                                              
$200,000       American Express
                 Credit Corporation...........................      5.600%   01/02/96  $  199,969
 200,000       Associates Corporation                                                   
                 of North America.............................      5.600    01/04/96     199,907
 190,000       AT&T Corporation...............................      5.820    01/02/96     189,969
 200,000       Beneficial Corporation.........................      5.700    01/10/96     199,715
 200,000       Cargill, Inc...................................      5.720    01/08/96     199,778
 200,000       CS First Boston................................      5.740    01/17/96     199,490
 200,000       Dresser Industries, Inc........................      5.700    01/30/96     199,082
 200,000       DuPont (E.I.) De Nemours                                                 
                 & Company....................................      5.700    01/09/96     199,747
 200,000       Echlin, Inc....................................      5.750    01/29/96     199,105
 100,000       Ford Motor Credit Company......................      5.700    01/02/96      99,984
 100,000       Ford Motor Credit Company......................      5.720    01/16/96      99,762
 200,000       General Motors                                                           
                 Acceptance Corporation.......................      5.680    02/09/96     198,769
 200,000       GTE South, Inc.................................      5.620    02/07/96     198,844
 200,000       Hewlett-Packard Company........................      5.850    01/11/96     199,675
 200,000       Household Finance                                                        
                 Corporation..................................      5.710    01/24/96     199,270
 200,000       International Business                                                   
                 Machines Corporation.........................      5.750    01/03/96     199,936
 250,000       Johnson Controls, Inc..........................      5.870    01/02/96     249,959
 200,000       KN Energy, Inc.................................      5.750    01/03/96     199,489
 200,000       Lehman Brothers Holdings, Inc..................      5.950    01/12/96     199,636
 250,000       Massachusetts Electric                                                   
                 Company                                            5.900    01/03/96     249,918
 200,000       McDonald's Corporation.........................      5.600    01/08/96     199,782
 190,000       Merrill Lynch & Company, Inc...................      5.850    01/16/96     189,537
 165,000       New England Power Company......................      5.750    01/22/96     164,447
 200,000       Nordstrom Credit, Inc..........................      5.770    01/16/96     199,519
 200,000       Pacific Bell...................................      5.750    01/09/96     199,744
 250,000       R.R. Donnelley & Sons                                                    
                 Company......................................      5.900    01/05/96     249,836
 200,000       Sears Roebuck Acceptance                                                 
                 Corporation..................................      5.650    01/16/96     199,529
 200,000       Southern California Edison                                               
                 Company......................................      5.750    01/12/96     199,649
 200,000       U.S. West                                                                
                 Communications, Inc. ........................      5.750    01/19/96     199,425
                                                                                       ----------
               Total Commercial Paper................................................   5,683,472
                                                                                       ----------

               U.S. Government Agency Obligations (22.1%)
                                                              
$300,000       Federal Farm Credit Bank.......................      5.520%   01/10/96  $  299,586
 300,000       Federal Home Loan Bank.........................      5.520    01/08/96     299,678
 606,000       Federal Home Loan
                 Mortgage Corporation.........................      5.550    01/04/96     605,721
 350,000       Federal National
                 Mortgage Association.........................      5.450    01/03/96     349,894
                                                                                       ----------
               Total U.S. Government
                 Agency Obligations...........................                          1,554,879
                                                                                       ----------
               Short-Term Investments (0.1%)
   2,177       Harris Insight Government
                 Assets Fund.........................................................       2,177
                                                                                       ----------
               Total Investments (102.8%)
                 (amortized cost $7,240,528).........................................   7,240,528
               Liabilities, less
                 other Assets (-2.8%)................................................    (195,886)
                                                                                       ----------
               NET ASSETS (100.0%)...................................................  $7,044,642
                                                                                       ==========
</TABLE>

                            See accompanying notes.

                                     FS-1
<PAGE>   52
  
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y


[LOGO OF AAL VARIABLE ANNUITY]

Bond Portfolio
 ................
Schedule of Investments as of December 31, 1995

<TABLE>
<CAPTION>
 PRINCIPAL                                                      INTEREST    MATURITY       MARKET
 AMOUNT                                                         RATE        DATE           VALUE
 ...................................................................................................
<S>           <C>                                               <C>         <C>          <C>
              U.S. Government Obligations (44.8%)
              -----------------------------------
$  250,000    U.S. Treasury Bond ...........................      6.250%    08/15/23     $  256,953
   250,000    U.S. Treasury Bond ...........................      9.875     11/15/15        361,953
   250,000    U.S. Treasury Bond ...........................     10.375     11/15/12        345,781
   250,000    U.S. Treasury Bond ...........................      5.375     05/31/98        250,781
   185,000    U.S. Treasury Bond ...........................      8.125     08/15/19        232,638
   250,000    U.S. Treasury Bond ...........................      7.125     02/15/23        285,546
    50,000    U.S. Treasury Note ...........................      7.375     11/15/97         51,891
   160,000    U.S. Treasury Note ...........................      5.125     11/30/98        159,400
   250,000    U.S. Treasury Note ...........................      7.250     02/15/98        259,921
   250,000    U.S. Treasury Note ...........................      6.125     05/31/97        253,125
   300,000    U.S. Treasury Note ...........................      6.875     07/31/99        314,906
   250,000    U.S. Treasury Note ...........................      6.375     01/15/99        257,734
   255,000    U.S. Treasury Note ...........................      5.500     09/30/97        256,275
   250,000    U.S. Treasury Note ...........................      5.875     06/30/00        255,156
   250,000    U.S. Treasury Note ...........................      7.500     01/31/97        256,015
   125,000    U.S. Treasury Note ...........................      6.250     02/15/03        130,469
   250,000    U.S. Treasury Note ...........................      7.500     10/31/99        268,438
                                                                                         ----------
              Total U.S. Government Obligations ....................................      4,196,982
                                                                                         ----------
 
              U.S. Government Agency Obligations (30.9%)
              ------------------------------------------
   198,658    Federal Home Loan Mortgage Corporation
                Gold 7-Yr. Balloon .........................      7.000     06/01/02        202,507
   238,478    Federal Home Loan Mortgage Corporation 
                Gold 30-Yr. Pass Through ...................      6.500     04/01/24        235,869
   252,915    Federal Home Loan Mortgage Corporation
                Gold 30-Yr. Pass Through ...................      7.500     08/01/25        259,317
   247,590    Federal National Mortgage Association
                30-Yr. Pass Through ........................      8.500     11/15/25        258,267
   219,596    Federal National Mortgage Association
                Conventional 30-Yr. Pass Through ...........      9.000     02/01/25        231,262
   236,085    Federal National Mortgage Association
                Conventional 30-Yr. Pass Through ...........     10.500     08/01/20        261,169
   250,000    Federal National Mortgage Association
                Medium Term Note ...........................      5.200     04/30/98        247,282
   247,079    Government National Mortgage Association
                30-Yr. Pass Through ........................      7.500     03/15/23        254,028
   246,021    Government National Mortgage Association
                30-Yr. Pass Through ........................      8.000     06/15/25        256,170
   249,074    Government National Mortgage Association
                15-Yr. Pass Through ........................      6.500     03/01/09        251,410
   175,000    Private Export Funding Corporation ...........      6.240     05/15/02        179,452
   250,000    Tennessee Valley Authority ...................      6.000     11/01/00        253,627
                                                                                         ----------
              Total U.S. Government Agency Obligations .............................      2,890,360
                                                                                         ----------
 
              Asset Backed Securities (2.7%)
              ------------------------------
   250,000    Nations Bank Credit Card Trust ...............      6.000     12/15/05        251,320
                                                                                          ----------

              Corporate Obligations (14.6%)
              -----------------------------
   225,000    Abbott Laboratories Note .....................      6.800     05/15/05        239,050
   200,000    Baltimore Gas & Electric Company
                First Refunding Mortgage Bond ..............      7.500     01/15/07        219,740
   200,000    General Motors Acceptance Corporation Note ...      9.625     12/15/01        232,657
   250,000    Household Finance Corporation Note ...........      6.875     03/01/03        260,126
   250,000    PepsiCo Inc. Note ............................      5.700     11/01/08        239,235
   170,000    PepsiCo Inc. Debenture .......................      7.000     11/15/96        172,419
                                                                                         ----------
              Total Corporate Obligations ..........................................      1,363,227
                                                                                         ----------
 
              Utility Bonds (2.8%)
              --------------------
   250,000    Texas Utilities Company First Mortgage Bond ..      7.375     08/01/01        264,796
                                                                                         ----------
 
              Canadian Government (2.2%)
              --------------------------
   200,000    Province of Ontario Senior Global Bond .......      6.125     06/28/00        202,767
                                                                                         ----------
              Total Long-Term Securities
                (cost basis $8,978,835) ............................................      9,169,452
                                                                                         ----------
 
              Short-Term Investments (2.8%)
              -----------------------------
   264,000    Federal Home Loan Mortgage Corporation
                5.5%, due 01/02/96 .................................................        263,960
       440    Harris Insight Government Assets Fund ................................            440
                                                                                         ----------
              Total Short Term Securities
                (cost basis $264,400) ..............................................        264,400
                                                                                         ----------
              Total Investments (100.8%)
                (cost basis $9,243,235) ............................................      9,433,852
              Liabilities, less other Assets (-0.8%) ...............................        (71,020)
                                                                                         ----------
              NET ASSETS (100.0%) ..................................................     $9,362,832 
                                                                                         ==========
</TABLE>

                            See accompanying notes.
                                   .........

                                     FS-2

<PAGE>   53
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y


[LOGO OF AAL VARIABLE ANNUITY]
Balanced Portfolio
 ..................
Schedule of Investments as of December 31, 1995


<TABLE>
<CAPTION>
 
 
SHARES COMMON STOCKS (56.2%)                            MARKET VALUE
<C>    <S>                                              <C>
       Aerospace  (1.4%)
       -----------------
1,200  Boeing Company.................................... $ 94,050
  200  General Dynamics Corporation......................   11,825
  100  Goodrich (B.F.) Company...........................    6,813
  700  Lockheed Martin Corporation.......................   55,300
  600  Loral Corporation.................................   21,225
  400  McDonnell Douglas Corporation.....................   36,800
  200  Northrop Grumman Corporation......................   12,800
  900  Raytheon Company..................................   42,525
  800  Rockwell International Corporation................   42,300
  200  TRW, Inc..........................................   15,500
  300  Textron, Inc......................................   20,250
  500  United Technologies Corporation...................   47,437
                                                         ---------
                                                           406,825
                                                         ---------

       Air Transportation  (0.2%)
       --------------------------
  300  AMR Corporation *.................................   22,275
  200  Delta Air Lines, Inc..............................   14,775
  200  Federal Express Corporation *.....................   14,775
  500  Southwest Airlines Company........................   11,625
  200  USAir Group, Inc. *...............................    2,650
                                                         ---------
                                                            66,100
                                                         ---------
       Apparel  (0.2%)
       ---------------
  100  Brown Group, Inc..................................    1,425
  200  Fruit of the Loom, Inc. *.........................    4,875
  200  Liz Claiborne, Inc................................    5,550
  500  Nike, Inc.........................................   34,813
  200  Reebok International, Ltd.........................    5,650
  100  Russell Corporation...............................    2,775
  100  Springs Industries, Inc...........................    4,137
  100  Stride Rite Corporation...........................      750
  200  V F Corporation...................................   10,550
                                                         ---------
                                                            70,525
                                                         ---------

       Banking (3.7%)
       --------------
1,400  Banc One Corporation..............................   52,850
  400  Bank of Boston Corporation........................   18,500
  700  Bank of New York Company Inc......................   34,125
1,300  BankAmerica Corporation...........................   84,175
  300  Bankers Trust New York Corporation................   19,950
  300  Barnett Banks, Inc................................   17,700
  400  Boatmen's Bancshares, Inc.........................   16,350
  600  Chase Manhattan Corporation.......................   36,375
  900  Chemical Banking Corporation......................   52,875
1,500  Citicorp..........................................  100,875
  400  Comerica, Inc.....................................   16,050
  600  Corestates Financial Corporation..................   22,725
  500  First Bank System, Inc............................   24,813
1,143  NBD First Chicago Corporation.....................   45,148
  300  First Fidelity Bancorporation.....................   22,612
  300  First Interstate Bankcorp.........................   40,950
  600  First Union Corporation...........................   33,375
  856  Fleet Financial Group, Inc........................   34,882
  800  Keycorp...........................................   29,000
  700  J.P. Morgan & Company, Inc........................   56,175
  500  Mellon Bank Corporation...........................   26,875
  500  National City Corporation.........................   16,563
1,000  Nationsbank Corporation...........................   69,625
1,300  Norwest Corporation...............................   42,900
  800  PNC Bank Corporation..............................   25,800
  200  Republic N.Y. Corporation.........................   12,425
  400  Suntrust Banks, Inc...............................   27,400
  600  U S Bancorp.......................................   20,175
  600  Wachovia Corporation..............................   27,450
  200  Wells Fargo & Company.............................   43,200
                                                         ---------
                                                         1,071,918
                                                         ---------
       Brokerage  (0.2%)
       -----------------
  600  Merrill Lynch & Company...........................   30,600
  300  Morgan Stanley Group, Inc.........................   24,188
  300  Salomon, Inc......................................   10,650
                                                         ---------
                                                            65,438
                                                         ---------

       Business Machines  (2.8%)
       -------------------------
  400  Amdahl Corporation *..............................    3,400
  400  Apple Computer, Inc...............................   12,750
  100  Autodesk, Inc.....................................    3,425
  300  Cabletron Systems, Inc. *.........................   24,300
  300  Ceridian Corporation *............................   12,375
1,000  Cisco Systems, Inc. *.............................   74,625
  900  Compaq Computers, Inc. *..........................   43,200
  100  Cray Research, Inc. *.............................    2,475
  100  Data General Corporation *........................    1,375
  500  Digital Equipment Corporation *...................   32,063
  400  Honeywell, Inc....................................   19,450
2,000  International Business Machines Corporation.......  183,500
  100  Intergraph Corporation *..........................    1,575
2,100  Microsoft Corporation *...........................  184,275
1,300  Novell, Inc. *....................................   18,525
1,600  Oracle Systems Corporation *......................   67,800
  500  Pitney-Bowes, Inc.................................   23,500
  500  Silicon Graphics, Inc. *..........................   13,750
  700  Sun Microsystems, Inc. *..........................   31,937
  400  Tandem Computers, Inc. *..........................    4,250
  600  Unisys Corporation *..............................    3,375
  400  Xerox Corporation.................................   54,800
                                                         ---------
                                                           816,725
                                                         ---------

       Business Services (1.2%)
       ------------------------
  500  Automatic Data Processing, Inc....................   37,125
  300  Block (H.R.), Inc.................................   12,150
  700  Browning-Ferris Industries, Inc...................   20,650
  900  Computer Associates International, Inc............   51,188
  200  Computer Sciences Corporation *...................   14,050
  200  Deluxe Corporation................................    5,800


 
</TABLE>
                            See accompanying notes.

                                     FS-3
<PAGE>   54
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y


[LOGO OF AAL VARIABLE ANNUITY]
Balanced Portfolio
 ..................
Schedule of Investments as of December 31, 1995--Continued


<TABLE>
<CAPTION>
 
 
SHARES   COMMON STOCKS                                   MARKET VALUE
<C>      <S>                                             <C>
 
         Business Services-Continued
         ---------------------------
    300  Dial Corporation...............................  $     8,888
    200  Ecolab, Inc. ..................................        6,000
    800  First Data Corporation.........................       53,500
    300  Interpublic Group of Companies, Inc. ..........       13,013
    100  John H. Harland Company........................        2,087
  1,000  Laidlaw, Inc. .................................       10,250
    300  Moore Corporation Limited......................        5,587
    100  National Service Industries....................        3,238
    100  Ogden Corporation..............................        2,137
    100  Pittston Company...............................        3,138
    200  Safety Kleen Corporation.......................        3,125
    100  Shared Medical Systems Corporation.............        5,437
    600  The Dun & Bradstreet Corporation...............       38,850
  1,800  WMX Technologies, Inc. ........................       53,775
                                                          -----------
                                                              349,988
                                                          -----------
 
         Chemicals (1.9%)
         ----------------
    400  Air Products & Chemicals, Inc. ................       21,100
  2,000  E.I. Du Pont De Nemours and Company............      139,750
    300  Eastman Chemical Company.......................       18,788
    200  Great Lakes Chemical Corporation...............       14,400
    400  Hercules, Inc. ................................       22,550
  1,500  Minnesota Mining & Manufacturing...............       99,375
    400  Monsanto Company...............................       49,000
    500  Morton International, Inc. ....................       17,938
    300  Nalco Chemical Company.........................        9,037
    700  PPG Industries, Inc. ..........................       32,025
    500  Praxair, Inc. .................................       16,812
    200  Rohm & Haas Company............................       12,875
    200  Sigma-Aldrich Corporation......................        9,900
    900  The Dow Chemical Company.......................       63,337
    500  Union Carbide Corporation......................       18,750
    300  W.R. Grace & Company...........................       17,738
                                                          -----------
                                                              563,375
                                                          -----------
 
         Consumer Durables  (0.2%)
         -------------------------
    300  Black & Decker Corporation.....................       10,575
    300  Maytag Corporation.............................        6,075
    500  Newell Company.................................       12,938
    100  Outboard Marine Corporation....................        2,037
    300  Whirlpool Corporation..........................       15,975
                                                          -----------
                                                               47,600
                                                          -----------
 
         Construction (0.3%)
         -------------------
    100  Armstrong World Industries, Inc. ..............        6,200
    100  Centex Corporation.............................        3,475
    100  Crane Company..................................        3,688
    300  Fluor Corporation..............................       19,800
    100  Kaufman & Broad Home Corporation...............        1,487
    500  Masco Corporation..............................       15,687
    200  Owens-Corning Fiberglass Corporation*..........        8,975
    100  Pulte Corporation..............................        3,363
    300  Sherwin-Williams Company.......................       12,225
    200  Stanley Works..................................       10,300
                                                          -----------
                                                               85,200
                                                          -----------
 
         Containers (0.1%)
         -----------------
    100  Ball Corporation...............................        2,750
    100  Bemis Company, Inc. ...........................        2,563
    300  Crown Cork & Seal Company, Inc.* ..............       12,525
    300  Stone Container Corporation....................        4,312
                                                          -----------
                                                               22,150
                                                          -----------
 
         Cosmetic (1.3%)
         ---------------
    100  Alberto-Culver Company.........................        3,437
    300  Avon Products, Inc. ...........................       22,613
    200  Clorox Company.................................       14,325
    500  Colgate-Palmolive Company......................       35,125
  1,600  Gillette Company...............................       83,400
    400  International Flavors and Fragrances, Inc. ....       19,200
  2,400  Procter & Gamble Company.......................      199,200
                                                          -----------
                                                              377,300
                                                          -----------
 
         Drugs & Medicine (6.0%)
         -----------------------
  2,800  Abbott Laboratories............................      116,900
    200  Allergan, Inc. ................................        6,500
    200  Alza Corporation* .............................        4,950
  1,100  American Home Products Corporation.............      106,700
    900  Amgen, Inc.* ..................................       53,438
    300  Bard (C.R.), Inc. .............................        9,675
    200  Bausch & Lomb, Inc.............................        7,925
  1,000  Baxter International, Inc. ....................       41,875
    200  Becton, Dickinson and Company..................       15,000
    300  Beverly Enterprises, Inc.* ....................        3,188
    400  Biomet, Inc.* .................................        7,150
    600  Boston Scientific Corporation* ................       29,400
  1,800  Bristol-Myers Squibb Company...................      154,575
  1,600  Columbia/HCA Healthcare Corporation............       81,200
    100  Community Psychiatric Centers* ................        1,225
  2,000  Eli Lilly & Company............................      112,500
    600  Humana, Inc.*..................................       16,425
  2,300  Johnson & Johnson..............................      196,937
    200  Mallinckrodt Group, Inc........................        7,275
    200  Manor Care, Inc. ..............................        7,000
    800  Medtronic, Inc. ...............................       44,700
  4,400  Merck & Company, Inc. .........................      289,300
  2,200  Pfizer Inc. ...................................      138,600
  1,780  Pharmacia & Upjohn, Inc. ......................       68,975
  1,300  Schering-Plough................................       71,175
    250  St. Jude Medical, Inc.* .......................       10,750
    700  Tenet Healthcare Corporation*..................       14,525
    500  U S Health Care Inc. ..........................       23,250
    200  U S Surgical Corporation.......................        4,275
    600  United Healthcare Corporation..................       39,300
 
</TABLE>
                            See accompanying notes.

