[AAL LOGO APPEARS HERE]
Aid Association For Lutherans
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A FRATERNAL BENEFIT SOCIETY
Annual
Report
December 31, 1997
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AAL
Variable
Annuity
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<PAGE>
<TABLE>
<CAPTION>
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A A L V A R I A B L E A N N U I T Y
<S> <C>
[AAL LOGO APPEARS HERE] Table of Contents
President's Letter................................... 2
Portfolio Perspectives
AAL Money Market Portfolio................... 4
AAL Bond Portfolio........................... 6
AAL Balanced Portfolio....................... 8
AAL Large Company Stock Portfolio............10
AAL Small Company Stock Portfolio............12
Schedule of Investments
AAL Money Market Portfolio...................14
AAL Bond Portfolio...........................15
AAL Balanced Portfolio.......................18
AAL Large Company Stock Portfolio............33
AAL Small Company Stock Portfolio............42
Statement of Assets and Liabilities
AAL Variable Product Series Fund, Inc........48
AAL Variable Annuity Account I...............59
Statement of Operations
AAL Variable Product Series Fund, Inc........49
AAL Variable Annuity Account I...............60
Statement of Changes in Net Assets
AAL Variable Product Series Fund, Inc........50
AAL Variable Annuity Account I...............61
Notes to Financial Statements
AAL Variable Product Series Fund, Inc........52
AAL Variable Annuity Account I...............62
Financial Highlights
AAL Variable Product Series Fund, Inc........56
AAL Variable Annuity Account I...............65
Report of Independent Auditors
AAL Variable Product Series Fund, Inc........58
AAL Variable Annuity Account I...............64
</TABLE>
Table of Contents 1
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A A L V A R I A B L E A N N U I T Y
Dear Member: [PICTURE OF JOHN O. GILBERT AND STEVEN A. WEBER]
1997 was a great time to be an investor in a variable annuity tied to the
domestic financial markets. The U.S. economy continued to grow with Gross
Domestic Product increasing by an estimated 3.8%. This helped U.S. corporate
earnings to grow at an impressive 11%. Meanwhile inflation
remained at low levels with the Consumer Price Index increasing by only 2.2%
during the year. This low inflation environment helped to decrease interest
rates, with the yield on 30-year U.S. Treasury securities falling by 0.75%.
Common stocks experienced an unprecedented third consecutive year of returns in
excess of 20%. The two stock market indexes that AAL uses to replicate large
company and small company returns reflected this excellent year. The S&P
500/R/ Index/1/ had a return of 33.4%, while the Wilshire Small Cap Index/2/
increased by 26.8%. The bond index used by AAL in the investment process also
demonstrated strong results. Reflecting the decline in interest rates, the
Lehman Brothers Aggregate Bond Index/3/ provided a total return of 9.7%.
Details on the performance of each Portfolio are discussed in this report.
Looking at the investment results on an overall basis, we are extremely pleased
with the performance. Each of the five Portfolios recorded investment returns
either equal to or above the aver age of other variable annuity funds in their
respective categories. We will continue to strive to provide you with the best
product in the market.
By the time you read this report, we will have introduced our two new
Portfolios: the International Stock Portfolio and the High Yield Bond
Portfolio. We believe these Portfolios will be excellent additions to the Fund
in rounding out investor choices in the areas of growth and high income. Oechsle
International Advisors L.P. of Boston has been retained to assist with the
management of
2 President's Letter
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A A L V A R I A B L E A N N U I T Y
the International Stock Portfolio's investments. AAL Capital Management
Corporation will serve as the sub-adviser of the High Yield Bond Portfolio.
Finally, March 1 marks the date when the Small Company Stock Portfolio switches
its benchmark index from the Wilshire Small Cap to the S&P SmallCap 600. This
change is being made so that the Portfolio can track the index more closely and
better replicate the performance of the small cap stocks within the index.
Best regards,
/s/ John O. Gilbert /s/ Steven A. Weber
- ------------------------- -------------------------
John O. Gilbert Steven A. Weber
$Look How We've Grown
---------------------
TOTAL NET ASSETS
Money Large Small
Dates Market Balanced Bond Company Company
- -------------------------------------------------------------------------------
6/14/95...$ 2,000,000 $ 12,502,039 $ 5,000,813 $ 7,501,222 $ 5,000,815
6/30/95...$ 2,238,534 $ 12,927,547 $ 5,004,069 $ 8,198,822 $ 5,301,532
12/31/95...$ 7,044,642 $ 28,758,722 $ 9,362,832 $ 23,138,378 $ 15,665,864
6/30/96...$12,427,818 $ 73,715,371 $13,866,701 $ 60,797,663 $ 39,544,165
12/31/96...$17,125,033 $126,517,669 $17,666,369 $120,088,690 $ 70,209,390
6/30/97...$21,139,504 $202,084,379 $20,576,362 $217,338,084 $104,718,171
12/31/97...$25,460,293 $306,501,340 $26,709,660 $318,475,190 $152,927,652
/1/ An index composed of 500 common stocks representative of the stock market as
a whole. "S&P 500/R/" is a trademark of McGraw-Hill, Inc. and has been
licensed for use by AAL. The product is not sponsored, endorsed, sold or
promoted by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability of investing in the product.
/2/ An index comprised of 250 stocks designed to represent performance
attributes of the smaller capitalization segment of the U.S. equity markets.
/3/ An index that encompasses four major classes of fixed-income securities in
the United States: U.S. Treasury and U.S. government agency securities,
corporate debt obligations, mortgage-backed securities and asset-backed
securities.
December 31, 1997 3
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A A L V A R I A B L E A N N U I T Y
[AAL LOGO] Money Market Portfolio
How did the Portfolio perform
during 1997?
The return on the Portfolio for 1997 was 4.04%, compared to an average of 3.91%
for all variable annuity money market funds reported by Morningstar/1/. Money
market returns in 1997 were aided by a 0.25% increase in the Fed funds rate in
March, which caused short-term interest rates to increase as well. After the
March increase, the Fed left rates unchanged through the remainder of the year.
This kept the returns fairly steady.
[PHOTO APPEARS HERE]
Alan D. Onstad
Portfolio Manager
What economic factors are likely to affect performance in the coming months?
The primary factor affecting performance is action taken by the Fed. Action by
the Fed to raise or lower rates would have an impact either positively, in the
case of higher rates, or negatively, in the case of lower rates. If the current
turmoil
$Value of a $10,000 Investment
- ----------------------------------
[CHART APPEARS HERE]
AAL Money Market Salomon Brothers
Portfolio Short-Term Index
6/14/95 $10,000 $10,000
6/30/95 $10,025
12/31/95 $10,302 $10,292
6/30/96 $10,566 $10,547
12/31/96 $10,841 $10,801
6/30/97 $11,116 $11,059
12/31/97 $11,419 $11,328
===Money Market Portfolio
...Salomon Brothers Short-Term Index*
<TABLE>
<CAPTION>
%Total Returns/1/
----------------
As of December 31, 1997
<S> <C> <C> <C>
SEC
Fund Variable Variable
Portfolio/2/ Subaccount/3/ Subaccount/4/
-------------------------------------------
1 Year......... 5.33% 4.04% (2.52)%
-------------------------------------------
Inception...... 5.34% 4.05% 2.18%
-------------------------------------------
</TABLE>
Past performance is not an indication of future results.
/1/Total Returns - Total return and unit values are subject to fluctuation.
Accumulation units, when redeemed, may be worth more or less than their
original value.
/2/Fund Portfolio - Average annual total returns reflect reinvestment of all
dividends and capital gains distribution but do not reflect separate account
expenses or charges. However, 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.
/3/Variable Subaccount - These values reflect the deduction of the 1.25%
mortality and expense risk fee, but do not reflect the $25 annual maintenance
charge (for accounts under $5,000) or surrender charges.
/4/SEC Variable Subaccount - Reflects all fees and expenses and the maximum
surrender charge of 7% for the first contract year, 5% for "since inception"
return.
* An index composed of 1-month Treasury bills.
4 Portfolio Perspective
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A A L V A R I A B L E A N N U I T Y
Money Market Portfolio
% Sector Allocations
....................
[PIE CHART APPEARS HERE]
in Southeast Asia persists, it could cause a slowdown in the U.S. Gross Domestic
Product growth. This potentially could cause the Fed to decrease rates in 1998.
However, if the Southeast Asian effect is not significant and the U.S. economy
resumes its rapid growth, the Fed could raise rates in 1998.
% of
Net Assets
-----------
.Consumer Non-Durables...... 27.0%
.Utilities.................. 25.4%
.Finance.................... 21.0%
.Technology................. 14.3%
.Consumer Durables.......... 6.4%
.Energy..................... 5.9%
-----------
Total 100%
How are individual commercial paper issuers selected for inclusion in the
Portfolio?
All issuers in the Portfolio are of the highest quality and are
monitored regularly to ensure safety of principal. The Adviser engages in
extensive financial analysis and sensitivity testing on each issuer before
adding its securities to the Portfolio, and continually monitors the issuer
thereafter. This analysis includes investigation and consideration of the
issuer's profitability, leverage and liquidity ratios. Issuers deemed
appropriate for the Portfolio are placed on an "approved list" from which
investments can be made. The Portfolio will purchase securities only from the
issuers on the approved list.
<TABLE>
<CAPTION>
5 Largest Holdings
...............................
Interest Maturity % of
Security Rate Date Net Assets
- --------------------------------------------------------------
<S> <C> <C> <C>
General Mills, Inc............. 6.55% 1/2/98 4.0%
Abbott Laboratories............ 5.95% 1/9/98 4.0%
Associates Corporation
of North America............... 5.66% 1/29/98 3.4%
Motorola, Inc.................. 5.65% 2/2/98 3.4%
R.R. Donnelley & Sons
Company........................ 5.68% 2/3/98 3.4%
</TABLE>
% Credit Quality
................
100% Tier 1 Commercial Paper
/1/ Morningstar Principia/TM/ for Variable Annuities/Life, Morningstar, Inc. The
average return, after expenses, for 313 subaccounts with similar investment
objectives.
Money Market Portfolio 5
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A A L V A R I A B L E A N N U I T Y
[AAL LOGO APPEARS HERE] Bond Portfolio
How did the overall bond market perform during 1997, and what factors affected
performance?
The 1997 bond market can best be described as volatile. The bond market started
1997 with rates rising for most of the month of January. Rates subsequently
declined for most of February, before rising again to peak levels in late April.
From this point, interest rates declined rather consistently through the
balance of the year. The rate decline appears to be the result of modest
inflation providing the Federal Reserve Board (Fed) the flexibility of not
having to tighten monetary policy. Modest inflation was triggered by global
competition, as well as significant gains in productivity. The Portfolio
returned 8.01% for 1997, compared to an average of 8.11% for all variable
annuity intermediate bond funds reported by Morningstar/1/.
[Photo of R. Jerry Scheel]
Portfolio Manager
% Total Returns/1/
-------------------------
As of December 31, 1997
SEC
Fund Variable Variable
Portfolio/2/ Subaccount/3/ Subaccount/4/
-------------------------------------------------
1 Year................. 9.37% 8.01% 1.20%
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Inception.............. 7.16% 5.93% 4.03%
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$Value of a $10,000 Investment
- ------------------------------
[CHART APPEARS HERE]
AAL Bond Lehman Brothers
Portfolio Aggregate Bond Index
6/14/95 $10,000 $10,000
6/30/95 $9,988
12/31/95 $10,580 $10,617
6/30/96 $10,427 $10,809
12/31/96 $10,908 $11,000
6/30/97 $11,232 $11,340
12/31/97 $11,930 $12,062
Past performance is not an indication of future results.
1 Total Returns - Total return and unit values are subject to fluctuation.
Accumulation units, when redeemed, may be worth more or less than their
original value.
2 Fund Portfolio - Average annual total returns reflect reinvestment of all
dividends and capital gains distribution but do not reflect separate account
expenses or charges. However, 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.
3 Variable Subaccount - These values reflect the deduction of the 1.25%
mortality and expense risk fee, but do not reflect the $25 annual maintenance
charge (for accounts under $5,000) or surrender charges.
4 SEC Variable Subaccount - Reflects all fees and expenses and the maximum
surrender charge of 7% for the first contract year, 5% for "since inception"
return.
*See footnote 3 on page 3 for description.
6 Portfolio Perspective
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A A L V A R I A B L E A N N U I T Y
Yields on investment grade bonds seem low by recent historical standards.
During 1997, interest rates declined by 0.75% for 30-year Treasuries. Several
factors contributed to lower interest rates. The most significant factors were
good productivity growth, intense global competition and a substantial
improvement in federal deficit spending. These factors provided a favorable
outlook for inflation, which in turn enabled the Fed to keep the Fed funds rate
unchanged for the last three quarters of 1997.
Which types of bonds (e.g., corporate, government, asset backed, etc.) in the
Portfolio stood out over the period?
Rates of return varied significantly by type of bond during 1997. The highest
absolute returns came from corporate bonds, which had total returns of 10.23%.
This was followed by agency bonds -9.70%, government securities - 9.59% and
mortgage-backed bonds - 9.49%.
/1/ Morningstar Principia/TM/ for Variable Annuities/Life, Morningstar, Inc.
The average return, after expenses, for 259 subaccounts with similar investment
objectives.
% Sector Allocations
--------------------
[PIE CHART APPEARS HERE]
% of
Net Assets
----------
U.S. Government
. Obligations.................................... 42.7%
U.S. Government
. Agency Obligations............................. 35.1%
. Corporate Obligations.......................... 14.3%
Other Government
. Securities..................................... 3.8%
. Utility Bonds.................................. 1.8%
. Short-Term Investments......................... 1.3%
. Asset-Backed Securities........................ 0.9%
. Other Assets, less Liabilities................. 0.1%
-------------
Total 100%
% Credit Quality
----------------
% of
Rating Net Assets
- --------------------------------------------------------------
AAA.................................................. 80.9%
AA................................................... 2.6%
A.................................................... 10.7%
BBB.................................................. 5.8%
Average Quality:..................................... AAA
Average Maturity:....................................7.8 Years
5 Largest Holdings
------------------
Interest Maturity % of
Security Rate Date Net Assets
- --------------------------------------------------------------
U.S. Treasury Bond...... 9.875% 11/15/15 1.3%
U.S. Treasury Bond...... 7.625% 11/15/22 1.3%
U.S. Treasury Bond...... 7.875% 2/15/21 1.3%
U.S. Treasury Bond......10.375% 11/15/12 1.3%
U.S. Treasury Bond...... 7.500% 11/15/16 1.2%
Bond Portfolio 7
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A A L V A R I A B L E A N N U I T Y
[AAL LOGO] Balanced Portfolio
How did the Portfolio perform during 1997, and what influenced performance more,
stocks or bonds? The Portfolio experienced a favorable
return. For 1997, the portfolio provided a total return of 20.2%,
compared to an average of 17.4% for all variable annuity balanced funds
reported by Morningstar/1/. The primary reason for this was
performance and weighting of the stock component of the Portfolio. The common
stock component provided a gross total return of 33.3%, compared to a gross
total return on the bond component of 9.8%. Common stocks were more heavily
weighted in the Portfolio than bonds.
[PHOTO APPEARS HERE]
John A. Larson
Portfolio Manager
$ Value of a $10,000 Investment
- -------------------------------
[CHART APPEARS HERE]
AAL Balanced S&P 500(R) Lehman Blended Salomon
Portfolio Index
6/14/95 $10,000 $10,000 $10,000 $10,000 $10,000
6/30/95 $10,107
12/31/95 $11,146 $11,631 $10,617 $11,142 $10,292
6/30/96 $11,695 $12,966 $10,809 $11,969 $10,547
12/31/96 $12,667 $14,301 $11,000 $12,796 $10,801
6/30/97 $14,225 $17,249 $11,340 $14,415 $11,059
12/31/97 $15,416 $19,073 $12,062 $15,639 $11,328
. Balanced Portfolio
. S&P 500/R/ Index*
. Lehman Brothers Aggregate Bond Index*
. Blended Index**
. Salomon Brothers Short-Term Index***
% Total Returns/1/
------------------
As of December 31, 1997
<TABLE>
<CAPTION>
SEC
Fund Variable Variable
Portfolio/2/ Subaccount/3/ Subaccount/4/
-------------------------------------------------
<S> <C> <C> <C>
1 Year........... 21.71% 20.20% 12.62%
-------------------------------------------------
Inception........ 18.49% 17.00% 14.90%
-------------------------------------------------
</TABLE>
Past performance is not an indication of future results.
/1/ Total Returns - Total return and unit values are subject to fluctuation.
Accumulation units, when redeemed, may be worth more or less than their
original value.
/2/ Fund Portfolio - Average annual total returns reflect reinvestment of all
dividends and capital gains distribution but do not reflect separate
account expenses or charges. However, 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.
/3/ Variable Subaccount - These values reflect the deduction of the 1.25%
mortality and expense risk fee, but do not reflect the $25 annual
maintenance charge (for accounts under $5,000) or surrender charges.
/4/ SEC Variable Subaccount - Reflects all fees and expenses and the maximum
surrender charge of 7% for the first contract year, 5% for "since
inception" return.
* See footnotes on page 3 for descriptions.
**This index is a blend of the S&P 500/R/
Index (55%), Lehman Index (35%) and
Salomon Index (10%).
*** See footnote on page 4 for description.
8 Portfolio Perspective
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A A L V A R I A B L E A N N U I T Y
The Portfolio holds a mix of large company stocks, bonds and money market
instruments. How, if at all, did the mix of the Portfolio change over the
course of the year and why?
The changes made to the investment mix helped the Portfolio's relative
performance. The mix was altered slightly, in an attempt to enhance returns
relative to a neutral weighting of 55% in stocks, 35% in bonds and 10% in money
market instruments. The Portfolio was slightly overweighted in stocks and bonds
for most of the year and this turned out to be the right move. The stock portion
of the Portfolio was reduced to less than 55% in November and December, a period
when stocks did not perform well.
What economic factors do you think will influence the Portfolio's performance in
the next six months?
There are two major factors that may affect performance of the markets:
corporate earnings and financial problems in Southeast Asia. We are concerned
that U.S. corporations will report lower earnings
for 1998, and that negative earnings surprises may result in lower share prices
for the stocks of those companies. If weak earnings are based broadly enough, it
may be a difficult period for the stock market. The other area of concern is
the banking and economic difficulties experienced by a number of Southeast
Asian countries. If the weakness escalates, the implication is lower world wide
economic growth, leading to a reduction in potential corporate earnings and a
relatively weak stock market. Such conditions, however, might be favorable for
the bond market.
/1/Morningstar Principia/TM/ for Variable Annuities/Life,
Morningstar, Inc. The average return, after expenses, for
549 subaccounts with similar investment objectives.
% Asset Allocations
-------------------
<TABLE>
<CAPTION>
% of
Net Assets
----------
<S> <C>
. Common Stocks.......................... 54.7%
. Bonds.................................. 34.9%
. Short-Term Obligations................. 10.6%
. Other Assets, less Liabilities......... (0.2)%
-----------
Total 100%
</TABLE>
Balanced Portfolio
<TABLE>
<CAPTION>
5 Largest Equity Holdings
-------------------------
% of
Security Net Assets
- ---------------------------------------------------
<S> <C>
General Electric Company................. 2.0%
Coca-Cola Company........................ 1.7%
Microsoft Corporation.................... 1.1%
Exxon Corporation........................ 1.1%
Merck and Company, Inc................... 0.9%
</TABLE>
Balanced Portfolio 9
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A A L V A R I A B L E A N N U I T Y
[AAL LOGO] Large Company Stock Portfolio
How did large cap stocks perform during 1997, and what factors affected
performance?
Large cap stocks were star performers in 1997. The S&P 500/R/ Index was the best
performing equity index in the U.S. by a wide margin over other indexes that
group stocks by market capitalization. The Portfolio had a total return of
30.95% for 1997, compared to an average of 26.03% for all variable annuity
large company funds reported by Morningstar/1/.
Several factors contributed to excellent performance of large cap stocks. One
factor was the superior earnings power of larger capitalization companies.
Another was the growing interest by the public in investing in S&P 500/R/ Index
funds such as the Large Company Stock Portfolio. A third factor was the
influence of the foreign investor in the United States. Investors in foreign
countries tend to favor larger companies that are international in scope and
have familiar names.
[PHOTO APPEARS HERE]
David J. Schnarsky
Portfolio Manager
$ Value of a $10,000 Investment
- -------------------------------
[CHART APPEARS HERE]
AAL Large Company
Stock Portfolio S&P 500(R) Index
6/14/95 $10,000 $10,000
6/30/95 $10,190
12/31/95 $11,639 $11,631
6/30/96 $12,793 $12,966
12/31/96 $14,254 $14,301
6/30/97 $17,150 $17,249
12/31/97 $18,900 $19,073
. Large Company Stock Portfolio
. S&P 500/R/ Index*
<TABLE>
<CAPTION>
% Total Returns/1/
------------------
As of December 31, 1997
SEC
Fund Variable Variable
Portfolio/2/ Subaccount/3/ Subaccount/4/
------------------------------------------------
<S> <C> <C> <C>
1 Year........... 32.59% 30.95% 22.70%
------------------------------------------------
Inception........ 28.35% 26.64% 24.37%
------------------------------------------------
</TABLE>
Past performance is not an indication of future results.
/1/ Total Returns - Total return and unit values are subject to fluctuation.
Accumulation units, when redeemed, may be worth more or less than their
original value.
/2/ Fund Portfolio - Average annual total returns reflect reinvestment of all
dividends and capital gains distribution but do not reflect separate
account expenses or charges. However, 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.
/3/ Variable Subaccount - These values reflect the deduction of the 1.25%
mortality and expense risk fee, but do not reflect the $25 annual
maintenance charge (for accounts under $5,000) or surrender charges.
/4/ SEC Variable Subaccount - Reflects all fees and expenses and the maximum
surrender charge of 7% for the first contract year, 5% for "since
inception" return.
* See footnote 1 on page 3 for description.
10 Portfolio Perspective
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A A L V A R I A B L E A N N U I T Y
How has the U.S. stock market performed versus foreign stock markets?
While the S&P 500/R/ Index provided a total return of 33.4% in 1997, foreign
markets did not perform as well in comparison. One measure of foreign market
performance is the Morgan Stanley Capital International EAFE Index/2/. The EAFE
total return for 1997 was 0.2%. During 1997, Europe continued to struggle with
relatively high unemployment and relatively stagnant economic growth. Japan has
been in a recession, and other Asian countries that previously were enjoying
booming economies began to experience serious financial and economic problems at
the end of 1997. During the same period, the U.S. economy enjoyed continued
prosperity and stability.
Were there any particular holdings that contributed significantly to the
performance of the Portfolio?
What is unique about an index fund such as the Large Company Stock Portfolio,
which replicates the holdings of the S&P 500/R/ Index, is that it holds 500
different stocks. Accordingly, no one holding or small group of holdings have an
inordinate influence on the performance of the Portfolio. The largest holding
is General Electric Company, which represented 3.2% of the Portfolio at year
end. In 1997 it was important to be exposed to the 100 largest companies in the
index to achieve the highest returns. These 100 largest companies had a market
capitalization weighted (relative to its size in the index) return of
36.2%--significantly higher than the smaller cap stocks in the index which had a
weighted return of 26.2%.
/1/ Morningstar Principia/TM/ for Variable Annuities/Life, Morningstar, Inc.
The average return, after expenses, for 1,012 subaccounts with similar
investment objectives.
/2/ A market capitalization-weighted equity index composed of a sample of
companies representative of the market structure in twenty countries.
Constituent stocks are selected on the basis of industry representation,
liquidity and sufficient float.
% Sector Allocations
- --------------------
[PIE CHART]
% of
Net Assets
----------
. Consumer Non-Durables............ 32.6%
. Finance.......................... 16.9%
. Technology....................... 13.0%
. Utilities........................ 11.6%
. Energy........................... 8.4%
. Materials & Services............. 7.5%
. Capital Goods.................... 5.7%
. Consumer Durables................ 2.6%
. Transportation................... 1.3%
. Short-Term Obligations........... 1.0%
. Other Assets, less Liabilities... (0.6)%
-------------
Total 100%
10 Largest Holdings
% of
Security Net Assets
- -----------------------------------------
General Electric Company........... 3.2%
Coca-Cola Company.................. 2.2%
Microsoft Corporation.............. 2.1%
Exxon Corporation.................. 2.0%
Merck & Company, Inc............... 1.7%
Royal Dutch Petroleum Company...... 1.5%
Intel Corporation.................. 1.5%
Philip Morris Companies, Inc....... 1.4%
Proctor & Gamble Company........... 1.4%
International Business Machines
Corporation........................ 1.3%
Large Company Stock Portfolio 11
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A A L V A R I A B L E A N N U I T Y
[AAL VARIABLE ANNUITY LOGO]
Small Company Stock Portfolio
[Photo of Brian J. Flanagan]
Brian J. Flanagan
Portfolio Manager
How did small cap stocks perform during 1997, and what factors affected
performance?
Small cap stocks performed well in 1997. The Portfolio provided a total return
of 23.81%, compared to an average of 18.60% for all variable annuity small
company funds reported by Morningstar/1/. Many industries contributed to the
tremendous performance; however, three industries stood out. The leader was air
transportation, with an industry-average total return of 149%, as airlines
enjoyed healthy profits. The next best performing industry was banking, which
benefited from industry consolidation and returned an average of 72%. Finally,
the construction industry returned 68%, helped by the strong housing market.
Falling interest rates fueled the housing market in 1997. The worst performing
industry in the index was the gold industry, which returned -92%.
Value of a $10,000 Investment
- -----------------------------
[CHART APPEARS HERE]
AAL Small Company Wilshire Small
Stock Portfolio Cap Index
6/14/95 $10,000 $10,000
6/30/95 $10,110
12/31/95 $11,070 $11,181
6/30/96 $12,047 $12,288
12/31/96 $13,084 $13,394
6/30/97 $14,779 $15,258
12/31/97 $16,403 $16,987
Total Returns/1/
----------------
As of December 31, 1997
<TABLE>
<CAPTION>
SEC
Fund Variable Variable
Portfolio/2/ Subaccount/3/ Subaccount/4/
--------------------------------------------
<S> <C> <C> <C>
1 Year................... 25.37% 23.81% 16.01%
--------------------------------------------
Inception................ 21.41% 19.74% 17.60%
--------------------------------------------
</TABLE>
Past performance is not an indication of future results.
/1/ Total Returns - Total return and unit values are subject to fluctuation.
Accumulation units, when redeemed, may be worth more or less than their
original value.
/2/ Fund Portfolio - Average annual total returns reflect reinvestment of all
dividends and capital gains distribution but do not reflect separate account
expenses or charges. However, 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.
/3/ Variable Subaccount - These values reflect the deduction of the 1.25%
mortality and expense risk fee, but do not reflect the $25 annual
maintenance charge (for accounts under $5,000) or surrender charges.
/4/ SEC Variable Subaccount - Reflects all fees and expenses and the maximum
surrender charge of 7% for the first contract year, 5% for "since inception"
return.
* See footnote 2 on page 3 for description.
12 Portfolio Perspective
<PAGE>
===============================================================================
A A L V A R I A B L E A N N U I T Y
What stocks contributed most to the Portfolio's performance?
The highest returning stocks in the Portfolio
for 1997 were:
Total
Company Return
- ------------------------------
Citrix Systems Inc.......136%
Fred Meyer Inc...........105%
Peoples Bank Bridgeport..103%
Citrix Systems is an applications software company that supplies multi-user
application server products. Fred Meyer operates more than 400 retail stores
offering food, apparel, general merchandise, fine jewelry and other merchandise.
People's Bank is an independent bank offering diversified consumer and
commercial financial services as well as investment services.
What factors do you think will affect the small cap market in 1998?
Many conflicting factors face small cap stocks in 1998. If the current
environment of low inflation, low interest rates and attractive relative
valuations versus large cap stocks continues, performance for small cap stocks
in 1998 may improve over 1997. However, some negative factors that may be
looming are slower domestic growth, the on-going Southeast Asian currency
crisis, high investor expectations and high stock valuations.
/1/ Morningstar Principia/TM/ for Variable Annuities/Life, Morningstar, Inc. The
average return, after expenses, for 265 subaccounts with similar investment
objectives.
Sector Allocations
[pie chart]
% of
Net Assets
- --------------------------------------
Consumer Non-Durables..........25.0%
Finance........................20.0%
Materials & Services...........19.3%
Technology......................9.0%
Utilities.......................8.6%
Capital Goods...................5.2%
Energy..........................4.4%
Consumer Durables...............4.4%
Transportation..................2.7%
Short-Term Obligations..........0.9%
Other Assets, less Liabilities..0.5%
-----
Total 100%
10 Largest Holdings
% of Net
Security Assets
- -----------------------------------------
Fred Meyer, Inc....................1.5%
First Commerce Corporation.........1.2%
Peoples Bank of Bridgeport, Conn...1.1%
ICN Pharmaceuticals, Inc...........1.0%
Catellus Development Corporation...1.0%
Bergen Brunswig Corporation........1.0%
Citrix Systems, Inc................1.0%
Western National Corporation.......1.0%
Intuit, Inc........................0.9%
American Bankers Insurance Group...0.9%
Small Company Stock Portfolio 13
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
[LOGO OF AAL VARIABLE ANNUITY]
Money Market Portfolio
Schedule of Investments as of December 31, 1997
The Portfolio Seeks: To provide maximum current income 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 Portfolio Is: A diversified portfolio of high-quality, short-term money
market instruments.
<TABLE>
<CAPTION>
Principal Short-Term Interest Maturity Market
Amount Obligations (97.4%) Rate* Date Value
====================================================================================================
<C> <S> <C> <C> <C>
Commercial Paper (97.4% )
- -------------------------
$1,000,000 Abbott Laboratories........................ 5.950% 1/9/98 $998,678
419,000 Alabama Power Company...................... 5.550 1/20/98 417,773
802,000 American Express Credit Corporation........ 5.880 1/22/98 799,249
850,000 Associates Corporation of North America.... 5.660 1/29/98 846,258
281,000 AT&T Corporation........................... 5.730 1/8/98 280,687
764,000 Baltimore Gas & Electric Company........... 5.970 1/13/98 762,480
208,000 Bell Atlantic Network Funding.............. 5.900 1/22/98 207,284
628,000 Bell Atlantic Network Funding.............. 5.870 1/12/98 626,874
800,000 Bell South Telecommunications.............. 5.680 2/12/98 794,699
800,000 Beneficial Corporation..................... 5.710 1/23/98 797,208
775,000 Carolina Power & Light, Inc................ 5.850 1/21/98 772,481
800,000 CountryWide Home, Inc...................... 5.860 1/5/98 799,479
800,000 Dresser Industries, Inc.................... 5.880 1/6/98 799,347
800,000 Duke Energy Corporation.................... 5.650 1/13/98 798,493
672,000 Exxon Imperial, Inc........................ 5.800 1/9/98 671,134
800,000 Ford Motor Credit Company.................. 5.600 1/6/98 799,378
566,000 General Electric Capital Corporation....... 6.000 1/14/98 564,774
1,000,000 General Mills, Inc......................... 6.550 1/2/98 999,818
800,000 General Signal Corporation................. 5.950 1/20/98 797,488
800,000 General Motors Acceptance Corporation...... 5.730 1/27/98 796,689
635,000 Hershey Foods Corporation.................. 5.530 1/16/98 633,537
241,000 Hewlett Packard Company.................... 5.720 1/5/98 240,847
650,000 Household Finance Corporation.............. 5.530 1/2/98 649,900
300,000 IBM Credit Corporation..................... 6.400 1/14/98 299,307
800,000 JC Penney Funding Corporation.............. 5.800 1/8/98 799,098
107,000 Merrill Lynch & Company, Inc............... 6.000 1/16/98 106,733
657,000 Merrill Lynch & Company, Inc............... 5.640 1/30/98 654,015
850,000 Motorola, Inc.............................. 5.650 2/2/98 845,731
830,000 New England Power Company.................. 6.000 1/5/98 829,447
800,000 New Jersey Natural Gas Company............. 5.830 1/5/98 799,482
825,000 Nordstrom Credit Company................... 6.000 1/12/98 823,488
708,000 Pitney-Bowes, Inc.......................... 5.850 1/16/98 706,274
850,000 R.R. Donnelley & Sons Company.............. 5.680 2/3/98 845,574
800,000 Sears Roebuck Acceptance Corporation....... 5.900 1/21/98 797,377
800,000 Walt Disney Company........................ 6.000 1/7/98 799,200
651,000 Xerox Corporation.......................... 5.720 1/7/98 650,378
---------------------------------------------------------------------------------
Total Commercial Paper (97.4%)
(amortized cost $24,810,659) 24,810,659
=================================================================================
---------------------------------------------------------------------------------
Other Assets, less Liabilities (2.6%) 649,634
=================================================================================
---------------------------------------------------------------------------------
NET ASSETS (100.0%) $25,460,293
=================================================================================
</TABLE>
*The interest rate shown reflects the coupon rate or, for the securities
purchased at a discount, the discount rate at the date of purchase.
The accompanying notes to the financial statements are an integral part of this
schedule.
................................................................................
14 AAL Variable Annuity Annual Report
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
[AAL LOGO GOES HERE] Bond Portfolio
Schedule of Investments as of December 31, 1997
The Portfolio Seeks: To achieve investment results that approximate the total
- -------------------- return of the Lehman Brothers Aggregate Bond Index ("Lehman
Index") by investing primarily in bonds and other debt
securities included in the index.
The Portfolio Is: A diversified portfolio consisting of a representative
- ----------------- sample of fixed income and mortgage-backed securities
included in the Lehman Index.
Bond Portfolio
Principal Long-Term Interest Maturity Market
Amount Securities (98.6%) Rate Date Value
================================================================================
U.S. Government Obligations (42.7%)
- -----------------------------------
$200,000 U.S. Treasury Notes....... 5.750% 12/31/98 $200,250
250,000 U.S. Treasury Notes....... 6.375 1/15/99 251,797
250,000 U.S. Treasury Notes....... 5.500 2/28/99 249,531
250,000 U.S. Treasury Notes....... 5.875 3/31/99 250,703
250,000 U.S. Treasury Notes....... 7.000 4/15/99 254,062
250,000 U.S. Treasury Notes....... 6.750 5/31/99 253,594
315,000 U.S. Treasury Notes....... 6.750 6/30/99 319,922
300,000 U.S. Treasury Notes....... 6.875 7/31/99 305,250
300,000 U.S. Treasury Notes....... 5.875 8/31/99 300,937
300,000 U.S. Treasury Notes....... 7.125 9/30/99 307,125
250,000 U.S. Treasury Notes....... 7.500 10/31/99 257,734
275,000 U.S. Treasury Notes....... 7.750 11/30/99 285,141
275,000 U.S. Treasury Notes....... 7.750 12/31/99 285,742
260,000 U.S. Treasury Notes....... 7.125 2/29/00 267,556
250,000 U.S. Treasury Notes....... 5.875 6/30/00 251,172
200,000 U.S. Treasury Notes....... 6.125 9/30/00 202,125
250,000 U.S. Treasury Notes....... 8.500 11/15/00 268,281
240,000 U.S. Treasury Notes....... 7.750 2/15/01 253,950
285,000 U.S. Treasury Notes....... 8.000 5/15/01 304,683
200,000 U.S. Treasury Notes....... 7.875 8/15/01 213,875
150,000 U.S. Treasury Notes....... 5.875 11/30/01 150,703
175,000 U.S. Treasury Notes....... 6.500 5/31/02 180,141
200,000 U.S. Treasury Notes....... 6.250 2/15/03 204,562
250,000 U.S. Treasury Notes....... 5.750 8/15/03 250,234
265,000 U.S. Treasury Notes....... 7.250 5/15/04 286,034
250,000 U.S. Treasury Notes....... 7.250 8/15/04 270,234
160,000 U.S. Treasury Notes....... 7.500 2/15/05 175,800
280,000 U.S. Treasury Notes....... 7.000 7/15/06 302,312
250,000 U.S. Treasury Notes....... 6.500 10/15/06 261,797
200,000 U.S. Treasury Notes....... 6.250 2/15/07 206,437
250,000 U.S. Treasury Bonds.......10.375 11/15/12 332,344
250,000 U.S. Treasury Bonds....... 9.875 11/15/15 355,547
250,000 U.S. Treasury Bonds....... 7.250 5/15/16 284,609
275,000 U.S. Treasury Bonds....... 7.500 11/15/16 320,805
75,000 U.S. Treasury Bonds....... 8.750 5/15/17 98,297
250,000 U.S. Treasury Bonds....... 8.125 8/15/19 312,890
275,000 U.S. Treasury Bonds....... 7.875 2/15/21 337,648
80,000 U.S. Treasury Bonds....... 8.125 5/15/21 100,800
290,000 U.S. Treasury Bonds....... 7.625 11/15/22 349,087
250,000 U.S. Treasury Bonds....... 7.125 2/15/23 285,234
250,000 U.S. Treasury Bonds....... 6.250 8/15/23 257,656
260,000 U.S. Treasury Bonds....... 7.500 11/15/24 310,944
250,000 U.S. Treasury Bonds....... 6.875 8/15/25 278,672
200,000 U.S. Treasury Bonds....... 6.750 8/15/26 220,187
--------------------------------------------------------
Total U.S. Government
Obligations 11,416,404
========================================================
U.S. Government Agency Obligations (35.1%)
- ------------------------------------------
245,000 Federal Home Loan
Bank Debentures........... 5.440 10/15/03 238,444
143,261 Federal Home Loan
Mortgage Corporation
Gold 7-Yr. Balloon........ 7.000 7/1/02 145,528
147,849 Federal Home Loan
Mortgage Corporation
15-Yr. Pass Through....... 7.000 1/1/11 150,188
240,201 Federal Home Loan
Mortgage Corporation
30-Yr. Pass Through....... 7.000 6/1/26 242,584
244,153 Federal Home Loan
Mortgage Corporation
30-Yr. Pass Through....... 7.500 10/1/27 250,059
195,261 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through................... 6.500 4/1/24 193,708
206,822 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through................... 7.500 8/1/25 212,031
178,472 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through.. 8.000 1/1/26 184,826
The accompanying notes to the financial statements are an integral part of this
schedule.
- --------------------------------------------------------------------------------
AAL Variable Annuity Annual Report 15
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
Bond Portfolio -- continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Principal Long-Term Interest Maturity Market
Amount Securities (98.6%) Rate Date Value
================================================================================
U.S. Government Agency Obligations (35.1%)--Continued
- -----------------------------------------------------
<S> <C> <C> <C> <C>
$246,624 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through...... 7.000% 4/1/27 $248,863
232,753 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through...... 8.500 11/1/25 243,083
250,000 Federal National
Mortgage Association
Global Bond................... 7.875 2/24/05 276,715
250,000 Federal National
Mortgage Association
Notes......................... 9.050 4/10/00 266,836
250,000 Federal National
Mortgage Association
Notes......................... 6.450 4/23/01 254,038
250,000 Federal National
Mortgage Association
Notes......................... 7.500 2/11/02 263,967
240,541 Federal National
Mortgage Association
7-Yr. Balloon................. 6.500 10/1/03 241,404
230,552 Federal National
Mortgage Association
15-Yr. Pass Through........... 6.000 4/1/11 226,925
223,848 Federal National
Mortgage Association
15-Yr. Pass Through........... 7.500 7/1/12 229,688
225,912 Federal National
Mortgage Association
15-Yr. Pass Through........... 8.000 2/15/12 233,778
206,367 Federal National
Mortgage Association
15-Yr. Pass Through........... 7.000 9/1/12 209,466
161,969 Federal National
Mortgage Association
30-Yr. Pass Through...........10.500 8/1/20 180,399
86,250 Federal National
Mortgage Association
30-Yr. Pass Through........... 9.000 2/1/25 91,697
168,480 Federal National
Mortgage Association
30-Yr. Pass Through........... 8.500 12/1/25 175,922
211,788 Federal National
Mortgage Association
30-Yr. Pass Through........... 7.500 1/1/26 216,893
245,027 Federal National
Mortgage Association
30-Yr. Pass Through........... 7.000 2/1/26 247,036
233,634 Federal National
Mortgage Association
30-Yr. Pass Through........... 6.500 5/1/26 230,725
229,426 Federal National
Mortgage Association
30-Yr. Pass Through........... 8.000 9/1/26 237,580
217,317 Federal National
Mortgage Association
30-Yr. Pass Through........... 7.500 2/1/27 222,417
239,721 Federal National
Mortgage Association
30-Yr. Pass Through........... 7.000 3/1/27 241,687
249,070 Federal National
Mortgage Association
30-Yr. Pass Through........... 6.500 8/1/27 245,829
250,000 Federal National
Mortgage Association
30-Yr. Pass Through........... 7.500 11/15/27 255,812
201,271 Government National
Mortgage Association
15-Yr. Pass Through........... 6.500 6/15/09 202,445
206,220 Government National
Mortgage Association
30-Yr. Pass Through........... 7.500 3/15/23 211,953
208,245 Government National
Mortgage Association
30-Yr. Pass Through........... 7.000 1/15/24 210,433
173,586 Government National
Mortgage Association
30-Yr. Pass Through........... 9.000 9/15/24 186,821
217,883 Government National
Mortgage Association
30-Yr. Pass Through........... 8.000 6/15/25 226,129
243,624 Government National
Mortgage Association
30-Yr. Pass Through........... 6.000 5/15/26 235,329
246,884 Government National
Mortgage Association
30-Yr. Pass Through........... 8.000 10/15/26 256,117
179,457 Government National
Mortgage Association
30-Yr. Pass Through........... 8.500 12/15/26 188,579
250,466 Government National
Mortgage Association
30-Yr. Pass Through........... 7.500 3/15/27 256,682
249,814 Government National
Mortgage Association
30-Yr. Pass Through........... 7.000 11/1/27 251,848
250,000 Private Export Funding
Corporation................... 6.240 5/15/02 253,013
250,000 Tennessee Valley Authority..... 6.000 11/1/00 251,323
---------------------------------------
Total U.S. Government
Agency Obligations 9,388,800
=======================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
- --------------------------------------------------------------------------------
16 AAL Variable Annuity Annual Report
<PAGE>
======================================================================
AAL VARIABLE ANNUITY
Bond Portfolio -- continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Principal Long-Term Interest Maturity Market
Amount Securities (98.6%) Rate Date Value
=============================================================================================
Asset-Backed Securities (0.9%)
..............................
$250,000 NationsBank Credit Card
Trust Certificate............ 6.000% 12/15/05 $247,420
<S> <C> <C> <C> <C>
---------------------------------------------------------------------
Total Asset-Backed
Securities 247,420
=====================================================================
Corporate Obligations (14.3%)
.............................
225,000 Abbott Laboratories
Notes........................ 6.800 5/15/05 234,625
250,000 American Express Company
Senior Notes................. 6.750 6/1/01 254,759
250,000 Columbia Gas Systems
Notes........................ 7.320 11/28/10 259,689
250,000 Commercial Credit Company
Notes........................ 6.625 11/15/06 250,760
250,000 Crown Cork & Seal Notes...... 6.750 4/15/03 253,648
250,000 Enron Corporation Notes...... 6.875 10/15/07 254,448
250,000 Ford Motor Credit
Corporation Notes............ 8.200 2/15/02 265,985
250,000 Foster Wheeler Corporation
Notes........................ 6.750 11/15/05 250,897
250,000 General Electric Corporation
Notes........................ 8.750 5/21/07 292,553
200,000 General Motors Acceptance
Corporation Notes............ 9.625 12/15/01 223,452
250,000 Household Finance
Corporation Notes............ 6.875 3/1/03 254,782
300,000 IBM Corporation Notes........ 7.250 11/1/02 313,708
250,000 PepsiCo Inc. Notes........... 5.700 11/1/08 239,072
200,000 Tosco Corporation First
Mortgage Bonds............... 9.625 3/15/02 223,664
225,000 Xerox Corporation Notes...... 9.750 3/15/00 241,849
---------------------------------------------------------------------
Total Corporate
Obligations 3,813,891
=====================================================================
Utility Bonds (1.8%)
....................
200,000 Baltimore Gas & Electric
Company First Refunding
Mortgage Bonds............... 7.500 1/15/07 215,834
250,000 Texas Utilities Company
First Mortgage Bonds......... 7.375 8/1/01 258,856
---------------------------------------------------------------------
Total Utility Bonds 474,690
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
Principal Long-Term Interest Maturity Market
Amount Securities (98.6%) Rate Date Value
=============================================================================================
Other Government Securities (3.8%)
..................................
<S> <C> <C> <C> <C>
$250,000 Province of Manitoba
Debentures................... 6.125% 1/19/04 $249,620
250,000 Province of Nova
Scotia Debentures............ 7.250 7/27/13 268,755
200,000 Province of Ontario Senior
Global Bond.................. 6.125 6/28/00 200,742
250,000 Province of Quebec
Global Bond..................11.000 6/15/15 284,763
---------------------------------------------------------------------
Total Other Government
Securities 1,003,880
=====================================================================
---------------------------------------------------------------------
Total Long-Term Securities
(amortized cost basis $25,880,246) 26,345,085
=====================================================================
Short-Term Investments (1.3%)
.............................