                                     FS-4
<PAGE>   55

<TABLE> 
<CAPTION>  
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y


[LOGO OF AAL VARIABLE ANNUITY]
Balanced Portfolio
 ..................
Schedule of Investments as of December 31, 1995--Continued

 
SHARES COMMON STOCKS                                MARKET VALUE
 ................................................................
<C>    <S>                                          <C>
       Drugs & Medicine-Continued
       --------------------------
  500  Warner-Lambert Company....................     $   48,562
                                                      ----------
                                                       1,733,250
                                                      ----------

       Electronics (2.3%)
       ------------------
  728  AMP, Inc..................................         27,937
  300  Advanced Micro Devices, Inc.* ............          4,950
  100  Andrew Corporation* ......................          3,825
  600  Applied Materials, Inc.* .................         23,625
  100  EG&G, Inc.................................          2,425
  100  General Signal Corporation................          3,237
  100  Harris Corporation........................          5,463
1,800  Hewlett-Packard Company...................        150,750
3,000  Intel Corporation.........................        170,250
  500  LSI Logic Corporation*....................         16,375
  700  Micron Technology, Inc....................         27,737
2,100  Motorola, Inc.............................        119,700
  400  National Semiconductor Corporation* ......          8,900
  900  Northern Telecom Limited..................         38,700
  100  Perkin Elmer Corporation..................          3,775
  200  Scientific-Atlanta, Inc...................          3,000
  100  Tektronix, Inc............................          4,913
  100  Teledyne, Inc.............................          2,563
  700  Texas Instruments, Inc....................         36,225
  100  Thomas & Betts Corporation................          7,375
                                                      ----------
                                                         661,725
                                                      ----------

       Energy-Raw Materials (0.6%)
       ---------------------------
  400  Baker Hughes, Inc.........................          9,750
  400  Burlington Resources, Inc.................         15,700
  700  Dresser Industries, Inc...................         17,063
  100  Eastern Enterprises.......................          3,525
  400  Halliburton Company.......................         20,250
  100  Helmerich & Payne, Inc....................          2,975
  100  Louisiana Land and Explorations Company...          4,287
  100  McDermott International, Inc..............          2,200
  100  NACCO Industries..........................          5,550
1,100  Occidental Petroleum Corporation..........         23,513
  900  Schlumberger, Ltd.........................         62,325
                                                      ----------
                                                         167,138
                                                      ----------


       Food & Agriculture (3.7%)
       -------------------------
1,850  Archer-Daniels-Midland Company............         33,300
  500  CPC International, Inc....................         34,312
  900  Campbell Soup Company.....................         54,000
4,400  Coca-Cola Company.........................        326,700
  800  ConAgra, Inc..............................         33,000
  100  Fleming Companies, Inc....................          2,063
  600  General Mills, Inc........................         34,650
1,250  H.J. Heinz Company........................         41,407
  300  Hershey Foods Corporation.................         19,500
  800  Kellogg Company...........................         61,800
2,800  PepsiCo, Inc..............................        156,450
  300  Pioneer Hi-Bred International, Inc........         16,687
  400  Quaker Oats Company.......................         13,800
  400  Ralston Purina Corporation................         24,950
1,800  Sara Lee Corporation......................         57,375
  200  Supervalu, Inc............................          6,300
1,000  Sysco Corporation.........................         32,500
  600  Unilever N.V..............................         84,450
  300  Whitman Corporation.......................          6,975
  400  Wrigley (Wm) Jr. Company..................         21,000
                                                      ----------
                                                       1,061,219
                                                      ----------

       Forest Products (1.0%)
       ----------------------
  400  Alco Standard Corporation.................         18,250
  100  Boise Cascade Corporation.................          3,462
  300  Champion International Corporation........         12,600
  200  Federal Paper Board Company, Inc..........         10,375
  300  Georgia-Pacific Corporation...............         20,588
  900  International Paper Company...............         34,087
  200  James River Corp. of Virginia.............          4,825
  990  Kimberly-Clark Corporation................         81,923
  300  Louisiana-Pacific Corporation.............          7,275
  200  Mead Corporation..........................         10,450
  100  Potlatch Corporation......................          4,000
  200  Temple-Inland, Inc........................          8,825
  200  Union Camp Corporation....................          9,525
  300  Westvaco Corporation......................          8,325
  700  Weyerhaeuser Company......................         30,275
  200  Willamette Industries.....................         11,250
                                                      ----------
                                                         276,035
                                                      ----------

       Gold (0.3%)
       -----------
1,300  Barrick Gold Corporation..................         34,288
  400  Homestake Mining Company..................          6,250
  300  Newmont Mining Corporation................         13,575
  800  Placer Dome, Inc..........................         19,300
  400  Santa Fe Pacific Gold Corporation.........          4,850
                                                      ----------
                                                          78,263
                                                      ----------

       Insurance (2.0%)
       ----------------
  400  Aetna Life & Casualty Company.............         27,700
  100  Alexander & Alexander Services, Inc.......          1,900
1,648  Allstate Corporation......................         67,774
  800  American General Corporation..............         27,900
1,700  American Int'l Group, Inc.................        157,250
  300  Chubb Corporation.........................         29,025
  300  Cigna Corporation.........................         30,975
  300  General Re Corporation....................         46,500
  400  ITT Hartford Group, Inc.*.................         19,350
  300  Jefferson-Pilot Corporation...............         13,950
  400  Lincoln National Corporation..............         21,500
  300  Marsh & McLennan Companies, Inc...........         26,625
  300  Providian Corporation.....................         12,225
</TABLE> 
 
                            See accompanying notes.

                                     FS-5
<PAGE>   56
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y


[LOGO OF AAL VARIABLE ANNUITY]
Balanced Portfolio
 ..................
Schedule of Investments as of December 31, 1995--Continued

<TABLE>
<CAPTION>
 
SHARES COMMON STOCKS                                  MARKET VALUE
- ------ -------------                                  ------------
<C>    <S>                                            <C>
      Insurance-Continued                                               
      -------------------
  400 Safeco Corporation.............................. $   13,800
  300 St. Paul Companies, Inc.........................     16,688
  200 Torchmark Corporation...........................      9,050
  300 Transamerica Corporation........................     21,863
  300 USF&G Corporation...............................      5,062
  150 U S Life Corporation............................      4,481
  300 Unum Corporation................................     16,500
                                                       ----------
                                                          570,118
                                                       ----------
      Liquor (0.4%)
      -------------
  900 Anheuser-Busch Companies, Inc...................     60,188
  200 Brown-Foreman Corporation.......................      7,300
  100 Coors (Adolph) Company..........................      2,212
1,300 Seagram Company, Ltd............................     45,013
                                                       ----------
                                                          114,713
                                                       ----------

      Media (1.3%)
      ------------
  600 Capital Cities/ABC, Inc.........................     74,025
  800 Comcast Corporation.............................     14,550
  500 Donnelley (R.R.) & Sons Company.................     19,688
  300 Dow Jones & Company.............................     11,963
  500 Gannett Company, Inc............................     30,688
  100 King World Productions, Inc.*...................      3,887
  200 Knight-Ridder Inc...............................     12,500
  200 McGraw-Hill, Inc................................     17,425
  100 Meredith Corporation............................      4,187
  300 New York Times Company..........................      8,888
2,300 Tele-Communications, Inc.*......................     45,712
1,300 Time Warner, Inc................................     49,237
  400 Times Mirror Company............................     13,550
  200 Tribune Company.................................     12,225
1,300 Viacom, Inc.*...................................     61,588
                                                       ----------
                                                          380,113
                                                       ----------
 
      Miscellaneous Finance (1.6%)
      ----------------------------
  400 Ahmanson (H.F.) & Company.......................     10,600
1,700 American Express Company........................     70,338
  200 Beneficial Corporation..........................      9,325
  600 Dean Witter Discover and Company................     28,200
1,000 Federal National Mortgage Association...........    124,125
  700 Federal Home Loan Mortgage Corporation..........     58,450
  200 Golden West Financial Corporation...............     11,050
  400 Great Western Financial Corporation.............     10,200
  300 Household International Corporation.............     17,737
  400 ITT Corporation.................................     21,200
  500 MBNA Corporation................................     18,438
1,100 Travelers Group, Inc............................     69,162
                                                       ----------
                                                          448,825
                                                       ----------
      Motor Vehicles (1.3%)
      ---------------------
1,300 Chrysler Corporation............................     71,988
  100 Cummins Engine Company, Inc.....................      3,700
  400 Dana Corporation................................     11,700
  300 Eaton Corporation...............................     16,087
  200 Echlin, Inc.....................................      7,300
  100 Fleetwood Enterprises, Inc......................      2,575
3,800 Ford Motor Company..............................    110,200
  400 Genuine Parts Company...........................     16,400
2,600 General Motors Corporation......................    137,475
                                                       ----------
                                                          377,425
                                                       ----------
 
      Non-Durables (0.8%)
      -------------------
  200 American Greetings Corp. Cl. A..................      5,525
  100 Bally Entertainment Corporation*................      1,400
  500 Darden Restaurants, Inc.........................      5,937
  100 Handleman Company...............................        575
  200 Harcourt General Incorporated...................      8,375
  400 Hasbro, Inc.....................................     12,400
  100 Jostens, Inc....................................      2,425
  100 Luby's Cafeterias, Inc..........................      2,225
  700 Mattel, Inc.....................................     21,525
2,500 McDonald's Corporation..........................    112,813
  200 Premark International, Inc......................     10,125
  500 Rubbermaid Inc..................................     12,750
  100 Ryans Family Steak House*.......................        700
  500 Service Corporation International...............     22,000
  100 Shoneys Incorporated*...........................      1,025
  300 Wendy's International, Inc......................      6,375
                                                       ----------
                                                          226,175
                                                       ----------

      Non-Ferrous Metals (0.5%)
      -------------------------
  800 Alcan Aluminum, Ltd.............................     24,900
  600 Aluminum Company of America.....................     31,725
  100 Asarco, Inc.....................................      3,200
  300 Cyprus Minerals Company.........................      7,837
  400 Echo Bay Mines, Ltd.............................      4,150
  450 Engelhard Corporation...........................      9,788
  800 Freeport-McMoran Copper & Gold..................     22,500
  400 Inco, Ltd.......................................     13,300
  200 Phelps Dodge Corporation........................     12,450
  200 Reynolds Metals Company.........................     11,325
                                                       ----------
                                                          141,175
                                                       ----------

      Oil-Domestic (0.7%)
      -------------------
  300 Amerada Hess Corporation........................     15,900
  200 Ashland Oil, Inc................................      7,025
  600 Atlantic Richfield Company......................     66,450
  200 Kerr-McGee Corporation..........................     12,700
 
</TABLE>
                            See accompanying notes.

                                     FS-6
<PAGE>   57
 
===============================================================================

A A L   V A R I A B L E   A N N U I T Y


[LOGO OF AAL VARIABLE ANNUITY]
Balanced Portfolio
 ..................
Schedule of Investments as of December 31, 1995--Continued


<TABLE>
<CAPTION>

 
SHARES    COMMON STOCKS                            MARKET VALUE
 ...............................................................
<C>       <S>                                      <C> 
          Oil--Domestic--Continued                
          ------------------------
   300    Oryx Energy Company*....................  $    4,013
   100    Pennzoil Corporation....................       4,225
 1,000    Phillips Petroleum Company..............      34,125
   200    Rowan Companies, Inc.*..................       1,975
   300    Santa Fe Energy Resources, Inc.*........       2,887
   200    Sun Company, Inc........................       5,475
 1,000    USX-Marathon Group, Inc.................      19,500
   800    Unocal Corporation......................      23,300
                                                    ----------
                                                       197,575
                                                    ----------
          Oil International (3.9%)
          ------------------------              
 1,800    Amoco Corporation.......................     129,375
 2,300    Chevron Corporation.....................     120,750
 4,400    Exxon Corporation.......................     352,550
 1,400    Mobil Corporation.......................     156,800
 1,900    Royal Dutch Petroleum Company*..........     268,138
   900    Texaco, Inc.............................      70,650
   200    Western Atlas, Inc.*....................      10,100
                                                    ----------
                                                     1,108,363
                                                    ----------
          Photo & Optical (0.4%)                
          ----------------------
   800    Corning, Inc............................      25,600
 1,200    Eastman Kodak Co........................      80,400
   200    Polaroid Corporation....................       9,475
                                                    ----------
                                                       115,475
                                                    ----------
          Producers Goods (3.0%)                
          ----------------------
 1,000    Allied-Signal Inc.......................      47,500
   200    Avery Dennison Corporation..............      10,025
   100    Briggs & Stratton Corporation...........       4,338
   700    Caterpillar, Inc........................      41,125
   100    Cincinnati Milacron.....................       2,625
   400    Cooper Industries, Inc..................      14,700
   900    Deere & Company.........................      31,725
   400    Dover Corporation.......................      14,750
   800    Emerson Electric Company................      65,400
   100    FMC Corporation*........................       6,763
   100    Foster Wheeler Corporation..............       4,250
 5,900    General Electric Company................     424,800
   100    Giddings & Lewis Incorporated...........       1,650
   100    Harnischfeger Industries, Inc...........       3,325
   400    Illinois Tool Works, Inc................      23,600
   400    Ingersoll-Rand Company..................      14,050
   200    Johnson Controls, Inc...................      13,750
   200    Millipore Corporation...................       8,225
   200    Navistar International Corp.*...........       2,100
   400    Pall Corporation........................      10,750
   200    Parker Hannifin.........................       6,850
   200    Raychem Corporation.....................      11,375
   100    Snap-on, Inc............................       4,525
   600    Tenneco, Inc............................      29,775
   100    Timken Company..........................       3,825
   100    Trinova Corporation.....................       2,863
   500    Tyco International......................      17,812
   100    Varity Corporation*.....................       3,712
   200    W.W. Grainger, Inc......................      13,250
 1,300    Westinghouse Electric Company...........      21,450
                                                    ----------
                                                       860,888
                                                    ----------
          Railroad & Shipping (0.7%)            
          --------------------------
   564    Burlington Northern, Inc................      43,992
   800    CSX Corporation.........................      36,500
   300    Conrail, Inc............................      21,000
   500    Norfolk Southern Corporation............      39,688
   700    Union Pacific Corporation...............      46,200
                                                    ----------
                                                       187,380
                                                    ----------
          Retail Stores  (2.6%)                 
          ---------------------
   900    Albertson's, Inc........................      29,587
   500    American Stores Company.................      13,375
   600    CUC International, Inc.*................      20,475
   300    Charming Shoppes, Inc...................         863
   300    Circuit City Stores, Inc................       8,287
   300    Dayton Hudson Corporation...............      22,500
   300    Dillard Department Stores, Inc..........       8,550
   700    Federated Department Stores, Inc.*......      19,250
   500    GAP, Inc................................      21,000
   200    Giant Food, Inc., Class A...............       6,300
   100    Great Atlantic & Pacific Tea Co., Inc...       2,300
 1,700    Home Depot, Inc.........................      81,388
   800    J.C. Penney Company, Inc................      38,100
 1,600    Kmart Corporation.......................      11,600
   400    Kroger Corporation*.....................      15,000
   100    Long's Drug Stores, Inc.................       4,787
   500    Lowe's Companies, Inc...................      16,750
   900    May Department Stores Company...........      38,025
   400    Melville Corporation....................      12,300
   100    Mercantile Stores Company, Inc..........       4,625
   300    Nordstrom, Inc..........................      12,150
   200    Pep Boys - Manny, Moe, & Jack...........       5,125
   600    Price/Costco, Inc.*.....................       9,150
   300    Rite Aid Corporation....................      10,275
 1,400    Sears Roebuck & Company.................      54,600
   200    Tandy Corporation*......................       8,300
 1,200    The Limited, Inc........................      20,850
   200    TJX Companies, Inc......................       3,775
   900    Toys "R" Us, Inc.*......................      19,575
 8,000    Wal-Mart Stores, Inc....................     179,000
   800    Walgreen Company........................      23,900
   500    Winn-Dixie Stores, Inc..................      18,438
   400    Woolworth Corporation*..................       5,200
                                                    ----------
                                                       745,400
                                                    ----------
</TABLE>

                            See accompanying notes.

                                     FS-7

<PAGE>   58
 
===============================================================================

A A L   V A R I A B L E   A N N U I T Y


[LOGO OF AAL VARIABLE ANNUITY]
Balanced Portfolio
 ..................
Schedule of Investments as of December 31, 1995--Continued



<TABLE>
<CAPTION>
 
SHARES    COMMON STOCKS                               MARKET VALUE
 ..................................................................
<C>       <S>                                         <C>      
                                                                  
          Steel  (0.1%)                                           
          -------------                                           
   300    Armco, Inc.*.............................    $     1,763
   300    Bethlehem Steel Corporation*.............          4,200
   100    Inland Steel Industries, Inc.............          2,513
   300    Nucor Corporation........................         17,137
   300    USX-US Steel Group, Inc..................          9,225
   300    Worthington Industries, Inc..............          6,244
                                                       -----------
                                                            41,082
                                                       -----------
          Telephone (5.0%)                                        
          ----------------                                        
   600    ALL/TEL Corporation......................         17,700
 5,600    AT&T Corporation.........................        362,600
 1,800    Airtouch Communications, Inc.*...........         50,850
 2,000    Ameritech Corporation....................        118,000
 1,500    Bell Atlantic Corporation................        100,313
 3,500    BellSouth Corporation....................        152,250
   400    DSC Communications Corporation*..........         14,750
 3,400    GTE Corporation..........................        149,600
 2,400    MCI Communications Corporation...........         62,700
 1,500    Nynex Corporation........................         81,000
 1,600    Pacific Telesis Group....................         53,800
 2,200    SBC Communications, Inc..................        126,500
 1,300    Sprint Corporation.......................         51,837
   300    Tellabs, Inc.*...........................         11,100
 1,700    U S West, Inc............................         60,775
 1,600    U S West Media Group.....................         30,400
                                                       -----------
                                                         1,444,175
                                                       -----------
          Tires & Rubber (0.1%)                                   
          ---------------------                                   
   200    Cooper Tire & Rubber Company.............          4,925
   500    Goodyear Tire & Rubber...................         22,688
                                                       -----------
                                                            27,613
                                                       -----------
          Tobacco (1.3%)                                          
          --------------                                          
   600    American Brands, Inc.....................         26,775
   600    Loews Corporation........................         47,025
 3,000    Philip Morris Companies, Inc.............        271,500
   700    UST, Inc.................................         23,363
                                                       -----------
                                                           368,663
                                                       -----------
          Travel & Recreation  (0.5%)                             
          ---------------------------                             
   300    Brunswick Corporation....................          7,200
 1,800    Disney (Walt) Company....................        106,200
   300    Harrah's Entertainment...................          7,275
   200    Hilton Hotels Corporation................         12,300
   400    Marriott International, Inc..............         15,300
                                                       -----------
                                                           148,275
                                                       -----------
          Trucking & Freight (0.1%)                               
          -------------------------                               
   100    Consolidated Freightways, Inc............          2,650
   400    ITT Corporation..........................          9,600
   100    PACCAR, Inc..............................          4,213
   100    Roadway Services, Inc....................          4,887
   200    Ryder Systems, Inc.......................          4,950
   100    Yellow Corporation.......................          1,238
                                                       -----------
                                                            27,538
                                                       -----------
          Utilities & Energy  (2.5%)                              
          --------------------------                              
   600    American Electric Power Company..........         24,300
   500    Baltimore Gas & Electric Company.........         14,250
   500    CINergy Corporation*.....................         15,313
   500    Carolina Power & Light Company...........         17,250
   600    Central & Southwest Corporation..........         16,725
   400    Coastal Corporation......................         14,900
   200    Columbia Gas System, Inc.*...............          8,775
   800    Consolidated Edison Company of New York..         25,600
   300    Consolidated Natural Gas Company.........         13,613
   500    DTE Energy Company.......................         17,250
   700    Duke Power Company.......................         33,162
   700    Dominion Resources, Inc..................         28,875
   900    Enron Corporation........................         34,312
   200    Enserch Corporation......................          3,250
   900    Entergy Corporation......................         26,325
   600    FPL Group, Inc...........................         27,825
   500    General Public Utilities Corporation.....         17,000
   900    Houston Industries, Inc..................         21,825
   500    Niagara Mohawk Power Corporation.........          4,813
   100    Nicor, Inc...............................          2,750
   400    NorAm Energy Corp........................          3,550
   200    Northern States Power Company............          9,825
   100    ONEOK, Inc...............................          2,287
   500    Ohio Edison Company......................         11,750
   500    P P & L Resources, Inc...................         12,500
 1,000    Pacificorp...............................         21,250
   200    Pacific Enterprises......................          5,650
 1,400    Pacific Gas & Electric Company...........         39,725
   500    Panhandle Eastern Corporation............         13,938
   700    Peco Energy Company......................         21,087
   100    Peoples Energy Corporation...............          3,175
   800    Public Service Enterprise................         24,500
 1,500    SCE Corporation..........................         26,625
   300    Sonat Incorporated.......................         10,688
 2,300    Southern Company.........................         56,638
   800    Texas Utilities Company..................         32,900
   800    Unicom Corporation.......................         26,200
   300    Union Electric Company...................         12,525
   300    Williams Companies, Inc..................         13,162
                                                       -----------
                                                           716,088
                                                       -----------
Total Common Stocks (cost basis $14,727,660).......    $16,167,825 
</TABLE>                                               ===========

*Non-income producing securities


                            See accompanying notes.

                                     FS-8
<PAGE>   59
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y


[LOGO OF AAL VARIABLE ANNUITY]
Balanced Portfolio
 ..................
Schedule of Investments as of December 31, 1995--Continued

<TABLE>
<CAPTION>
 
PRINCIPAL                                            INTEREST   MATURITY     MARKET
AMOUNT     LONG-TERM DEBT SECURITIES (35.8%)         RATE       DATE         VALUE
 .....................................................................................
<S>        <C>                                      <C>        <C>        <C>
 
           U.S. Government Securities (17.1%)
           ----------------------------------
$125,000   U.S. Treasury Bond .....................   7.500%   11/15/16   $   146,641
 250,000   U.S. Treasury Bond .....................   6.250    08/15/03       256,953
 200,000   U.S. Treasury Bond .....................  10.380    11/15/12       276,625
 250,000   U.S. Treasury Bond .....................   7.125    02/15/23       285,547
 125,000   U.S. Treasury Bond .....................   7.875    02/15/21       153,867
 200,000   U.S. Treasury Bond .....................   9.875    11/15/15       289,562
 150,000   U.S. Treasury Note .....................   5.875    07/31/97       151,547
 230,000   U.S. Treasury Note .....................   6.500    05/15/05       245,094
 200,000   U.S. Treasury Note .....................   7.500    01/31/97       204,812
 250,000   U.S. Treasury Note .....................   6.125    05/31/97       253,125
 225,000   U.S. Treasury Note .....................   6.875    07/31/99       236,179
 200,000   U.S. Treasury Note .....................   6.250    02/15/03       208,750
 100,000   U.S. Treasury Note .....................   5.125    12/31/98        99,656
 250,000   U.S. Treasury Note .....................   7.750    12/31/99       271,406
 200,000   U.S. Treasury Note .....................   7.250    02/15/98       207,937
 250,000   U.S. Treasury Note .....................   7.375    11/15/97       259,453
 250,000   U.S. Treasury Note .....................   5.750    08/15/03       253,047
 170,000   U.S. Treasury Note .....................   8.750    10/15/97       180,094
 190,000   U.S. Treasury Note .....................   7.500    11/15/01       209,415
 250,000   U.S. Treasury Note .....................   5.875    08/15/98       253,906
 215,000   U.S. Treasury Note .....................   5.500    02/28/99       216,410
 250,000   U.S. Treasury Note .....................   6.125    07/31/00       257,422
                                                                          -----------
           Total U.S. Government Obligations ..........................     4,917,448     
                                                                          -----------
                                                                                     
           U.S. Government Agency Securities (11.2%)                                 
           -----------------------------------------
 158,926   Federal Home Loan Mortgage                                                
             Corporation Gold                                                        
             7-Yr. Balloon ........................   7.000    06/01/02       162,005
 194,731   Federal Home Loan Mortgage                                                
             Corporation Gold                                                        
             30-Yr. Pass Through ..................   6.500    04/01/24       192,602
 225,914   Federal Home Loan Mortgage                                                
             Corporation Gold                                                        
             30-Yr. Pass Through ..................   8.500    09/01/25       235,727
 249,825   Federal Home Loan Mortgage                                                
             Corporation Gold                                                        
             30-Yr. Pass Through ..................   7.500    11/01/25       256,149
 249,240   Federal National                                                          
             Mortgage Association                                                    
             15-Yr. Pass Through ..................   7.000    11/10/10       253,913
 101,987   Federal National                                                          
             Mortgage Association                                                    
             15-Yr. Pass Through ..................   9.000    04/01/10       107,277
  90,915   Federal National                                                          
             Mortgage Association                                                    
             15-Yr. Pass Through ..................   9.000    04/01/10        95,631
 175,000   Federal National                                                          
             Mortgage Association .................   8.100    08/12/19       211,303
 236,084   Federal National                                                          
             Mortgage Association                                                    
             30-Yr. Pass Through ..................  10.500    08/01/20       261,168
 200,000   Federal National                                                          
             Mortgage Association                                                    
             Medium Term Note .....................   5.200    04/30/98       197,826
 205,456   Federal National                                                          
             Mortgage Association                                                    
             30-Yr. Pass Through ..................   7.500    10/01/24       210,463
 245,034   Government National                                                       
             Mortgage Association                                                    
             30-Yr. Pass Through ..................   9.500    12/15/24       262,876
 199,429   Government National                                                       
             Mortgage Association                                                    
             30-Yr. Pass Through .................    7.500    06/01/25       205,038
 191,708   Government National                                                       
             Mortgage Association                                                    
             15-Yr. Pass Through ..................   6.500    05/15/09       193,506
 203,200   Government National                                                       
             Mortgage Association                                                    
             30-Yr. Pass Through ..................   8.000    06/01/25       211,582
 150,000   Private Export Funding                                                    
             Corporation                              6.240    05/15/02       153,816
                                                                          -----------




           Total U.S. Government                                                     
             Agency Obligations ........................................    3,210,882
                                                                          -----------
                                                                                     
           Asset Backed Securities (0.7%)                                            
           ------------------------------
 200,000   Nations Bank Credit Card Trust .........   6.000    12/15/05       201,056
                                                                          -----------
                                                                                     
           Corporate Securities (5.2%)                                               
           ---------------------------
 200,000   Abbott Laboratories Notes ..............   6.800    05/15/05       212,489
 250,000   Rhone-Poulenc SA Notes .................   7.750    01/15/02       268,206
 150,000   Baltimore Gas & Electric                                                  
             Company First Refunding                                                 
             Mortgage Bonds .......................   7.500    01/15/07       164,805
 250,000   American General Finance                                                  
             Corporation Senior Notes .............   6.875    07/01/99       258,544
 125,000   Eaton Corporation Notes ................   6.375    04/01/99       128,017
 175,000   General Motors Acceptance                                                 
             Corporation Notes ....................   9.625    12/15/01       203,575
 250,000   J.C. Penney Company, Inc.                                                 
             Notes ................................   6.375    09/15/00       255,100
                                                                          -----------
           Total Corporate Securities .................................     1,490,736
                                                                          -----------
                                                                                     
           Utility Bonds (0.9%)                                                      
           --------------------
 250,000   Texas Utilities Company                                                   
             First Mortgage Bonds .................   7.375    08/01/01       264,796
                                                                          -----------
                                                                                     
           Canadian Government (0.7%)                                                
           --------------------------
 200,000   Province of Ontario                                                       
             Senior Global Bonds ..................   6.125    06/28/00       202,767
                                                                          -----------
           Total Long-Term Debt                                                      
             Securities (cost basis                                                  
             $10,074,629)..............................................   $10,287,685 

</TABLE>

                            See accompanying notes.