352,000 R.R. Donnelley & Sons
Company...................... 6.650 1/2/98 351,935
---------------------------------------------------------------------
Total Short-Term Investments
(amortized cost basis $351,935) 351,935
=====================================================================
---------------------------------------------------------------------
Total Investments (99.9%)
(amortized cost basis $26,232,181) 26,697,020
=====================================================================
---------------------------------------------------------------------
Other Assets, less
Liabilities (0.1%) 12,640
=====================================================================
---------------------------------------------------------------------
NET ASSETS (100.0%) $26,709,660
=====================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 17
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
[AAL LOGO] Balanced Portfolio
Schedule of Investments as of December 31, 1997
The 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,
Bond and Money Market Portfolios, respectively.
Portfolio Is: A diversified portfolio comprised of three asset classes:
................... common stocks, including the securities in which the AAL
Variable Product Large Company Stock Portfolio may invest;
bonds and other debt securities with maturities generally
exceeding one year; including securities in which the AAL
Variable Product Bond Portfolio may invest; and money
market instruments and other debt securities with
maturities generally not exceeding 397 days, including
securities in which the AAL Variable Product Money Market
Portfolio may invest.
<TABLE>
<CAPTION>
Shares Common Stocks (54.7%) Market Value
================================================================================
Aerospace (1.1%)
................
<S> <C> <C>
1,500 B.F. Goodrich Company............................. $62,156
22,128 Boeing Company.................................... 1,082,889
1,400 General Dynamics Corporation...................... 121,013
4,400 Lockheed Martin Corporation....................... 433,400
1,500 Northrop Grumman Corporation...................... 172,500
7,500 Raytheon Company.................................. 378,750
4,600 Rockwell International Corporation................ 240,350
2,700 TRW, Inc.......................................... 144,112
3,700 Textron, Inc...................................... 231,250
5,200 United Technologies Corporation................... 378,625
--------------------------------------------------------------
Total Aerospace 3,245,045
==============================================================
Air Transportaton (0.3%)
........................
2,100 AMR Corporation*.................................. 269,850
1,700 Delta Air Lines, Inc.............................. 202,300
2,500 Federal Express Corporation*...................... 152,656
4,850 Southwest Airlines Company........................ 119,430
2,000 USAir Group, Inc.*................................ 125,000
--------------------------------------------------------------
Total Air Transportation 869,236
==============================================================
Apparel (0.2%)
..............
1,600 Fruit of the Loom, Inc.*.......................... 41,000
1,500 Liz Claiborne, Inc................................ 62,718
6,400 Nike, Inc......................................... 251,200
1,200 Reebok International, Ltd......................... 34,575
800 Russell Corporation............................... 21,250
400 Springs Industries, Inc........................... 20,800
2,800 V F Corporation................................... 128,625
--------------------------------------------------------------
Total Apparel 560,168
==============================================================
Banking (4.8%)
..............
3,100 BB&T Corporation.................................. 198,594
12,970 Banc One Corporation.............................. 704,432
8,300 Bank of New York Company, Inc..................... 479,844
15,400 BankAmerica Corporation........................... 1,124,200
3,300 BankBoston Corporation............................ 309,994
2,200 Bankers Trust New York Corporation................ 247,363
4,400 Barnett Banks, Inc................................ 316,250
9,440 Chase Manhattan Corporation....................... 1,033,680
10,200 Citicorp.......................................... 1,289,663
2,400 Comerica, Inc..................................... 216,600
4,400 Corestates Financial Corporation.................. 352,275
2,300 Countrywide Credit Industries, Inc................ 98,613
3,500 Fifth Third Bancorp............................... 286,125
6,543 First Chicago NBD Corporation..................... 546,341
13,910 First Union Corporation........................... 712,888
5,556 Fleet Financial Group, Inc........................ 416,353
4,200 Huntington Bancshares, Inc........................ 151,200
4,900 Keycorp........................................... 346,981
5,600 Mellon Bank Corporation........................... 339,500
4,000 J.P. Morgan & Company, Inc........................ 451,500
4,800 National City Corporation......................... 315,600
15,710 NationsBank Corporation........................... 955,364
16,700 Norwest Corporation............................... 645,038
6,700 PNC Bank Corporation.............................. 382,319
2,100 Providian Financial Corporation................... 94,894
1,300 Republic New York Corporation..................... 148,444
4,700 Suntrust Banks, Inc............................... 335,463
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
- -------------------------------------------------------------------------------
18 AAL Variable Annuity Annual Report
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
Balanced Portfolio--continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (54.7%) Market Value
==========================================================
<S> <C> <C>
Banking (4.8%)--Continued
- -------------------------
3,800 Synovus Financial Corp............... $124,450
5,463 U.S. Bancorp......................... 611,515
4,600 Wachovia Corporation................. 373,175
5,770 Washington Mutual, Inc............... 368,198
1,966 Wells Fargo & Company................ 667,333
-------------------------------------------
Total Banking 14,644,189
===========================================
Brokerage (0.5%)
- ----------------
5,850 Charles Schwab Corporation........... 245,334
7,400 Merrill Lynch & Company, Inc......... 539,738
13,095 Morgan Stanley, Dean Witter, Discover
and Company........................ 774,242
-------------------------------------------
Total Brokerage 1,559,314
===========================================
Business Machines (3.9%)
- ------------------------
7,600 3Com Corporation*.................... 265,525
2,800 Apple Computer, Inc.................. 36,750
1,000 Autodesk, Inc........................ 37,000
4,600 Bay Networks, Inc.*.................. 117,588
3,500 Cabletron Systems, Inc.*............. 52,500
1,700 Ceridian Corporation*................ 77,880
22,250 Cisco Sytems, Inc.*.................. 1,240,438
16,802 Compaq Computers, Inc................ 948,263
1,000 Data General Corporation*............ 17,438
7,300 Dell Computer Corporation*........... 613,200
3,300 Digital Equipment Corporation*....... 122,100
4,400 HBO & Company........................ 211,200
2,900 Honeywell, Inc....................... 198,650
2,900 Ikon Office Solutions................ 81,563
21,600 International Business Machines
Corporation........................ 2,258,550
26,800 Microsoft Corporation*............... 3,463,900
7,700 Novell, Inc.*........................ 57,750
21,750 Oracle Systems Corporation*.......... 485,297
2,800 Parametric Technology Company*....... 132,650
3,300 Pitney-Bowes, Inc.................... 296,794
5,400 Seagate Technology, Inc.*............ 103,950
4,100 Silicon Graphics, Inc.*.............. 50,994
8,300 Sun Microsystems, Inc.*.............. 330,963
3,900 Unisys Corporation*.................. 54,113
7,300 Xerox Corporation.................... 538,831
-------------------------------------------
Total Business Machines 11,793,887
===========================================
Business Services (1.1%)
- ------------------------
6,400 Automatic Data Processing, Inc....... 392,800
2,300 Block (H.R.), Inc.................... 103,069
4,378 Browning-Ferris Industries, Inc...... 161,986
3,600 Cognizant Corporation................ 160,425
12,075 Computer Associates
International, Inc................. 638,466
1,800 Computer Sciences Corporation*....... 150,300
1,800 Deluxe Corporation................... 62,100
3,700 Dun & Bradstreet Corporation......... 114,469
1,400 Ecolab, Inc.......................... 77,612
9,600 First Data Corporation............... 280,800
2,700 Interpublic Group of Companies, Inc.. 134,494
600 John H. Harland Company.............. 12,600
7,200 Laidlaw, Inc......................... 98,100
1,900 Moore Corporation, Ltd............... 28,738
900 National Service Industries, Inc..... 44,606
3,200 NextLevel Systems, Inc.*............. 57,200
3,600 Omnicom Group, Inc.*................. 152,550
1,200 Safety Kleen Corporation............. 32,925
600 Shared Medical Systems
Corporation........................ 39,600
3,500 State Street Corporation............. 203,656
10,083 Waste Management, Inc................ 277,283
-------------------------------------------
Total Business Services 3,223,779
===========================================
Chemicals (1.6%)
- ----------------
2,500 Air Products & Chemicals, Inc........ 205,625
25,100 E.I. Du Pont de Nemours &
Company............................ 1,507,569
1,700 Eastman Chemical Company............. 101,256
1,300 Great Lakes Chemical Corporation..... 58,338
2,100 Hercules, Inc........................ 105,130
9,100 Minnesota Mining and Manufacturing
Company............................ 746,769
13,100 Monsanto Company..................... 550,200
2,900 Morton International, Inc............ 99,688
</TABLE>
The accompanying notes to the financial statements are an integral part of
this schedule.
AAL Variable Annuity Annual Report 19
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
Balanced Portfolio -- continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (54.7%) Market Value
- -------------------------------------------------------------------
<S> <C> <C>
Chemicals (1.6%) -- Continued
- -----------------------------
1,400 Nalco Chemical Company..................... $55,388
3,900 PPG Industries, Inc........................ 222,788
3,500 Praxair, Inc............................... 157,500
1,400 Rohm & Haas Company........................ 134,050
2,200 Sigma-Aldrich Corporation.................. 87,450
5,100 The Dow Chemical Company................... 517,650
2,700 Union Carbide Corporation.................. 115,931
1,700 W.R. Grace & Company....................... 136,744
----------------------------------------------------
Total Chemicals 4,802,076
====================================================
Construction (0.2%)
- -------------------
1,000 Armstrong World Industries, Inc............ 74,750
700 Centex Corporation......................... 44,056
1,000 Crane Company.............................. 43,375
1,800 Fluor Corporation.......................... 67,275
800 Kaufman & Broad Home Corporation........... 17,950
3,600 Masco Corporation.......................... 183,150
1,100 Owens-Corning Fiberglass Corporation....... 37,538
400 Pulte Corporation.......................... 16,725
3,800 Sherwin-Williams Company................... 105,450
1,900 Stanley Works.............................. 89,656
----------------------------------------------------
Total Construction 679,925
====================================================
Consumer Durables (0.1%)
- ------------------------
2,100 Black & Decker Corporation................. 82,030
2,100 Maytag Corporation......................... 78,356
3,500 Newell Company............................. 148,750
1,300 Tupperware Corporation..................... 36,238
1,600 Whirlpool Corporation...................... 88,000
----------------------------------------------------
Total Consumer Durables 433,374
====================================================
Containers (0.1%)
- -----------------
600 Ball Corporation........................... 21,188
1,100 Bemis Company, Inc......................... 48,468
2,800 Crown Cork & Seal Company, Inc............. 140,350
3,100 Owens-Illinois, Inc.*...................... 117,606
2,200 Stone Container Corporation................ 22,963
----------------------------------------------------
Total Containers 350,575
====================================================
Cosmetics (1.5%)
- ----------------
1,200 Alberto-Culver Company..................... 38,475
3,000 Avon Products, Inc......................... 184,125
2,300 Clorox Company............................. 181,844
6,600 Colgate-Palmolive Company.................. 485,100
12,500 Gillette Company........................... 1,255,468
2,400 International Flavors and
Fragrances, Inc.......................... 123,600
29,900 Procter & Gamble Company................... 2,386,394
----------------------------------------------------
Total Cosmetics 4,655,006
====================================================
Credit Cards (0.0%)
- -------------------
3,300 Equifax, Inc............................... 116,944
----------------------------------------------------
Total Credit Cards 116,944
====================================================
Drugs & Medicine (6.0%)
- -----------------------
16,800 Abbott Laboratories........................ 1,101,450
1,400 Allergan, Inc.............................. 46,988
1,800 Alza Corporation*.......................... 57,262
14,500 American Home Products
Corporation.............................. 1,109,250
5,800 Amgen, Inc................................. 313,925
1,200 Bard (C.R.), Inc........................... 37,575
1,200 Bausch & Lomb, Inc......................... 47,550
6,200 Baxter International, Inc.................. 312,713
2,700 Becton, Dickinson and Company.............. 135,000
2,400 Biomet, Inc................................ 61,500
4,300 Boston Scientific Corporation.............. 197,263
22,100 Bristol-Myers Squibb Company............... 2,091,213
2,500 Cardinal Health Inc........................ 187,813
14,350 Columbia/HCA Healthcare
Corporation.............................. 425,119
3,200 Guidant Corporation........................ 199,200
8,700 HEALTHSOUTH Corporation*................... 241,425
</TABLE>
The accompanying notes to the financial statements are an integral
part of this schedule.
20 AAL Variable Annuity Annual Report
<PAGE>
Balanced Portfolio
================================================================================
AAL VARIABLE ANNUITY
Balanced Portfolio--continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (54.7%) Market Value
================================================================================
Drugs & Medicine (6.1%)--Continued
..................................
<S> <C> <C>
3,600 Humana, Inc.*.......................................... $ 74,700
29,900 Johnson & Johnson...................................... 1,969,663
24,700 Eli Lilly & Company.................................... 1,719,738
1,600 Mallinckrodt Group, Inc................................ 60,800
1,400 Manor Care, Inc........................................ 49,000
10,400 Medtronic, Inc......................................... 544,050
26,700 Merck & Company, Inc................................... 2,836,875
28,800 Pfizer, Inc............................................ 2,147,400
11,180 Pharmacia & Upjohn, Inc................................ 409,468
16,200 Schering-Plough Corporation............................ 1,006,425
1,950 St. Jude Medical, Inc.*................................ 59,475
6,700 Tenet Healthcare Corporation*.......................... 221,938
1,600 U.S. Surgical Corporation.............................. 46,900
4,100 United Healthcare Corporation.......................... 203,719
6,100 Warner-Lambert Company................................. 756,400
-----------------------------------------------------
Total Drugs & Medicine 18,671,797
=====================================================
Electronics (2.3%)
..................
4,828 AMP, Inc............................................... 202,776
2,100 Adobe Systems, Inc..................................... 86,625
3,100 Advanced Micro Devices, Inc.*.......................... 55,606
8,000 Applied Materials, Inc.*............................... 241,000
1,000 EG&G, Inc.............................................. 20,812
11,000 EMC Corporation*....................................... 301,813
1,100 General Signal Corporation............................. 46,406
1,700 Harris Corporation..................................... 77,988
23,100 Hewlett-Packard Company................................ 1,443,750
36,400 Intel Corporation...................................... 2,557,100
3,100 LSI Logic Corporation*................................. 61,225
4,600 Micron Technology, Inc................................. 119,600
13,200 Motorola, Inc.......................................... 753,225
3,600 National Semiconductor
Corporation*......................................... 93,375
1,000 Perkin Elmer Corporation............................... 71,063
1,700 Scientific-Atlanta, Inc................................ 28,475
1,050 Tektronix, Inc......................................... 41,672
4,000 Tellabs, Inc.*......................................... 211,500
8,600 Texas Instruments, Inc................................. 387,000
3,300 Thermo Electron Corporation*........................... 146,850
1,200 Thomas & Betts Corporation............................. 56,700
-----------------------------------------------------
Total Electronics 7,004,561
=====================================================
Energy & Utilities (1.9%)
.........................
4,200 American Electric Power Company........................ 216,825
3,200 Baltimore Gas & Electric Company....................... 109,000
3,500 CINergy Corporation.................................... 134,094
3,300 Carolina Power & Light Company......................... 140,043
4,700 Central & Southwest Corporation........................ 127,194
2,400 Coastal Corporation.................................... 148,650
1,300 Columbia Gas System, Inc............................... 102,131
5,200 Consolidated Edison, Inc............................... 213,200
2,100 Consolidated Natural Gas Company....................... 127,050
3,200 DTE Energy Company..................................... 111,000
4,100 Dominion Resources, Inc................................ 174,506
7,911 Duke Energy Corporation................................ 438,072
8,500 Edison International................................... 231,094
7,000 Enron Corporation...................................... 290,938
5,400 Entergy Corporation.................................... 161,663
5,100 FirstEnergy Corporation*............................... 147,900
4,000 FPL Group, Inc......................................... 236,750
2,600 General Public Utilities Corporation................... 109,525
6,324 Houston Industries, Inc................................ 168,772
3,200 Niagara Mohawk Power Corporation*...................... 33,600
1,000 Nicor, Inc............................................. 42,188
1,600 Northern States Power Company.......................... 93,200
600 ONEOK, Inc............................................. 24,225
3,600 P P & L Resources, Inc................................. 86,175
1,800 Pacific Enterprises.................................... 67,725
9,700 Pacific Gas & Electric Company......................... 295,244
6,500 PacifiCorp............................................. 177,531
4,900 Peco Energy Company.................................... 118,825
700 Peoples Energy Corporation............................. 27,562
5,100 Public Service Enterprise.............................. 161,606
1,900 Sonat, Inc............................................. 86,925
15,300 Southern Company....................................... 395,888
5,470 Texas Utilities Company................................ 227,347
4,800 Unicom Corporation..................................... 147,600
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 21
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
Balanced Portfolio--continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (54.7%) Market Value
================================================================================
Energy & Utilities (1.9%)--Continued
....................................
<S> <C> <C>
2,200 Union Electric Company................................. $ 95,150
6,900 Williams Companies, Inc................................ 195,788
-----------------------------------------------------
Total Energy & Utilities 5,664,986
=====================================================
Energy-Raw Materials (0.7%)
...........................
3,700 Baker Hughes, Inc...................................... 161,412
3,867 Burlington Resources, Inc.............................. 173,290
3,800 Dresser Industries, Inc................................ 159,363
400 Eastern Enterprises.................................... 18,000
5,800 Halliburton Company.................................... 301,238
1,200 McDermott International, Inc........................... 43,950
7,500 Occidental Petroleum Corporation....................... 219,844
11,000 Schlumberger, Ltd...................................... 885,500
5,632 Union Pacific Resources Group Inc...................... 136,576
1,300 Western Atlas, Inc.*................................... 96,200
-----------------------------------------------------
Total Energy-Raw Materials 2,195,373
=====================================================
Entertainment (0.0%)
....................
3,900 Mirage Resorts, Incorporated*.......................... 88,725
-----------------------------------------------------
Total Entertainment 88,725
=====================================================
Food & Agriculture (3.4%)
.........................
12,372 Archer-Daniels-Midland Company......................... 268,318
3,200 CPC International, Inc................................. 344,800
10,100 Campbell Soup Company.................................. 587,063
55,000 Coca-Cola Company...................................... 3,664,375
10,400 ConAgra, Inc........................................... 341,250
3,600 General Mills, Inc..................................... 257,850
8,150 H.J. Heinz Company..................................... 414,121
3,200 Hershey Foods Corporation.............................. 198,200
9,100 Kellogg Company........................................ 451,588
33,600 PepsiCo, Inc........................................... 1,224,300
1,500 Pioneer Hi-Bred International, Inc..................... 160,875
3,000 Quaker Oats Company.................................... 158,250
2,400 Ralston Purina Corporation............................. 223,050
10,600 Sara Lee Corporation................................... 596,913
1,300 Supervalu, Inc......................................... 54,438
3,700 Sysco Corporation...................................... 168,581
3,330 Tricon Global Restaurants, Inc.*....................... 96,778
14,200 Unilever N.V........................................... 886,613
2,200 Whitman Corporation.................................... 57,338
2,600 Wrigley (Wm) Jr. Company............................... 206,863
-----------------------------------------------------
Total Food & Agriculture 10,361,564
=====================================================
Gold (0.1%)
...........
8,200 Barrick Gold Corporation............................... 152,725
5,100 Battle Mountain Gold Company........................... 29,962
3,200 Homestake Mining Company............................... 28,400
3,417 Newmont Mining Corporation............................. 100,374
5,300 Placer Dome, Inc....................................... 67,244
-----------------------------------------------------
Total Gold 378,705
=====================================================
Insurance (2.3%)
................
3,314 Aetna Life & Casualty Company.......................... 233,844
9,548 Allstate Corporation................................... 867,675
5,308 American General Corporation........................... 286,964
15,650 American International Group, Inc...................... 1,701,938
3,700 Aon Corporation........................................ 216,913
3,800 Chubb Corporation...................................... 287,375
1,700 Cigna Corporation...................................... 294,206
1,300 Cincinnati Financial Corporation....................... 182,975
4,100 Conseco, Inc........................................... 186,294
1,800 General Re Corporation................................. 381,600
2,700 ITT Hartford Group, Inc................................ 252,619
1,600 Jefferson-Pilot Corporation............................ 124,600
2,300 Lincoln National Corporation........................... 179,688
2,000 MBIA, Inc.............................................. 133,625
2,600 MGIC Investment Corporation............................ 172,900
3,800 Marsh & McLennan Companies, Inc........................ 283,338
1,700 Progressive Corporation................................ 203,788
3,100 Safeco Corporation..................................... 151,125
1,900 St. Paul Companies, Inc................................ 155,919
4,300 SunAmerica, Inc........................................ 183,825
3,100 Torchmark Corporation.................................. 130,393
1,400 Transamerica Corporation............................... 149,100
2,500 USF&G Corporation...................................... 55,156
3,000 Unum Corporation....................................... 163,125
-----------------------------------------------------
Total Insurance 6,978,985
=====================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
22 AAL Variable Annuity Annual Report
<PAGE>
===============================================================================
AAL VARIABLE ANNUITY
Balanced Portfolio--continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (54.7%) Market Value
===============================================================================
<S> <C> <C>
Liquor (0.3%)
- -------------
800 Adolph Coors Company................................... $ 26,600
10,800 Anheuser-Busch Companies, Inc.......................... 475,200
1,500 Brown-Foreman Corporation.............................. 82,875
8,000 Seagram Company, Ltd................................... 258,500
-----------------------------------------------------------------
Total Liquor......................................... 843,175
=================================================================
Media (1.2%)
- ------------
15,600 CBS Corporation........................................ 459,225
2,200 Clear Channel Communications, Inc.*.................... 174,763
7,700 Comcast Corporation, Class A........................... 243,031
2,100 Dow Jones & Company, Inc............................... 112,744
6,200 Gannett Company, Inc................................... 383,237
800 King World Productions, Inc.*.......................... 46,200
1,800 Knight-Ridder, Inc..................................... 93,600
2,200 McGraw-Hill, Inc....................................... 162,800
1,100 Meredith Corporation................................... 39,256
2,200 New York Times Company................................. 145,475
3,200 R.R. Donnelley & Sons Company.......................... 119,200
12,500 Tele-Communications, Inc.*............................. 349,219
12,500 Time Warner, Inc....................................... 775,000
2,100 Times Mirror Company................................... 129,150
2,800 Tribune Company........................................ 174,300
7,800 Viacom, Inc.*.......................................... 323,213
-----------------------------------------------------------------
Total Media.......................................... 3,730,413
=================================================================
Miscellaneous Finance (1.7%)
- ----------------------------
10,400 American Express Company............................... 928,200
1,200 Beneficial Corporation................................. 99,750
15,400 Federal Home Loan Mortgage Corporation................. 645,838
23,500 Federal National Mortgage Association.................. 1,340,969
1,300 Golden West Financial Corporation...................... 127,156
3,000 Green Tree Financial Corporation....................... 78,562
2,100 H.F. Ahmanson & Company................................ 140,569
2,400 Household International Corporation.................... 306,150
11,125 MBNA Corporation....................................... 303,852
25,448 Travelers Group, Inc................................... 1,371,011
-----------------------------------------------------------------
Total Miscellaneous Finance.......................... 5,342,057
=================================================================
Motor Vehicles (1.2%)
- ---------------------
14,700 Chrysler Corporation................................... 517,256
900 Cummins Engine Company, Inc............................ 53,156
2,300 Dana Corporation....................................... 109,250
1,800 Eaton Corporation...................................... 160,650
1,300 Echlin, Inc............................................ 47,044
700 Fleetwood Enterprises, Inc............................. 29,706
26,600 Ford Motor Company..................................... 1,295,087
15,800 General Motors Corporation............................. 957,875
3,900 Genuine Parts Company.................................. 132,356
2,600 ITT Industries, Inc.................................... 81,575
1,600 Navistar International Corporation*.................... 39,700
1,700 PACCAR, Inc............................................ 89,250
-----------------------------------------------------------------
Total Motor Vehicles................................. 3,512,905
=================================================================
Non-Durables & Entertainment (0.5%)
- -----------------------------------
1,600 American Greetings Corporation, Class A................ 62,600
3,300 Darden Restaurants, Inc................................ 41,250
1,500 Harcourt General, Inc.................................. 82,125
2,800 Hasbro, Inc............................................ 88,200
800 Jostens, Inc........................................... 18,450
6,425 Mattel, Inc............................................ 239,331
15,200 McDonald's Corporation................................. 725,800
3,300 Rubbermaid, Inc........................................ 82,500
5,500 Service Corporation International...................... 203,156
2,900 Wendy's International, Inc............................. 69,780
-----------------------------------------------------------------
Total Non-Durables & Entertainment................... 1,613,192
=================================================================
Non-Ferrous Metals (0.3%)
- -------------------------
5,000 Alcan Aluminium, Ltd................................... 138,125
3,900 Aluminum Company of America............................ 274,463
900 Asarco, Inc............................................ 20,194
2,000 Cyprus Minerals Company................................ 30,750
3,000 Echo Bay Mines, Ltd.*.................................. 7,312
3,150 Engelhard Corporation.................................. 54,731
4,300 Freeport-McMoran Copper & Gold, Class B................ 67,725
3,700 Inco, Ltd.............................................. 62,900
1,400 Phelps Dodge Corporation............................... 87,150
1,600 Reynolds Metals Company................................ 96,000
-----------------------------------------------------------------
Total Non-Ferrous Metals............................. 839,350
=================================================================
</TABLE>
Balanced Portfolio
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 34
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
Balanced Portfolio--continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (54.7%) Market Value
===============================================================================
<C> <S> <C>
Oil-Domestic (0.7%)
- -------------------
2,000 Amerada Hess Corporation........................... $109,750
1,300 Anadarko Petroleum Corporation..................... 78,894
2,000 Apache Corporation................................. 70,125
1,600 Ashland Oil, Inc................................... 85,900
7,200 Atlantic Richfield Company......................... 576,900
600 Helmerich & Payne, Inc............................. 40,725
1,100 Kerr-McGee Corporation............................. 69,643
2,300 Oryx Energy Company*............................... 58,650
1,100 Pennzoil Corporation............................... 73,494
5,800 Phillips Petroleum Company......................... 282,025
1,900 Rowan Companies, Inc.*............................. 57,950
1,500 Sun Company, Inc................................... 63,094
6,400 USX-Marathon Group, Inc............................ 216,000
5,400 Unocal Corporation................................. 209,588
---------------------------------------------------------------
Total Oil-Domestic 1,992,738
===============================================================
Oil-International (3.2%)
- -------------------------
10,900 Amoco Corporation.................................. 927,862
14,600 Chevron Corporation................................ 1,124,200
54,800 Exxon Corporation.................................. 3,353,075
17,500 Mobil Corporation.................................. 1,263,281
47,600 Royal Dutch Petroleum Company...................... 2,579,325
12,100 Texaco, Inc........................................ 657,938
---------------------------------------------------------------
Total Oil-International 9,905,681
===============================================================
Optical & Photo (0.2%)
- ----------------------
5,100 Corning, Inc....................................... 189,338
7,200 Eastman Kodak Company.............................. 437,850
900 Polaroid Corporation............................... 43,819
---------------------------------------------------------------
Total Optical & Photo 671,007
===============================================================
Paper & Forest Products (0.6%)
- ------------------------------
1,200 Boise Cascade Corporation.......................... 36,300
2,100 Champion International Corporation................. 95,156
4,600 Fort James Corporation............................. 175,950
2,100 Georgia-Pacific Corporation........................ 127,575
6,702 International Paper Company........................ 289,024
12,280 Kimberly-Clark Corporation......................... 605,558
2,400 Louisiana-Pacific Corporation...................... 45,600
2,400 Mead Corporation................................... 67,200
600 Potlatch Corporation............................... 25,800
1,300 Temple-Inland, Inc................................. 68,006
1,500 Union Camp Corporation............................. 80,530
2,200 Westvaco Corporation............................... 69,163
4,400 Weyerhaeuser Company............................... 215,875
2,400 Willamette Industries, Inc......................... 77,250
---------------------------------------------------------------
Total Paper & Forest Products 1,978,987
===============================================================
Producers Goods (3.1%)
- ----------------------
12,500 Allied-Signal, Inc................................. 486,719
2,200 Avery Dennison Corporation......................... 98,450
500 Briggs & Stratton Corporation...................... 24,281
1,600 Case Corporation................................... 96,700
8,200 Caterpillar, Inc................................... 398,213
800 Cincinnati Milacron, Inc........................... 20,750
2,600 Cooper Industries, Inc............................. 127,400
5,500 Deere & Company.................................... 320,719
5,000 Dover Corporation.................................. 180,625
9,800 Emerson Electric Company........................... 553,088
900 FMC Corporation*................................... 60,581
900 Foster Wheeler Corporation......................... 24,356
72,700 General Electric Company........................... 5,334,363
1,000 Harnischfeger Industries, Inc...................... 35,312
5,500 Illinois Tool Works, Inc........................... 330,688
3,600 Ingersoll-Rand Company............................. 145,800
1,800 Johnson Controls, Inc.............................. 85,950
1,800 KLA Instruments Corporation*....................... 69,525
900 Millipore Corporation.............................. 30,544
205 NACCO Industries, Inc.............................. 21,973
2,800 Pall Corporation................................... 57,925
2,400 Parker Hannifin Corporation........................ 110,100
2,000 Raychem Corporation................................ 86,125
1,300 Snap-On, Inc....................................... 56,713
3,700 Tenneco, Inc....................................... 146,150
1,300 Timken Company..................................... 44,688
600 Trinova Corporation................................ 29,438
11,800 Tyco International Ltd............................. 531,738
1,200 W.W. Grainger, Inc................................. 116,625
---------------------------------------------------------------
Total Producers Goods 9,625,539
===============================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
................................................................................
24 AAL Variable Annuity Annual Report
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
Balanced Portfolio -- continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (54.7%) Market Value
================================================================================
<S> <C> <C>
Railroad & Shipping (0.4%)
- -------------------------
3,564 Burlington Northern, Inc............................... $331,229
4,800 CSX Corporation........................................ 259,200
8,300 Norfolk Southern Corporation........................... 255,744
5,500 Union Pacific Corporation.............................. 343,406
------------------------------------------------------------------
Total Railroad & Shipping 1,189,579
==================================================================
Retail Stores (2.8%)
- ---------------------
5,400 Albertson's, Inc....................................... 255,825
6,000 American Stores Company................................ 123,375
3,300 Autozone, Inc.*........................................ 95,700
17,561 CUC International, Inc.*............................... 603,654
3,800 CVS Corporation........................................ 243,438
2,300 Charming Shoppes, Inc.................................. 10,781
2,100 Circuit City Stores, Inc............................... 74,681
4,700 Costco Companies, Inc.*................................ 209,738
4,900 Dayton Hudson Corporation.............................. 330,750
2,400 Dillard's Inc.......................................... 84,600
4,600 Federated Department Stores, Inc.*..................... 198,088
1,300 Giant Food, Inc., Class A.............................. 43,794
800 Great Atlantic & Pacific Tea
Company, Inc........................................... 23,750
16,200 Home Depot, Inc........................................ 953,775
5,500 J.C. Penney Company, Inc............................... 331,719
10,800 Kmart Corporation...................................... 124,875
5,600 Kroger Corporation*.................................... 206,850
5,970 The Limited, Inc....................................... 152,235
800 Long's Drug Stores, Inc................................ 25,700
3,800 Lowe's Companies, Inc.................................. 181,213
5,100 May Department Stores
Company................................................ 268,706
800 Mercantile Stores Company, Inc......................... 48,700
1,700 Nordstrom, Inc......................................... 102,638
1,400 Pep Boys-Manny, Moe, & Jack............................ 33,425
2,700 Rite Aid Corporation................................... 158,456
8,700 Sears Roebuck & Company................................ 393,675
2,200 Tandy Corporation...................................... 84,838
8,900 The Gap, Inc........................................... 315,394
3,600 TJX Companies, Inc..................................... 123,750
6,300 Toys 'R' Us, Inc.*..................................... 198,056
50,000 Wal-Mart Stores, Inc................................... 1,971,875
10,900 Walgreen Company....................................... 341,988
3,300 Winn-Dixie Stores, Inc................................. 144,169
2,900 Woolworth Corporation*................................. 59,088
------------------------------------------------------------------
Total Retail Stores 8,519,299
==================================================================
Steel (0.1%)
- ------------
3,862 Allegheny Teledyne, Inc................................ 99,929
2,300 Armco, Inc.*........................................... 11,356
2,500 Bethlehem Steel Corporation*........................... 21,563
1,000 Inland Steel Industries, Inc........................... 17,125
1,900 Nucor Corporation...................................... 91,794
1,900 USX-US Steel Group, Inc................................ 59,375
2,100 Worthington Industries, Inc............................ 34,650
------------------------------------------------------------------
Total Steel 335,792
==================================================================
Telephone (4.5%)
- ----------------
4,100 ALLTEL Corporation..................................... 168,356
36,100 AT&T Corporation....................................... 2,211,125
11,200 Airtouch Communications, Inc.*......................... 465,500
12,200 Ameritech Corporation.................................. 982,100
2,000 Andrew Corporation*.................................... 48,000
17,290 Bell Atlantic Corporation.............................. 1,573,390
22,000 BellSouth Corporation.................................. 1,238,875
2,600 DSC Communications
Corporation*........................................... 62,400
3,600 Frontier Corporation................................... 86,625
21,200 GTE Corporation........................................ 1,107,700
14,250 Lucent Technologies, Inc............................... 1,138,219
15,400 MCI Communications Corporation......................... 659,313
5,900 Northern Telecom, Limited.............................. 525,100
20,361 SBC Communications, Inc................................ 1,491,443
9,500 Sprint Corporation..................................... 556,938
10,700 U.S. West, Inc......................................... 482,838
13,400 U.S. West Media Group*................................. 386,925
20,000 WorldCom, Inc.......................................... 605,000
------------------------------------------------------------------
Total Telephone 13,789,847
==================================================================
Tires & Rubber (0.0%)
- ---------------------
1,700 Cooper Tire & Rubber Company........................... 41,438
3,500 Goodyear Tire & Rubber Company......................... 222,688
------------------------------------------------------------------
Total Tires & Rubber 264,126
==================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
- --------------------------------------------------------------------------------
AAL Variable Annuity Annual Report 25
<PAGE>
===============================================================================
AAL VARIABLE ANNUITY
Balanced Portfolio -- continued
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1997
Shares Common Stocks (54.7%) Market Value
=======================================================================
Tobacco (1.0%)
- --------------
3,800 American Brands, Inc........................ $ 140,838
2,600 Loews Corporation........................... 275,925
53,800 Philip Morris Companies, Inc................ 2,437,812
4,000 UST, Inc.................................... 147,750
---------------------------------------------------
Total Tobacco 3,002,325
===================================================
Travel & Recreation (0.7%)
- --------------------------
2,200 Brunswick Corporation....................... 66,687
2,200 Harrah's Entertainment*..................... 41,525
5,500 Hilton Hotels Corporation................... 163,625
2,600 ITT Corporation*............................ 215,475
2,900 Marriott International, Inc................. 200,825
15,029 Walt Disney Company......................... 1,488,810
---------------------------------------------------
Total Travel & Recreation 2,176,947
===================================================
Trucking & Freight (0.0%)
- -------------------------
800 Caliber System, Inc......................... 38,950
1,600 Ryder Systems, Inc.......................... 52,400
---------------------------------------------------
Total Trucking & Freight 91,350
===================================================
---------------------------------------------------
Total Common Stocks
(cost basis $129,658,167) 167,702,523
===================================================
*Non-income producing securities
Principal Long-Term Interest Maturity Market
Amount Debt Securities (34.9%) Rate Date Value
=======================================================================
U.S. Government Obligations (15.0%)
- -----------------------------------
$ 975,000 U.S. Treasury Notes 5.125% 12/31/98 $ 970,429
775,000 U.S. Treasury Notes 6.375 1/15/99 780,570
650,000 U.S. Treasury Notes 8.875 2/15/99 672,140
650,000 U.S. Treasury Notes 5.500 2/28/99 648,780
950,000 U.S. Treasury Notes 5.875 3/31/99 952,671
1,075,000 U.S. Treasury Notes 7.000 4/15/99 1,092,469
1,050,000 U.S. Treasury Notes 6.750 5/31/99 1,065,094
1,105,000 U.S. Treasury Notes 6.750 6/30/99 1,122,266
1,050,000 U.S. Treasury Notes 6.875 7/31/99 1,068,375
1,200,000 U.S. Treasury Notes 8.000 8/15/99 1,242,750
1,050,000 U.S. Treasury Notes 7.125 9/30/99 1,074,938
785,000 U.S. Treasury Notes 7.500 10/31/99 809,286
1,000,000 U.S. Treasury Notes 7.750 11/30/99 1,036,875
1,200,000 U.S. Treasury Notes 7.750 12/31/99 1,246,874
800,000 U.S. Treasury Notes 7.750 1/31/00 832,000
1,025,000 U.S. Treasury Notes 7.125 2/29/00 1,054,789
1,000,000 U.S. Treasury Notes 6.750 4/30/00 1,022,812
750,000 U.S. Treasury Notes 6.250 5/31/00 759,375
1,050,000 U.S. Treasury Notes 6.125 7/31/00 1,060,500
1,050,000 U.S. Treasury Notes 8.500 11/15/00 1,126,781
650,000 U.S. Treasury Notes 5.500 12/31/00 646,547
575,000 U.S. Treasury Notes 5.250 1/31/01 567,992
500,000 U.S. Treasury Notes 8.000 2/15/01 529,063
450,000 U.S. Treasury Notes 6.375 3/31/01 458,438
775,000 U.S. Treasury Notes 8.000 5/15/01 828,523
875,000 U.S. Treasury Notes 7.875 8/15/01 935,703
1,055,000 U.S. Treasury Notes 7.500 11/15/01 1,118,959
750,000 U.S. Treasury Notes 7.500 5/15/02 800,859
325,000 U.S. Treasury Notes 6.500 5/31/02 334,547
1,000,000 U.S. Treasury Notes 6.375 8/15/02 1,025,937
200,000 U.S. Treasury Notes 5.750 11/30/02 200,187
125,000 U.S. Treasury Notes 10.750 2/15/03 152,383
800,000 U.S. Treasury Notes 6.250 2/15/03 818,250
250,000 U.S. Treasury Notes 5.750 8/15/03 250,234
600,000 U.S. Treasury Notes 5.875 2/15/04 605,437
1,010,000 U.S. Treasury Notes 7.250 5/15/04 1,090,169
415,000 U.S. Treasury Notes 7.875 11/15/04 463,892
230,000 U.S. Treasury Notes 6.500 5/15/05 239,775
450,000 U.S. Treasury Notes 9.375 2/15/06 553,781
575,000 U.S. Treasury Notes 7.000 7/15/06 620,820
625,000 U.S. Treasury Notes 6.500 10/15/06 654,492
915,000 U.S. Treasury Notes 6.625 5/15/07 968,756
200,000 U.S. Treasury Bonds 10.375 11/15/12 265,875
250,000 U.S. Treasury Bonds 9.875 11/15/15 355,547
925,000 U.S. Treasury Bonds 7.250 5/15/16 1,053,054
900,000 U.S. Treasury Bonds 7.500 11/15/16 1,049,906
700,000 U.S. Treasury Bonds 8.750 5/15/17 917,438
825,000 U.S. Treasury Bonds 8.125 8/15/19 1,032,539
250,000 U.S. Treasury Bonds 8.500 2/15/20 324,922
400,000 U.S. Treasury Bonds 7.875 2/15/21 491,125
700,000 U.S. Treasury Bonds 8.125 8/15/21 882,656
300,000 U.S. Treasury Bonds 8.000 11/15/21 373,969
400,000 U.S. Treasury Bonds 7.250 8/15/22 462,000
250,000 U.S. Treasury Bonds 7.625 11/15/22 300,938
400,000 U.S. Treasury Bonds 7.125 2/15/23 456,375
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report
26
<PAGE>
===============================================================================
AAL VARIABLE ANNUITY
Balanced Portfolio -- continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Principal Long-Term Interest Maturity Market
Amount Debt Securities (34.9%) Rate Date Value
================================================================================
<S> <C> <C> <C> <C>
U.S. Government Obligations (15.0%) -- Continued
- ------------------------------------------------
$700,000 U.S. Treasury Bonds 6.250% 8/15/23 $ 721,438
650,000 U.S. Treasury Bonds 7.500 11/15/24 777,359
920,000 U.S. Treasury Bonds 7.625 2/15/25 1,116,362
875,000 U.S. Treasury Bonds 6.875 8/15/25 975,350
950,000 U.S. Treasury Bonds 6.750 8/15/26 1,045,890
-----------------------------------------------------------
Total U.S. Government
Obligations 46,107,261
===========================================================
U.S. Government Agency Obligations (12.6%)
- ------------------------------------------
250,000 Federal Home Loan Bank
Notes Debentures 7.260 9/6/01 260,875
580,000 Federal Home Loan
Mortgage Corporation
15-Yr. Pass Through 5.990 12/1/03 579,640
188,879 Federal Home Loan
Mortgage Corporation
15-Yr. Pass Through 7.000 11/1/10 191,867
495,001 Federal Home Loan
Mortgage Corporation
15-Yr. Pass Through 6.500 11/1/12 495,936
500,000 Federal Home Loan
Mortgage Corporation
15-Yr. Pass Through 7.000 12/1/12 507,510
483,292 Federal Home Loan
Mortgage Corporation
30-Yr. Pass Through 7.500 4/1/27 494,982
489,618 Federal Home Loan
Mortgage Corporation
30-Yr. Pass Through 7.000 5/1/27 494,063
496,441 Federal Home Loan
Mortgage Corporation
30-Yr. Pass Through 8.000 6/1/12 513,205
209,648 Federal Home Loan
Mortgage Corporation
Gold 15-Yr. Pass
Through 6.500 4/1/09 210,650
483,156 Federal Home Loan
Mortgage Corporation
Gold 15-Yr. Pass
Through 6.000 5/1/12 475,865
484,898 Federal Home Loan
Mortgage Corporation
Gold 15-Yr. Pass
Through 7.000 8/1/12 492,481
171,872 Federal Home Loan
Mortgage Corporation
Gold 15-Yr. Pass
Through 7.500 8/1/10 176,524
188,677 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 6.500 4/1/24 187,405
136,671 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 9.000 4/1/25 145,370
156,043 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 8.500 9/1/25 162,968
244,558 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 7.500 11/1/25 250,718
240,006 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 8.000 1/1/26 248,550
236,808 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 7.000 5/1/26 239,157
223,125 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 7.500 7/1/26 228,589
238,141 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 6.000 7/1/26 229,680
232,043 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 7.500 8/1/26 237,725
230,503 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 8.000 11/1/26 238,603
232,428 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 6.500 11/1/26 229,795
239,078 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 7.500 1/1/27 244,933
487,415 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 6.500 2/1/27 481,737
488,723 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 7.000 2/1/27 493,160
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 27
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
Balanced Portfolio -- continued
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Principal Long-Term Interest Maturity Market
Amount Debt Securities (34.9%) Rate Date Value
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Agency Obligations (12.6%) -- Continued
- -------------------------------------------------------
$379,724 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 8.000% 3/1/27 $393,067
494,639 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 7.000 9/1/27 499,130
491,313 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 8.000 10/1/27 508,518
499,394 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 7.500 11/1/27 511,474
500,000 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 6.500 12/1/27 494,175
220,219 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass
Through 7.000 9/1/25 222,661
162,952 Federal Home Loan
Mortgage Corporation
Gold 5-Yr Balloon 5.500 12/1/99 162,481
114,609 Federal Home Loan
Mortgage Corporation
Gold 7-Yr. Balloon 7.000 7/1/02 116,423
500,000 Federal Home Loan
Mortgage Corporation
Gold REMIC Trust 7.750 11/7/01 530,746
250,000 Federal Home Loan
Mortgage Corporation
Medium Term Note 6.395 5/16/00 253,012
250,000 Federal National
Mortgage Association
10-Yr. Pass Through 6.700 11/10/05 252,225
500,000 Federal National
Mortgage Association
15-Yr. Pass Through 6.450 4/23/01 508,075
500,000 Federal National
Mortgage Association
15-Yr. Pass Through 5.800 2/22/06 491,457
67,521 Federal National
Mortgage Association
15-Yr. Pass Through 9.000 4/1/10 70,552
35,832 Federal National
Mortgage Association
15-Yr. Pass Through 9.000 4/1/10 37,441
212,892 Federal National
Mortgage Association
15-Yr. Pass Through 6.000 2/1/11 209,543
218,703 Federal National
Mortgage Association
15-Yr. Pass Through 8.000 5/1/11 226,274
232,234 Federal National
Mortgage Association
15-Yr. Pass Through 7.000 6/1/11 235,734
206,837 Federal National
Mortgage Association
15-Yr. Pass Through 7.500 6/1/11 212,258
219,528 Federal National
Mortgage Association
15-Yr. Pass Through 6.500 7/1/11 219,805
485,163 Federal National
Mortgage Association
15-Yr. Pass Through 6.500 7/1/12 485,628
345,000 Federal National
Mortgage Association
30-Yr. Pass Through 8.100 8/12/19 415,740
161,968 Federal National
Mortgage Association
30-Yr. Pass Through 10.500 8/1/20 180,399
181,709 Federal National
Mortgage Association
30-Yr. Pass Through 7.500 10/1/24 186,253
191,911 Federal National
Mortgage Association
30-Yr. Pass Through 9.500 4/1/25 205,999
225,188 Federal National
Mortgage Association
30-Yr. Pass Through 7.500 9/1/25 230,617
201,240 Federal National
Mortgage Association
30-Yr. Pass Through 8.500 11/1/25 210,128
186,077 Federal National
Mortgage Association
30-Yr. Pass Through 8.000 1/1/26 192,797
204,640 Federal National
Mortgage Association
30-Yr. Pass Through 7.000 1/1/26 206,535
238,542 Federal National
Mortgage Association
30-Yr. Pass Through 6.500 2/1/26 235,572
231,904 Federal National
Mortgage Association
30-Yr. Pass Through 6.500 3/1/26 229,016
225,805 Federal National
Mortgage Association
30-Yr. Pass Through 7.000 3/1/26 227,657
166,566 Federal National
Mortgage Association
30-Yr. Pass Through 8.500 5/1/26 173,928
</TABLE>
The accompanying notes to the financial statements are an integral part
of this schedule.