                                     FS-9
<PAGE>   60
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y


[LOGO OF AAL VARIABLE ANNUITY]
Balanced Portfolio
 ..................
Schedule of Investments as of December 31, 1995--Continued


<TABLE>
<CAPTION>
 
 
   PRINCIPAL                                   INTEREST  MATURITY  MARKET
   AMOUNT                                      RATE      DATE      VALUE
   .......................................................................
   <C>       <S>                               <C>      <C>        <C>
 
             Short-Term Investments (7.7%)
             -----------------------------
   $100,000  AT&T Corporation..............      5.70%  01/05/96   $    99,937
    100,000  American Express Credit                                           
               Corporation.................      5.70   01/08/96        99,889 
    275,000  Echlin, Inc...................      5.75   01/29/96       273,770 
     50,000  Federal National Mortgage                                         
               Association.................      5.52   01/05/96        49,969 
    190,000  Ford Motor Credit Company.....      5.70   01/02/96       189,970 
    300,000  General Motors Acceptance                                         
               Corporation.................      5.72   01/12/96       299,476 
    150,000  IBM Credit Corporation........      5.78   01/26/96       149,398 
    140,000  KN Energy, Inc................      5.75   02/06/96       139,195 
    320,000  Lehman Brothers Holdings, Inc.      6.05   01/03/96       319,892 
    100,000  Merrill Lynch & Company, Inc..      5.82   01/23/96        99,644 
    300,000  PacifiCorp....................      5.72   01/18/96       299,190 
    200,000  Xerox Corporation.............      5.72   01/12/96       199,651
      2,087  Harris Insight Government                                         
               Assets Fund......................................         2,087 
                                                                   -----------
             Total Short-Term Investments                                      
              (cost basis $2,222,068)...........................     2,222,068 
                                                                   ----------- 
             Total Investments (99.7%)                                         
              (cost basis $27,024,356)..........................   $28,677,578 

             Other Assets, less
              Liabilities (0.3%)................................        81,144
                                                                   -----------
             NET ASSETS  (100.0%)...............................   $28,758,722
                                                                   ===========
 
</TABLE>


                            See accompanying notes.

                                    FS-10
<PAGE>   61
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y



[LOGO OF AAL VARIABLE ANNUITY]
Large Company Stock Portfolio
 .............................
Schedule of Investments as of December 31, 1995


<TABLE>
<CAPTION>
 
 
SHARES  COMMON STOCKS (98.6%)                          MARKET VALUE
 ....................................................................
<C>    <S>                                               <C>
 
       Aerospace  (2.4%)
       -----------------
1,700  Boeing Company ................................... $133,237
  300  General Dynamics Corporation .....................   17,738
  100  Goodrich (B.F.) Company ..........................    6,812
1,000  Lockheed Martin Corporation ......................   79,000
  800  Loral Corporation ................................   28,300 
  600  McDonnell Douglas Corporation ....................   55,200
  300  Northrop Grumman Corporation  ....................   19,200
1,200  Raytheon Company .................................   56,700
1,100  Rockwell International Corporation ...............   58,163
  300  TRW, Inc. ........................................   23,250
  400  Textron, Inc. ....................................   27,000
  600  United Technologies Corporation ..................   56,925
                                                         ---------
                                                           561,525
                                                         ---------
 
       Air Transportation  (0.4%)
       --------------------------
  400  AMR Corporation* .................................   29,700
  300  Delta Air Lines, Inc. ............................   22,162
  300  Federal  Express Corporation* ....................   22,163
  700  Southwest Airlines Company .......................   16,275
  300  USAir Group, Inc.* ...............................    3,975
                                                         ---------
                                                            94,275
                                                         ---------
 
       Apparel  (0.4%)
       ---------------
  100  Brown Group, Inc. ................................    1,425
  300  Fruit of the Loom, Inc.* .........................    7,312
  300  Liz Claiborne, Inc. ..............................    8,325
  700  Nike, Inc. .......................................   48,738
  300  Reebok International, Ltd. .......................    8,475
  100  Russell Corporation ..............................    2,775
  100  Springs Industries, Inc. .........................    4,137
  200  Stride Rite Corporation  .........................    1,500
  300  V F Corporation ..................................   15,825
                                                         ---------
                                                            98,512
                                                         ---------
 
       Banking  (6.6%)
       ---------------
1,900  Banc One Corporation .............................   71,725
  600  Bank of Boston Corporation .......................   27,750
1,000  Bank of New York Company, Inc. ...................   48,750
1,900  BankAmerica Corporation ..........................  123,025
  400  Bankers Trust New York Corporation ...............   26,600
  500  Barnett Banks, Inc. ..............................   29,500
  600  Boatmen's Bancshares, Inc. .......................   24,525
  900  Chase Manhattan Corporation ......................   54,562
1,300  Chemical Banking Corporation .....................   76,375
2,100  Citicorp .........................................  141,225
  600  Comerica, Inc. ...................................   24,075
  700  Corestates Financial Corporation .................   26,513
  600  First Bank System, Inc. ..........................   29,775
1,624  NBD First Chicago Corporation ....................   64,148
  400  First Fidelity Bancorporation ....................   30,150
  400  First Interstate Bancorp .........................   54,600
  900  First Union Corporation  .........................   50,062
1,235  Fleet Financial Group, Inc. ......................   50,339
1,200  Keycorp ..........................................   43,500
1,000  J. P. Morgan & Company, Inc. .....................   80,250
  700  Mellon Bank Corporation ..........................   37,625
  700  National City Corporation ........................   23,188
1,400  Nationsbank Corporation ..........................   97,475
1,700  Norwest Corporation ..............................   56,100
1,100  PNC Bank Corporation .............................   35,475
  300  Republic NY Corporation ..........................   18,638
  600  Suntrust Banks, Inc. .............................   41,100
  800  U S Bancorp ......................................   26,900
  800  Wachovia Corporation .............................   36,600
  300  Wells Fargo & Company ............................   64,800
                                                         ---------
                                                         1,515,350
                                                         ---------
 
       Business Machines  (5.1%)
       -------------------------
  500  Amdahl Corporation* ..............................    4,250
  600  Apple Computer, Inc. .............................   19,125
  200  Autodesk, Inc. ...................................    6,850
  400  Cabletron Systems, Inc.* .........................   32,400
  400  Ceridian Corporation* ............................   16,500
1,400  Cisco Systems, Inc.* .............................  104,475
1,300  Compaq Computers, Inc. ...........................   62,400
  100  Cray Research, Inc.* .............................    2,475
  100  Data General Corporation* ........................    1,375
  800  Digital Equipment Corporation* ...................   51,300
  600  Honeywell, Inc. ..................................   29,175
2,900  International Business Machines Corporation ......  266,075
  200  Intergraph Corporation* ..........................    3,150
3,000  Microsoft Corporation* ...........................  263,250
1,800  Novell, Inc.* ....................................   25,650
2,200  Oracle Systems Corporation* ......................   93,225
  700  Pitney-Bowes, Inc. ...............................   32,900
  800  Silicon Graphics, Inc. ...........................   22,000
1,000  Sun Microsystems, Inc.* ..........................   45,625
  500  Tandem Computers, Inc.* ..........................    5,312
  800  Unisys Corporation* ..............................    4,500
  600  Xerox Corporation ................................   82,200
                                                         ---------
                                                         1,174,212
                                                         ---------
 
       Business Services (2.2%)
       ------------------------
  700  Automatic Data Processing, Inc.  .................   51,975
  500  Block (H.R.), Inc. ...............................   20,250
1,000  Browning-Ferris Industries, Inc. .................   29,500
1,250  Computer Associates International, Inc. ..........   71,094
  300  Computer Sciences Corporation* ...................   21,075
  400  Deluxe Corporation ...............................   11,600
  400  Dial Corporation .................................   11,850
  300  Ecolab, Inc. .....................................    9,000
1,100  First Data Corporation ...........................   73,562
  400  Interpublic Group of Companies, Inc. .............   17,350
  100  John H. Harland Company ..........................    2,088
 
</TABLE>
                            See accompanying notes.

                                    FS-11
<PAGE>   62
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y



[LOGO OF AAL VARIABLE ANNUITY]
Large Company Stock Portfolio
 .............................
Schedule of Investments as of December 31, 1995--Continued

<TABLE>
<CAPTION>
  
SHARES    COMMON STOCKS                                   MARKET VALUE
 ......................................................................
<C>       <S>                                               <C>
          Business Services-Continued
          ---------------------------
1,400     Laidlaw, Inc....................................  $   14,350
  400     Moore Corp. Ltd..................................      7,450
  200     National Service Industries......................      6,475
  200     Ogden Corporation................................      4,275
  200     Pittston Company.................................      6,275
  200     Safety Kleen Corporation.........................      3,125
  100     Shared Medical Systems Corporation...............      5,437
  900     The Dun & Bradstreet Corporation.................     58,275
2,500     WMX Technologies, Inc............................     74,688
                                                            ----------
                                                               499,694
                                                            ----------
          Chemicals (3.5%)
          ----------------
  600     Air Products & Chemicals, Inc....................     31,650
2,800     E. I. Du Pont De Nemours and Company.............    195,650
  400     Eastman Chemical Company.........................     25,050
  300     Great Lakes Chemical Corporation.................     21,600
  600     Hercules, Inc....................................     33,825
2,100     Minnesota Mining & Manufacturing.................    139,125
  600     Monsanto Company.................................     73,500
  700     Morton International, Inc........................     25,112
  300     Nalco Chemical Company...........................      9,038
1,000     PPG Industries, Inc..............................     45,750
  700     Praxair, Inc.....................................     23,537
  300     Rohm & Haas Company..............................     19,313
  200     Sigma-Aldrich Corporation........................      9,900
1,300     The Dow Chemical Company.........................     91,487
  700     Union Carbide Corporation........................     26,250
  500     W. R. Grace & Company............................     29,563
                                                            ----------
                                                               800,350
                                                            ----------
          Construction (0.5%)
          -------------------
  200     Armstrong World Industries, Inc..................     12,400
  100     Centex Corporation...............................      3,475
  100     Crane Company....................................      3,687
  400     Fluor Corporation................................     26,400
  100     Kaufman & Broad Home Corporation.................      1,488
  800     Masco Corporation................................     25,100
  200     Owens-Corning Fiberglass Corporation*............      8,975
  100     Pulte Corporation................................      3,363
  400     Sherwin-Williams Company.........................     16,300
  200     Stanley Works....................................     10,300
                                                            ----------
                                                               111,488
                                                            ----------
          Consumer Durables  (0.3%)
          -------------------------
  400     Black & Decker Corporation.......................     14,100
  500     Maytag Corporation...............................     10,125
  700     Newell Company...................................     18,112
  100     Outboard Marine Corporation......................      2,038
  400     Whirlpool Corporation............................     21,300
                                                            ----------
                                                                65,675
                                                            ----------
          Containers (0.1%)
          -----------------
  100     Ball Corporation.................................      2,750
  200     Bemis Company, Inc...............................      5,125
  400     Crown Cork & Seal Company, Inc.*.................     16,700
  400     Stone Container Corporation......................      5,750
                                                            ----------
                                                                30,325
                                                            ----------
          Cosmetics (2.3%)
          ----------------
  100     Alberto-Culver Company...........................      3,437
  400     Avon Products, Inc...............................     30,150
  300     Clorox Company...................................     21,488
  700     Colgate-Palmolive Company........................     49,175
2,200     Gillette Company.................................    114,675
  500     International Flavors and Fragrances, Inc........     24,000
3,400     Procter & Gamble Company.........................    282,200
                                                            ----------
                                                               525,125
                                                            ----------
          Drugs & Medicine (10.6%)
          ------------------------
3,900     Abbott Laboratories..............................    162,825
  300     Allergan, Inc....................................      9,750
  400     Alza Corporation*................................      9,900
1,600     American Home Products Corporation...............    155,200
1,300     Amgen, Inc.*.....................................     77,187
  200     Bard (C.R.), Inc.................................      6,450
  300     Bausch & Lomb, Inc...............................     11,888
1,400     Baxter International, Inc........................     58,625
  300     Becton, Dickinson and Company....................     22,500
  400     Beverly Enterprises, Inc.*.......................      4,250
  500     Biomet, Inc.*....................................      8,937
  800     Boston Scientific Corporation*...................     39,200
2,500     Bristol-Myers Squibb Company.....................    214,688
2,200     Columbia/HCA Healthcare Corporation..............    111,650
  200     Community Psychiatric Centers....................      2,450
2,800     Eli Lilly & Company..............................    157,500
  800     Humana, Inc.*....................................     21,900
3,200     Johnson & Johnson................................    274,000
  400     Mallinckrodt Group, Inc..........................     14,550
  300     Manor Care, Inc..................................     10,500
1,200     Medtronic, Inc...................................     67,050
6,200     Merck & Company, Inc.............................    407,650
3,200     Pfizer, Inc......................................    201,600
2,515     Pharmacia & Upjohn, Inc..........................     97,456
1,800     Schering-Plough..................................     98,550
  300     St. Jude Medical, Inc.*..........................     12,900
  900     Tenet Healthcare Corporation*....................     18,675
  800     U S HealthCare, Inc..............................     37,200
  200     U S Surgical Corporation.........................      4,275
  900     United Healthcare Corporation....................     58,950
  700     Warner-Lambert Company...........................     67,988
                                                            ----------
                                                             2,446,244
                                                            ----------
</TABLE>

                            See accompanying notes.


                                    FS-12
<PAGE>   63
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y



[LOGO OF AAL VARIABLE ANNUITY]
Large Company Stock Portfolio
 .............................
Schedule of Investments as of December 31, 1995--Continued

<TABLE> 
<CAPTION> 

 
SHARES COMMON STOCKS                                MARKET VALUE
 ................................................................
<S>    <C>                                          <C> 
       Electronics (4.1%)
       ------------------
1,028  AMP, Inc..................................     $   39,449
  500  Advanced Micro Devices, Inc.*.............          8,250
  200  Andrew Corporation*.......................          7,650
  900  Applied Materials, Inc.*..................         35,438
  200  EG&G, Inc.................................          4,850
  200  General Signal Corporation................          6,475
  200  Harris Corporation........................         10,925
2,600  Hewlett-Packard Company...................        217,750
4,100  Intel Corporation.........................        232,675
  700  LSI Logic Corporation*....................         22,925
1,000  Micron Technology, Inc....................         39,625
2,900  Motorola, Inc.............................        165,300
  600  National Semiconductor Corporation*.......         13,350
1,300  Northern Telecom, Ltd.....................         55,900
  200  Perkin Elmer Corporation..................          7,550
  300  Scientific-Atlanta, Inc...................          4,500
  200  Tektronix, Inc............................          9,825
  200  Teledyne, Inc.............................          5,125
  900  Texas Instruments, Inc....................         46,575
  100  Thomas & Betts Corporation................          7,375
                                                      ----------
                                                         941,512
                                                      ---------- 
       Energy--Raw Materials (1.0%)
       ----------------------------
  800  Baker Hughes, Inc.........................         19,500
  600  Burlington Resources, Inc.................         23,550
1,000  Dresser Industries, Inc...................         24,375
  100  Eastern Enterprises.......................          3,525
  600  Halliburton Company.......................         30,375
  100  Helmerich & Payne, Inc....................          2,975
  200  Louisiana Land and Explorations Company...          8,575
  200  McDermott International, Inc..............          4,400
  100  NACCO Industries, Inc.....................          5,550
1,500  Occidental Petroleum Corporation..........         32,062
1,200  Schlumberger, Ltd.........................         83,100
                                                      ----------
                                                         237,987
                                                      ----------
       Food & Agriculture (6.3%)
       -------------------------
2,565  Archer-Daniels-Midland Company............         46,170
  700  CPC International, Inc....................         48,037
1,200  Campbell Soup Company.....................         72,000
6,300  Coca-Cola Company.........................        467,775
1,200  ConAgra, Inc..............................         49,500
  100  Fleming Companies, Inc....................          2,063
  800  General Mills, Inc........................         46,200
1,800  H.J. Heinz Company........................         59,625
  400  Hershey Foods Corporation.................         26,000
1,100  Kellogg Company...........................         84,975
3,900  PepsiCo, Inc..............................        217,912
  400  Pioneer Hi-Bred International, Inc........         22,250
  600  Quaker Oats Company.......................         20,700
  500  Ralston Purina Corporation................         31,188
2,400  Sara Lee Corporation......................         76,500
  300  Supervalu, Inc............................          9,450
  900  Sysco Corporation.........................         29,250
  800  Unilever N. V.............................        112,600
  500  Whitman Corporation.......................         11,625
  600  Wrigley (Wm) Jr. Company..................         31,500
                                                      ----------
                                                       1,465,320
                                                      ---------- 
       Forest Products (1.8%)
       ----------------------
  600  Alco Standard Corporation.................         27,375
  200  Boise Cascade Corporation.................          6,925
  500  Champion International Corporation........         21,000
  200  Federal Paper Board Company, Inc..........         10,375  
  500  Georgia-Pacific Corporation...............         34,312
1,200  International Paper Company...............         45,450
  400  James River Corporation of Virginia.......          9,650
1,446  Kimberly-Clark Corporation................        119,657
  600  Louisiana-Pacific Corporation.............         14,550
  300  Mead Corporation..........................         15,675
  100  Potlatch Corporation......................          4,000
  300  Temple-Inland, Inc........................         13,237
  300  Union Camp Corporation....................         14,288
  500  Westvaco Corporation......................         13,875
1,000  Weyerhaeuser Company......................         43,250
  300  Willamette Industries.....................         16,875
                                                      ----------
                                                         410,494
                                                      ---------- 
       Gold (0.5%)
       -----------
1,800  Barrick Gold Corporation..................         47,475
  600  Homestake Mining Company..................          9,375
  500  Newmont Mining Corporation................         22,625
1,100  Placer Dome, Inc..........................         26,537
  600  Santa Fe Pacific Gold Corporation.........          7,275
                                                      ----------
                                                         113,287
                                                      ----------
       Insurance (3.4%)
       ----------------
  600  Aetna Life & Casualty Company.............         41,550 
  200  Alexander & Alexander Services, Inc.......          3,800
2,241  Allstate Corporation......................         92,161
1,000  American General Corporation..............         34,875
2,400  American International Group, Inc.........        222,000
  500  Chubb Corporation.........................         48,375
  400  Cigna Corporation.........................         41,300
  400  General RE Corporation....................         62,000
  600  ITT Hartford Group, Inc.*.................         29,025
  300  Jefferson-Pilot Corporation...............         13,950
  500  Lincoln National Corporation..............         26,875
  400  Marsh & McLennan Companies, Inc...........         35,500
  500  Providian Corporation.....................         20,375
  600  Safeco Corporation........................         20,700
  400  St. Paul Companies, Inc...................         22,250
  300  Torchmark Corporation.....................         13,575
  400  Transamerica Corporation..................         29,150
 
</TABLE>
                            See accompanying notes.