28 AAL Variable Annuity Annual Report
<PAGE>
===============================================================================
AAL VARIABLE ANNUITY
Balanced Portfolio -- continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Principal Long-Term Interest Maturity Market
Amount Debt Securities (34.9%) Rate Date Value
================================================================================
<S> <C> <C> <C> <C>
U.S. Government Agency Obligations (12.6%) -- Continued
- -------------------------------------------------------
$231,638 Federal National
Mortgage Association
30-Yr. Pass Through 6.000% 5/1/26 $223,262
235,140 Federal National
Mortgage Association
30-Yr. Pass Through 7.500 7/1/26 240,659
218,899 Federal National
Mortgage Association
30-Yr. Pass Through 8.000 8/1/26 226,678
227,245 Federal National
Mortgage Association
30-Yr. Pass Through 7.500 9/1/26 232,579
393,678 Federal National
Mortgage Association
30-Yr. Pass Through 9.000 9/1/26 418,400
247,431 Federal National
Mortgage Association
30-Yr. Pass Through 7.000 11/1/26 249,459
225,923 Federal National
Mortgage Association
30-Yr. Pass Through 8.000 11/1/26 233,952
224,071 Federal National
Mortgage Association
30-Yr. Pass Through 7.500 12/1/26 229,330
481,521 Federal National
Mortgage Association
30-Yr. Pass Through 7.000 1/1/27 485,469
230,751 Federal National
Mortgage Association
30-Yr. Pass Through 7.500 2/1/27 236,167
503,410 Federal National
Mortgage Association
30-Yr. Pass Through 7.500 5/1/27 515,114
407,136 Federal National
Mortgage Association
30-Yr. Pass Through 8.000 7/1/27 421,564
497,853 Federal National
Mortgage Association
30-Yr. Pass Through 7.000 7/1/27 501,497
502,990 Federal National
Mortgage Association
30-Yr. Pass Through 6.500 7/1/27 496,445
504,028 Federal National
Mortgage Association
30-Yr. Pass Through 7.000 10/1/27 507,717
497,972 Federal National
Mortgage Association
30-Yr. Pass Through 7.000 3/1/27 502,055
504,152 Federal National
Mortgage Association
30-Yr. Pass Through 7.500 12/1/27 515,874
234,980 Federal National
Mortgage Association
7-Yr. Balloon 6.500 10/1/03 235,823
481,782 Federal National
Mortgage Association
7-Yr. Balloon 6.000 12/1/03 477,069
471,277 Federal National
Mortgage Association
7-Yr. Balloon 7.000 6/1/04 477,766
430,016 Federal National
Mortgage Association
Gold 30-Yr. Pass
Through 8.500 7/1/27 449,233
500,000 Federal National
Mortgage Association
Medium Term Note 6.375 1/16/02 507,547
250,000 Federal National
Mortgage Association
Medium Term Note 6.720 8/1/05 260,083
500,000 Federal National
Mortgage Association
Notes 8.250 12/18/00 531,934
500,000 Federal National
Mortgage Association
Notes 7.650 3/10/05 547,155
128,996 Government National
Mortgage Association
15-Yr. Pass Through 6.500 5/15/09 129,748
224,218 Government National
Mortgage Association
15-Yr. Pass Through 6.000 4/15/11 221,471
205,046 Government National
Mortgage Association
15-Yr. Pass Through 6.500 6/15/11 206,094
237,725 Government National
Mortgage Association
15-Yr. Pass Through 7.500 7/15/11 244,892
471,389 Government National
Mortgage Association
15-Yr. Pass Through 7.000 4/15/12 480,382
109,623 Government National
Mortgage Association
30-Yr. Pass Through 9.500 12/15/24 119,003
174,237 Government National
Mortgage Association
30-Yr. Pass Through 8.000 6/15/25 180,831
167,590 Government National
Mortgage Association
30-Yr. Pass Through 7.500 8/15/25 171,798
221,603 Government National
Mortgage Association
30-Yr. Pass Through 7.000 1/15/26 223,433
477,679 Government National
Mortgage Association
30-Yr. Pass Through 7.000 1/15/26 481,624
249,560 Government National
Mortgage Association
30-Yr. Pass Through 6.500 3/15/26 247,099
</TABLE>
Balanced Portfolio
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 29
<PAGE>
===============================================================================
AAL VARIABLE ANNUITY
Balanced Portfolio -- continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Principal Long-Term Interest Maturity Market
Amount Debt Securities (34.9%) Rate Date Value
===============================================================================
<S> <C> <C> <C>
U.S. Government Agency Obligations (12.6%) -- Continued
- -------------------------------------------------------
$493,949 Government National
Mortgage Association
30-Yr. Pass Through 7.000% 4/15/26 $ 498,028
212,085 Government National
Mortgage Association
30-Yr. Pass Through 8.000 4/15/26 220,017
251,190 Government National
Mortgage Association
30-Yr. Pass Through 7.500 4/15/26 257,466
236,337 Government National
Mortgage Association
30-Yr. Pass Through 6.000 5/15/26 228,290
247,302 Government National
Mortgage Association
30-Yr. Pass Through 7.500 5/15/26 253,482
222,640 Government National
Mortgage Association
30-Yr. Pass Through 7.000 5/15/26 224,479
189,759 Government National
Mortgage Association
30-Yr. Pass Through 8.500 6/15/26 199,404
201,264 Government National
Mortgage Association
30-Yr. Pass Through 8.500 7/15/26 211,494
176,798 Government National
Mortgage Association
30-Yr. Pass Through 9.000 8/15/26 189,178
233,326 Government National
Mortgage Association
30-Yr. Pass Through 7.500 10/15/26 239,157
489,751 Government National
Mortgage Association
30-Yr. Pass Through 7.500 10/15/26 501,989
448,830 Government National
Mortgage Association
30-Yr. Pass Through 8.000 11/15/26 465,616
221,246 Government National
Mortgage Association
30-Yr. Pass Through 8.500 11/15/26 232,492
417,399 Government National
Mortgage Association
30-Yr. Pass Through 9.000 12/15/26 446,625
247,979 Government National
Mortgage Association
30-Yr. Pass Through 7.500 1/15/27 254,133
481,533 Government National
Mortgage Association
30-Yr. Pass Through 8.000 6/20/27 498,300
481,832 Government National
Mortgage Association
30-Yr. Pass Through 8.000 8/15/27 499,814
504,064 Government National
Mortgage Association
30-Yr. Pass Through 6.500 10/15/27 499,043
504,643 Government National
Mortgage Association
30-Yr. Pass Through 7.500 11/15/27 517,168
345,000 Private Export Funding
Corporation 8.400 7/31/01 372,464
150,000 Private Export Funding
Corporation 6.240 5/15/02 151,808
250,000 Student Loan Marketing
Association 6.050 9/14/00 251,165
500,000 Student Loan Marketing
Association 7.300 8/1/12 553,430
500,000 Tennesee Valley Authority 6.375 6/15/05 510,197
---------------------------- ----------
Total U.S. Government Agency
Obligations 38,551,753
============================ ==========
Asset-Backed Securities (0.3%)
- ------------------------------
250,000 Chemical Mastercard
Trust Series 1996-1
Class A 5.550 9/15/03 246,890
200,000 NationsBank Credit Card
Trust Certificate 6.000 12/15/05 197,936
500,000 Premier Auto Trust 6.750 11/6/00 505,500
77,325 Western Financial
Grantor Trust 7.100 1/1/00 77,690
---------------------------- ----------
Total Asset-Backed Securities 1,028,016
============================ ==========
Corporate Obligations (5.4%)
- ----------------------------
200,000 Abbott Laboratories
Notes 6.800 5/15/05 208,555
250,000 American Express Credit
Corporation Notes 6.125 11/15/01 249,755
350,000 American General
Finance Corporation
Senior Notes 6.875 7/1/99 354,115
375,000 Associates Corporation
N.A. Senior Notes 6.000 12/1/02 371,001
500,000 Avco Financial Services
Notes 6.000 8/15/02 496,572
325,000 Baker Hughes, Inc. Notes 8.000 5/15/04 351,230
500,000 BankAmerica
Corporation Notes 6.625 8/1/07 503,680
500,000 Boeing Company Notes 8.100 11/15/06 561,888
250,000 Browning-Ferris Industries
Inc. Senior Notes 6.375 1/15/08 248,345
500,000 CIT Group Holdings, Inc.
Notes 6.375 10/1/02 502,166
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
30 AAL Variable Annuity Annual Report
<PAGE>
============================================================================
AAL VARIABLE ANNUITY
Balanced Portfolio -- continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Principal Long-Term Interest Maturity Market
Amount Debt Securities (34.9%) Rate Date Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Obligations (5.4%) -- Continued
- -----------------------------------------
$250,000 Columbia Gas Systems
Note 7.320% 11/28/10 $259,689
500,000 Columbia/HCA
Healthcare Notes 8.850 1/1/07 561,127
250,000 Commercial Credit
Company Notes 6.750 5/15/00 253,161
500,000 Crown Cork & Seal
Notes 6.750 4/15/03 507,296
250,000 E.I. Dupont de Nemours
and Company Notes 8.125 3/15/04 273,821
125,000 Eaton Corporation Notes 6.375 4/1/99 125,632
510,000 Eli Lilly & Company Notes 6.570 1/1/16 513,664
500,000 Enron Corporation Notes 6.875 10/15/07 508,897
500,000 Ford Motor Credit
Corporation Notes 7.750 11/15/02 528,988
500,000 General Electric Capital
Corporation Notes 8.090 4/1/04 552,178
500,000 General Motors
Acceptance
Corporation Note 9.625 12/15/01 558,631
500,000 Hertz Corporation Notes 7.000 7/1/04 512,928
250,000 Honeywell, Inc.
Debentures 8.625 4/15/06 285,712
250,000 Household Finance
Company Notes 7.250 7/15/03 259,206
500,000 Houston Industries, Inc.
Notes 9.375 6/1/01 547,339
500,000 IBM Corporation Notes 7.500 6/15/13 555,437
250,000 J.C. Penney & Company,
Inc. Notes 6.375 9/15/00 251,740
340,000 J.P. Morgan Notes 6.250 12/15/05 336,152
500,000 Johnson Controls Notes 7.125 7/15/17 525,396
250,000 NorAm Energy
Corporation Notes 7.500 8/1/00 258,045
250,000 Noranda, Inc. Notes 8.000 6/1/03 264,853
500,000 Northern Trust Company
Notes 6.700 9/15/05 506,899
250,000 Norwest Financial, Inc.
Senior Notes 7.000 1/15/03 258,320
250,000 Pennzoil Company Notes 10.125 11/15/09 318,390
250,000 Pepsico, Inc. Medium Term
Notes 5.875 6/1/00 249,771
250,000 Rhone-Poulenc SA Notes 7.750 1/15/02 261,174
420,000 Service Corporation
International Notes 6.875 10/1/07 429,609
500,000 Texas Utilities Company
First Mortgage Bond 8.250 4/1/04 545,208
1,000,000 Tosco Corporation First
Mortgage Bonds 9.625 3/15/02 1,118,319
500,000 U.S. West Capital Funding,
Inc. Notes 6.750 10/1/05 503,515
------------------------------------------
Total Corporate Obligations 16,478,404
==========================================
Utility Bonds (0.3%)
- --------------------
500,000 Baltimore Gas & Electric
Company First
Refunding Mortgage
Bonds 7.500 1/15/07 539,584
250,000 Pacificorp First Mortgage
Bonds 6.750 4/1/05 255,114
------------------------------------------
Total Utility Bonds 794,698
==========================================
Canadian Government (1.2%)
- --------------------------
500,000 British Columbia
Government Notes 7.250 9/1/36 551,460
1,000,000 Ontario Hydro 7.450 3/31/13 1,098,809
500,000 Province of
Newfoundland 8.650 10/22/22 611,280
200,000 Province of Ontario
Senior Global Bond 6.125 6/28/00 200,742
500,000 Province of Quebec 7.500 7/15/02 523,215
500,000 Province of Saskatchewan 8.000 7/15/04 547,965
------------------------------------------
Total Canadian Government 3,533,471
==========================================
Canadian Corporate Securities (0.1%)
- ------------------------------------
250,000 Petro-Canada Ltd. 8.600 1/15/10 299,240
------------------------------------------
Total Canadian Corporate
Securities 299,240
==========================================
------------------------------------------
Total Long-Term Debt Securities
Investments (amortized cost
basis $104,606,356) 106,792,843
==========================================
Principal Short-Term Interest Maturity Market
Amount Obligations (10.6%) Rate** Date Value
============================================================================
Short-Term Notes (10.6%)
- --------------------------
235,000 Dresser Industries, Inc. 6.000 1/21/98 234,217
6,066,000 Ford Motor Credit
Company 5.620 1/9/98 6,058,424
1,196,000 General Mills, Inc. 6.550 1/2/98 1,195,782
2,342,000 General Motors
Acceptance
Corporation 6.200 1/2/98 2,341,597
2,847,000 General Motors
Acceptance
Corporation 5.740 1/20/98 2,838,375
</TABLE>
The accompanying notes to the financial statements are an integral part of
this schedule.
AAL Variable Annuity Annual Report 31
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
Balanced Portfolio--continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Principal Short-Term Interest Maturity Market
Amount Obligations (10.6%) Rate** Date Value
=====================================================================
Short-Term Notes (10.6%)--Continued
- -----------------------------------
<S> <C> <C> <C> <C>
$3,884,000 General Motors
Acceptance
Corporation 5.790% 2/2/98 $3,864,010
665,000 General Motors
Acceptance
Corporation 5.810 2/4/98 661,351
2,945,000 General Signal
Corporation 5.950 1/20/98 2,935,750
4,488,000 Household Financial
Corporation 5.720 1/13/98 4,479,443
371,000 Merrill Lynch &
Company, Inc. 5.640 1/5/98 370,767
2,760,000 Merrill Lynch &
Company, Inc. 5.630 1/16/98 2,753,462
408,000 Merrill Lynch &
Company, Inc. 5.790 1/22/98 406,622
2,316,000 Merrill Lynch &
Company, Inc. 5.700 2/13/98 2,300,232
1,135,000 Motorola, Inc. 5.650 2/3/98 1,129,122
933,000 Sears Roebuck
Acceptance
Corporation 5.850 1/28/98 928,906
</TABLE>
--------------------------------------
Total Short-Term Investments
(amortized cost basis
$32,498,060) 32,498,060
======================================
--------------------------------------
Total Investments (100.2%)
(amortized cost basis
$266,762,583) 306,993,426
======================================
--------------------------------------
Other Assets,
less Liabilities (-0.2%) (492,086)
======================================
--------------------------------------
NET ASSETS (100.0%) $306,501,340
======================================
** The interest rate shown reflects the coupon rate or for the
securities purchased at a discount, the discount rate at the date
of purchase.
The accompanying notes to the financial statements are an integral part of
this schedule.
32 AAL Variable Annuity Annual Report
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL VARIABLE ANNUITY LOGO]
Large Company Stock Portfolio
Schedule of Investments as of December 31, 1997
The Portfolio Seeks: To achieve investment results that approximate the
- -------------------- performance of the Standard & Poor's 500/R/ Composite
Stock Price Index ("S&P 500/R/ Index") by investing
primarily in common stocks included in the index.
The Portfolio Is: A diversified portfolio of larger company common stocks
- ----------------- held approximately in proportion to their capitalization
weight in the S&P 500/R/ Index.