                                    FS-13
<PAGE>   64
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y



[LOGO OF AAL VARIABLE ANNUITY]
Large Company Stock Portfolio
 .............................
Schedule of Investments as of December 31, 1995--Continued


<TABLE>
<CAPTION>
 
SHARES   COMMON STOCKS                                MARKET VALUE
 ..................................................................
<C>      <S>                                          <C>
 
         Insurance-Continued
         -------------------
    500  USF&G Corporation...........................  $     8,438
    150  USLIFE Corporation..........................        4,481
    400  Unum Corporation............................       22,000
                                                       -----------
                                                           792,380
                                                       -----------

         Liquor (0.7%)
         -------------
  1,300  Anheuser-Busch Companies, Inc. .............       86,937
    300  Brown-Foreman Corporation...................       10,950
    100  Coors (Adolph) Company......................        2,213
  1,800  Seagram Company, Ltd. ......................       62,325
                                                       -----------
                                                           162,425
                                                       -----------

         Media (2.3%)
         ------------
    800  Capital Cities/ABC, Inc. ...................       98,700
  1,100  Comcast Corporation.........................       20,006
    700  Donnelley (R.R.) & Sons Company.............       27,563
    500  Dow Jones & Company, Inc. ..................       19,937
    700  Gannett Company, Inc. ......................       42,963
    200  King World Productions, Inc.*...............        7,775
    300  Knight-Ridder Inc. .........................       18,750
    300  McGraw-Hill, Inc. ..........................       26,137
    100  Meredith Corporation........................        4,188
    400  New York Times Company......................       11,850
  3,200  Tele-Communications Inc.* ..................       63,600
  1,900  Time Warner, Inc. ..........................       71,962
    500  Times Mirror Company........................       16,938
    300  Tribune Company.............................       18,337
  1,800  Viacom, Inc.*...............................       85,275
                                                       -----------
                                                           533,981
                                                       -----------

         Miscellaneous Finance (3.0%)
         ----------------------------
    500  Ahmanson (H.F.) & Company...................       13,250
  2,400  American Express Company....................       99,300
    300  Beneficial Corporation......................       13,988
    800  Dean Witter Discover and Company............       37,600
  1,400  Federal National Mortgage Association.......      173,775
    900  Federal Home Loan Mortgage Corporation......       75,150
    300  Golden West Financial Corporation...........       16,575
    700  Great Western Financial Corporation.........       17,850
    500  Household International Corporation.........       29,562
    700  MBNA Corporation............................       25,813
    900  Merrill Lynch & Company.....................       45,900
    400  Morgan Stanley Group, Inc. .................       32,250
    500  Salomon, Inc. ..............................       17,750
  1,600  Travelers Group, Inc. ......................      100,600
                                                       -----------
                                                           699,363
                                                       -----------

         Motor Vehicles (2.4%)
         ---------------------
  1,900  Chrysler Corporation........................      105,212
    200  Cummins Engine Company, Inc. ...............        7,400
    500  Dana Corporation............................       14,625
    400  Eaton Corporation...........................       21,450
    300  Echlin, Inc. ...............................       10,950
    200  Fleetwood Enterprises, Inc. ................        5,150
  5,400  Ford Motor Company..........................      156,600
    600  Genuine Parts Company.......................       24,600
  3,700  General Motors Corporation..................      195,638
    600  ITT Industries, Inc. .......................       14,400
                                                       -----------
                                                           556,025
                                                       -----------

         Non-Durables (1.3%)
         -------------------
    300  American Greetings Corporation, Class A.....        8,287
    200  Bally Entertainment Corporation*............        2,800
    700  Darden Restaurants, Inc. ...................        8,313
    100  Handleman Company...........................          575
    300  Harcourt General Inc. ......................       12,562
    400  Hasbro, Inc. ...............................       12,400
    100  Jostens, Inc. ..............................        2,425
    100  Luby's Cafeterias, Inc......................        2,225
  1,100  Mattel, Inc.................................       33,825
  3,400  McDonald's Corporation......................      153,425
    300  Premark International Inc...................       15,188
    700  Rubbermaid, Inc. ...........................       17,850
    200  Ryans Family Steak House*...................        1,400
    600  Service Corporation International...........       26,400
    200  Shoneys, Inc.*..............................        2,050
    500  Wendy's International.......................       10,625
                                                       -----------
                                                           310,350
                                                       -----------

         Non-Ferrous Metals (0.9%)
         -------------------------
  1,100  Alcan Aluminum, Ltd. .......................       34,237
    900  Aluminum Company of America.................       47,588
    200  Asarco, Inc. ...............................        6,400
    400  Cyprus Minerals Company.....................       10,450
    600  Echo Bay Mines, Ltd. .......................        6,225
    700  Engelhard Corporation.......................       15,225
  1,000  Freeport-McMoran Copper & Gold, Class B.....       28,125
    600  Inco, Ltd. .................................       19,950
    400  Phelps Dodge Corporation....................       24,900
    300  Reynolds Metals Company.....................       16,988
                                                       -----------
                                                           210,088
                                                       -----------

         Oil-Domestic (1.2%)
         -------------------
    500  Amerada Hess Corporation....................       26,500
    300  Ashland Oil, Inc. ..........................       10,537
    800  Atlantic Richfield Company..................       88,600
    300  Kerr-McGee Corporation......................       19,050
    500  Oryx Energy Company*........................        6,688
    200  Pennzoil Corporation........................        8,450
  1,300  Phillips Petroleum Company..................       44,362
    400  Rowan Companies, Inc.*......................        3,950
    400  Santa Fe Energy Resources, Inc.*............        3,850
    300  Sun Company, Inc. ..........................        8,213
 
</TABLE>
                            See accompanying notes.

                                    FS-14
<PAGE>   65
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y



[LOGO OF AAL VARIABLE ANNUITY]
Large Company Stock Portfolio
 .............................
Schedule of Investments as of December 31, 1995--Continued


<TABLE>
<CAPTION>
 
 
SHARES  COMMON STOCKS                                   MARKET VALUE
 ....................................................................          
<C>     <S>                                             <C>
 
        Oil-Domestic-Continued
        ----------------------
 1,400  USX-Marathon Group, Inc........................  $    27,300
 1,200  Unocal Corporation.............................       34,950
                                                         -----------
                                                             282,450
                                                         -----------

        Oil-International (6.8%)
        ------------------------
 2,500  Amoco Corporation..............................      179,687
 3,200  Chevron Corporation............................      168,000
 6,200  Exxon Corporation..............................      496,775
 2,000  Mobil Corporation..............................      224,000
 2,700  Royal Dutch Petroleum Company..................      381,038
 1,300  Texaco, Inc....................................      102,050
   300  Western Atlas, Inc.*...........................       15,150
                                                         -----------
                                                           1,566,700
                                                         -----------

        Optical & Photo (0.7%)
        ----------------------
 1,100  Corning, Inc...................................       35,200
 1,700  Eastman Kodak Co...............................      113,900
   200  Polaroid Corporation...........................        9,475
                                                         -----------
                                                             158,575
                                                         -----------

        Producers Goods (5.2%)
        ----------------------
 1,400  Allied-Signal Inc..............................       66,500
   300  Avery Dennison Corporation.....................       15,037
   100  Briggs & Stratton Corporation..................        4,338
 1,000  Caterpillar, Inc...............................       58,750
   100  Cincinnati Milacron............................        2,625
   500  Cooper Industries, Inc.........................       18,375
 1,300  Deere & Company................................       45,825
   500  Dover Corporation..............................       18,437
 1,100  Emerson Electric Company.......................       89,925
   200  FMC Corporation*...............................       13,525
   200  Foster Wheeler Corporation.....................        8,500
 8,400  General Electric Company.......................      604,800
   100  Giddings & Lewis Inc...........................        1,650
   200  Harnischfeger Industries, Inc..................        6,650
   600  Illinois Tool Works, Inc.......................       35,400
   500  Ingersoll-Rand Company.........................       17,563
   200  Johnson Controls, Inc..........................       13,750
   200  Millipore Corporation..........................        8,225
   300  Navistar International Corporation*............        3,150
   500  Pall Corporation...............................       13,437
   300  Parker Hannifin Corporation....................       10,275
   200  Raychem Corporation............................       11,375
   200  Snap-on, Inc...................................        9,050
   900  Tenneco  Inc...................................       44,663
   100  Timken Company.................................        3,825
   100  Trinova Corporation............................        2,862
   700  Tyco International Ltd.........................       24,938
   200  Varity Corporation*............................        7,425
   300  W.W. Grainger, Inc.............................       19,875
 1,900  Westinghouse Electric Company..................       31,350
                                                         -----------
                                                           1,212,100
                                                         -----------

        Railroad & Shipping (1.1%)
        --------------------------
   764  Burlington Northern, Inc.......................       59,592
 1,000  CSX Corporation................................       45,625
   400  Conrail, Inc...................................       28,000
   700  Norfolk Southern Corporation...................       55,562
 1,000  Union Pacific Corporation......................       66,000
                                                         -----------
                                                             254,779
                                                         -----------

        Retail Stores (4.6%)
        --------------------
 1,200  Albertson's Inc................................       39,450
   800  American Stores Company........................       21,400
   900  CUC International, Inc.*.......................       30,712
   500  Charming Shoppes, Inc..........................        1,438
   400  Circuit City Stores, Inc.......................       11,050
   400  Dayton Hudson Corporation......................       30,000
   500  Dillard Department Stores, Inc.................       14,250
 1,100  Federated Department Stores, Inc.*.............       30,250
   700  GAP, Inc.......................................       29,400
   300  Giant Food, Inc., Class A......................        9,450
   100  Great Atlantic & Pacific Tea Company, Inc......        2,300
 2,400  Home Depot, Inc................................      114,900
 1,100  J.C. Penney Company, Inc.......................       52,387
 2,200  Kmart Corporation..............................       15,950
   600  Kroger Corporation*............................       22,500
   100  Long's Drug Stores, Inc........................        4,788
   800  Lowe's Companies, Inc..........................       26,800
 1,200  May Department Stores Company..................       50,700
   500  Melville Corporation...........................       15,375
   200  Mercantile Stores Company, Inc.................        9,250
   400  Nordstrom, Inc.................................       16,200
   400  Pep Boys-Manny, Moe & Jack.....................       10,250
   900  Price/Costco, Inc.*............................       13,725
   400  Rite Aid Corporation...........................       13,700
 1,900  Sears Roebuck & Company........................       74,100
   300  Tandy Corporation..............................       12,450
 1,700  The Limited, Inc...............................       29,538
   300  TJX Companies, Inc.............................        5,662
 1,300  Toys "R" Us, Inc.*.............................       28,275
11,500  Wal-Mart Stores, Inc...........................      257,313
 1,200  Walgreen Company...............................       35,850
   700  Winn-Dixie Stores, Inc.........................       25,812
   600  Woolworth Corporation*.........................        7,800
                                                         -----------
                                                           1,063,025
                                                         -----------
</TABLE>



                            See accompanying notes.

                                    FS-15
<PAGE>   66

<TABLE> 
<CAPTION> 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y



[LOGO OF AAL VARIABLE ANNUITY]
Large Company Stock Portfolio
 ..........................................................
Schedule of Investments as of December 31, 1995--Continued


 
SHARES COMMON STOCKS                           MARKET VALUE
 ...........................................................
<C>    <S>                                     <C>
       Steel (0.3%)
       ------------
  500  Armco, Inc.*............................ $     2,937
  500  Bethlehem Steel Corporation*............       7,000
  300  Inland Steel Industries, Inc............       7,538
  400  Nucor Corporation.......................      22,850
  400  USX-US Steel Group, Inc.................      12,300
  400  Worthington Industries, Inc.............       8,325
                                                -----------
                                                     60,950
                                                -----------

       Telephone  (8.8%)
       -----------------
1,000  ALL/TEL Corporation.....................      29,500
8,000  AT&T Corporation........................     518,000
2,400  Airtouch Communications, Inc.*..........      67,800
2,800  Ameritech Corporation...................     165,200
2,200  Bell Atlantic Corporation...............     147,125
4,900  BellSouth Corporation...................     213,150
  600  DSC Communications Corporation*.........      22,125
4,800  GTE Corporation.........................     211,200
3,400  MCI Communications......................      88,825
2,100  Nynex Corporation.......................     113,400
2,100  Pacific Telesis Group...................      70,613
3,000  SBC Communications, Inc.................     172,500
1,700  Sprint Corporation......................      67,787
  400  Tellabs, Inc.*..........................      14,800
2,300  U S West, Inc...........................      82,225
2,300  U S West Media Group....................      43,700
                                                -----------
                                                  2,027,950
                                                -----------

       Tires & Rubber (0.2%)
       ---------------------
  400  Cooper Tire & Rubber Company............       9,850
  800  Goodyear Tire & Rubber..................      36,300
                                                -----------
                                                     46,150
                                                -----------

       Tobacco (2.1%)
       --------------
  900  American Brands, Inc....................      40,162
  600  Loews Corporation.......................      47,025
4,200  Phillip Morris Companies, Inc...........     380,100
  900  UST, Inc................................      30,038
                                                -----------
                                                    497,325
                                                -----------

       Travel & Recreation (1.0%)
       --------------------------
  400  Brunswick Corporation...................       9,600
2,600  Disney (Walt) Company...................     153,400
  500  Harrah's Entertainment..................      12,125
  200  Hilton Hotels Corporation...............      12,300
  600  ITT Corporation*........................      31,800
  600  Marriott International, Inc.............      22,950
                                                -----------
                                                    242,175
                                                -----------

       Trucking & Freight (0.1%)
       -------------------------
  200  Consolidated Freightways, Inc...........       5,300
  200  PACCAR, Inc.............................       8,425
  200  Roadway Services, Inc...................       9,775
  300  Ryder Systems, Inc......................       7,425
  100  Yellow Corporation......................       1,238
                                                -----------
                                                     32,163
                                                -----------

       Utilities & Energy (4.4%)
       -------------------------
  900  American Electric Power Company.........      36,450
  800  Baltimore Gas & Electric Company........      22,800
  700  CINergy Corporation.....................      21,437
  700  Carolina Power & Light Company..........      24,150
  900  Central & Southwest Corporation.........      25,088
  500  Coastal Corporation.....................      18,625
  200  Columbia Gas System, Inc.*..............       8,775
1,100  Consolidated Edison Company of New York.      35,200
  500  Consolidated Natural Gas Company........      22,687
  700  DTE Energy Company......................      24,150
1,000  Duke Power Co...........................      47,375
  900  Dominion Resources, Inc.................      37,125
1,200  Enron Corporation.......................      45,750
  300  Enserch Corporation.....................       4,875
1,100  Entergy Corporation.....................      32,175
  900  FPL Group, Inc..........................      41,737
  600  General Public Utilities Corporation....      20,400
1,400  Houston Industries, Inc.................      33,950
  700  Niagara Mohawk Power Corporation........       6,738
  200  Nicor, Inc..............................       5,500
  600  NorAm Energy Corporation................       5,325
  300  Northern States Power Company...........      14,737
  100  ONEOK, Inc..............................       2,288
  700  Ohio Edison Company.....................      16,450
  700  PP&L Resources, Inc.....................      17,500
1,400  Pacificorp..............................      29,750
  400  Pacific Enterprises.....................      11,300
2,100  Pacific Gas & Electric Company..........      59,587
  700  Panhandle Eastern Corporation...........      19,513
1,100  Peco Energy Company.....................      33,137
  100  Peoples Energy Corporation..............       3,175
1,200  Public Service Enterprise...............      36,750
2,200  SCE Corporation.........................      39,050
  400  Sonat Inc...............................      14,250
3,400  Southern Company........................      83,725
1,100  Texas Utilities Company.................      45,238
1,000  Unicom Corporation......................      32,750
  500  Union Electric Company..................      20,875
  500  Williams Companies, Inc.................      21,938
                                                -----------
                                                  1,022,325
                                                -----------
       Total Common Stocks
         (cost basis $20,933,772).............. $22,822,654
                                                -----------
</TABLE>

*Non-income producing security

                            See accompanying notes.

                                    FS-16
<PAGE>   67
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y



[LOGO OF AAL VARIABLE ANNUITY]
Large Company Stock Portfolio
 .............................
Schedule of Investments as of December 31, 1995--Continued




<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT                                                  MARKET VALUE
 ....................................................................
<S>       <C>                                            <C>
          Short-Term Investments  (2.3%)
          ------------------------------
$100,000  Federal Home Loan Mortgage Corporation,
           5.50%, due 01/02/96.........................  $    99,984
 265,000  Lehman Brothers Holdings, Inc.,
           6.05%, due 01/03/96.........................      264,911
 155,000  Massachusetts Electric Company,
           5.90%, due 01/03/96.........................      154,949
   2,138  Harris Insight Government Assets Fund........        2,138
          Total Short-Term Investments                   ----------- 
           (cost basis $521,982).......................      521,982 
                                                         ----------- 
          Total Investments (100.9%)                                 
           (cost basis $21,455,754)....................   23,344,636 
          Liabilities, less other Assets (-0.9%).......     (206,358)
                                                         ----------- 
          NET ASSETS (100.0%)..........................  $23,138,278 
                                                         ===========  

</TABLE>
                                                         

                            See accompanying notes.

                                    FS-17

<PAGE>   68
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y



[LOGO OF AAL VARIABLE ANNUITY]
Small Company Stock Portfolio
 .............................
Schedule of Investments as of December 31, 1995

<TABLE>
<CAPTION>
 
 
SHARES COMMON STOCKS (98.1%)                    MARKET VALUE
 ............................................................
<C>    <S>                                      <C>
       Aerospace (0.8%)                                     
       ----------------
3,300  Gencorp, Inc............................ $    40,425
1,700  Kaman Corporation.......................      18,912
1,900  Thiokol Corporation.....................      64,363
                                                -----------
                                                    123,700
                                                -----------

       Air Transportation (0.5%)
       -------------------------
2,000  Airborne Freight Corporation............      53,250
1,300  Alaska Airgroup, Inc.*..................      21,125
                                                -----------
                                                     74,375
                                                -----------

       Apparel (1.6%)
       --------------
1,700  Brown Group, Inc........................      24,225
2,700  Cone Mills Corporation*.................      30,375
2,300  The Dress Barn Corporation*.............      22,712
2,600  Jones Apparel Group*....................     102,375
2,100  Kellwood Corporation....................      42,788
1,100  Oshkosh B' Gosh.........................      19,250
2,900  Tultex Corporation*.....................      11,962
                                                -----------
                                                    253,687
                                                -----------

       Banking (7.2%)
       --------------
1,200  Astoria Financial Corporation...........      54,750
  900  Bell Bancorp, Inc.......................      32,175
4,500  City Steel National Corporation.........      63,000
3,700  Compass Bancshares, Inc.................     122,100
3,200  Dauphin Deposit Corporation.............      92,000
2,500  First American Corporation - Tenn.......     118,437
3,400  First Commerce Corporation..............     108,800
2,700  Fourth Financial Corporation............     110,531
2,700  Long Island Bancorp, Inc................      71,213
1,500  ONBANCORP, Inc..........................      50,063
3,800  Peoples Bank of Bridgeport, Conn........      72,200
2,900  Rigs National Corp - Washington.........      37,700
3,300  Summit Bancorporation...................     103,950
3,600  Valley National Bancorp.................      90,000
                                                -----------
                                                  1,126,919
                                                -----------

       Business Machines  (4.2%)
       -------------------------
4,300  AST Research, Inc.*.....................      36,550
5,500  Aura Systems, Inc.*.....................      30,937
3,800  Cheyenne Software, Inc.*................      99,275
5,150  Comdisco, Inc...........................     116,519
1,900  Cyrix Corporation.......................      43,700
4,000  Data General Corporation*...............      55,000
2,100  Exabyte Corporation*....................      30,712
5,200  Quantum Corporation*....................      83,850
3,100  Structural Dynamic Research*............      91,063
2,200  Verifone, Inc.*.........................      62,975
                                                -----------
                                                    650,581
                                                -----------

       Business Services (9.2%)
       ------------------------
3,000  Air & Water Technologies, Inc.*.........      18,375
4,000  Allwaste, Inc.*.........................      19,000
  900  Angelica Corporation....................      18,450
2,200  Credence Systems Corporation*...........      50,325
2,300  FTP Software, Inc.......................      66,700
2,800  Fore Systems, Inc.......................     166,600
2,900  Hon Industries, Inc.....................      67,425
2,700  Information Resources, Inc.*............      33,412
2,100  Integrated Health Services, Inc.........      52,500
1,300  Medic Computer Systems, Inc.*...........      78,650
4,000  NetManage, Inc.*........................      93,000
2,300  Network General Corporation*............      76,763
1,400  New England Business Service, Inc.......      30,450
1,700  PHH Group, Inc..........................      79,475
4,200  Pittston Company........................     131,775
4,500  S3, Inc.*...............................      79,312
2,300  Shared Medical Systems Corporation......     125,063
2,800  Standard Register Corporation...........      56,350
2,300  Wallace Computer Services...............     125,637
3,200  Westpoint Stevens, Inc.*................      64,200
                                                -----------
                                                  1,433,462
                                                -----------

       Chemicals (2.5%)
       ----------------
2,700  ACX Technologies, Inc.*.................      40,837
4,100  Calgon Carbon Corporation...............      49,200
1,400  H.B. Fuller Company.....................      48,650
4,500  Lawter International, Inc...............      52,313
  800  NCH Corporation.........................      46,200
1,000  Petrolite Corporation...................      28,500
3,500  Rollins, Inc............................      77,437
5,500  Sterling Chemicals, Inc.*...............      44,688
                                                -----------
                                                    387,825
                                                -----------

       Construction (2.6%)
       -------------------
2,900  Centex Corporation......................     100,775
3,300  Kaufman & Broad Home Corporation........      49,087
1,200  Lawson Products Inc.....................      29,400
3,600  Lennar Corporation......................      90,450
3,200  Morrison Knudsen Corporation*...........      13,600
2,700  Pulte Corporation.......................      90,788
1,700  Southdown, Inc.*........................      33,150
                                                -----------
                                                    407,250
                                                -----------

       Consumer Durables (1.1%)
       ------------------------
1,300  Bassett Furniture Industries, Inc.......      30,225
2,100  Kimball International, Inc..............      53,025
1,900  La Z Boy Chair Company..................      58,663
1,900  Shorewood Packaging*....................      27,075
                                                -----------
                                                    168,988
                                                -----------
               
</TABLE>



                            See accompanying notes.

                                    FS-18
<PAGE>   69
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y



[LOGO OF AAL VARIABLE ANNUITY]
Small Company Stock Portfolio
 .............................
Schedule of Investments as of December 31, 1995--Continued


<TABLE>
<CAPTION>
 
SHARES  COMMON STOCKS                               MARKET VALUE
 ................................................................
<C>     <S>                                         <C>
 
        Containers (0.3%)
        -----------------
 5,200  Gaylord Container Corporation............... $    41,925
                                                     -----------

        Cosmetics (0.2%)
        ----------------
 1,000  Chemed Corporation..........................      38,875
                                                     -----------

        Domestic Oil (1.9%)
        -------------------
 3,000  Pogo Producing Corporation..................      84,750
 3,100  Quaker State Corporation....................      39,137
 8,400  Rowan Companies, Inc.*......................      82,950
 4,000  Smith International, Inc.*..................      94,000
                                                     -----------
                                                         300,837
                                                     -----------

        Drugs & Medicine (9.8%)
        -----------------------
 2,700  Acuson Corporation*.........................      33,412
 1,200  Advanced Technology*........................      29,400
 3,400  Advanced Tissue Sciences*...................      34,425
 3,100  Amsco International, Inc.*..................      46,113
 2,700  Ballard Medical Products....................      48,262
 2,800  Beckman Instruments, Inc....................      99,050
 4,000  Bergen Brunswig Corporation.................      99,500
 2,054  Block Drug Company..........................      71,377
 6,000  Centocor, Inc.*.............................     185,250
 1,600  Cordis Corporation..........................     160,800
 1,300  Diagnostic Products Corporation.............      49,237
 1,700  Foxmeyer Health Corporation*................      45,475
 2,800  Haemonetics Corporation.....................      49,700
 2,900  Herbalife International, Inc................      25,013
 4,500  Mid Atlantic Medical Services...............     109,125
 3,500  Pyxis Corporation...........................      51,187
 7,600  Perrigo Company*............................      90,250
 2,850  Summit Technology, Inc.*....................      96,188
 4,000  Surgical Care Affiliates, Inc...............     136,000
 2,100  Ventritex*..................................      36,488
 1,800  West, Inc...................................      42,300
                                                     -----------
                                                       1,538,552
                                                     -----------

        Electronics (6.0%)
        ------------------
 2,100  Avid Technology, Inc........................      39,900
 2,500  Electronics for Imaging, Inc................     109,375
 5,200  Geotek Industries, Inc.*....................      32,825
 2,300  Gerber Scientific, Inc......................      37,375
 1,400  Global Village Communication................      27,125
 6,200  LCI International, Inc.*....................     127,100
 3,300  Macromedia, Inc.*...........................     172,425
 3,200  Sequent Computer*...........................      46,400
 2,800  Silicon Valley Group, Inc.*.................      70,700
 2,600  Symbol Technologies*........................     102,700
 4,700  VLSI Technology*............................      85,187
 5,000  Western Digital Corporation*................      89,375
                                                     -----------
                                                         940,487
                                                     -----------

        Energy--Raw Materials (3.0%)
        ----------------------------
 2,900  BJ Services Corporation*....................      84,100
16,300  Global Marine, Inc.*........................     142,625
   800  Maxxam, Inc.*...............................      28,200
   900  NACCO Industries, Inc.......................      49,950
 8,400  Nabors Industries, Inc.*....................      93,450
 2,500  Southwestern Energy Company.................      31,875
 2,300  Washington Energy Corporation...............      42,838
                                                     -----------
                                                         473,038
                                                     -----------

        Food & Agriculture (2.8%)
        -------------------------
 5,500  Chiquita Brands International...............      75,625
 1,200  Dreyers Grand Ice Cream, Inc................      39,900
 5,850  Flowers Industries, Inc.....................      70,931
 1,700  International Multifoods, Corporation.......      34,213
 3,700  Interstate Bakeries.........................      82,787
 2,100  Michael Foods, Inc..........................      24,413
 3,400  Ralcorp Holding, Inc.*......................      82,450
 2,600  Savannah Foods and Industries...............      29,575
                                                     -----------
                                                         439,894
                                                     -----------

        Gold (0.3%)
        -----------
 3,400  Pegasus Gold, Inc.*.........................      47,175
                                                     -----------

        Insurance (5.3%)
        ----------------
 5,100  20th Century Industries - California*.......     101,362
 2,000  American Bankers Insurance Group............      78,000
 1,000  Foremost Corporation of America.............      50,750
 1,600  Integon Corporation.........................      33,000
 2,600  John Alden Financial Corporation............      54,275
 2,000  Liberty Corporation.........................      67,500
 1,400  Life Re Corporation.........................      35,000
 1,800  NAC Re Corporation..........................      64,800
11,300  Reliance Group Holdings.....................      97,463
 2,900  United Companies Financial Corporation......      76,487
 1,200  Washington National Corporation.............      33,150
 6,100  Western National Corporation................      98,363
 1,900  Zenith National Insurance Corporation.......      40,612
                                                     -----------
                                                         830,762
                                                     -----------

        Liquor (0.1%)
        -------------
   900  Midwest Grain Products......................      12,600
                                                     -----------

        Media (2.8%)
        ------------
 2,100  Banta George, Inc...........................      92,400

 
</TABLE>
                            See accompanying notes.

                                    FS-19
<PAGE>   70
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y



[LOGO OF AAL VARIABLE ANNUITY]


Small Company Stock Portfolio
 .................................
Schedule of Investments as of December 31, 1995--Continued


<TABLE>
<CAPTION>

SHARES    COMMON STOCKS                                   MARKET VALUE
 ......................................................................
<C>       <S>                                             <C>

          Media-Continued
          ---------------
 2,800    Chris Craft Industries, Inc.* ...............    $  121,100
 1,400    Houghton Mifflin Company ....................        60,200
 1,600    Pulitzer Publishing Company .................        76,400
 2,500    TCA Cable TV ................................        69,063
 2,000    Western Publishing Group, Inc.* .............        15,750
                                                           ----------
                                                              434,913
                                                           ----------
 
          Miscellaneous Finance (5.2%)
          ----------------------------
 1,500    Alex Brown, Inc. ............................        63,000
 4,900    California Federal Bank* ....................        77,175
 2,000    Collective Bancorp, Inc. ....................        50,750
 4,100    Glendale Federal Bank FSB* ..................        71,750
 1,400    Great Financial Corporation .................        32,900
 2,400    Home Financial Corporation ..................        37,200
 2,700    Life Partners Group .........................        36,787
 1,900    Life USA Holding, Inc.* .....................        15,200
 3,100    Premier Bancorp, Inc.* ......................        72,463
 3,900    Roosevelt Financial Group, Inc. .............        75,562
   600    Seafield Capital Corporation ................        20,400
 3,100    Standard Federal Bancorporation .............       122,063
 2,800    T. Rowe Price and Associates ................       137,900
                                                           ----------
                                                              813,150
                                                           ----------
 
          Motor Vehicles (1.7%)
          ---------------------
 2,200    Arvin Industries, Inc. ......................        36,300
 2,600    Donaldson Company, Inc. .....................        65,325
 3,200    Federal Mogul Corporation ...................        62,800
 1,800    Standard Products Corporation ...............        31,725
 2,900    Superior Industries International ...........        76,487
                                                           ----------
                                                              272,637
                                                           ----------
 
          Non-Durables & Entertainment (4.0%)
          -----------------------------------
 1,600    A.T. Cross Company ..........................        24,200
 4,600    Acclaim Entertainment, Inc. .................        56,925
 2,700    Duty Free International, Inc. ...............        43,200
 1,500    Gibson Greetings, Inc.* .....................        24,000
 3,400    Handleman Company ...........................        19,550
 2,100    International Dairy Queen, Inc.* ............        47,775
 2,500    Luby's Cafeterias, Inc. .....................        55,625
 3,400    Morrison Restaurants ........................        47,600
 2,100    Russ Berrie & Company .......................        26,513
 2,000    Sbarro, Inc. ................................        43,000
 2,700    Sizzler International, Inc. .................        11,475
 5,600    Sothebys Holdings, Inc. .....................        79,800
 7,100    Starbucks Corporation* ......................       149,100
                                                           ----------
                                                              628,763
                                                           ----------
 
          Non-Ferrous Metals (0.5%)
          -------------------------
 1,600    Brush Wellman, Inc. .........................        27,600
 4,800    Hecla Mining Company* .......................        33,000
18,700    Sunshine Mining Company* ....................        25,712
                                                           ----------
                                                               86,312
                                                           ----------
 
          Optical & Photo (0.7%)
          ----------------------
 2,600    Dentsply International, Inc.* ...............       104,000
                                                           ----------
 






          Paper & Forest Products (1.5%)
          ------------------------------
 2,300    Chesapeake Corporation VA ...................        68,137
 1,900    Pentair Industries, Inc. ....................        94,525
 3,000    Wausau Paper Mills Corporation ..............        81,750
                                                           ----------
                                                              244,412
                                                           ----------
 
          Producers Goods (5.6%)
          ----------------------
 3,000    Albany International Corporation, Class A ...        54,375
 3,000    Ametek, Inc. ................................        56,250
 2,300    BWIP Holding, Inc. ..........................        37,950
 2,900    Baldor Electric Company .....................        58,363
 3,500    Cincinnati Milacron .........................        91,875
 1,400    Clarcor, Inc. ...............................        28,525
 3,400    Giddings & Lewis, Inc. ......................        56,100
 2,200    Goulds Pumps, Inc. ..........................        55,000
 1,300    Handy & Harman ..............................        21,450
 2,600    Kennametal, Inc. ............................        82,550
 2,200    Lattice Semiconductor Corporation* ..........        71,775
 1,400    Measurex Corporation ........................        39,550
 1,400    Presstek, Inc.* .............................       132,300
 1,600    Teleflex, Inc. ..............................        65,600
 1,200    Zurn Industries, Inc. .......................        25,650
                                                           ----------
                                                              877,313
                                                           ----------
 
          Railroad & Shipping (0.6%)
          --------------------------
 3,000    OMI Corporation* ............................        19,500
 3,600    Overseas Shipholding Group, Inc. ............        68,400
                                                           ----------
                                                               87,900
                                                           ----------
 
          Real Property (0.3%)
          --------------------
 7,200    Catellus Development Corporation* ...........        43,200
                                                           ----------
 
          Retail Stores (4.1%)
          --------------------
 3,400    Bed, Bath, & Beyond, Inc.* ..................       131,962
   900    Blair Corporation ...........................        28,350
 2,800    Cato Corporation ............................        21,700
10,100    Charming Shoppes, Inc. ......................        29,038
 2,100    CompUSA Incorporated ........................        65,362
 2,100    Eagle Hardware & Garden, Inc.* ..............        15,750
 9,000    Home Shopping Network* ......................        81,000
 3,400    Intelligent Electronics .....................        20,400
 3,300    Lands End, Inc. .............................        44,963
 2,500    MacFrugals Bargains Close-Outs, Inc.* .......        35,000
 2,900    Merisel, Inc.* ..............................        12,687
 
</TABLE>

                             See accompanying notes.
                                   ..........

                                    FS-20

<PAGE>   71
 
===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y



[LOGO OF AAL VARIABLE ANNUITY]
Small Company Stock Portfolio
 .............................
Schedule of Investments as of December 31, 1995--Continued

<TABLE>
<CAPTION>
 
 
 
SHARES   COMMON STOCKS                            MARKET VALUE
 ..............................................................
<C>      <S>                                      <C>
 
         Retail Stores-Continued
         -----------------------
  2,700  Meyer Fred, Inc.*....................... $    60,750
  2,500  Ross Stores, Inc........................      47,813
  1,700  Stanhome, Inc...........................      49,512
                                                  -----------
                                                      644,287
                                                  -----------

         Steel (1.3%)
         ------------
  2,800  AK Steel Holding Corporation*...........      95,900
  2,800  Birmingham Steel Corporation............      41,650
  1,700  Carpenter Technology....................      69,913
                                                  -----------
                                                      207,463
                                                  -----------

         Telephone (1.6%)
         ----------------
  3,033  International Cabletel, Inc.*...........      74,308
  2,300  Octel Communications Corporation*.......      74,175
  1,200  U.S. Long Distance Corporation*.........      16,800
  4,100  Vanguard Cellular Systems, Inc.*........      83,025
                                                  -----------
                                                      248,308
                                                  -----------

         Tires & Rubber (0.4%)
         ---------------------
  1,500  Carlisle Corporation....................      60,563
                                                  -----------

         Travel & Recreation (1.2%)
         --------------------------
  2,400  Argosy Gaming Corporation*..............      18,300
  1,900  Cobra Golf, Inc.*.......................      67,688
  4,200  Grand Casinos, Inc.*....................      97,650
                                                  -----------
                                                      183,638
                                                  -----------

         Trucking & Freight (1.2%)
         -------------------------
  2,600  Arnold Industries, Inc..................      45,175
  3,800  J.B. Hunt Transport Services, Inc.......      63,650
  4,300  Rollins Truck Leasing Corporation.......      47,838
  2,700  Yellow Corporation......................      33,412
                                                  -----------
                                                      190,075
                                                  -----------

         Utilities & Energy (6.0%)
         -------------------------
  1,700  Central Hudson Gas & Electric...........      52,487
  1,300  Cilcorp, Inc............................      55,088
  2,000  Eastern Utilities Association...........      47,250
  3,000  IES Industries, Inc.....................      79,500
  2,800  MDU Resources Group.....................      55,650
 12,300  NorAm Energy Corporation................     109,163
  2,600  ONEOK, Inc..............................      59,475
  1,300  Orange and Rockland Utilities, Inc......      46,475
  4,000  Public Service Company of N. Mexico*....      70,500
  3,300  Seagull Energy Corporation*.............      73,425
  3,000  Sierra Pacific Resources................      70,125
  1,600  Southern Indiana Gas & Electric.........      55,600
  2,400  Southwest Gas Corporation...............      42,300
 15,700  Tucson Electric Power*..................      51,025
  3,300  UGI Corporation.........................      68,475
                                                  -----------
                                                      936,538
                                                  -----------
         Total Common Stocks
           (cost basis $14,648,343).............. $15,354,404
                                                  ===========
</TABLE>


<TABLE>
<CAPTION>


PRINCIPAL
AMOUNT                                                  MARKET VALUE
 ....................................................................
<S>       <C>                                           <C>
 
          Short-Term Investments (3.1%)
          -----------------------------
$ 87,000  Federal Home Loan
            Mortgage Corporation,
            5.52%, due 01/05/96.......................  $    86,947
 405,000  Lehman Brothers Holdings, Inc.,
            6.05%, due 01/03/96.......................      404,864
     929  Harris Insight Government Assets Fund.......          929
                                                        -----------
          Total Short-Term Investments
            (cost basis $492,740)......................     492,740
                                                        -----------
          Total Investments (101.2%)
            (cost basis $15,141,083)...................  15,847,144
          Liabilities, less other Assets (-1.2%).......    (181,280)
                                                        -----------
          NET ASSETS (100.0%).......................... $15,665,864
                                                        ===========
 
</TABLE>

*Non-income producing security




                            See accompanying notes.

                                    FS-21
<PAGE>   72

<TABLE>
<CAPTION>
=======================================================================================================================
                                         A A L  V A R I A B L E  A N N U I T Y

[LOGO OF AAL VARIABLE ANNUITY]
AAL Variable Product Series Fund, Inc.
Statement of Assets and Liabilities
 ....................................................................................................................
December 31, 1995
 
                                                                                            LARGE        SMALL
                                                   MONEY                                    COMPANY      COMPANY
                                                   MARKET         BOND         BALANCED     STOCK        STOCK
                                                   PORTFOLIO      PORTFOLIO    PORTFOLIO    PORTFOLIO    PORTFOLIO
 ....................................................................................................................
<S>                                                <C>            <C>          <C>          <C>          <C>
ASSETS
Investments, at value (cost: $7,240,528,
   $9,243,235, $27,024,356, $21,455,754
   and $15,141,083, respectively)...............      $7,240,528  $9,433,852   $28,677,578  $23,344,636  $15,847,144
Dividends and interest receivable...............               6     124,369       187,683       40,454       16,794
Receivable for investments sold.................               -           -         2,554            -            -
Receivable for fund shares sold.................         158,442      53,875       232,433      134,240      155,498
                                                      --------------------------------------------------------------
TOTAL ASSETS....................................      $7,398,976  $9,612,096   $29,100,248  $23,519,330  $16,019,436
                                                      ==============================================================

LIABILITIES
Payable for investments purchased...............      $        -  $  242,974   $   320,452  $   361,452  $   340,300
Income distributions payable....................           3,237           -             -            -            -
Payable for fund shares reacquired..............         349,150       3,677        13,113       13,046        8,971
Investment advisory fee payable.................           1,947       2,613         7,961        6,454        4,301
                                                      --------------------------------------------------------------
TOTAL LIABILITIES...............................         354,334     249,264       341,526      380,952      353,572
                                                      --------------------------------------------------------------

NET ASSETS
Capital stock - par value ($0.001/share)........           7,045         915         2,632        2,010        1,426
Capital stock - additional paid-in capital......       7,037,597   9,171,717    27,098,958   21,245,079   14,946,459
Undistributed net investment income.............               -       1,770         3,076          973          219
Undistributed net realized gain (loss)..........               -      (2,187)          834        1,434       11,699
Net unrealized appreciation on investments......               -     190,617     1,653,222    1,888,882      706,061
                                                      --------------------------------------------------------------

TOTAL NET ASSETS................................       7,044,642   9,362,832    28,758,722   23,138,378   15,665,864
                                                      --------------------------------------------------------------

                                                      --------------------------------------------------------------
TOTAL LIABILITIES AND NET ASSETS................      $7,398,976  $9,612,096   $29,100,248  $23,519,330  $16,019,436
                                                      ==============================================================
CAPITAL SHARES OUTSTANDING                            --------------------------------------------------------------
   (2 BILLION SHARES AUTHORIZED)................       7,044,642     914,759     2,632,360    2,009,994    1,425,566
                                                      --------------------------------------------------------------

NET ASSET VALUE PER SHARE.......................      $     1.00  $    10.23   $     10.92  $     11.51  $     10.99
                                                      ==============================================================
</TABLE>

                            See accompanying notes.

                                    FS-22
<PAGE>   73
===============================================================================
 
                    A A L   V A R I A B L E   A N N U I T Y

[Logo of A A L Variable Annuity]

 AAL Variable Annuity Account I
 Statement of Operations
 For the Period June 15, 1995(1) to December 31, 1995

<TABLE>
<CAPTION>
 
 
                                                                                                    LARGE       SMALL
                                                                MONEY                               COMPANY     COMPANY
                                                                MARKET      BOND        BALANCED    STOCK       STOCK
                                                     COMBINED   SUBACCOUNT  SUBACCOUNT  SUBACCOUNT  SUBACCOUNT  SUBACCOUNT
 ...................................................................................................................................
<S>                                                 <C>           <C>        <C>         <C>         <C>         <C>
INVESTMENT INCOME:
Dividends .......................................   $  396,171    $ 76,382    $ 65,068    $140,993    $ 80,453    $ 33,275
Capital gain distributions ......................        5,505           -           -         218       1,653       3,634
                                                    ----------------------------------------------------------------------
TOTAL INVESTMENT INCOME .........................      401,676      76,382      65,068     141,211      82,106      36,909
 
EXPENSES:
Mortality and expense
 risk charges ...................................      133,383      17,461      11,062      38,393      40,262      26,205
                                                    ----------------------------------------------------------------------
NET INVESTMENT INCOME ...........................      268,293      58,921      54,006     102,818      41,844      10,704
 
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from
 investment transactions ........................        1,564           -         692         146         639          87
Change in net unrealized
 appreciation of investments ....................    1,551,010           -      71,089     498,811     757,544     223,566
                                                    ----------------------------------------------------------------------
 
NET REALIZED AND UNREALIZED
 GAIN ON INVESTMENTS ............................    1,552,574           -      71,781     498,957     758,183     223,653
                                                    ----------------------------------------------------------------------
 
NET INCREASE IN NET ASSETS
 RESULTING FROM OPERATIONS ......................   $1,820,867    $ 58,921    $125,787    $601,775    $800,027    $234,357
                                                    ======================================================================
 
</TABLE>
(1) Commencement of operations.



                            See accompanying notes.

                                    FS-23
<PAGE>   74
===============================================================================

                  A A L   V A R I A B L E   A N N U I T Y 

[Logo of A A L Variable Annuity]

 AAL Variable Annuity Account I
 Statement of Changes in Net Assets
 For the Period June 15, 1995(1) to
 December 31, 1995


<TABLE>
<CAPTION>
                                                                                                          LARGE          SMALL
                                                                MONEY                                     COMPANY        COMPANY
                                                                MARKET           BOND         BALANCED    STOCK          STOCK
                                                   COMBINED     SUBACCOUNT       SUBACCOUNT   SUBACCOUNT  SUBACCOUNT     SUBACCOUNT
 ...................................................................................................................................
<S>                                             <C>            <C>            <C>          <C>            <C>            <C>    
OPERATIONS:
Net investment income .......................    $   268,293    $   58,921     $   54,006   $   102,818    $   41,844    $   10,704
Net realized gain from
 investment transactions ....................          1,564        -                 692           146           639            87
Change in unrealized
 appreciation of investments ................      1,551,010        -              71,089       498,811       757,544       223,566
NET INCREASE IN NET ASSETS                       ----------------------------------------------------------------------------------
 RESULTING FROM OPERATIONS ..................      1,820,867        58,921        125,787       601,775       800,027       234,357
 
CAPITAL SHARE TRANSACTIONS:
Transfers of net premiums ...................     47,610,113    18,249,874      2,841,432     9,540,542     9,985,987     6,992,278
Transfers of surrenders .....................       (136,290)      (64,439)       (18,376)      (25,229)      (13,024)      (15,222)

Transfers between subaccounts ...............       (227,498)  (13,198,933)     1,295,569     4,983,458     3,732,283     2,960,125
 
NET INCREASE IN NET ASSETS
 RESULTING FROM CAPITAL SHARE                    ----------------------------------------------------------------------------------
 TRANSACTIONS ...............................     47,246,325     4,986,502      4,118,625    14,498,771    13,705,246     9,937,181
                                                 ----------------------------------------------------------------------------------

TOTAL INCREASE IN NET ASSETS AND
 NET ASSETS AT END OF PERIOD ................    $49,067,192  $  5,045,423     $4,244,412   $15,100,546   $14,505,273   $10,171,538
                                                 ==================================================================================
 
</TABLE>
(1) Commencement of operations.



                            See accompanying notes.

                                    FS-24
<PAGE>   75

===============================================================================
 
                    A A L   V A R I A B L E   A N N U I T Y

LOGO OF AAL VARIABLE ANNUITY]

AAL Variable Annuity Account I
Notes to Financial Statements
 ..............................
December 31, 1995

NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 The AAL Variable Annuity Account I (the Account) is a unit investment trust
 registered under the Investment Company Act of 1940. The Account was
 established as a separate investment account within Aid Association for
 Lutherans (AAL) to fund flexible premium deferred variable annuity insurance
 certificates. The Account commenced operations on June 15, 1995.

 The Account has five separate subaccounts, each of which invests solely, as
 directed by contract owners, in a different portfolio of the AAL Variable
 Product Series Fund, Inc. (the Fund), an open-end, diversified management
 investment company sponsored by AAL. Contract owners also may direct
 investments to a guaranteed interest subaccount held in the general account of
 AAL.

 Investments in shares of the Fund are stated at market value, which is the
 closing net asset value per share as determined by the Fund. The first-in,
 first-out basis has been used in determining the net realized gain or loss from
 investment transactions and the cost basis for determining unrealized
 appreciation or depreciation on investments. Dividends and capital gain
 distributions paid to the Account are automatically reinvested in shares of the
 Fund on the payment date.