<TABLE>
<CAPTION>
Shares Common Stocks (99.6%) Market Value
===============================================================================
<S> <C> <C>
Aerospace (1.9%)
- ----------------
41,960 Boeing Company...........................................$2,053,413
2,700 General Dynamics Corporation............................. 233,381
3,000 Goodrich (B.F.) Company.................................. 124,313
8,200 Lockheed Martin Corporation.............................. 807,700
2,900 Northrop Grumman Corporation............................. 333,500
14,200 Raytheon Company......................................... 717,100
8,700 Rockwell International Corporation....................... 454,575
5,100 TRW, Inc................................................. 272,213
6,900 Textron, Inc............................................. 431,250
9,800 United Technologies Corporation.......................... 713,563
-----------------------------------------------------------------
Total Aerospace 6,141,008
=================================================================
Air Transportation (0.5%)
- -------------------------
3,900 AMR Corporation*......................................... 501,150
3,200 Delta Air Lines, Inc..................................... 380,800
4,800 Federal Express Corporation*............................. 293,100
9,200 Southwest Airlines Company............................... 226,550
3,800 USAir Group, Inc.*....................................... 237,500
-----------------------------------------------------------------
Total Air Transportation 1,639,100
=================================================================
Apparel (0.3%)
- --------------
3,000 Fruit of the Loom, Inc.*................................. 76,875
2,900 Liz Claiborne, Inc....................................... 121,256
12,200 Nike, Inc................................................ 478,850
2,300 Reebok International, Ltd................................ 66,269
1,500 Russell Corporation...................................... 39,844
800 Springs Industries, Inc.................................. 41,600
5,200 V F Corporation.......................................... 238,875
-----------------------------------------------------------------
Total Apparel 1,063,569
=================================================================
Banking (8.7%)
- --------------
5,700 BB&T Corporation......................................... 365,156
24,650 Banc One Corporation..................................... 1,338,800
15,800 Bank of New York Company, Inc............................ 913,438
29,200 BankAmerica Corporation.................................. 2,131,590
6,200 BankBoston Corporation................................... 582,413
4,200 Bankers Trust New York Corporation....................... 472,238
8,300 Barnett Banks, Inc....................................... 596,563
17,756 Chase Manhattan Corporation.............................. 1,944,282
19,200 Citicorp................................................. 2,427,600
4,500 Comerica, Inc............................................ 406,125
8,400 Corestates Financial Corporation......................... 672,525
4,500 Countrywide Credit Industries, Inc....................... 192,938
6,550 Fifth Third Bancorp...................................... 535,463
12,324 First Chicago NBD Corporation............................ 1,029,054
26,380 First Union Corporation.................................. 1,351,975
10,535 Fleet Financial Group, Inc............................... 789,467
8,000 Huntington Bancshares, Inc............................... 288,000
9,300 Keycorp.................................................. 658,556
10,600 Mellon Bank Corporation.................................. 642,625
7,500 J.P. Morgan & Company, Inc............................... 846,563
9,000 National City Corporation................................ 591,750
29,806 NationsBank Corporation.................................. 1,812,570
31,700 Norwest Corporation...................................... 1,224,410
12,800 PNC Bank Corporation..................................... 730,400
3,900 Providian Financial Corporation.......................... 176,231
2,300 Republic New York Corporation............................ 262,631
8,900 Suntrust Banks, Inc...................................... 635,238
7,300 Synovus Financial Corp................................... 239,075
10,399 U.S. Bancorp............................................. 1,164,033
8,600 Wachovia Corporation..................................... 697,675
10,770 Washington Mutual, Inc................................... 687,261
3,700 Wells Fargo & Company.................................... 1,255,919
-----------------------------------------------------------------
Total Banking 27,662,564
=================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 33
<PAGE>
AAL VARIABLE ANNUITY
Large Company Stock Portfolio -- continued
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (99.6%) Market Value
<S> <C> <C>
Brokerage (0.9%)
- ----------------
11,150 Charles Schwab Corporation.............................. $ 467,603
14,100 Merrill Lynch & Company, Inc............................ 1,028,419
24,825 Morgan Stanley, Dean Witter, Discover
and Company............................................. 1,467,778
--------------------------------------------------------------------
Total Brokerage 2,963,800
====================================================================
Business Machines (7.0%)
- ------------------------
14,500 3Com Corporation*........................................ 506,594
5,300 Apple Computer, Inc...................................... 69,563
2,000 Autodesk, Inc............................................ 74,000
8,800 Bay Networks, Inc.*...................................... 224,950
6,600 Cabletron Systems, Inc.*................................. 99,000
3,200 Ceridian Corporation*.................................... 146,600
42,200 Cisco Sytems, Inc.*...................................... 2,352,640
31,750 Compaq Computers, Inc.................................... 1,791,891
2,000 Data General Corporation*................................ 34,875
13,800 Dell Computer Corporation*............................... 1,159,200
6,300 Digital Equipment Corporation*........................... 233,100
8,300 HBO & Company............................................ 398,400
5,300 Honeywell, Inc........................................... 363,050
5,500 Ikon Office Solutions.................................... 154,688
40,900 International Business Machines Corporation.............. 4,276,606
50,800 Microsoft Corporation*................................... 6,565,900
14,600 Novell, Inc.*............................................ 109,500
41,125 Oracle Systems Corporation*.............................. 917,602
5,300 Parametric Technology Company*........................... 251,088
6,100 Pitney-Bowes, Inc........................................ 548,619
10,200 Seagate Technology, Inc.*................................ 196,350
7,800 Silicon Graphics, Inc.*.................................. 97,013
15,700 Sun Microsystems, Inc.*.................................. 626,038
7,300 Unisys Corporation*...................................... 101,288
13,700 Xerox Corporation........................................ 1,011,231
--------------------------------------------------------------------
Total Business Machines 22,309,786
====================================================================
Business Services (1.9%)
- ------------------------
12,200 Automatic Data Processing, Inc........................... 748,775
8,283 Browning-Ferris Industries, Inc.......................... 306,471
6,800 Cognizant Corporation.................................... 303,025
22,913 Computer Associates International, Inc................... 1,211,498
3,300 Computer Sciences Corporation*........................... 275,550
3,400 Deluxe Corporation....................................... 117,300
7,100 Dun & Bradstreet Corporation............................. 219,656
2,700 Ecolab, Inc.............................................. 149,681
18,400 First Data Corporation................................... 538,200
4,300 H.R. Block Inc........................................... 192,694
5,200 Interpublic Group of Companies, Inc...................... 259,025
1,300 John H. Harland Company.................................. 27,300
13,800 Laidlaw, Inc............................................. 188,025
3,700 Moore Corporation, Ltd................................... 55,963
1,800 National Service Industries, Inc......................... 89,213
6,200 NextLevel Systems, Inc.*................................. 110,825
3,500 Omnicom Group, Inc....................................... 148,313
2,400 Safety Kleen Corporation................................. 65,850
1,100 Shared Medical Systems Corporation....................... 72,600
6,700 State Street Corporation................................. 389,856
19,040 Waste Management, Inc.................................... 523,600
--------------------------------------------------------------------
Total Business Services 5,993,420
====================================================================
Chemicals (2.9%)
- ----------------
4,700 Air Products & Chemicals, Inc............................ 386,575
47,500 E.I. Du Pont de Nemours & Company........................ 2,852,969
3,300 Eastman Chemical Company................................. 196,556
2,500 Great Lakes Chemical Corporation......................... 112,188
4,100 Hercules, Inc............................................ 205,256
17,300 Minnesota Mining and Manufacturing Company............... 1,419,681
24,900 Monsanto Company......................................... 1,045,800
5,600 Morton International, Inc................................ 192,500
2,700 Nalco Chemical Company................................... 106,819
7,400 PPG Industries, Inc...................................... 422,725
6,600 Praxair, Inc............................................. 297,000
2,600 Rohm & Haas Company...................................... 248,950
4,200 Sigma-Aldrich Corporation................................ 166,950
9,600 The Dow Chemical Company................................. 974,400
5,100 Union Carbide Corporation................................ 218,981
3,200 W.R. Grace & Company..................................... 257,400
--------------------------------------------------------------------
Total Chemicals 9,104,750
====================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
34 AAL Variable Annuity Annual Report
<PAGE>
AAL VARIABLE ANNUITY
Large Company Stock Portfolio -- continued
Schedule of Investments as of December 31, 1997
Shares Common Stocks (99.6%) Market Value
========================================================================
Construction (0.4%)
- -------------------
1,800 Armstrong World Industries, Inc........... $ 134,550
1,200 Centex Corporation........................ 75,525
1,900 Crane Company............................. 82,413
3,500 Fluor Corporation......................... 130,813
1,600 Kaufman & Broad Home Corporation.......... 35,900
6,900 Masco Corporation......................... 351,038
2,200 Owens-Corning Fiberglass Corporation...... 75,075
800 Pulte Corporation......................... 33,450
7,200 Sherwin-Williams Company.................. 199,800
3,700 Stanley Works............................. 174,594
----------------------------------------------------
Total Construction 1,293,158
====================================================
Consumer Durables (0.3%)
- ------------------------
3,900 Black & Decker Corporation................ 152,344
4,000 Maytag Corporation........................ 149,250
6,600 Newell Company............................ 280,500
2,500 Tupperware Corporation.................... 69,688
3,100 Whirlpool Corporation..................... 170,500
----------------------------------------------------
Total Consumer Durables............... 822,282
====================================================
Containers ( 0.2%)
- ------------------
1,200 Ball Corporation.......................... 42,375
2,200 Bemis Company, Inc........................ 96,938
5,300 Crown Cork & Seal Company, Inc............ 265,663
5,900 Owens-Illinois, Inc.*..................... 223,831
4,100 Stone Container Corporation............... 42,794
----------------------------------------------------
Total Containers...................... 671,601
====================================================
Cosmetics (2.8%)
- ----------------
2,300 Alberto-Culver Company.................... 73,744
5,500 Avon Products, Inc........................ 337,563
4,400 Clorox Company............................ 347,875
12,500 Colgate-Palmolive Company................. 918,750
23,600 Gillette Company.......................... 2,370,325
4,500 International Flavors and
Fragrances, Inc........................... 231,750
56,500 Procter & Gamble Company $4,509,406
----------------------------------------------------
Total Cosmetics....................... 8,789,413
====================================================
Credit Cards (0.0%)
- -------------------
6,300 Equifax, Inc. 223,256
----------------------------------------------------
Total Credit Cards.................... 223,256
====================================================
Drugs & Medicine (11.1%)
- ------------------------
32,100 Abbott Laboratories....................... 2,104,556
2,700 Allergan, Inc............................. 90,619
3,500 Alza Corporation*......................... 111,344
27,400 American Home Products
Corporation............................... 2,096,100
11,000 Amgen, Inc................................ 595,375
2,300 Bausch & Lomb, Inc........................ 91,138
11,700 Baxter International, Inc................. 590,119
5,100 Becton, Dickinson and Company............. 255,000
4,600 Biomet, Inc............................... 117,875
8,100 Boston Scientific Corporation............. 371,588
41,800 Bristol-Myers Squibb Company.............. 3,955,325
4,600 Cardinal Health Inc....................... 345,575
27,200 Columbia/HCA Healthcare
Corporation............................... 805,800
2,300 C.R. Bard, Inc............................ 72,019
6,200 Guidant Corporation....................... 385,950
16,500 HEALTHSOUTH Corporation*.................. 457,875
6,800 Humana, Inc.*............................. 141,100
56,500 Johnson & Johnson......................... 3,721,938
46,700 Eli Lilly & Company....................... 3,251,488
3,000 Mallinckrodt Group, Inc................... 114,000
2,600 Manor Care, Inc........................... 91,000
19,700 Medtronic, Inc............................ 1,030,556
50,400 Merck & Company, Inc...................... 5,355,000
54,400 Pfizer, Inc............................... 4,056,200
21,315 Pharmacia & Upjohn, Inc................... 780,662
30,700 Schering-Plough Corporation............... 1,907,238
3,800 St. Jude Medical, Inc.*................... 115,900
12,800 Tenet Healthcare Corporation*............. 424,000
3,100 U.S. Surgical Corporation................. 90,869
7,900 United Healthcare Corporation............. 392,531
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 35
<PAGE>
===============================================================================
AAL VARIABLE ANNUITY
Large Company Stock Portfolio -- continued
Schedule of Investments as of December 31, 1997
Shares Common Stocks (99.6%) Market Value
Drugs & Medicine (11.1%)--Continued
- -----------------------------------
11,500 Warner-Lambert Company............ $ 1,426,000
-------------------------------------------
Total Drugs & Medicine 35,344,740
===========================================
Electronics (4.1%)
- ------------------
9,228 AMP, Inc............................. 387,576
3,000 Adobe Systems, Inc................... 123,750
5,900 Advanced Micro Devices, Inc.*........ 105,831
15,300 Applied Materials, Inc.*............. 460,913
1,900 EG&G, Inc............................ 39,544
20,800 EMC Corporation*..................... 570,700
2,000 General Signal Corporation........... 84,375
3,300 Harris Corporation................... 151,388
43,700 Hewlett-Packard Company.............. 2,731,250
68,800 Intel Corporation.................... 4,833,200
5,900 LSI Logic Corporation*............... 116,525
8,800 Micron Technology, Inc............... 228,800
25,000 Motorola, Inc........................ 1,426,563
6,800 National Semiconductor Corporation*.. 176,375
1,900 Perkin Elmer Corporation............. 135,019
3,300 Scientific-Atlanta, Inc.............. 55,275
2,050 Tektronix, Inc....................... 81,359
7,600 Tellabs, Inc.*....................... 401,850
16,400 Texas Instruments, Inc............... 738,000
6,300 Thermo Electron Corporation*......... 280,350
2,300 Thomas & Betts Corporation........... 108,675
-------------------------------------------
Total Electronics 13,237,318
===========================================
Energy & Utilities (3.4%)
- -------------------------
7,900 American Electric Power Company...... 407,838
6,200 Baltimore Gas & Electric Company..... 211,188
6,600 CINergy Corporation.................. 252,863
6,300 Carolina Power & Light Company....... 267,356
8,900 Central & Southwest Corporation...... 240,856
4,400 Coastal Corporation.................. 272,525
2,400 Columbia Gas System, Inc............. 188,550
9,800 Consolidated Edison, Inc............. 401,800
4,000 Consolidated Natural Gas Company..... 242,000
6,000 DTE Energy Company................... 208,125
7,800 Dominion Resources, Inc.............. 331,988
15,108 Duke Energy Corporation.............. 836,606
16,400 Edison International................. 445,875
13,300 Enron Corporation.................... 552,781
10,200 Entergy Corporation.................. 305,363
7,600 FPL Group, Inc....................... 449,825
9,600 FirstEnergy Corporation*............. 278,400
5,000 General Public Utilities Corporation. 210,625
11,973 Houston Industries, Inc.............. 319,529
6,000 Niagara Mohawk Power Corporation*.... 63,000
2,000 Nicor, Inc........................... 84,375
3,100 Northern States Power Company........ 180,575
1,300 ONEOK, Inc........................... 52,488
6,900 P P & L Resources, Inc............... 165,169
3,500 Pacific Enterprises.................. 131,688
18,400 Pacific Gas & Electric Company....... 560,050
12,400 PacifiCorp........................... 338,675
9,300 Peco Energy Company.................. 225,525
1,400 Peoples Energy Corporation........... 55,125
9,700 Public Service Enterprise............ 307,369
3,600 Sonat, Inc........................... 164,700
29,000 Southern Company..................... 750,375
10,317 Texas Utilities Company.............. 428,800
9,000 Unicom Corporation................... 276,750
4,200 Union Electric Company............... 181,650
13,300 Williams Companies, Inc.............. 377,388
-------------------------------------------
Total Energy & Utilities 10,767,795
===========================================
Energy-Raw Materials (1.3%)
- ----------------------------
7,000 Baker Hughes, Inc.................... 305,375
7,335 Burlington Resources, Inc............ 328,700
7,300 Dresser Industries, Inc.............. 306,144
800 Eastern Enterprises.................. 36,000
11,000 Halliburton Company.................. 571,313
2,300 McDermott International, Inc......... 84,238
14,200 Occidental Petroleum Corporation..... 416,238
20,900 Schlumberger, Ltd.................... 1,682,450
10,572 Union Pacific Resources Group Inc.... 256,371
2,300 Western Atlas, Inc.*................. 170,200
-------------------------------------------
Total Energy-Raw Materials 4,157,029
===========================================
The accompanying notes to the financial statements are an integral part of this
schedule.
36 AAL Variable Annuity Annual Report
<PAGE>
- -------------------------------------------------------------------------------
===============================================================================
AAL VARIABLE ANNUITY
Large Company Stock Portfolio--continued
Schedule of Investments as of December 31, 1997
Shares Common Stocks (99.6%) Market Value
======================================================================
Entertainment (0.0%)
- --------------------
7,500 Mirage Resorts, Incorporated*........ $170,625
----------------------------------------------
Total Entertainment 170,625
==============================================
Food & Agriculture (6.1%)
- -------------------------
23,339 Archer-Daniels-Midland Company....... 506,165
6,100 CPC International, Inc............... 657,275
19,200 Campbell Soup Company................ 1,116,000
103,900 Coca-Cola Company.................... 6,922,338
19,800 ConAgra, Inc......................... 649,688
6,700 General Mills, Inc................... 479,888
15,400 H.J. Heinz Company................... 782,513
6,000 Hershey Foods Corporation............ 371,625
17,200 Kellogg Company...................... 853,550
63,700 PepsiCo, Inc......................... 2,321,069
2,800 Pioneer Hi-Bred International, Inc... 300,300
5,800 Quaker Oats Company.................. 305,950
4,500 Ralston Purina Corporation........... 418,219
20,100 Sara Lee Corporation................. 1,131,881
2,500 Supervalu, Inc....................... 104,688
7,200 Sysco Corporation.................... 328,050
6,320 Tricon Global Restaurants, Inc.*..... 183,675
26,900 Unilever N.V......................... 1,679,569
4,200 Whitman Corporation.................. 109,463
4,900 Wm. Wrigley Jr. Company.............. 389,856
-------------------------------------------
Total Food & Agriculture 19,611,762
===========================================
Gold (0.2%)
- -----------
15,600 Barrick Gold Corporation............. 290,550
9,600 Battle Mountain Gold Company......... 56,400
6,100 Homestake Mining Company............. 54,138
6,548 Newmont Mining Corporation........... 192,348
10,000 Placer Dome, Inc..................... 126,875
------------------------
Total Gold 720,311
========================
Insurance ( 4.1%)
- -----------------
6,249 Aetna Life & Casualty Company........ $440,945
18,141 Allstate Corporation................. 1,648,563
10,262 American General Corporation......... 554,789
29,550 American International Group, Inc.... 3,213,563
6,950 Aon Corporation...................... 407,444
7,200 Chubb Corporation.................... 544,500
3,200 Cigna Corporation.................... 553,800
2,400 Cincinnati Financial Corporation..... 337,800
7,900 Conseco, Inc......................... 358,956
3,400 General Re Corporation............... 720,800
5,000 ITT Hartford Group, Inc.............. 467,813
3,000 Jefferson-Pilot Corporation.......... 233,625
4,300 Lincoln National Corporation......... 335,938
3,800 MBIA, Inc............................ 253,888
4,700 MGIC Investment Corporation.......... 312,550
7,200 Marsh & McLennan Companies, Inc...... 536,850
3,100 Progressive Corporation.............. 371,613
5,900 Safeco Corporation................... 287,625
3,600 St. Paul Companies, Inc.............. 295,425
8,150 SunAmerica, Inc...................... 348,413
5,800 Torchmark Corporation................ 243,963
2,700 Transamerica Corporation............. 287,550
4,700 USF&G Corporation.................... 103,694
5,800 Unum Corporation..................... 315,375
---------------------------
Total Insurance 13,175,482
===========================
Liquor (0.5%)
- -------------
1,500 Adolph Coors Company................. 49,875
20,500 Anheuser-Busch Companies, Inc........ 902,000
2,800 Brown-Foreman Corporation............ 154,700
15,300 Seagram Company, Ltd................. 494,381
------------------------
Total Liquor 1,600,956
========================
Media (2.2%)
- ------------
29,500 CBS Corporation...................... 868,406
4,200 Clear Channel Communications, Inc.*.. 333,638
14,600 Comcast Corporation, Class A......... 460,813
Large Company Stock Portfolio
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 37
<PAGE>
- ---------------------------------------------------------------------
=====================================================================
AAL VARIABLE ANNUITY
Large Company Stock Portfolio--continued
Schedule of Investments as of December 31, 1997
Shares Common Stocks (99.6%) Market Value
======================================================================
Media (2.2%--Continued
- ----------------------
4,000 Dow Jones & Company, Inc............. $214,750
11,900 Gannett Company, Inc................. 735,569
1,500 King World Productions, Inc.*........ 86,625
3,600 Knight-Ridder, Inc................... 187,200
4,200 McGraw-Hill, Inc..................... 310,800
2,200 Meredith Corporation................. 78,513
4,000 New York Times Company............... 264,500
6,100 R.R. Donnelley & Sons Company........ 227,225
23,600 Tele-Communications, Inc.*........... 659,325
23,500 Time Warner, Inc..................... 1,457,000
4,000 Times Mirror Company................. 246,000
5,100 Tribune Company...................... 317,475
14,800 Viacom, Inc.*........................ 613,275
---------------------
Total Media 7,061,114
=====================
Miscellaneous Finance (3.2%)
- ----------------------------
19,600 American Express Company............. 1,749,300
2,300 Beneficial Corporation............... 191,188
29,200 Federal Home Loan Mortgage
Corporation........................ 1,224,575
44,500 Federal National Mortgage Association 2,539,281
2,400 Golden West Financial Corporation.... 234,750
5,700 Green Tree Financial Corporation..... 149,269
4,100 H.F. Ahmanson & Company.............. 274,444
4,500 Household International Corporation.. 574,031
21,012 MBNA Corporation..................... 573,890
48,158 Travelers Group, Inc................. 2,594,512
--------------------------------------
Total Miscellaneous Finance 10,105,240
======================================
Motor Vehicles (2.1%)
- ---------------------
27,900 Chrysler Corporation................. 981,731
1,600 Cummins Engine Company, Inc.......... 94,500
4,400 Dana Corporation..................... 209,000
3,300 Eaton Corporation.................... 294,525
2,600 Echlin, Inc.......................... 94,088
1,500 Fleetwood Enterprises, Inc........... 63,656
50,400 Ford Motor Company................... 2,453,850
30,300 General Motors Corporation........... 1,836,938
7,500 Genuine Parts Company................ 254,531
4,900 ITT Industries, Inc.................. 153,738
3,100 Navistar International Corporation*.. $76,919
3,200 PACCAR, Inc.......................... 168,000
------------------------------
Total Motor Vehicles 6,681,476
==============================
Non-Durables & Entertainment (1.0%)
- -----------------------------------
3,000 American Greetings Corporation,
Class A............................ 117,375
6,400 Darden Restaurants, Inc.............. 80,000
2,900 Harcourt General, Inc................ 158,775
5,300 Hasbro, Inc.......................... 166,950
1,600 Jostens, Inc......................... 36,900
12,150 Mattel, Inc.......................... 452,588
28,900 McDonald's Corporation............... 1,379,975
6,200 Rubbermaid, Inc...................... 155,000
10,500 Service Corporation International.... 387,844
5,500 Wendy's International, Inc........... 132,344
--------------------------
Total Non-Durables &
Entertainment 3,067,751
==========================
Non-Ferrous Metals (0.5%)
- -------------------------
9,500 Alcan Aluminium, Ltd................. 262,438
7,300 Aluminum Company of America.......... 513,738
1,700 Asarco, Inc.......................... 38,144
3,900 Cyprus Minerals Company.............. 59,963
5,800 Echo Bay Mines, Ltd.*................ 14,138
6,000 Engelhard Corporation................ 104,250
8,200 Freeport-McMoran Copper & Gold,
Class B............................ 129,150
7,000 Inco, Ltd............................ 119,000
2,600 Phelps Dodge Corporation............. 161,850
3,100 Reynolds Metals Company.............. 186,000
----------------------------------
Total Non-Ferrous Metals 1,588,671
==================================
Oil--Domestic (1.2%)
- --------------------
3,800 Amerada Hess Corporation............. 208,525
2,500 Anadarko Petroleum Corporation....... 151,719
3,800 Apache Corporation................... 133,238
3,100 Ashland Oil, Inc..................... 166,431
13,500 Atlantic Richfield Company........... 1,081,688
The accompanying notes to the financial statements are an integral part of this
schedule.
38 AAL Variable Annuity Annual Report
<PAGE>
- ----------------------------------------------------------------------
======================================================================
AAL VARIABLE ANNUITY
Large Company Stock Portfolio--continued
Schedule of Investments as of December 31, 1997
Shares Common Stocks (99.6%) Market Value
======================================================================
Oil--Domestic (1.2%)--Continued
- -------------------------------
1,100 Helmerich & Payne, Inc............... $74,663
2,000 Kerr-McGee Corporation............... 126,625
4,400 Oryx Energy Company*................. 112,200
2,000 Pennzoil Corporation................. 133,625
11,000 Phillips Petroleum Company........... 534,875
3,600 Rowan Companies, Inc.*............... 109,800
3,000 Sun Company, Inc..................... 126,188
12,100 USX-Marathon Group, Inc.............. 408,375
10,300 Unocal Corporation................... 399,769
-----------------------------
Total Oil--Domestic 3,767,721
=============================
Oil--International (5.9%)
- -------------------------
20,500 Amoco Corporation.................... 1,745,063
27,600 Chevron Corporation.................. 2,125,200
103,600 Exxon Corporation.................... 6,339,025
33,000 Mobil Corporation.................... 2,382,188
90,100 Royal Dutch Petroleum Company ADR.... 4,882,294
23,000 Texaco, Inc.......................... 1,250,625
-----------------------------------
Total Oil--International 18,724,395
===================================
Optical & Photo (0.4%)
- ----------------------
9,700 Corning, Inc......................... 360,113
13,600 Eastman Kodak Company................ 827,050
1,800 Polaroid Corporation................. 87,638
-------------------------------
Total Optical & Photo 1,274,801
===============================
Paper & Forest Products (1.2%)
- ------------------------------
2,300 Boise Cascade Corporation............ 69,575
4,000 Champion International Corporation... 181,250
8,700 Fort James Corporation............... 332,775
3,800 Georgia-Pacific Corporation.......... 230,850
12,703 International Paper Company.......... 547,817
23,292 Kimberly-Clark Corporation........... 1,148,587
4,600 Louisiana-Pacific Corporation........ 87,400
4,400 Mead Corporation..................... 123,200
1,200 Potlatch Corporation................. 51,600
2,400 Temple-Inland, Inc................... $125,550
2,900 Union Camp Corporation............... 155,694
4,200 Westvaco Corporation................. 132,038
8,300 Weyerhaeuser Company................. 407,219
4,600 Willamette Industries, Inc........... 148,063
---------------------------
Total Paper &
Forest Products 3,741,618
===========================
Producers Goods (5.7%)
- ----------------------
23,700 Allied-Signal, Inc................... 922,819
4,300 Avery Dennison Corporation........... 192,425
1,000 Briggs & Stratton Corporation........ 48,563
3,100 Case Corporation..................... 187,356
15,600 Caterpillar, Inc..................... 757,575
1,600 Cincinnati Milacron, Inc............. 41,500
5,000 Cooper Industries, Inc............... 245,000
10,500 Deere & Company...................... 612,281
9,300 Dover Corporation.................... 335,963
18,600 Emerson Electric Company............. 1,049,738
1,600 FMC Corporation*..................... 107,700
1,700 Foster Wheeler Corporation........... 46,006
137,600 General Electric Company............. 10,096,400
2,000 Harnischfeger Industries, Inc........ 70,625
10,400 Illinois Tool Works, Inc............. 625,300
6,950 Ingersoll-Rand Company............... 281,475
3,500 Johnson Controls, Inc................ 167,125
3,500 KLA Instruments Corporation*......... 135,188
1,800 Millipore Corporation................ 61,088
410 NACCO Industries, Inc................ 43,947
5,300 Pall Corporation..................... 109,644
4,650 Parker Hannifin Corporation.......... 213,319
3,600 Raychem Corporation.................. 155,025
2,500 Snap-On, Inc......................... 109,063
7,100 Tenneco, Inc......................... 280,450
2,600 Timken Company....................... 89,375
1,100 Trinova Corporation.................. 53,969
22,300 Tyco International Ltd............... 1,004,894
2,100 W.W. Grainger, Inc................... 204,094
--------------------------------
Total Producers Goods 18,247,907
================================
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 39
<PAGE>
===============================================================================
AAL VARIABLE ANNUITY
Large Company Stock Portfolio--continued
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (99.6%) Market Value
===========================================================
<S> <C> <C>
Railroad & Shipping (0.7%)
..........................