NOTE 2:  EXPENSE CHARGES

 The Account pays AAL certain amounts relating to the distribution and
 administration of the certificates funded by the Account and as reimbursement
 for certain mortality and other risks assumed by AAL. The following summarizes
 those amounts.

 Mortality and Expense Risk Charge

 AAL deducts a daily mortality and expense risk charge from the Account at an
 annual rate of 1.25% of the average daily net asset value of the Account. These
 charges are deducted by AAL in return for its assumption of risks associated
 with adverse mortality experience or excess administrative expenses in
 connection with certificates issued.

 Certificate Maintenance Charge

 Prior to the annuity payment period, AAL deducts a certificate maintenance
 charge of $25 per certificate year to reimburse it for administrative expenses
 related to the contract, unless the sum of premiums received by AAL less the
 sum of any withdrawals and withdrawal charges from the certificate is $5,000 or
 more at the time the deduction would be made. A portion of this charge may be
 deducted from funds held outside of the Account (i.e., in the Fixed Account).

 Withdrawal and Surrender Charges

 A withdrawal and surrender charge is imposed in the event of a full or partial
 surrender in excess of 10% of the accumulated value during the first seven
 contract years. The amount charged is 7% of the amount surrendered during the
 first contract year and declines by 1% in each of the next six contract years.
 No surrender charge is deducted if the partial surrender or surrender occurs
 after seven full contract years.

                                    FS-25
<PAGE>   76

===============================================================================

                    A A L   V A R I A B L E   A N N U I T Y

[LOGO OF AAL VARIABLE ANNUITY]

AAL Variable Annuity Account I
Notes to Financial Statements-Continued
 .......................................

December 31, 1995

NOTE 2:  EXPENSE CHARGES (CONTINUED)
 Transfer Charge

 Owners may request transfers of all or part of a certificate's accumulated
 value among the subaccounts and/or the fixed annuity, prior to the annuity
 commencement date. The owner may make two transfers from one or more
 subaccounts to other subaccounts or the fixed annuity in each certificate year
 without charge. Thereafter, each transfer will be subject to a $10 transfer
 charge.

NOTE 3:  FEDERAL INCOME TAXES

 The operations of the Account form a part of the operations of AAL. AAL, a
 fraternal benefit society, qualifies as a tax-exempt organization under the
 Internal Revenue Code. Under current law, no federal income taxes are payable
 with respect to the Account's net investment income and net realized gain on
 investments. Accordingly, no charge for income taxes is currently being made to
 the Account. If such taxes are incurred by AAL in the future, a charge to the
 Account may be assessed.

NOTE 4:  INVESTMENT TRANSACTIONS

 The aggregate cost of investment securities purchased and proceeds from
 investment securities sold by subaccount for the period June 15, 1995 to
 December 31, 1995 are as follows:
<TABLE>
<CAPTION>
 
                                                 PURCHASES     SALES
 ......................................................................
<S>                                            <C>          <C>
 Money Market Subaccount...................... $ 9,339,134  $4,294,492
 Bond Subaccount..............................   4,345,071     171,748
 Balanced Subaccount..........................  14,615,015      13,280
 Large Company Stock Subaccount...............  13,774,864      27,135
 Small Company Stock Subaccount...............   9,952,580       4,608
                                               -----------------------
 Combined..................................... $52,026,664  $4,511,263
                                               =======================

</TABLE>

                                    FS-26
<PAGE>   77
===============================================================================
 
                    A A L   V A R I A B L E   A N N U I T Y

[Logo of A A L Variable Annuity]

 AAL Variable Annuity Account I
 Notes to Financial Statements--Continued
 December 31, 1995

NOTE 5:  SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
 Transactions in units of each subaccount of the Account for the period June 15,
 1995 to December 31, 1995, were as follows:
<TABLE>
<CAPTION>
 
                                                        UNITS SOLD             UNITS REDEEMED            NET INCREASE
                                                    UNITS       AMOUNT       UNITS       AMOUNT       UNITS      AMOUNT
 ........................................................................................................................
<S>                                             <C>         <C>          <C>         <C>          <C>        <C>
 Money Market Subaccount  ....................   17,995,748  $18,249,874  13,064,450  $13,263,372  4,931,298  $ 4,986,502
 Bond Subaccount .............................      404,717    4,137,001       1,790       18,376    402,927    4,118,625
 Balanced Subaccount .........................    1,367,146   14,524,000       2,291       25,229  1,364,855   14,498,771
 Large Company Stock Subaccount ..............    1,259,381   13,718,270       1,144       13,024  1,258,237   13,705,246
 Small Company Stock Subaccount ..............      930,171    9,952,403       1,416       15,222    928,755    9,937,181
                                               ...........................................................................
 Combined ....................................   21,957,163  $60,581,548  13,071,091  $13,335,223  8,886,072  $47,246,325
                                               ===========================================================================
</TABLE>
NOTE 6:  NET ASSETS
 The Account has an unlimited number of accumulation units authorized with no
 par value. Net assets as of December 31, 1995 consisted of:
<TABLE>
<CAPTION>
 
                                                                                                 LARGE        SMALL
                                                            MONEY                                COMPANY      COMPANY
                                                            MARKET      BOND        BALANCED     STOCK        STOCK
                                                COMBINED    SUBACCOUNT  SUBACCOUNT  SUBACCOUNT   SUBACCOUNT   SUBACCOUNT
 ........................................................................................................................
<S>                                            <C>          <C>         <C>         <C>          <C>          <C>
 Paid-in Capital ............................  $47,246,325  $4,986,502  $4,118,625  $14,498,771  $13,705,246  $ 9,937,181
 
 Undistributed net investment income ........      268,293      58,921      54,006      102,818       41,844       10,704
 
 Undistributed net realized gain from
    investment transactions .................        1,564           -         692          146          639           87
 
 Net unrealized appreciation of investments .    1,551,010           -      71,089      498,811      757,544      223,566
                                               ...........................................................................
 Net Assets .................................  $49,067,192  $5,045,423  $4,244,412  $15,100,546  $14,505,273  $10,171,538
                                               ===========================================================================
 
</TABLE>

                                    FS-27
<PAGE>   78
=============================================================================== 
                    A A L   V A R I A B L E   A N N U I T Y

[AAL VARIABLE ANNUITY LOGO]

AAL Variable Product Series Fund, Inc.
Financial Highlights
 ......................................
For the Period June 14, 1995(1) to December 31, 1995


The following table presents per share information for each portfolio of the AAL
Variable Product Series Fund, Inc. for the period presented, which should be
read in conjunction with the financial statements and the related notes.

<TABLE>
<CAPTION>
                                                                                            LARGE         SMALL
                                                    MONEY                                   COMPANY       COMPANY
                                                    MARKET       BOND         BALANCED      STOCK         STOCK
                                                    PORTFOLIO    PORTFOLIO    PORTFOLIO     PORTFOLIO     PORTFOLIO
 ....................................................................................................................
<S>                                                <C>          <C>          <C>           <C>           <C>
Net asset value: Beginning of period.............       $1.00       $10.00        $10.00        $10.00        $10.00
 
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................        0.03         0.34          0.22          0.11          0.08
Net realized and unrealized gains
  on investments.................................        0.00         0.23          0.92          1.52          0.99
                                                   -----------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS.................        0.03         0.57          1.14          1.63          1.07
                                                   ----------------------------------------------------------------- 
LESS DISTRIBUTIONS:
From net investment income.......................       (0.03)       (0.34)        (0.21)        (0.11)        (0.07)
From net realized capital gains..................        0.00         0.00         (0.01)        (0.01)        (0.01)
                                                   ----------------------------------------------------------------- 
TOTAL DISTRIBUTIONS..............................       (0.03)       (0.34)        (0.22)        (0.12)        (0.08)
                                                   -----------------------------------------------------------------
Net increase in net asset value..................        0.00         0.23          0.92          1.51          0.99
 
Net Asset value: End of period...................       $1.00       $10.23        $10.92        $11.51        $10.99
                                                   -----------------------------------------------------------------
Total Return (a).................................        5.58%        5.80%        11.46%        16.39%        10.70%
Net Assets, End of Period........................  $7,044,642   $9,362,832   $28,758,722   $23,138,378   $15,665,864
 
RATIOS AND SUPPLEMENTAL DATA:
Ratio of expenses to average net assets (b) (c)..        0.35%        0.35%         0.35%         0.35%         0.35%
Ratio of net investment income to
  average net assets (b) (c).....................        5.71%        6.54%         4.07%         2.27%         1.43%
Portfolio turnover rate..........................         N/A         6.51%         2.29%         0.47%         2.85%
Average commission rate paid (d).................         N/A          N/A         $0.04         $0.04         $0.04
</TABLE>

(1) Commencement of operations.

                                    FS-28
<PAGE>   79

=============================================================================== 
                    A A L   V A R I A B L E   A N N U I T Y

[AAL Variable Annuity Logo]

AAL Variable Product Series Fund, Inc.
Financial Highlights--Continued
 ......................................
For the Period June 14, 1995(1) to December 31, 1995


(a) The Bond, Balanced, Large Company Stock and Small Company Stock Portfolios
    are reported as period-to-date cumulative total returns, while the Money
    Market Portfolio is reported on an annualized total return basis.

(b) Calculated on an annualized basis.

(c) Without reimbursements the above ratios, on an annualized basis, would have
    been:

<TABLE>
<CAPTION>
                                                                                                LARGE       SMALL
                                                            MONEY                               COMPANY     COMPANY
                                                            MARKET      BOND        BALANCED    STOCK       STOCK
                                                            PORTFOLIO   PORTFOLIO   PORTFOLIO   PORTFOLIO   PORTFOLIO
    .................................................................................................................
    <S>                                                     <C>         <C>         <C>         <C>         <C>
    Ratio of expenses to average net assets...............    1.40%       1.25%       1.15%       1.26%       1.37%
    Ratio of net investment income to average net assets..    4.66%       5.64%       3.27%       1.37%       0.41%
</TABLE>

(d) Amounts shown reflect the average brokerage commission paid on each share of
    equity securities traded by the Portfolio during the period presented.


(1) Commencement of operations.


                            See accompanying notes.

                                    FS-29
<PAGE>   80

================================================================================
 
                    A A L   V A R I A B L E   A N N U I T Y

[LOGO OF AAL VARIABLE ANNUITY]

Report of Independent Auditors
 .............................. 


The Board of Directors and Certificateowners

Aid Association for Lutherans


We have audited the accompanying statement of net assets of the AAL Variable
Annuity Account I (comprising, respectively, the Money Market, Bond, Balanced,
Large Company Stock and Small Company Stock Subaccounts) as of December 31,
1995, and the related statements of operations and changes in net assets for the
period from June 15, 1995 (commencement of operations) to December 31, 1995.
These financial statements are the responsibility of the Account's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence with
the transfer agent. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

 In our opinion, the financial statements referred to above present fairly, in
 all material respects, the financial position of each of the respective
 subaccounts constituting the AAL Variable Annuity Account I at December 31,
 1995, and the results of their operations and changes in their net assets for
 the period June 15, 1995 to December 31, 1995, in conformity with generally
 accepted accounting principles.

/s/ ERNST & YOUNG LLP

 Milwaukee, Wisconsin
 February 2, 1996

                                    FS-30
<PAGE>   81




   
                                                                               
    

PART C. OTHER INFORMATION


ITEM 24.  FINANCIAL STATEMENTS AND EXHIBITS.

(a)      Financial Statements:

   
Part A.  The audited financial highlights of the AAL Variable Product Series
Fund, Inc. ("Fund" or "Registrant") for the period from June 14, 1995
(commencement of operations) through December 31, 1995 are included in Part A
of this Registration Statement.
    

   
Part B.  The audited financial statements for the Fund for the period from June
14, 1995 (commencement of operations) through December 31, 1995 are included in
Part B of this Registration Statement.  The financial statements included in
Part B are:
    

   
         Schedules of Investments
    
   
         Statement of Assets and Liabilities
    
   
         Statement of Operations
    
   
         Statement of Changes in Net Assets
    
   
         Notes to Financial Statements
    
   
         Financial Highlights
    
   
         Report of Independent Auditors
    


(b)      Exhibits:
   
         (1)      Articles of Incorporation of the Fund.(1)
    
   
         (2)      By-Laws of the Fund.(2)
    
         (3)      Not applicable.
         (4)      Not applicable.
   
         (5)(a)   Investment Advisory Agreement by and between the Fund and 
                  AAL.(2)
    
   
            (b)   First Amendment to Investment Advisory Agreement by and 
                  between the Fund and AAL.
    
   
         (6)      Participation Agreement by and between AAL, on its own behalf
                  and on behalf of  AAL Variable Account I, and the Fund.(2)
    
         (7)      Not applicable.
   
         (8)      Custodian Agreement by and between the Fund and Harris Trust 
                  and Savings Company ("Custodian").(2)
    
   
         (9)(a)   Transfer Agency Agreement by and between the Fund and AAL.(2)
    
   
            (b)   Trade Name/Service Mark Licensing Agreement by and between 
                  AAL and the Fund.(2)
    
   
            (c)   Administrative Services Agreement by and between AAL Capital
                  Management Corporation and AAL.
    
   
         (10)     Opinion and Consent of Counsel.(1)
    
   
         (11)     Consent of Independent Auditors.
    
         (12)     Not applicable.
   
         (13)     Agreement or Understanding Providing Initial Capital (Stock
                  Subscription Agreement).(2)
    
         (14)     Not applicable.
         (15)     Not applicable.
   
         (16)     Schedules for Computations of Performance Quotations included
                  in response to Form N-1A, Item 22.
    
   
         (17)     The Financial Data Schedule required to be filed pursuant to 
                  Form N-1A, Item 24(b)(17), is filed herewith as Exhibit 27, 
                  as dictated by the Securities and Exchange Commission's 
                  Electronic Data Gathering, Analysis, and Retrieval System.
    

<PAGE>   82

   
         (18)     Not Applicable.
    
   
         (19)     Powers of Attorney.(2)
    
   
         (27)     Financial Data Schedule.

    
   


    
   
______________________________
    

   
(1)   Previously filed in the initial filing, dated July 28, 1994, of
      Registrant's Form N-1A Registration Statement.
    

   
(2)   Previously filed in Pre-Effective Amendment No. 1, dated December 22,
      1994, to Registrant's Form N-1A Registration Statement.
    


ITEM 25.  PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

   
AAL may be deemed to control the Bond and Balanced Portfolios of the Fund.  In
response to this item, the information set forth in Item 26 of Post-Effective
Amendment No. 2 to the Form N-4 Registration Statement of AAL Variable Annuity
Account I, being filed simultaneously herewith, is hereby incorporated by
reference.
    


ITEM 26.  NUMBER OF HOLDERS OF SECURITIES.

   
As of March 29, 1996, the Fund had the following number of shareholders of
record:
    

   
<TABLE>
<CAPTION>
Title of Class                                     Number of Record Holders
- --------------                                     ------------------------
<S>                                                           <C>

Large Company Stock Portfolio                                       2
Small Company Stock Portfolio                                       2
Bond Portfolio                                                      2
Balanced Portfolio                                                  2
Money Market Portfolio                                              2
</TABLE>
    


ITEM 27.  INDEMNIFICATION.

Section E, subsection (viii) of Article SEVENTH of Registrant's Articles of
Incorporation states as follows:

        "(E) (viii) Indemnification and Limitation of Liability.  To the
fullest extent permitted by Maryland and Federal law, as amended or
interpreted, no Director or officer of the Corporation shall be personally
liable to the Corporation or the holders of shares of its series or classes for
money damages and each Director and officer shall be indemnified by the
Corporation; provided, however, that nothing herein shall be deemed to protect
any Director or officer of the Corporation against any liability to the
Corporation or the holders of shares of its series or classes to which such
Director or officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his or her office".



                                  Part C - 2

<PAGE>   83

Moreover, Article X of the By-Laws further provides:

         "Section 10.01.  Indemnification:  The Corporation shall indemnify any
individual ("Indemnitee") who is a present or former Director, officer,
employee, or agent of the Corporation, or who is or has been serving at the
request of the Corporation as a director, officer, partner,  trustee, employee,
or agent of another corporation, partnership, joint venture, trust or other
enterprise, who, by reason of his service in that capacity, was, is, or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(hereinafter collectively referred to as a "Proceeding") against any judgments,
penalties, fines, settlements, and reasonable expenses (including attorneys'
fees) incurred by such Indemnitee in connection with any Proceeding, to the
fullest extent that such indemnification may be lawful under the Maryland
General Corporation Law.  Subject to any applicable limitations and
requirements set forth in the Corporation's Articles of Incorporation and in
these By-Laws, any payment of indemnification or advance of expenses, as
provided below, shall be made in accordance with the procedures set forth in
the Maryland General Corporation Law.  [MGCL, Section 2-418(b)]

         Notwithstanding the foregoing, nothing herein shall protect or purport
to protect any Indemnitee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office (such
conduct hereinafter referred to as "Disabling Conduct").  [Investment Company
Act, Section 17(h)]

         Anything in this Article X to the contrary notwithstanding, no
indemnification shall be made by the Corporation to any Indemnitee unless:

         (a)     there is a final decision on the merits by a court or other
                 body before whom the Proceeding was brought that the
                 Indemnitee was not liable by reason of Disabling Conduct; or

         (b)     in the absence of such a decision, there is a reasonable
                 determination, based upon a review of the facts, that the
                 Indemnitee was not liable by reason of Disabling Conduct,
                 which determination shall be made by:

                 (i)      the vote of a majority of a quorum of Directors who
                          are neither "interested persons" of the  Corporation
                          as defined in Section 2(a)(19) of the Investment
                          Company Act, nor parties to the Proceeding; or

                 (ii)     an independent legal counsel in a written opinion.
                          [MGCL, Section 2-418(e)]

         Section 10.02.  Advance Payment of Expenses:  The Corporation shall
pay any reasonable expenses so incurred  by such Indemnitee in defending a
Proceeding in advance of the final disposition thereof to the fullest extent
that such advance payment may be lawful under the Maryland General Corporation
Law.  [MGCL, Section 2-418(f)]

         Anything in this Article X to the contrary notwithstanding, any
advance of expenses by the Corporation to any Indemnitee shall be made only
upon receipt of:  (a) a written affirmation by the Indemnitee of his good faith
that the requisite standard of conduct necessary for indemnification under the
Maryland General Corporation Law has been met and (b) a written undertaking by
such Indemnitee to repay the advance if it is ultimately determined that such
standard of conduct has not been met, and if one of the following conditions is
met:

         (a)     the Indemnitee provides a security for his undertaking; or





                                   Part C - 3
<PAGE>   84

         (b)     the Corporation shall be insured against losses arising by
                 reason of any lawful advances; or

         (c)     there is a determination, based on a review of readily
                 available facts, that there is reason to believe that the
                 Indemnitee will ultimately be found entitled to
                 indemnification, which determination shall be made by:

                 (i)      a majority of a quorum of Directors who are neither
                          "interested persons" of the Corporation as defined in
                          Section 2(a)(19) of the Investment Company Act, nor
                          parties to the Proceeding; or

                 (ii)     an independent legal counsel in a written opinion.

         Section 10.03.   Insurance of Officers, Directors, Employees, and
Agents:  To the fullest extent permitted by applicable Maryland law and by
Section 17(h) of the Investment Company Act, as from time to time amended, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a Director, officer, employee, or agent of the Corporation, or who is or
was serving at the request of the Corporation as a director, officer, partner,
trustee, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against any liability assessed against him and
incurred by him in or arising out of his position, whether or not the
Corporation would have the power to indemnify him against such liability.
[MGCL, Section 2-418(k)]

   
         Pursuant to a resolution, dated February 7, 1996, the Board of
Directors of AAL resolved that AAL would indemnify the Fund in an amount not to
exceed the total sum of five million dollars ($5,000,000), in the event the
Fund advances or indemnifies the expenses of any officer or director of the
Fund for defense litigation costs, or if the Fund incurs or pays any expenses,
judgments, fines or settlements incurred by a director or officer of the Fund
for any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.  However, in no event would
AAL provide indemnification for any director's or officer's liability which
arises from such person's willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such person's
position.
    

         Section 2(d) of the Investment Advisory Agreement between AAL and the
Fund, filed as Exhibit 5 to this Registration Statement, provides that the Fund
will indemnify the Adviser (and its officers, directors, agents, employees and
controlling persons, shareholders and any other person or entity affiliated
with the Adviser) from any liability arising from the Advisers' conduct under
the Agreement, to the extent permitted under the Fund's Articles and By-Laws
and applicable law; provided that said indemnity does not extend to liabilities
resulting from the indemnitee's willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties under the Agreement.

         Pursuant to Section 7.1 of the Participation Agreement, filed as
Exhibit 6 to this Registration Statement, AAL agrees to indemnify the Fund and
its directors, officers and controlling persons against certain liabilities.
Pursuant to Section 7.2 of said Participation Agreement, the Fund agrees to
indemnify AAL and its directors, officers, employees and control persons, some
of whom are also directors, officers or affiliated persons of the Fund, against
certain liabilities.  Section 7.1 and 7.2 are incorporated by reference into
this response to Item 27.


   
         Section 14 of the Transfer Agency Agreement between AAL and Fund,
filed as Exhibit 9(a) to this Registration Statement, provides, in part, that
the Fund shall indemnify AAL from loss resulting from any claim in connection
with the performance of the duties under the Agreement; provided, however, that
the indemnification shall not apply to AAL's actions or omissions in cases of
AAL's gross
    





                                   Part C - 4
<PAGE>   85

   
negligence, bad faith or willful misfeasance in the performance of its duties,
or that of AAL's officers, agents and employees in the performance of the
Agreement.
    

   
         Section 8 of the Administrative Services Agreement, filed as Exhibit
9(c) to this Registration Statement, provides, in part, that AAL Capital
Management Corporation ("AALCMC") (and its officers, directors, employees, and
any person performing certain functions on behalf of the Fund at the direction
or request of AALCMC) shall not be liable for any error of judgment, mistake of
law, or loss suffered by AAL or the Fund, in connection with matters to which
the Administrative Services Agreement relates, except for loss resulting from
willful misfeasance, bad faith, or negligence in the performance of the duties
on behalf of AAL or the Fund, or from reckless disregard of the duties under
the Administrative Services Agreement.
    

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

ITEM 28.  BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

   
Aid Association for Lutherans (the "Adviser") is the investment adviser of the
Registrant.  Information as to the business, profession, vocation or employment
of a substantial nature of the Adviser and its directors and officers is
provided in Registrant's Statement of Additional Information, and the Form ADV
filed by the Adviser under the Investment Advisers Act of 1940, both of which
are hereby incorporated by reference.
    

ITEM 29.  PRINCIPAL UNDERWRITERS.

(a) Not applicable.

(b) Not applicable.

   
(c) Not applicable.
    

______________

ITEM 30.  LOCATION OF ACCOUNTS AND RECORDS.

The accounts, books and other documents required to be maintained by registrant
pursuant to Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are in the possession of the Registrant and Registrant's
Custodian, as follows: the documents required to be maintained by paragraphs
(4), (5), (6), (7), (9), (10) and (11) of Rule 31a-l(b) will be maintained by
the Registrant, and all other records will be maintained by the Custodian.

ITEM 31.  MANAGEMENT SERVICES.

Not applicable.





                                   Part C - 5
<PAGE>   86



ITEM 32.  UNDERTAKINGS.

   
(a)  Not applicable.
    

   
(b)  Not applicable.
    

   
(c)  The Registrant undertakes to furnish to each person to whom a prospectus
is delivered, upon request and without charge, a copy of Registrant's most
recent annual report to shareholders.
    





                                   Part C - 6
<PAGE>   87

SIGNATURES
   
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this amended Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this
amended Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Appleton and State of Wisconsin, on the
10th day of April, 1996.
    

                                        AAL VARIABLE PRODUCT SERIES FUND, INC.



   
                                        By:  /s/ D. Charles DeVries         
                                              ---------------------------------
                                                 D. Charles DeVries
                                                 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/ D. Charles DeVries            President                 April 10, 1996
- ------------------------          (Principal Executive                    
D. Charles DeVries                 Officer)            
    
                                           


   
/s/ Carl J. Rudolph               Treasurer                 April 10, 1996
- --------------------------        (Principal Accounting  
Carl J. Rudolph                   Officer and Controller)
    
                                           



All of the Board of Directors:

         Gregory F. Campbell               John H. Pender
         Richard L. Gady                   D. W. Russler
         John O. Gilbert                   Lawrence M. Woods
         Richard L. Gunderson


   
Richard L. Gunderson, by signing his name hereto, does hereby sign this
document on behalf of himself and each of the other above-named Directors of
AAL Variable Product Series Fund, Inc. pursuant to the powers of attorney duly
executed by such persons.
    



   
/s/ Richard L. Gunderson          April 10, 1996
- -------------------------
Richard L. Gunderson
Attorney-in-Fact
                    
<PAGE>   88

                     AAL VARIABLE PRODUCT SERIES FUND, INC.


                               INDEX TO EXHIBITS

   
<TABLE>
<CAPTION>
Exhibit
- -------
Number:         Exhibit
- ------          -------
<S>              <C>

 5(b)             First Amendment to Investment Advisory Agreement by and between the Fund and
                  AAL.

 9(c)             Administrative Services Agreement by and between AAL Capital Management
                  Corporation and AAL.
 11               Consent of Ernst & Young LLP, Independent Auditors.

 16               Computations of performance information.

 27               Financial Data Schedule
</TABLE>
    


<PAGE>   1

                                                                    Exhibit 5(b)

                     FIRST AMENDMENT TO ADVISORY AGREEMENT

         THIS AMENDMENT is made and entered into as of this 28th day of
February, 1996 by and between AAL VARIABLE PRODUCT SERIES FUND, INC., a
Maryland corporation (the "Fund"), and AID ASSOCIATION FOR LUTHERANS, a
Wisconsin corporation (the "Adviser").

         WHEREAS, the Fund and the Adviser have entered into that certain
Advisory Agreement dated as of September 27, 1994 (the "Advisory Agreement");
and

         WHEREAS, by its terms the Advisory Agreement will automatically
terminate on September 27, 1996, and the Fund and the Adviser desire to amend
Section 7(a) of the Advisory Agreement to extend the term for an additional two
years and to provide for its continuance thereafter from year to year, subject
to annual approval;

         WHEREAS, the Advisory Agreement presently includes, among the factors
that the Adviser must demonstrate to the Fund to show the reasonableness of
brokerage commissions paid by the Fund, that the commissions paid provide
lawful and appropriate assistance to the Adviser in its decision-making
responsibilities, and the Adviser and the Fund believe this factor more
appropriately is a factor to be considered by the Adviser in selecting brokers,
and the Fund and the Adviser therefore desire to amend Section 4 of the
Advisory Agreement to achieve this objective;

         WHEREAS, Paragraph 1 of Exhibit A to the Advisory Agreement contains
an errant cross-reference to "paragraph 5" of the Advisory Agreement, which
cross-reference should reference "Section 6" of the Advisory Agreement, and the
Fund and the Adviser desire to amend Exhibit A to the Advisory Agreement to
correct this cross reference.

         NOW, THEREFORE, the parties hereto agree that, subject to approval by
shareholders as described below, Section 4, Section 7(a), and Paragraph 1 of
Exhibit A to the Advisory Agreement shall be amended to read in their entirety
as follows:

         4.      BROKER-DEALER RELATIONSHIPS

                 In connection with its duties set forth in Section 2(a)(ii) of
         this Agreement to arrange for the purchase and sale of securities and
         other assets held by each Portfolio by placing purchase and sale
         orders for the Portfolio, the ADVISER shall select such broker-dealers
         ("brokers") as shall, in the ADVISER's judgment, implement the policy
         of the FUND to achieve "best execution," i.e., prompt and efficient
         execution at the most favorable net price.  In making such selection,
         the ADVISER is authorized to consider the reliability, integrity and
         financial condition of the broker.  The ADVISER is also authorized to
         consider whether the broker provides brokerage and/or research
         services to the FUND and/or other accounts of the ADVISER, which
         services are to provide lawful and appropriate assistance to the
         ADVISER in the performance of its decision-making responsibilities.
         The commissions paid to such brokers may be higher than another broker
         would have charged if a good faith determination is made by the
         ADVISER that the commission is reasonable in relation to the services
         provided, viewed in terms of either that particular transaction or the
         ADVISER's overall responsibilities as to the accounts as to which it
         exercises investment discretion.  The ADVISER shall use its judgment
         in determining that the amount of commissions paid are reasonable in
         relation to the value of brokerage and/or research services provided
         and need not place or attempt to place a specific dollar value on such
         services or on the portion of commission rates reflecting such
         services.  To demonstrate that such determinations are in good faith,
         and to show the overall reasonableness of commissions paid, the
         ADVISER shall be prepared to show that commissions paid (i) were for
         purposes contemplated by this Agreement;
<PAGE>   2

         and (ii) were written a reasonable range as compared to the rates
         charged by qualified brokers to other institutional investors as such
         rates may become known from available information.  The FUND
         recognizes that, on any particular transaction, a higher than usual
         commission may be paid due to the difficulty of the transaction in
         question.  The ADVISER is also authorized to consider as a factor in
         the selection of brokers to execute brokerage and principal
         transactions, subject to the requirements of "best execution," as
         defined above, sales by brokers of variable annuity contracts
         resulting in sales of FUND shares.

         7.      DURATION AND TERMINATION

                 (a)      Unless sooner terminated as hereinafter provided,
         this Agreement shall continue in effect as to each Portfolio until
         April 24, 1998 and thereafter from year to year, but only so long as
         such continuance beyond such date is specifically approved at least
         annually by the Fund's Board of Directors, including the vote of a
         majority of the Directors who are not parties to this Agreement or
         "interested persons" (as defined in the Act) of any such party, cast
         in person at a meeting called for the purpose of voting on such
         approval, or with respect to any Portfolio by the votes of a
         "majority" (as defined in the Act) of the outstanding voting shares of
         that Portfolio.

         EXHIBIT A

         I.      THE AAL VARIABLE PRODUCT MONEY MARKET PORTFOLIO

                 The management fee for this Portfolio, calculated in
         accordance with Section 6 of The AAL Variable Product Series Fund,
         Inc. Investment Advisory Agreement, shall be at the annual rate of
         0.35 of 1% on the first $250 million of average daily net assets and
         0.30 of 1% on average daily net assets over $250 million.

         FURTHER AGREED that this Amendment shall not become effective as to
any Portfolio unless and until approved by "a majority of the outstanding
shares" of such Portfolio (as defined in the Investment Company Act of 1940, as
amended) at a special meeting of shareholders of the Fund to be called and held
for that purpose at the direction of the Fund's Board of Directors.

         FURTHER AGREED that, except as defined otherwise herein, capitalized
terms used in this Amendment shall have the meanings given to them in the
Advisory Agreement.  Except as expressly set forth herein, the Advisory
Agreement shall remain in full force and effect, unaffected by this Amendment.

         IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be executed by its duly authorized officer as of the day and year
first written above.

AAL VARIABLE PRODUCT SERIES FUND, INC.    AID ASSOCIATION FOR LUTHERANS
                                          
                                          
By:  /s/ D. Charles DeVries               By:  /s/ Richard L. Gunderson         
     ---------------------------------         ---------------------------------
         D. Charles DeVries, President             Richard L. Gunderson, Chief  
                                                   Executive Officer            
                                                                                
Attest:  /s/ Mark J. Mahoney              Attest:  /s/ Woodrow E. Eno           
         ----------------------------              -----------------------------
         Mark J. Mahoney                           Woodrow E. Eno, Senior  
         Secretary                                 Vice President, 
                                                   Secretary and 
                                                   General Counsel  




                                       2

<PAGE>   1

                                                                    Exhibit 9(c)





                       ADMINISTRATIVE SERVICES AGREEMENT
                                 BY AND BETWEEN
                       AAL CAPITAL MANAGEMENT CORPORATION
                                      AND
                         AID ASSOCIATION FOR LUTHERANS

                               DATED MAY 1, 1995
<PAGE>   2

                               TABLE OF CONTENTS
   
<TABLE>
<CAPTION>
                                                                                                                             Page
<S>                                                                                                                          <C>
                                                                                                                      
1.       SERVICES.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    4
                                                                                                   
2.       RATE OF PAYMENT FOR THE SERVICES.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    5

         2.1     CONTRACT PRICE.    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    5
                                                                                                                                
         2.2     REIMBURSEMENT FOR EXPENSES.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    5
                                                                                                   
3.       EMPLOYEES.   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    5
                                                                                                   
4.       AALCMC'S USE OF THE SERVICES OF OTHERS.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    5
                                                                                                   
5.       OWNERSHIP OF RECORDS.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    6
                                                                                                   
6.       REPORTS TO AAL OR THE FUND BY AALCMC.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    6
                                                                                                   
7.       SERVICES TO OTHER CLIENTS.   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    6
                                                                                                   
8.       LIMITATION OF LIABILITY OF AALCMC.   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    6
                                                                                                   
9.       TERM OF AGREEMENT.   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    7
                                                                                                   
10.      TERMINATION OF AGREEMENT.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    8
                                                                                                   
11.      MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    8

         11.1    CAPTIONS.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    8
                                                                                                                                
         11.2    INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    8
                                                                                                                                 
         11.3    DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    9
                                                                                                                                
         11.4    GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    9
                                                                                                                                
         11.5    AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    9
                                                                                                                                
         11.6    NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    9
                                                                                                                                
         11.7    ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    9
                                                                                                                                
         11.8    ENFORCEABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   10
                                                                                                                                
         11.9    SCOPE OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   10
                                            

SCHEDULE A       Portfolios of the AAL Variable Product Series Fund, Inc.
SCHEDULE B       Services to be performed by AALCMC
SCHEDULE C       Contract Price Accounting/Pricing Fee Schedule
                                                               
</TABLE>
    

<PAGE>   3

                       ADMINISTRATIVE SERVICES AGREEMENT

         This ADMINISTRATIVE  SERVICES  AGREEMENT  ("Agreement") is made and
entered into as of this 1st day of May, 1995  by and between AAL CAPITAL
MANAGEMENT CORPORATION, ("AALCMC") a Delaware corporation and AID ASSOCIATION
FOR LUTHERANS,   ( "AAL") a  Wisconsin  corporation,  on its own behalf and on
behalf  of AAL VARIABLE PRODUCT SERIES FUND, INC., (the "Fund") a Maryland
corporation (collectively, the "Parties").

         WHEREAS, AAL is a fraternal benefit society organized under the laws
of the State of Wisconsin engaged in the writing of life insurance, annuity
contracts, and other insurance products; AAL serves as sponsor and depositor of
AAL VARIABLE ANNUITY ACCOUNT I (the "Variable Account") a legally segregated
asset account of AAL, established pursuant to the laws of the State of
Wisconsin and  registered as a unit investment trust in accordance with the
provisions of the Investment Company Act of 1940 (the "1940 Act"), to serve as
a segregated investment account for the purpose of  funding certain flexible
premium deferred variable annuity certificates (the "Certificates") AAL and its
Variable Account propose to offer for sale the  Certificates, interests of
which are registered with the Securities and Exchange Commission ("SEC") as
securities under the Securities Act of 1933 (the "1933 Act"), the 1940 Act, and
the laws of certain states.

         WHEREAS, the Fund is a diversified open-end management investment
company registered with the SEC under the 1940 Act  and the Fund's shares are
registered with the SEC under the 1933 Act; the Fund is a series type
investment company, with each Portfolio having its own investment objectives,
policies and restrictions; the Fund currently consists of five (5) portfolios
identified in Schedule A attached hereto (each portfolio is hereinafter
referred to singularly as the "Portfolio" and collectively as the
"Portfolios").

         WHEREAS, AALCMC is a wholly-owned indirect subsidiary of AAL; AALCMC
is registered as a broker-dealer with the SEC under the Securities Exchange Act
of 1934 (the "1934 Act") and with state securities authorities in all fifty
(50) states;  AALCMC is a member of the National Association of Securities
Dealers, Inc. ("NASD") and is authorized to offer and sell mutual funds and
variable insurance products; and AALCMC acts as the "DISTRIBUTOR" pursuant to
that certain Principal Underwriting and





<PAGE>   4

Servicing Agreement, dated November 23rd, 1994, by and between AAL and AALCMC,
whereby AALCMC is the exclusive principal underwriter in a continuous offering
of the Certificates.

         WHEREAS,  the Fund appointed AAL to act as investment adviser to the
Fund, with respect to the Portfolios, pursuant to that certain Investment
Advisory Agreement,  dated September 27, 1994, by and between the Fund and AAL;
such Investment Advisory Agreement provides, in part, that (i) AAL as "Adviser"
to the Fund, may engage at the Adviser's cost and under the Adviser's
supervision, on behalf of the Fund or any Portfolio, the services of a
Subadviser, or an agent to perform certain administrative services; (ii) AAL
shall administer the affairs of  the Fund by providing, in part, the services
of individuals competent to perform all of the Fund's executive,
administrative, compliance and clerical functions where such services are not
performed by or through the Fund's employees or other people or agents engaged
by the Fund.

         WHEREAS,  AAL, on behalf of the Fund, desires AALCMC to render the
services to the Fund in the manner and on the terms and conditions hereinafter
set forth with respect to each of the Fund's Portfolios identified on Schedule
A attached hereto, as modified from time to time by the mutual consent of the
Parties.

         NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:

1.       SERVICES.
AAL, of behalf of the Fund,  hereby engages AALCMC, and AALCMC accepts such
engagement, to perform administrative, accounting and pricing services for AAL,
on behalf of the Fund, as set forth in Schedule B, as the same may be modified
from time to time by vote of a majority of the Fund's directors, including a
majority of those who are not interested persons of AALCMC (the "Services").
AAL, on behalf of the Fund, agrees that AALCMC shall have ready access to AAL's
and the Fund's agents,  books, records, financial information, management and
resources, at such times and for such periods as AALCMC deems necessary to
perform the Services.





                                     4
<PAGE>   5


2.       RATE OF PAYMENT FOR THE SERVICES.

         2.1     CONTRACT PRICE.
         AAL, on behalf of the Fund, agrees to pay AALCMC for the Services at
         such rate as set forth in Schedule C (the "Contract Price"), not to
         exceed the rates charged by unaffiliated vendors for comparable
         Services, as may be approved annually by a majority of the Fund's
         directors, including a majority of directors who are not Parties to
         this Agreement or interested persons of AALCMC.  AAL, on behalf of the
         Fund, shall also pay all expenses, as set forth in Section 2.2 below,
         applicable taxes, duties and charges (including sales, use and excise
         taxes) levied or assessed as a result of this Agreement.  The Contract
         Price shall be payable monthly within ten (10) days of the date of
         invoice.  The Contract Price shall be adjusted annually by mutual
         agreement.

         2.2     REIMBURSEMENT FOR EXPENSES.

         Subject to AAL's  and the Fund's prior approvals, AALCMC shall be paid
         by AAL, on behalf of the Fund, for actual expenses and costs incurred
         by AALCMC in the performance of the Services, including, but not
         limited to, long distance telephone calls, postage, computer time,
         supplies and expenses and costs stated in Schedule C hereto.

3.       EMPLOYEES.
All personnel assigned by AALCMC to perform the Services will be employees of
AALCMC or its affiliates.  AALCMC will be considered for all purposes, an
independent contractor, and it will not, directly or indirectly, act as an
agent, servant or employee of AAL or the Fund, or make any commitments or incur
any liabilities on behalf of AAL or the Fund, without AAL's prior written
consent.

4.       AALCMC'S USE OF THE SERVICES OF OTHERS.
AALCMC may at its cost, except as contemplated by Section 2.2  of this
Agreement, employ, retain or otherwise avail itself of the services or
facilities of other persons or organizations for the purpose of providing to
AAL, on behalf of the Fund, with such information or Services as it may deem
necessary, appropriate or convenient for the discharge of AALCMC'S obligations
hereunder, or in the discharge of





                                       5
<PAGE>   6

of AALCMC's overall responsibilities with respect to the Services to be 
provided to AAL, on behalf of the Fund.

5.       OWNERSHIP OF RECORDS.
All records required to be maintained and preserved by AAL or the Fund,
pursuant to the provisions of rules or regulations of the SEC under Section
31(a) of the 1940 Act, and maintained and preserved by AALCMC on behalf of AAL
or the Fund, are the property of AAL, on behalf of the Fund, and will be
surrendered by AALCMC to AAL promptly on request by AAL or the Fund.

6.       REPORTS TO AAL OR THE FUND BY AALCMC.
AALCMC shall provide AAL, on behalf of the Fund, at such times as AAL or the
Fund may reasonably require, with reports relating to the Services provided by
AALCMC under this Agreement. Such reports shall be of sufficient scope and in
sufficient detail, as may reasonably be required by AAL or the Fund.

7.       SERVICES TO OTHER CLIENTS.
Nothing herein contained shall limit the freedom of AALCMC or any affiliated
person of AALCMC to render investment advice or corporate administrative
services to other investment companies, to act as investment adviser or
investment counselor to other persons, firms or corporations, or to engage in
other business activities.

8.       LIMITATION OF LIABILITY OF AALCMC.
         8.1     Neither AALCMC, nor any of its officers, directors, or
         employees, nor any person performing administrative or other functions
         for AAL on behalf of the Fund (at the direction or request of AALCMC),
         in connection with AALCMC's discharge of its obligations undertaken or
         reasonably assumed with respect to this Agreement, shall be liable for
         any error of judgment or mistake of law or for any loss suffered by
         AAL or the Fund in connection with the matters to which this Agreement
         relates, except for loss resulting from willful misfeasance, bad
         faith, or negligence in the performance of its or their duties on
         behalf of AAL or the Fund, or from reckless disregard by AALCMC or any
         such person of the duties of AALCMC under this Agreement.





                                       6
<PAGE>   7


         8.2     AALCMC shall not be liable or responsible for delays or errors
         occurring by reason of circumstances beyond its control, including
         acts of civil or military authority, natural or state emergencies,
         fire, mechanical breakdown, flood or catastrophe, acts of God,
         insurrection, war, riots or failure of transportation, communication
         or power supply.

         8.3     In the event of a mechanical breakdown beyond its control,
         AALCMC shall take all reasonable steps to minimize service
         interruptions for any period that such interruption continues beyond
         AALCMC's control.  AALCMC will make every reasonable effort to restore
         any lost or damaged data and the correcting of any errors resulting
         from such a breakdown will be at the expense of AALCMC.  AALCMC agrees
         that it shall at all times have reasonable contingency plans with
         appropriate parties, making reasonable provision for emergency use of
         electrical data processing equipment to the extent appropriate
         equipment is available.  Representatives of AAL shall be entitled to
         inspect AALCMC's premises and operating capabilities at any time
         during regular business hours of AALCMC, upon reasonable notice to
         AALCMC.

         8.4     The indemnification provided by this Section 8, includes any
         act, omission to act, or delay by AALCMC in reliance upon, or in
         accordance with, any written or oral instruction it receives from any
         duly authorized officer of AAL.

         8.5     AAL will notify AALCMC of any balancing or control error
         caused by AALCMC within three (3) business days after receipt of any
         reports rendered by AALCMC to AAL, or within three (3) business days
         after discovery of any error or omission not covered in the balancing
         or control procedure, or within three (3) business days of receiving
         notice from any Certificate Owner.

9.       TERM OF AGREEMENT.
The term of this Agreement shall begin, with respect to any Portfolio of the
Fund, on the date first above written.  Once effective with respect to any
Portfolio, this Agreement will continue in effect from year to year with
respect to such Portfolio, subject to the termination provisions and all other
terms and conditions hereof, so long as:  (a)  such continuation shall be
specifically approved at least annually by the board of directors of the Fund
or by vote of a majority of the outstanding voting securities of such Portfolio
and, concurrently with such approval by the board of directors or prior to such
approval by the



                                      7

<PAGE>   8

holders of the outstanding voting securities of such Portfolio, as the case 
may be, by the vote, cast in person at a meeting called for the purpose of 
voting on such approval, of a majority of the directors of the Fund who are 
not Parties to this Agreement or interested persons of any such party; and (b)
AALCMC shall not have provided written notice to AAL, on behalf of the Fund, at 
least sixty (60) days prior to the close of the Fund's fiscal year, that AALCMC 
desires to terminate this Agreement. AALCMC shall furnish to AAL, on behalf of
the Fund, promptly upon AAL's request, such information as may reasonably be 
necessary to evaluate the terms of this Agreement or any extension, renewal or
amendment hereof.

10.      TERMINATION OF AGREEMENT.
This Agreement may be terminated, with respect to each Portfolio, by any party
hereto without the payment of any penalty, upon sixty (60) days prior written
notice to the other party; provided that, in the case of termination by AAL, on
behalf of  the Fund, such action: (a) shall have been authorized by resolutions
of a majority of the directors of the Fund who are not Parties to this
Agreement or interested persons of any such party; or (b) by vote of a majority
of the outstanding voting securities of each Portfolio affected by such
termination. This Agreement shall automatically and immediately terminate in
the event of its assignment.

11.      MISCELLANEOUS.

         11.1    CAPTIONS.
         The captions in this Agreement are included for convenience of
         reference only and in no way define or delineate any of the provisions
         hereof or otherwise affect their construction or effect.