6,564 Burlington Northern, Inc............ $ 610,042
9,100 CSX Corporation..................... 491,400
15,800 Norfolk Southern Corporation........ 486,838
10,300 Union Pacific Corporation........... 643,106
------------------------------------------
Total Railroad & Shipping 2,231,386
==========================================
Retail Stores (5.1%)
....................
10,300 Albertson's, Inc.................... 487,963
11,400 American Stores Company............. 234,413
6,300 Autozone, Inc.*..................... 182,700
33,160 CUC International, Inc.*............ 1,139,891
7,200 CVS Corporation..................... 461,250
4,400 Charming Shoppes, Inc............... 20,625
4,100 Circuit City Stores, Inc............ 145,806
8,900 Costco Companies, Inc.*............. 397,163
9,100 Dayton Hudson Corporation........... 614,250
4,600 Dillard's Inc....................... 162,150
8,800 Federated Department Stores, Inc.*.. 378,950
2,500 Giant Food, Inc., Class A........... 84,219
1,600 Great Alantic & Pacific Tea
Company, Inc..................... 47,500
30,700 Home Depot, Inc..................... 1,807,463
10,500 J.C. Penney Company, Inc............ 633,281
20,400 Kmart Corporation................... 235,875
10,700 Kroger Corporation*................. 395,231
11,405 The Limited, Inc.................... 290,828
1,600 Long's Drug Stores, Inc............. 51,400
7,300 Lowe's Companies, Inc............... 348,119
9,700 May Department Stores Company....... 511,069
1,500 Mercantile Stores Company, Inc...... 91,313
3,200 Nordstrom, Inc...................... 193,200
2,600 Pep Boys-Manny, Moe, & Jack......... 62,075
5,200 Rite Aid Corporation................ 305,175
16,400 Sears Roebuck & Company............. 742,100
6,800 TJX Companies, Inc.................. 233,750
4,300 Tandy Corporation................... 165,819
16,850 The Gap, Inc........................ 597,122
12,000 Toys "R" Us, Inc.*.................. 377,250
94,700 Wal-Mart Stores, Inc................ 3,734,731
20,600 Walgreen Company.................... 646,325
6,200 Winn-Dixie Stores, Inc.............. 270,863
5,600 Woolworth Corporation*.............. 114,100
------------------------------------------
Total Retail Stores 16,163,969
==========================================
Steel (0.2%)
............
7,239 Allegheny Teledyne, Inc............. 187,309
4,500 Armco, Inc.*........................ 22,219
4,700 Bethlehem Steel Corporation*........ 40,538
2,000 Inland Steel Industries,Inc......... 34,250
3,600 Nucor Corporation................... 173,925
3,600 USX-US Steel Group, Inc............. 112,500
4,000 Worthington Industries, Inc......... 66,000
------------------------------------------
Total Steel 636,741
==========================================
Telephone (8.2%)
................
7,700 ALLTEL Corporation.................. 316,181
68,200 AT&T Corporation.................... 4,177,250
21,200 Airtouch Communications, Inc.*...... 881,125
23,000 Ameritech Corporation............... 1,851,500
3,775 Andrew Corporation*................. 90,600
32,696 Bell Atlantic Corporation........... 2,975,336
41,600 BellSouth Corporation............... 2,342,600
4,900 DSC Communications Corporation*..... 117,600
6,800 Frontier Corporation................ 163,625
40,200 GTE Corporation..................... 2,100,450
27,023 Lucent Technologies, Inc............ 2,158,462
29,200 MCI Communications Corporation...... 1,250,125
11,100 Northern Telecom, Limited........... 987,900
38,572 SBC Communications, Inc............. 2,825,399
18,000 Sprint Corporation.................. 1,055,250
20,300 U.S. West, Inc...................... 916,038
25,500 U.S. West Media Group*.............. 736,313
37,900 WorldCom, Inc....................... 1,146,475
------------------------------------------
Total Telephone 26,092,229
==========================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
40 AAL Variable Annuity Annual Report
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
Large Company Stock Portfolio--continued
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (99.6%) Market Value
===============================================================
<C> <S> <C>
Tires & Rubber (0.2%)
- ---------------------
3,300 Cooper Tire & Rubber Company....... $80,438
6,500 Goodyear Tire & Rubber Company..... 413,563
---------------------------------------------
Total Tires & Rubber 494,001
=============================================
Tobacco (1.8%)
- --------------
7,200 American Brands, Inc. ............. 266,850
4,900 Loews Corporation.................. 520,013
101,800 Phillip Morris Companies, Inc. .... 4,612,813
7,700 UST, Inc. ......................... 284,419
---------------------------------------------
Total Tobacco 5,684,095
=============================================
Travel & Recreation (1.3%)
- --------------------------
4,100 Brunswick Corporation.............. 124,280
28,449 Disney (Walt) Company.............. 2,818,229
4,200 Harrah's Entertainment*............ 79,275
10,500 Hilton Hotels Corporation.......... 312,375
5,000 ITT Corporation*................... 414,375
5,300 Marriott International, Inc. ...... 367,025
---------------------------------------------
Total Travel & Recreation 4,115,559
=============================================
Trucking & Freight (0.1%)
- -------------------------
1,600 Caliber System, Inc. .............. 77,900
3,200 Ryder Systems, Inc. ............... 104,800
---------------------------------------------
Total Trucking & Freight 182,700
=============================================
---------------------------------------------
Total Common Stocks
(cost basis $250,445,964) $317,325,099
=============================================
</TABLE>
<TABLE>
<CAPTION>
Principal Short-Term Interest Maturity Market
Amount Investments (1.0%) Rate Date Value
=============================================================
<C> <S> <C> <C> <C>
$ 524,000 CountryWide
Home, Inc. ........ 5.86 1/5/98 $523,634
1,282,000 General Motors
Acceptance
Corporation........ 6.19 1/5/98 1,281,118
1,262,000 R.R. Donnelley &
Sons Company....... 6.65% 1/2/98 1,261,767
-------------------------------------------------
Total Short-Term Investments
(amortized cost basis $3,066,519) 3,066,519
=================================================
-------------------------------------------------
Total Investments (100.6%)
(amortized cost
basis $253,512,483) 320,391,618
=================================================
-------------------------------------------------
Other Assets,
less Liabilities (-0.6%) (1,916,428)
=================================================
-------------------------------------------------
NET ASSETS (100.0%) $318,475,190
=================================================
</TABLE>
* Non-income producing security
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 41
<PAGE>
AAL VARIABLE ANNUITY
Small Company Stock Portfolio
Schedule of Investments as of December 31, 1997
The 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 Portfolio Is: A diversified portfolio of smaller company common stocks held
- ----------------- approximately in proportion to their capitalization weight in
the Wilshire Small Cap Index.
<TABLE>
<CAPTION>
Shares Common Stocks (98.6%) Market Value
==============================================================================
<S> <C> <C>
Aerospace (1.6 %)
- -----------------
15,900 BE Aerospace, Inc.* ............................. $ 425,325
28,700 Gencorp, Inc. ................................... 717,500
13,300 Kaman Corporation ............................... 217,787
12,900 Thiokol Corporation ............................. 1,048,125
------------------------------------------------------------
Total Aerospace ............................. 2,408,737
============================================================
Air Transportation (1.0 %)
- --------------------------
17,500 Airborne Freight Corporation .................... 1,087,187
10,300 Alaska Airgroup, Inc.* .......................... 399,125
------------------------------------------------------------
Total Air Transportation .................... 1,486,312
============================================================
Apparel (1.3 %)
- ---------------
12,600 Brown Group, Inc. ............................... 167,737
17,300 Gymboree Corp.* ................................. 473,587
14,900 Kellwood Corporation ............................ 447,000
33,700 Stride Rite Corporation ......................... 404,400
15,900 The Dress Barn Corporation* ..................... 451,162
------------------------------------------------------------
Total Apparel ............................... 1,943,886
============================================================
Banking (9.1 %)
- ---------------
18,500 Astoria Financial Corporation ................... 1,031,375
19,850 Bank United Corp. Class A ....................... 971,409
32,100 City Steel National Corporation ................. 1,185,693
27,300 First Commerce Corporation ...................... 1,835,925
27,000 Imperial Credit Industries, Inc.* ............... 553,500
16,800 Long Island Bancorp, Inc. ....................... 833,700
23,100 Magna Group, Inc. ............................... 1,056,825
40,700 Money Store Inc. (The) .......................... 854,700
8,900 ONBANCorp, Inc. ................................. 627,450
42,700 Peoples Bank of Bridgeport, Connecticut ......... 1,622,600
21,300 Rigs National Corp.-- Washington ................ 572,438
23,800 St. Paul Bancorp, Inc. .......................... 624,750
29,565 Valley National Bancorp ......................... 1,162,274
33,200 Washington Federal Inc. ......................... 1,043,725
------------------------------------------------------------
Total Banking ............................... 13,976,364
============================================================
Brokerage (0.8 %)
- -----------------
27,000 Quick & Reilly Group, Inc. ...................... 1,161,000
------------------------------------------------------------
Total Brokerage ............................. 1,161,000
============================================================
Business Machines (2.1 %)
- -------------------------
14,400 Broderbund Software, Inc.* ...................... 369,000
33,400 Data General Corporation* ....................... 582,412
15,600 Exabyte Corporation* ............................ 100,425
56,400 Integrated Device Technology, Inc.* ............. 532,275
20,625 Shiva Corporation* .............................. 176,602
23,600 Structural Dynamic Research* .................... 531,000
55,900 Sybase, Inc.* ................................... 744,168
15,800 Xircom, Inc.* ................................... 158,988
------------------------------------------------------------
Total Business Machines ..................... 3,194,870
============================================================
Business Services (10.4 %)
- --------------------------
29,000 American Management Systems, Incorporated* ...... 565,500
23,000 Cerner Corporation* ............................. 485,875
19,200 Citrix Systems, Inc.* ........................... 1,459,200
44,500 Computervision Corporation* ..................... 169,656
15,300 Credence Systems Corporation* ................... 453,263
32,250 Credit Acceptance Corporation* .................. 249,938
</TABLE>
The accompanying notes to the financial statements are an integral part
of this schedule.
------------------------------------------------------------------------
42 AAL Variable Annuity Annual Report
<PAGE>
AAL VARIABLE ANNUITY
Small Company Stock Portfolio--continued
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (98.6%) Market Value
<S> <C> <C>
Business Services (10.4%)--Continued
- ------------------------------------
11,500 Envoy Corporation*....................................... $ 334,938
13,000 Hyperion Software Corp.*................................. 464,750
20,300 Information Resources, Inc.*............................. 271,513
29,900 Integrated Health Services, Inc.......................... 932,506
33,000 Intuit, Inc.*............................................ 1,361,250
24,200 Micro Warehouse, Inc.*................................... 337,288
9,500 New England Business Service, Inc........................ 320,625
29,200 Oak Technology, Inc.*.................................... 189,800
28,700 Pittston Company......................................... 1,155,175
29,200 Pixar, Inc.*............................................. 631,450
28,200 Psinet Inc.*............................................. 144,525
35,100 S3, Inc.*................................................ 175,500
17,600 Shared Medical Systems Corporation....................... 1,161,600
19,900 Standard Register Company................................ 691,525
39,300 Symantec Corporation*.................................... 862,143
13,400 The Profit Recovery Group International, Inc.*........... 237,850
30,100 Wallace Computer Services, Inc........................... 1,170,138
20,900 Westpoint Stevens, Inc.*................................. 987,525
26,800 World Color Press, Inc.*................................. 711,875
29,900 Xylan Corporation*....................................... 452,238
-------------------------------------------------------------------
Total Business Services 15,977,646
===================================================================
Consumer Durables (1.6%)
- ------------------------
9,100 Bassett Furniture Industries, Inc........................ 273,000
28,900 Kimball International, Inc............................... 532,843
12,500 La Z Boy Chair Company................................... 539,063
36,450 Mohawk Industries, Inc.*................................. 799,622
12,600 Shorewood Packaging Corporation*......................... 337,050
-------------------------------------------------------------------
Total Consumer Durables 2,481,578
===================================================================
Chemicals (1.8%)
- ----------------
19,700 ACX Technologies, Inc.*.................................. 481,419
27,800 Calgon Carbon Corporation................................ 298,850
9,900 H.B. Fuller Company...................................... 490,050
31,800 Lawter International, Inc................................ 345,825
5,100 NCH Corporation.......................................... 334,050
23,500 Rollins, Inc............................................. 477,343
11,300 Zoltek Companies, Inc.*.................................. 314,988
-------------------------------------------------------------------
Total Chemicals 2,742,525
===================================================================
Construction (2.8%)
- -------------------
20,800 Centex Corporation....................................... 1,309,100
27,200 Kaufman & Broad Home Corporation......................... 610,300
7,800 Lawson Products, Inc..................................... 232,050
25,200 Lennar Corporation....................................... 543,375
14,800 Pulte Corporation........................................ 618,825
17,200 Southdown, Inc........................................... 1,014,800
-------------------------------------------------------------------
Total Construction 4,328,450
===================================================================
Containers (0.1%)
- -----------------
37,000 Gaylord Container Corporation*........................... 212,750
-------------------------------------------------------------------
Total Containers 212,750
===================================================================
Cosmetics (0.4%)
- ----------------
7,000 Chemed Corporation....................................... 290,062
35,600 Playtex Products, Inc.*.................................. 364,900
-------------------------------------------------------------------
Total Cosmetics 654,962
===================================================================
Drugs & Medicine (8.1%)
- -----------------------
10,000 ATL Ultrasound, Inc.*.................................... 460,000
20,100 Acuson Corporation*...................................... 332,906
26,300 Advanced Tissue Sciences, Inc.*.......................... 325,462
21,200 Agouron Pharmaceuticals, Inc.*........................... 622,750
22,000 Alliance Pharmaceutical Corporation*..................... 159,500
20,100 Ballard Medical Products................................. 487,425
19,800 Beckman Instruments, Inc................................. 792,000
35,250 Bergen Brunswig Corporation.............................. 1,484,906
15,423 Block Drug Company....................................... 667,066
18,900 Cephalon, Inc.*.......................................... 214,988
23,500 Coventry Corporation*.................................... 358,375
9,500 Diagnostic Products Corporation.......................... 263,625
23,600 FPA Medical Management, Inc.*............................ 439,550
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 43
<PAGE>
===============================================================================
AAL VARIABLE ANNUITY
Small Company Stock Portfolio--continued
Schedule of Investments as of December 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (98.6%) Market Value
==============================================================================
<S> <C> <C>
Drugs & Medicine (8.1 %)--Continued
...................................
20,800 Gilead Sciences Inc.*.................................. $795,600
18,500 Haemonetics Corporation*............................... 259,000
7,100 Herbalife International, Inc........................... 149,100
30,900 ICN Pharmaceuticals, Inc............................... 1,508,306
20,000 Lincare Holdings Inc.*................................. 1,140,000
26,200 Liposome Company, Inc.*................................ 121,175
38,200 Mid Atlantic Medical Services*......................... 487,050
53,300 Perrigo Company*....................................... 712,888
23,140 Vivus, Inc.*........................................... 245,862
11,500 West, Inc.............................................. 342,125
-------------------------------------------------------------
Total Drugs & Medicine 12,369,659
=============================================================
Electronics (5.3 %)
...................
34,100 APAC Teleservices, Inc.*............................... 460,350
16,900 Avid Technology, Inc.*................................. 452,075
47,100 Cirrus Logic, Inc.*.................................... 500,437
27,700 DSP Communications Inc.*............................... 332,400
28,200 ESS Technology, Inc.*.................................. 214,142
49,200 Geotek Industries, Inc.*............................... 75,335
16,300 Gerber Scientific, Inc................................. 323,963
42,300 Glenayre Technologies, Inc.*........................... 417,713
13,700 Hutchinson Technology, Inc.*........................... 299,688
27,300 Kemet Corporation*..................................... 528,938
24,900 Lam Research Corporation*.............................. 728,325
26,600 Macromedia, Inc.*...................................... 221,113
60,900 Rational Software Corporation*......................... 692,738
29,800 Sequent Computer Systems, Inc.*........................ 596,000
21,600 Silicon Valley Group, Inc.*............................ 488,700
27,600 Symbol Technologies, Inc............................... 1,041,900
32,800 VLSI Technology, Inc.*................................. 774,900
-------------------------------------------------------------
Total Electronics 8,148,717
=============================================================
Energy & Utilities (5.7 %)
..........................
12,200 Central Hudson Gas & Electric Company.................. 535,275
9,600 Cilcorp, Inc........................................... 469,200
14,200 Eastern Utilities Associates........................... 372,750
20,300 MDU Resources Group, Inc............................... 641,988
90,900 Northeast Utilities.................................... 1,073,755
21,800 ONEOK, Inc............................................. 880,175
9,500 Orange & Rockland Utilities, Inc....................... 442,344
29,200 Public Service Company of New Mexico................... 691,675
44,200 Seagull Energy Corporation*............................ 911,625
21,600 Sierra Pacific Resources............................... 810,000
16,500 SIGCORP, Inc........................................... 484,688
19,000 Southwest Gas Corporation.............................. 355,062
22,420 Tucson Electric Power Company*......................... 406,363
23,000 UGI Corporation........................................ 674,188
-------------------------------------------------------------
Total Energy & Utilities 8,749,088
=============================================================
Energy-Raw Materials (1.6 %)
............................
82,500 Harken Energy Corporation*............................. 577,500
14,300 Lomak Petroleum, Inc................................... 232,375
5,700 Maxxam, Inc.*.......................................... 248,662
17,300 Southwestern Energy Company............................ 222,738
11,460 Swift Energy Company*.................................. 241,376
44,800 Varco International, Inc.*............................. 960,400
-------------------------------------------------------------
Total Energy-Raw Materials 2,483,051
=============================================================
Food & Agriculture (2.3 %)
..........................
41,500 Chiquita Brands International, Inc..................... 676,968
18,900 Dreyers Grand Ice Cream, Inc........................... 455,963
26,400 Fleming Companies, Inc................................. 354,750
61,875 Flowers Industries, Inc................................ 1,272,305
12,900 International Multifoods Corporation................... 365,230
23,100 Ralcorp Holding, Inc.*................................. 391,256
-------------------------------------------------------------
Total Food & Agriculture 3,516,472
=============================================================
Gold (0.0 %)
............
28,800 Pegasus Gold, Inc.*.................................... 18,000
-------------------------------------------------------------
Total Gold 18,000
=============================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
44 AAL Variable Annuity Annual Report
<PAGE>
AAL VARIABLE ANNUITY
Small Company Stock Portfolio -- continued
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (98.6%) Market Value
==============================================================================
<S> <C> <C>
Insurance (5.4%)
- ----------------
36,100 20th Century Industries ......................... $ 938,600
29,100 American Bankers Insurance Group, Inc. .......... 1,336,780
6,300 Foremost Corporation of America ................. 439,425
17,700 John Alden Financial Corporation ................ 424,800
14,400 Liberty Corporation ............................. 673,200
9,100 Life Re Corporation ............................. 593,206
12,900 NAC Re Corporation .............................. 629,681
80,200 Reliance Group Holdings, Inc. ................... 1,132,825
20,000 United Companies Financial Corporation .......... 310,000
48,800 Western National Corporation .................... 1,445,700
12,400 Zenith National Insurance Corporation ........... 319,300
------------------------------------------------------------
Total Insurance ............................. 8,243,517
============================================================
Media (3.6%)
- ------------
20,900 Banta Corporation ............................... 564,300
22,140 Chris Craft Industries, Inc.* ................... 1,158,199
18,800 Golden Books Family Entertainment, Inc.* ........ 193,875
21,100 Houghton Mifflin Company ........................ 809,712
12,400 Oak Industries, Inc.* ........................... 368,125
15,566 Pulitzer Publishing Company ..................... 977,739
25,200 Regal Cinemas, Inc.* ............................ 702,450
17,350 TCA Cable TV, Inc. .............................. 798,100
------------------------------------------------------------
Total Media ................................. 5,572,500
============================================================
Miscellaneous Finance (4.7%)
- ----------------------------
30,800 Advanta Corporation, Class A .................... 808,500
20,700 Americredit Corporation* ........................ 573,130
25,500 Amresco, Inc.* .................................. 771,375
26,600 Arcadia Financial Ltd.* ......................... 197,838
13,100 Coast Savings Financial* ........................ 898,169
35,300 Golden State Bancorp Inc.* ...................... 1,319,338
9,700 Great Financial Corporation ..................... 494,700
120,500 Mercury Finance Company* ........................ 75,313
30,500 Roslyn Bancorp, Inc. ............................ 709,125
62,500 Sovereign Bancorp, Inc. ......................... 1,296,875
------------------------------------------------------------
Total Miscellaneous Finance ................. 7,144,363
============================================================
Motor Vehicles (2.2%)
- ---------------------
17,100 Arvin Industries, Inc. .......................... 569,644
17,500 Donaldson Company, Inc. ......................... 788,593
28,100 Federal Mogul Corporation ....................... 1,138,050
11,700 Standard Products Corporation ................... 299,813
19,600 Superior Industries International, Inc. ......... 525,525
------------------------------------------------------------
Total Motor Vehicles ........................ 3,321,625
============================================================
Non-Durables & Entertainment (2.3%)
- -----------------------------------
11,500 Gibson Greetings, Inc.* ......................... 251,563
28,700 Lone Star Steakhouse & Saloon, Inc.* ............ 502,250
16,200 Luby's Cafeterias, Inc. ......................... 284,512
20,300 Papa John's International, Inc.* ................ 707,963
12,250 Ruby Tuesday, Inc. .............................. 315,438
15,400 Russ Berrie & Company ........................... 404,250
14,300 Sbarro, Inc. .................................... 376,269
39,200 Sothebys Holdings, Inc. ......................... 725,200
------------------------------------------------------------
Total Non-Durables & Entertainment .......... 3,567,445
============================================================
Non-Ferrous Metals (0.6%)
- -------------------------
11,400 Brush Wellman, Inc. ............................. 279,300
15,300 Coeur D Alene Mines Corporation* ................ 137,700
97,500 Echo Bay Mines, Ltd.* ........................... 237,656
38,500 Helca Mining Company* ........................... 190,094
------------------------------------------------------------
Total Non-Ferrous Metals .................... 844,750
============================================================
Oil - Domestic (2.8%)
- ---------------------
21,900 Barrett Resources Corporation* .................. 662,475
20,600 Benton Oil & Gas Company* ....................... 266,513
17,800 Forcenergy, Inc.* ............................... 466,138
36,000 Marine Drilling Company, Inc.* .................. 747,000
</TABLE>
Small Company Stock Portfolio
The accompanying notes to the financial statements are an integral part
of this schedule.