         11.2    INTERPRETATION.
         Nothing herein contained shall be deemed to require AAL or the Fund to
         take any action contrary to their respective  Articles of
         Incorporation or By-Laws, or any applicable statutory or regulatory
         requirement to which AAL or the Fund are subject or by which AAL or
         the Fund are  bound, or to relieve or deprive the board of directors
         of AAL or  the Fund of their respective  responsibility for and
         control of the conduct of the affairs of AAL or the Fund.





                                      8
<PAGE>   9


         11.3    DEFINITIONS.
         Any question of interpretation of any term or provision of this
         Agreement having a counterpart in or otherwise derived from a term or
         provision of the 1940 Act shall be resolved by reference to such term
         or provision of the 1940 Act and to interpretations thereof, if any,
         by the United States courts or, in the absence of any controlling
         decision of any such court, by rules, regulations or orders of the SEC
         validly issued pursuant to the 1940 Act. In addition, where the effect
         of a requirement of the 1940 Act reflected in any provision of this
         Agreement is relaxed by a rule, regulation or order of the SEC,
         whether of special or of general application, such provision shall be
         deemed to incorporate the effect of such rule, regulation or order.

         11.4    GOVERNING LAW.
         This Agreement shall be construed and governed by the laws of the
         state of Wisconsin.

         11.5    AMENDMENT.
         This Agreement, including the Schedules hereto, may be amended only
         upon the affirmative vote of a majority of the outstanding shares of
         each Portfolio affected by such amendment and by an instrument in
         writing executed by the Parties.

         11.6    NOTICES.
         All communications or notices required or permitted by this Agreement
         shall be in writing and shall be deemed to have been given at the
         earlier of the date when actually delivered to an officer of a party
         or when deposited in the United States Mail, certified or registered
         mail, postage prepaid, return receipt requested, and addressed to the
         principal place of business of such party, unless and until any of
         such Parties notifies the other Parties to this Agreement, Parties in
         accordance with this section, of a change of address.

         11.7    ENTIRE AGREEMENT.
         This Agreement together with the Schedules hereto constitutes the
         entire Agreement between AAL, on behalf of  the Fund, and AALCMC with
         respect to the subject matter hereof.  There are no restrictions,
         promises, warranties, covenants or undertakings other than those
         expressly set forth






                                      9
<PAGE>   10

         herein.  This Agreement supersedes all prior negotiations, agreements
         and undertakings between the Parties with respect to the subject 
         matter stated herein.

         11.8    ENFORCEABILITY.
         The invalidity or unenforceability of any provision hereof shall not
         affect or impair any other provisions of this Agreement.

         11.9    SCOPE OF AGREEMENT.
         If the scope of any of the provisions of this Agreement is too broad
         in any respect whatsoever, to prevent enforcement to its full extent,
         then such provisions shall be enforced to the maximum extent permitted
         by law, and the Parties hereto consent and agree that such scope may
         be judicially modified accordingly and that the whole of such
         provisions of this Agreement shall not hereby fail, but that the scope
         of such provisions shall be limited only to the extent necessary to
         conform to the law.





                                      10
<PAGE>   11

         IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized,  as of the
day and year first above written.


AID ASSOCIATION FOR LUTHERANS ("AAL")


By:      /s/  R.L. Gunderson
    ---------------------------------
Richard Gunderson
President and Chief Executive Officer



By:      /s/ W.R. Heerman
    ---------------------------------
William R. Heerman
Secretary and General Counsel



AAL CAPITAL MANAGEMENT CORPORATION ("AALCMC")


By:      /s/ H. Michael Spence
    ---------------------------------
H. Michael Spence
President



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





                                       11
<PAGE>   12

                                   SCHEDULE A

PORTFOLIOS OF THE AAL VARIABLE PRODUCT SERIES FUND, INC.

The AAL Variable Product Large Company  Stock Portfolio

The AAL Variable Product Small Company  Stock Portfolio

The AAL Variable Product Bond Portfolio

The AAL Variable Product Balanced Portfolio

The AAL Variable Product Money Market Portfolio




                                       12
<PAGE>   13

                                   SCHEDULE B


SERVICES TO BE PERFORMED BY AALCMC:

1.       PORTFOLIO ACCOUNTING SERVICES.
AALCMC shall provide the following portfolio accounting and reporting services
for each Portfolio covered by this Agreement.

         1.1     Maintain daily portfolio records for each Portfolio on a trade
         date basis using security trade information obtained by AAL, as
         Investment Adviser to the Fund;

         1.2     On each business day record the prices of the Portfolio
         positions from a source approved by the Fund's Board of Directors;

         1.3     Record interest and dividend accrual balances each business
         day on the securities of each Portfolio and calculate and record each
         Portfolios' gross earnings on investments for that day;

         1.4     Determine gains and losses on Portfolio securities' sales on a
         daily basis for each Portfolio and identify such gains and losses as
         short-short, short or long-term.  Account for periodic distributions
         of gain to Certificate Owners of each Portfolio and maintain
         undistributed gain or loss balances as of each business day;  and

         1.5     Provide each Portfolio with Portfolio-based reports on the
         foregoing on a periodic basis as mutually agreed upon between AAL, on
         behalf of the Fund, and AALCMC.





                                      13
<PAGE>   14


2.       EXPENSE ACCRUAL.
AALCMC shall provide accounting and reporting services relating to the accrual
of expenses as described below for each Portfolio of the Fund covered by this
Agreement:

         2.1     On each business day, calculate the amounts of expense accrual
         for each Portfolio according to the methodology, rate or dollar amount
         specified by AAL, on behalf of the Fund;

         2.2     Account for expenditures and maintain expense accrual balances
         for each Portfolio at a level of accounting detail specified by AAL,
         on behalf of the Fund;

         2.3     Conduct periodic expense accrual reviews for each series as
         requested by AAL, on behalf of the Fund, comparing actual expenses to
         accrual amounts;  and

         2.4     Issue periodic reports for each Portfolio detailing expense
         accruals and payments at the times requested by AAL, on behalf of the
         Fund.

3.       VALUATION AND FINANCIAL REPORTING SERVICES.
AALCMC shall provide accounting and reporting services relating to the net
asset value of each Portfolio of the Fund covered by this Agreement as
described below:

         3.1     Account for purchases, sales, exchanges, transfers, dividend
         reinvestment and other activity relating to the shares of each
         Portfolio as reported by the Fund's Transfer Agent on a daily basis;

         3.2     Provide AAL, as Investment Adviser, with a daily report of
         cash reserves available for short-term investing;





                                      14
<PAGE>   15

         3.3     Record daily the net investment income (earnings) for each
         Portfolio.  Account for periodic distributions of earnings to
         Certificate Owners of each Portfolio and maintain undistributed net
         investment income balances as of each business day;

         3.4     Maintain a general ledger for each Portfolio in the form
         specified by AAL, on behalf of the Fund, and produce a set of
         financial statements for each Portfolio as requested from time to time
         by AAL, on behalf of the Fund;

         3.5     On each business day of the Fund determine the net asset value
         of each Portfolio in accordance with the accounting policies and
         procedures described in the current Prospectus of the Fund;

         3.6     On each business day of the Fund, calculate the per share net
         asset value, per share net earnings and other per share amounts
         reflective of the operations of each Portfolio on the basis of the
         number of shares outstanding as reported by the Transfer Agent;

         3.7     Issue daily reports detailing such per share information of
         each Portfolio to such persons (including the Transfer Agent and the
         Investment Adviser (AAL) and the distributor (AALCMC)), as directed by
         AAL, on behalf of the Fund;

         3.8     Issue to AAL, on behalf of the Fund's Board of Directors,
         monthly reports that document the adequacy of the accounting detail
         necessary to support month-end ledger balances for each Portfolio; and

         3.9     Provide monthly and annual summaries to be utilized in the
         preparation of financial statements of, and regulatory reports for,
         the Fund and each Portfolio thereof.





                                      15
<PAGE>   16

4.       TAX ACCOUNTING SERVICES.
AALCMC shall provide the following tax accounting services for each Portfolio
of the Fund covered by this Agreement:

         4.1     Maintain tax accounting records for the investment portfolio
         of each Portfolio necessary to support Internal Revenue Service tax
         reporting requirements for regulated investment companies;

         4.2     Maintain tax lot detail for the investment portfolio of each 
         Portfolio;

         4.3     Calculate taxable gains and losses on sales of Portfolio
         securities for each Portfolio using the tax cost basis defined for the
         particular Portfolio;

         4.4     Issue reports to the Transfer Agent of each Portfolio
         detailing the taxable components of income and capital gains
         distributions as necessary to assist such Transfer Agent in issuing
         reports to AAL and the Certificate Owners; and

         4.5     Provide any other reports relating to tax matters for each
         Portfolio as reasonably requested from time to time by AAL, on behalf
         of the Fund's Board of Directors.





                                      16
<PAGE>   17

                                   SCHEDULE C

CONTRACT PRICE
ACCOUNTING/PRICING FEE SCHEDULE

Pursuant to Section 2.1, the "Contract Price" shall be determined annually, at
the rate of Sixty Thousand dollars ($60,000) for each Portfolio.  The
allocation of the AALCMC accounting unit costs and overhead shall be determined
in accordance with AAL's Personnel and Office Practices (P.O.P.) Bulletin 251,
effective January 1, 1995, as follows:

<TABLE>
 <S>                                                                 <C>      
 Cost for AALCMC Fund Accounting Unit                                $457,041
 (based on 1995 budget)

 Divided by thirteen (13) fund units                                   35,157    [A]
 (Eight (8) public funds and five (5) variable portfolios)

 Overhead determined pursuant to P.O.P. 251                          330,934

 Divided by thirteen (13) fund units                                   25,456     [B]

 Total Cost per Fund Unit (e.g. Portfolio)                           $ 60,613* [[A]+[B]]
</TABLE>



* Rounded to $60,000 per Portfolio.





                                      17

<PAGE>   1

                                   EXHIBIT 11

                        CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights" and "Custodian, Transfer Agent and Independent Auditors" and to the
use of our report dated February 2, 1996 in the Registration Statement (Form
N-1A) and its incorporation by reference in the related Prospectus of AAL
Variable Product Series Fund, Inc., filed with the Securities and Exchange
Commission in this Post-Effective Amendment No. 2 to the Registration Statement
under the Securities Act of 1933 (File No. 33-82056) and in this Amendment No.
3 to the Registration Statement under the Investment Company Act of 1940 (File
No. 811-8662).


                                                           /s/ ERNST & YOUNG LLP

Milwaukee, Wisconsin
April 19, 1996

<PAGE>   1
                                                                      EXHIBIT 16


             SCHEDULES FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS


        Set out below are schedules showing computations for the performance
quotations of each portfolio ("Portfolio") of the AAL Variable Product Series
Fund, Inc. ("Fund") included in the statement of additional information
contained in Post-Effective Amendment No.2 to the Fund's Form N-1A registration
statement. 

YIELD QUOTATION COMPUTATIONS 

        The 30-day (or one month) yield quotations for the Fund's Bond and
Balanced Portfolios are computed according to the following formula prescribed
by the SEC:
                                                 
                              a-b    6
                Yield =  2 [ (--- +1) -1 ]   
                              cd        
                                                   

        Where:
                a =   dividends and interest earned during the period 
                b =   total expenses accrued for the period (net of
                      reimbursements).
                c =   average daily number of shares outstanding during the
                      period that were entitled to receive dividends 
                d =   the maximum offering price per share on the last day of
                      the period. 
<TABLE>
<CAPTION>
ONE MONTH YIELD FOR     BOND PORTFOLIO                  BALANCED PORTFOLIO 
- -------------------     --------------                  ------------------
MONTH ENDED 12-31-95
- --------------------
<S>                     <C>                             <C>
Step 1 = a - b          $44,909.79 - $2,533.29 =        $93,674.51 - $7,721.68 = $85,952.83
                        $42,376.50
                        
Step 2 = c x d          867,614.10 x $10.23 =           2,477,578.77 x $10.92 =
                        $8,875,692.24                   $27,055,160.16

Step 3 = Step 1/Step 2  $42,376.50/$8,875,692.24 =      $85,952.83/$27,055,160.16 =
                        0.00477444                      0.003176947

Step 4 = Step 3 + 1     1.00477444                      1.00317695

Step 5 = Step 4 * 6     1.02899075                      1.01921374

Step 6 = Step 5 - 1     0.02899075                      0.01921374

Step 7 = 2 x Step 6          5.80%                           3.84%
                                                                 
</TABLE>
<PAGE>   2
MONEY MARKET PORTFOLIO YIELD QUOTATION COMPUTATIONS

        Yield and effective yield quotations for the Fund's Money Market
Portfolio are computed in accordance with following formulas prescribed by the
SEC:

        Current Yield   =  Net Change in Account Value       365 
                          (---------------------------)   x (---)
                           Beginning Account Value             7

        Effective Yield =          Net Change in Account Value   365/7
                           [ (1 +  ---------------------------)       ] - 1
                                    Beginning Account Value

CURRENT AND EFFECTIVE YIELD CALCULATIONS FOR THE SEVEN DAYS ENDED 12-31-95
- --------------------------------------------------------------------------

                               .001047434720                 365
Current yield   =    (--------------------------------) x (------) = 5.46%
                                      1                        7

                               .001047434720                 365   
Effective yield =  [ (1 + ----------------------------) * (------) - 1 = 5.61%
                                      1                       7

TOTAL RETURN COMPUTATIONS

AVERAGE ANNUAL TOTAL RETURNS

        Standardized average annual total return quotations for each Portfolio
of the Fund are computed in accordance with the following formula prescribed by
the SEC:
                            n
                      P(1+T) = ERV

Where:

        P = a hypothetical investment of $1,000
        T = average annual total return
        n = number of years
      ERV = Ending redeemable value of a hypothetical $1,000 payment made at
            the beginning of the 1, 5 or 10 year periods (or fractional portion
            thereof). 




                                       2
<PAGE>   3
CUMULATIVE TOTAL RETURNS

        Cumulative total return performace quotations for each Portfolio are
calculated using the following formula:

                T = ERV/P-1

Where:

        P =  a hypothetical investment of $1,000
        T =  cumulative total return
      ERV =  Ending redeemable value of a hypothetical $1,000 payment made at
             the beginning of the 1, 5 or 10 year periods (or fractional 
             portion thereof).

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


        The table below shows the computations for the standardized average
annual total return for each Portfolio for the period from June 14, 1995
(commencement of operations) through December 31, 1995.  The average annual
total returns for each Portfolio (other than the Money Market Portfolio) are
not annualized due to the fact that the time period being reported is less than
one year.  Computations for the average annual total return of the Money Market
Portfolio are shown on an annualized and unannualized basis.  Computations for
cumulative total return for each Portfolio would result in the same figures as
for average annual total return and are not shown.

NAME OF PORTFOLIO
- -----------------                               SEC STANDARDIZED
                                          AVERAGE ANNUAL TOTAL RETURN
                                          ---------------------------
Large Company Stock Portfolio             $1,000(1+T)*1 = $1,163.87
                                                T = 16.39%

Small Company Stock Portfolio             $1,000(1+T)*1 = $1,106.99
                                                T = 10.70%

Bond Portfolio                            $1,000(1+T)*1 = $1,057.96
                                                T =  5.80%

Balanced Portfolio                        $1,000(1+T)*1 = $1,114.55
                                                T = 11.46%

Money Market Portfolio                    $1,000(1+T)*1 = $1,030.22
                                                T = 3.02%

                                          $1,000(1+T)*.547945205 = $1,030.22
                                                T = 5.58% (annualized)


                                      3

<TABLE> <S> <C>

<ARTICLE> 6
<SERIES>
   <NUMBER> 1
   <NAME> AAL VARIABLE PRODUCT SERIES FUND, INC.
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-START>                             JAN-01-1995
<PERIOD-END>                               DEC-31-1995
<INVESTMENTS-AT-COST>                       21,455,754
<INVESTMENTS-AT-VALUE>                      23,344,636
<RECEIVABLES>                                  174,694
<ASSETS-OTHER>                                       0
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                              23,519,330
<PAYABLE-FOR-SECURITIES>                       361,452
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                       19,500
<TOTAL-LIABILITIES>                            380,952
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                    21,247,089
<SHARES-COMMON-STOCK>                        2,009,994
<SHARES-COMMON-PRIOR>                                0
<ACCUMULATED-NII-CURRENT>                          973
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                          1,434
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                     1,888,882
<NET-ASSETS>                                23,138,378
<DIVIDEND-INCOME>                              183,070
<INTEREST-INCOME>                               15,273
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                  26,916
<NET-INVESTMENT-INCOME>                        171,427
<REALIZED-GAINS-CURRENT>                         4,092
<APPREC-INCREASE-CURRENT>                    1,888,882
<NET-CHANGE-FROM-OPS>                        2,064,401
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                      170,454
<DISTRIBUTIONS-OF-GAINS>                         2,658
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                      2,026,389
<NUMBER-OF-SHARES-REDEEMED>                     23,746
<SHARES-REINVESTED>                              7,351
<NET-CHANGE-IN-ASSETS>                      23,138,378
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                           26,916
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                 91,132
<AVERAGE-NET-ASSETS>                        13,695,556
<PER-SHARE-NAV-BEGIN>                            10.00
<PER-SHARE-NII>                                   0.11
<PER-SHARE-GAIN-APPREC>                           1.52
<PER-SHARE-DIVIDEND>                              0.11
<PER-SHARE-DISTRIBUTIONS>                         0.01
<RETURNS-OF-CAPITAL>                              0.00
<PER-SHARE-NAV-END>                              11.51
<EXPENSE-RATIO>                                   0.35
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>

<TABLE> <S> <C>

<ARTICLE> 6
<SERIES>
   <NUMBER> 2
   <NAME> AAL VARIABLE PRODUCT SERIES FUND, INC.
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-START>                             JAN-01-1995
<PERIOD-END>                               DEC-31-1995
<INVESTMENTS-AT-COST>                       15,141,083
<INVESTMENTS-AT-VALUE>                      15,847,144
<RECEIVABLES>                                  172,292
<ASSETS-OTHER>                                       0
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                              16,019,436
<PAYABLE-FOR-SECURITIES>                       340,300
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                       13,272
<TOTAL-LIABILITIES>                            353,572
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                    14,947,885
<SHARES-COMMON-STOCK>                        1,425,566
<SHARES-COMMON-PRIOR>                                0
<ACCUMULATED-NII-CURRENT>                          219
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                         11,699
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                       706,061
<NET-ASSETS>                                15,665,864
<DIVIDEND-INCOME>                               75,798
<INTEREST-INCOME>                               12,337
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                  17,641
<NET-INVESTMENT-INCOME>                         70,494
<REALIZED-GAINS-CURRENT>                        17,344
<APPREC-INCREASE-CURRENT>                      706,061
<NET-CHANGE-FROM-OPS>                          793,899
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                       70,275
<DISTRIBUTIONS-OF-GAINS>                         5,645
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                      1,432,409
<NUMBER-OF-SHARES-REDEEMED>                     10,249
<SHARES-REINVESTED>                              3,406
<NET-CHANGE-IN-ASSETS>                      15,665,864
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                           17,641
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                 69,620
<AVERAGE-NET-ASSETS>                         8,978,620
<PER-SHARE-NAV-BEGIN>                            10.00
<PER-SHARE-NII>                                   0.08
<PER-SHARE-GAIN-APPREC>                           0.99
<PER-SHARE-DIVIDEND>                              0.07
<PER-SHARE-DISTRIBUTIONS>                         0.01
<RETURNS-OF-CAPITAL>                              0.00
<PER-SHARE-NAV-END>                              10.99
<EXPENSE-RATIO>                                   0.35
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>

<TABLE> <S> <C>

<ARTICLE> 6
<SERIES>
   <NUMBER> 3
   <NAME> AAL VARIABLE PRODUCT SERIES FUND, INC.
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-START>                             JAN-01-1995
<PERIOD-END>                               DEC-31-1995
<INVESTMENTS-AT-COST>                        9,243,235
<INVESTMENTS-AT-VALUE>                       9,433,852
<RECEIVABLES>                                  178,244
<ASSETS-OTHER>                                       0
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                               9,612,096
<PAYABLE-FOR-SECURITIES>                       242,974
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                        6,290
<TOTAL-LIABILITIES>                            249,264
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     9,172,632
<SHARES-COMMON-STOCK>                          914,759
<SHARES-COMMON-PRIOR>                                0
<ACCUMULATED-NII-CURRENT>                        1,770
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                        (2,187)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                       190,617
<NET-ASSETS>                                 9,362,832
<DIVIDEND-INCOME>                                    0
<INTEREST-INCOME>                              248,582
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                  12,744
<NET-INVESTMENT-INCOME>                        235,838
<REALIZED-GAINS-CURRENT>                       (2,187)
<APPREC-INCREASE-CURRENT>                      190,617
<NET-CHANGE-FROM-OPS>                          424,268
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                      234,068
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                        932,861
<NUMBER-OF-SHARES-REDEEMED>                     24,555
<SHARES-REINVESTED>                              6,453
<NET-CHANGE-IN-ASSETS>                       9,362,832
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                           12,744
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                 49,561
<AVERAGE-NET-ASSETS>                         6,552,655
<PER-SHARE-NAV-BEGIN>                            10.00
<PER-SHARE-NII>                                   0.34
<PER-SHARE-GAIN-APPREC>                           0.23
<PER-SHARE-DIVIDEND>                              0.34
<PER-SHARE-DISTRIBUTIONS>                         0.00
<RETURNS-OF-CAPITAL>                              0.00
<PER-SHARE-NAV-END>                              10.23
<EXPENSE-RATIO>                                   0.35
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>

<TABLE> <S> <C>

<ARTICLE> 6
<SERIES>
   <NUMBER> 4
   <NAME> AAL VARIABLE PRODUCT SERIES FUND, INC.
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-START>                             JAN-01-1995
<PERIOD-END>                               DEC-31-1995
<INVESTMENTS-AT-COST>                       27,024,356
<INVESTMENTS-AT-VALUE>                      28,677,578
<RECEIVABLES>                                  422,670
<ASSETS-OTHER>                                       0
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                              29,100,248
<PAYABLE-FOR-SECURITIES>                       320,452
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                       21,074
<TOTAL-LIABILITIES>                            341,526
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                    27,101,590
<SHARES-COMMON-STOCK>                        2,632,360
<SHARES-COMMON-PRIOR>                                0
<ACCUMULATED-NII-CURRENT>                        3,076
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                            834
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                     1,653,222
<NET-ASSETS>                                28,138,378
<DIVIDEND-INCOME>                              137,978
<INTEREST-INCOME>                              310,789
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                  35,948
<NET-INVESTMENT-INCOME>                        412,819
<REALIZED-GAINS-CURRENT>                         1,254
<APPREC-INCREASE-CURRENT>                    1,653,222
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</TABLE>

<TABLE> <S> <C>

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   <NAME> AAL VARIABLE PRODUCT SERIES FUND, INC.
       
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