- ------------------------------------------------------------------------------
AAL Variable Annuity Annual Report 45
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
Small Company Stock Portfolio -- continued
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (98.6%) Market Value
================================================================================
<S> <C> <C>
Oil - Domestic (2.8%)--Continued
- --------------------------------
23,400 Pogo Producing Corporation............................... $ 690,300
33,000 Pride International, Inc.*............................... 833,250
24,600 Quaker State Corporation................................. 350,550
18,700 Tesoro Petroleum Corporation*............................ 289,850
--------------------------------------------------------------------
Total Oil - Domestic 4,306,076
====================================================================
Optical & Photo (0.8%)
- ----------------------
37,800 Dentsply International, Inc. ............................ 1,152,900
--------------------------------------------------------------------
Total Optical & Photo 1,152,900
====================================================================
Paper & Forest Products (1.5%)
- ------------------------------
16,400 Chesapeake Corporation................................... 563,750
26,600 Pentair Industries, Inc. ................................ 955,938
40,450 Wausau Paper Mills Corporation........................... 814,055
--------------------------------------------------------------------
Total Paper & Forest Products 2,333,743
====================================================================
Producers Goods (5.2%)
- ----------------------
21,600 Albany International Corporation, Class A................ 496,800
25,100 Baldor Electric Company.................................. 544,356
27,900 Cincinnati Milacron, Inc. ............................... 723,656
11,300 Clarcor, Inc. ........................................... 334,763
21,500 HON INDUSTRIES, Inc. .................................... 1,268,500
18,400 Kennametal, Inc. ........................................ 953,350
16,400 Lattice Semiconductor Corporation*....................... 776,950
5,769 NACCO Industries, Inc. .................................. 618,365
25,900 Teleflex, Inc. .......................................... 977,725
24,700 Vitesse Semiconductor Corporation*....................... 932,425
8,700 Zurn Industries, Inc. ................................... 273,506
--------------------------------------------------------------------
Total Producers Goods 7,900,396
====================================================================
Railroad & Shipping (0.5%)
- --------------------------
30,000 OMI Corporation*......................................... 275,625
25,700 Overseas Shipholding Group, Inc. ........................ 560,581
--------------------------------------------------------------------
Total Railroad & Shipping 836,206
====================================================================
Real Property (1.0%)
- --------------------
74,500 Catellus Development Corporation*........................ 1,490,000
--------------------------------------------------------------------
Total Real Property 1,490,000
====================================================================
Retail Stores (4.9%)
- --------------------
30,600 Best Buy Company, Inc.*.................................. 1,128,375
74,100 Charming Shoppes, Inc.*.................................. 347,344
20,300 Eagle Hardware & Garden, Inc.*........................... 393,313
22,500 Lands End, Inc.*......................................... 788,906
17,500 MacFrugals Bargains Close-Outs, Inc.*.................... 719,688
61,500 Meyer (Fred), Inc.*...................................... 2,237,062
34,600 Ross Stores, Inc. ....................................... 1,258,575
12,100 Stanhome, Inc. .......................................... 310,819
38,200 Sunglass Hut International, Inc.*........................ 241,138
--------------------------------------------------------------------
Total Retail Stores 7,425,220
====================================================================
Steel (1.1%)
- ------------
37,400 AK Steel Holding Corporation............................. 661,513
20,700 Birmingham Steel Corporation............................. 326,025
13,700 Carpenter Technology Corporation......................... 658,456
--------------------------------------------------------------------
Total Steel 1,645,994
====================================================================
Telephone (2.9%)
- ----------------
11,800 ACC Corp.*............................................... 595,900
34,800 Aspect Telecommunications Corporation*................... 726,450
35,100 Brightpoint, Inc.*....................................... 487,012
38,100 Mobile Telecommunication Technologies Corporation*....... 838,200
22,433 NTL Incorporated*........................................ 625,320
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
46 AAL Variable Annuity Annual Report
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
Small Company Stock Portfolio--continued
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Shares Common Stocks (98.6%) Market Value
================================================================================
<S> <C> <C>
Telephone (2.9%)--Continued
- ---------------------------
71,800 Paging Network, Inc.*.................................... $ 771,850
28,100 Vanguard Cellular Systems, Inc.*......................... 358,275
--------------------------------------------------------------------
Total Telephone 4,403,007
====================================================================
Tires & Rubber (0.6%)
- ---------------------
21,100 Carlisle Corporation..................................... 902,025
--------------------------------------------------------------------
Total Tires & Rubber 902,025
====================================================================
Travel & Recreation (1.3%)
- --------------------------
31,600 Aztar Corporation*....................................... 197,500
66,700 Extended Stay America, Inc.*............................. 829,581
29,300 Grand Casinos, Inc.*..................................... 399,213
11,200 Showboat, Inc. .......................................... 329,000
24,700 Station Casinos, Inc.*................................... 251,631
--------------------------------------------------------------------
Total Travel & Recreation 2,006,925
====================================================================
Trucking & Freight (1.2%)
- -------------------------
18,100 Arnold Industries, Inc. ................................. 312,225
25,400 J.B. Hunt Transport Services, Inc. ...................... 476,250
28,700 Rollins Truck Leasing Corporation........................ 513,013
19,900 Yellow Corporation*...................................... 499,988
--------------------------------------------------------------------
Total Trucking & Freight 1,801,476
====================================================================
--------------------------------------------------------------------
Total Common Stocks
(cost basis $130,958,854) 150,752,235
====================================================================
</TABLE>
<TABLE>
<CAPTION>
Principal Short-Term Interest Maturity Market
Amount Investments (0.9%) Rate Date Value
================================================================================
<S> <C> <C> <C> <C>
$974,000 Merrill Lynch & Company, Inc. ............ 6.050% 1/07/98 $973,018
394,000 CountryWide Homes, Inc. ................... 5.860 1/05/98 393,724
--------------------------------------------------------------------
Total Short-Term Investments
(amortized cost basis $1,366,742) 1,366,742
====================================================================
--------------------------------------------------------------------
Total Investments (99.5%)
(amortized cost basis $132,325,596) 152,118,977
====================================================================
--------------------------------------------------------------------
Other Assets, Less Liabilities (0.5%) 808,675
====================================================================
--------------------------------------------------------------------
NET ASSETS (100.0%) $152,927,652
====================================================================
</TABLE>
*Non-income Producing Security
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 47
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
[AAL VARIABLE ANNUITY LOGO]
AAL Variable Product Series Fund, Inc.
Statement of Assets and Liabilities
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
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: $24,810,659,
$26,232,181, $266,762,583, $253,512,483,
and $132,325,596, respectively).......... $24,810,659 $26,697,020 $306,993,426 $320,391,618 $152,118,977
Cash....................................... 230 690 328 487 737
Dividends and interest receivable.......... -- 334,288 1,667,585 425,879 100,965
Receivables for investments sold........... -- -- 11,018 20,658 699,194
Receivable for fund shares sold............ 1,042,819 31,104 535,456 459,845 250,886
- -------------------------------------------------------------------------------------------------------------------
Total Assets $25,853,708 $27,063,102 $309,207,813 $321,298,487 $153,170,759
===================================================================================================================
Liabilities
- -----------
Payable for investments purchased.......... $ -- $ 310,276 $ 2,221,808 $ 2,298,613 $ --
Income distributions payable............... 3,803 -- -- -- --
Payable for fund shares reacquired......... 381,628 34,410 387,627 424,301 193,694
Investment advisory fee payable............ 7,984 8,756 97,038 100,383 49,413
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities 393,415 353,442 2,706,473 2,823,297 243,107
===================================================================================================================
Net Assets
- ----------
Capital stock - par value ($0.001/share)... 25,460 2,633 21,814 17,634 10,275
Capital stock - additional paid-in capital. 25,434,833 26,283,902 266,219,839 251,455,364 132,619,410
Undistributed net investment income........ -- 1,483 3,919 14,012 10,336
Undistributed net realized gain (loss)..... -- (43,197) 24,925 109,045 494,250
Net unrealized appreciation (depreciation)
on investments........................... -- 464,839 40,230,843 66,879,135 19,793,381
- -------------------------------------------------------------------------------------------------------------------
Total Net Assets 25,460,293 26,709,660 306,501,340 318,475,190 152,927,652
===================================================================================================================
Total Liabilities and Net Assets $25,853,708 $27,063,102 $309,207,813 $321,298,487 $153,170,759
===================================================================================================================
Capital shares outstanding
(2 billion shares authorized).............. 25,460,293 2,632,415 21,814,321 17,633,787 10,274,711
Net asset value per share.................. $1.00 $10.15 $14.05 $18.06 $14.88
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
48 AAL Variable Annuity Annual Report
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
[AAL VARIABLE ANNUITY LOGO]
AAL Variable Product Series Fund, Inc.
Statement of Operations
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Large Small
Money Company Company
Market Bond Balanced Stock Stock
Portfolio Portfolio Portfolio Portfolio Portfolio
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Investment Income
- -----------------
Dividends................................... $ -- $ -- $ 2,016,332 $ 3,780,090 $ 1,169,606
Interest.................................... 1,197,321 1,454,053 6,218,629 190,612 98,501
- ---------------------------------------------------------------------------------------------------------------
Total Investment Income 1,197,321 1,454,053 8,234,961 3,970,702 1,268,107
===============================================================================================================
Expenses
- --------
Adviser fees................................ 74,988 73,743 721,800 754,142 383,123
Professional fees........................... 8,804 12,800 15,270 14,764 13,740
Custody fees................................ 5,827 5,402 55,214 74,622 48,077
Registration fees........................... 70 70 70 70 70
Printing and postage expense................ 6,770 6,658 65,514 68,641 34,585
Pricing of investments...................... 686 8,805 26,021 8,048 4,024
Director fees............................... 968 952 9,363 9,809 4,943
Director and officer insurance fees......... 728 716 7,045 7,382 3,719
Fidelity bond insurance fees................ 223 219 2,158 2,261 1,139
- ---------------------------------------------------------------------------------------------------------------
Total Expenses Before Reimbursement 99,064 109,365 902,455 939,739 493,420
===============================================================================================================
Less expenses reimbursed by Adviser (Note 3) (24,076) (35,622) (180,655) (185,597) (110,297)
- ---------------------------------------------------------------------------------------------------------------
Net Expenses 74,988 73,743 721,800 754,142 383,123
===============================================================================================================
===============================================================================================================
Net Investment Income 1,122,333 1,380,310 7,513,161 3,216,560 884,984
===============================================================================================================
Realized and Unrealized Gains (Losses) on
Investments
- -----------------------------------------
Net realized gains (losses) on investments.. -- (29,923) 137,837 434,187 7,349,423
Change in net unrealized appreciation/
depreciation on investments............... -- 603,559 30,989,614 52,537,005 14,034,350
- ---------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains
(Losses) on Investments -- 573,636 31,127,451 52,971,192 21,383,773
===============================================================================================================
Net Increase in Net Assets Resulting
from Operations $1,122,333 $1,953,946 $38,640,612 $56,187,752 $22,268,757
===============================================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 49
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
[AAL VARIABLE
ANNUITY LOGO AAL Variable Product Series Fund, Inc.
APPEARS HERE] Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Money Market Portfolio Bond Portfolio
----------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/96 12/31/97 12/31/96 12/31/97
====================================================================================================
<S> <C> <C> <C> <C>
Operations
- ----------
Net investment income $ 632,562 $ 1,122,333 $ 894,882 $ 1,380,310
Net realized gains (losses) on
investments -- -- (11,087) (29,923)
Change in net unrealized
appreciation/depreciation on
investments -- -- (329,337) 603,559
- ----------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 632,562 1,122,333 554,458 1,953,946
- ----------------------------------------------------------------------------------------------------
Distributions to Shareholders
- -----------------------------
From net investment income (632,562) (1,122,333) (895,834) (1,379,645)
From net realized gains -- -- -- --
- ----------------------------------------------------------------------------------------------------
Total Distributions to Shareholders (632,562) (1,122,333) (895,834) (1,379,645)
- ----------------------------------------------------------------------------------------------------
Fund Share Transactions
- -----------------------
Net proceeds from shares sold 90,853,453 159,245,610 9,674,088 10,281,056
Reinvested distributions 531,130 1,100,286 582,334 1,058,145
Cost of shares redeemed (81,304,192) (152,010,636) (1,611,509) (2,870,211)
- ----------------------------------------------------------------------------------------------------
Net Increase in Net Assets from
Fund Share Transactions 10,080,391 8,335,260 8,644,913 8,468,990
- ----------------------------------------------------------------------------------------------------
Total Increase in Net Assets 10,080,391 8,335,260 8,303,537 9,043,291
- ----------------------------------------------------------------------------------------------------
Net Assets Beginning of Year 7,044,642 17,125,033 9,362,832 17,666,369
- ----------------------------------------------------------------------------------------------------
Net Assets End of Year $ 17,125,033 $ 25,460,293 $17,666,369 $26,709,660
- ----------------------------------------------------------------------------------------------------
Undistributed Net Investment Income $ -- $ -- $ 818 $ 1,483
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
50 AAL Variable Annuity Annual Report
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
<TABLE>
<CAPTION>
Large Company Small Company
Balanced Portfolio Stock Portfolio Stock Portfolio
---------------------------- ---------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/96 12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Operations
- ----------
Net investment income $ 2,866,168 $ 7,513,161 $ 1,250,151 $ 3,216,560 $ 455,081 $ 884,984
Net realized gains (losses) on
investments 68,259 137,837 134,531 434,187 1,776,380 7,349,423
Change in net unrealized
appreciation/depreciation on
investments 7,588,007 30,989,614 12,453,248 52,537,005 5,052,970 14,034,350
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 10,522,434 38,640,612 13,837,930 56,187,752 7,284,431 22,268,757
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
- -----------------------------
From net investment income (2,864,993) (7,513,493) (1,244,640) (3,209,032) (451,567) (878,381)
From net realized gains (80,741) (101,264) (133,477) (327,630) (1,709,031) (6,934,221)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions to Shareholders (2,945,734) (7,614,757) (1,378,117) (3,536,662) (2,160,598) (7,812,602)
- -----------------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions
- -----------------------
Net proceeds from shares sold 91,170,554 167,791,417 85,666,241 160,771,504 48,998,038 71,181,154
Reinvested distributions 2,419,867 7,505,192 1,194,738 3,512,734 1,941,548 7,800,139
Cost of shares redeemed (3,408,174) (26,338,793) (2,370,480) (18,548,828) (1,519,893) (10,719,186)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets from
Fund Share Transactions 90,182,247 148,957,816 84,490,499 145,735,410 49,419,693 68,262,107
- -----------------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 97,758,947 179,983,671 96,950,312 198,386,500 54,543,526 82,718,262
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets Beginning of Year 28,758,722 126,517,669 23,138,378 120,088,690 15,665,864 70,209,390
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets End of Year $126,517,669 $306,501,340 $120,088,690 $318,475,190 $70,209,390 $152,927,652
- -----------------------------------------------------------------------------------------------------------------------------------
Undistributed Net Investment Income $ 4,251 $ 3,919 $ 6,484 $ 14,012 $ 3,733 $ 10,336
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 51
<PAGE>
- --------------------------------------------------------------------------------
AAL VARIABLE ANNUITY
AAL Variable Product Series Fund, Inc.
Notes to Financial Statements
AS OF DECEMBER 31, 1997
[logo]
A: Organization
The AAL Variable Product Series Fund, Inc. (the "Fund") is a corporation
organized under the laws of the State of Maryland and registered under the
Investment Company Act of 1940, as amended, as an open-end diversified
management investment company. The Fund is a "series" fund consisting of five
separate investment portfolios (known as the Money Market, Bond, Balanced, Large
Company Stock and Small Company Stock Portfolios, collectively the "Portfolios".
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
the flexible premium deferred variable annuity issued by Aid Association for
Lutherans ("AAL").
B: Significant Accounting Policies
VALUATION OF INVESTMENTS Securities traded on national securities exchanges and
NASDAQ are valued at the last reported sales price. Fixed income securities not
traded on a principal securities exchange are valued at latest bid quotation, if
such quotations are readily available. The Money Market Portfolio, and other
Portfolios which hold money market instruments with a remaining maturity of 60
days or less, value securities at amortized cost, which approximates market
value. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by the Investment Adviser under
the supervision of the Board of Directors.
FEDERAL INCOME TAXES No provision for federal income taxes has been made since
the Fund has elected to be taxed as a regulated investment company under the
Internal Revenue Code and intends to distribute to shareholders as dividends,
substantially all the net investment income and net realized capital gains, if
any, of the Fund. As of December 31, 1997, the Bond Portfolio has capital loss
carryforwards of $2,187 expiring in 2003, $7,782 expiring in 2004 and $29,922
expiring in 2005. It is management's intention to make no distribution of any
future realized capital gains until the Federal income tax capital loss
carryforwards are exhausted.
DISTRIBUTIONS TO SHAREHOLDERS All of the Portfolios intend to distribute all
their net investment income and net realized capital gains, if any, as
dividends. The Bond, Balanced, Large and Small Company Stock Portfolios expect
to pay any net investment income dividends monthly and net realized capital
gains, if any, annually. The Money Market Portfolio declares a daily dividend
equal to its net investment income for that day, payable monthly. Dividends to
shareholders are recorded on the ex-dividend date.
OTHER Investment transactions are accounted for on the trade date. Dividend
income is recognized on the ex-dividend date, and interest income is recognized
on the accrual basis and includes amortization of premiums and discounts.
Realized gains and losses from investment transactions are determined on a
specific cost identification basis.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
C: Investment Advisory Fees and Transactions With Related Parties
The Fund has entered into an Investment Advisory Agreement with AAL relating to
the management of the portfolios and the investment of their assets. Pursuant to
this agreement, the Fund pays AAL 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, AAL has agreed to either pay on behalf of the Fund or reimburse the
Fund for substantially all of its operating expenses, other than the
aforementioned investment advisory fees, brokerage commissions, and certain
extraordinary items such as litigation expenses or income tax liabilities. AAL
may withdraw this reimbursement agreement on 30 days' written notice to the
Fund.
The Investment Advisory Agreement anticipates that AAL will provide certain
administrative and accounting services to the Fund, or that AAL will arrange for
such services to be provided by a third party. AAL has entered into an
Administrative Services Agreement with AAL Capital Management Corporation
("CMC"), an affiliate of AAL, pursuant to which CMC agrees to provide these
administrative and accounting services on behalf of the Fund. Fees which CMC is
entitled to receive for providing such services under the terms of the
Administrative Services Agreement are paid by AAL out of the advisory fees it
receives from the Fund, and therefore do not result in any additional expense to
the Fund.
Certain officers and directors of the Fund are also officers of AAL and CMC. For
the year ended December 31, 1997, directors of the Fund not affiliated with AAL
or CMC received directors fees in the amount of $23,000. No remuneration has
been paid by the Fund to any of the officers or directors of the Fund affiliated
with AAL or CMC. At December 31, 1997, all of the shares of each Portfolio are
owned by AAL and the Variable Account.
AAL Variable Annuity Annual Report
52
<PAGE>
- --------------------------------------------------------------------------------
AAL VARIABLE ANNUITY
Notes to Financial Statements--continued
As of December 31, 1997
D: Line of Credit
The Fund has an available line of credit of $5,000,000 and a standby line of
credit of $15,000,000. However, each Portfolio's borrowings, by investment
restriction, cannot exceed 10% of the total net assets, and must be only from a
bank as a temporary measure for extraordinary or emergency purposes. The Fund
pays a facility fee related to the line of credit equal to five basis points per
annum on the average amount of the available line of credit, such fee to be paid
quarterly in arrears on the last day of each and every March, June, September
and December. Borrowings under this agreement bear interest prior to maturity
either at a floating rate per annum which approximates the then current prime
commercial rate with changes in the interest rate by virtue of a change in such
prime commercial rate, or at the Fund's request, if the bank so agrees, at a
short-term fixed rate of interest. Interest expense incurred in connection with
such borrowings was not material during the year.
E: Capital Share Transactions
Transactions in Fund shares for the years ended December 31, 1996, and 1997,
were as follows:
<TABLE>
<CAPTION>
Money Market Portfolio Bond Portfolio Balanced Portfolio
------------------------- ----------------------- -----------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/96 12/31/97 12/31/96 12/31/97 12/31/96 12/31/97
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............... 90,853,453 159,245,610 973,525 1,030,031 8,037,428 12,757,483
Reinvested distributions.. 531,130 1,100,286 59,044 106,366 210,391 563,775
Shares redeemed........... (81,304,192) (152,010,636) (162,989) (288,321) (297,655) (2,089,461)
- -------------------------------------------------------------------------------------------------------------
Net Increase.............. 10,080,391 8,335,260 869,580 848,076 7,950,164 11,231,797
- -------------------------------------------------------------------------------------------------------------
Large Company Stock Small Company Stock
Portfolio Portfolio
------------------------- -----------------------
Year Ended Year Ended Year Ended Year Ended
12/31/96 12/31/97 12/31/96 12/31/97
- ---------------------------------------------------------------------------------
Shares sold............... 6,764,808 9,946,832 4,146,639 4,949,038
Reinvested distributions.. 91,308 209,770 156,387 529,743
Shares redeemed........... (184,960) (1,203,965) (128,125) (804,537)
- ---------------------------------------------------------------------------------
Net Increase.............. 6,671,156 8,952,637 4,174,901 4,674,244
- ---------------------------------------------------------------------------------
</TABLE>
AAL Variable Annuity Annual Report
53
<PAGE>
- -------------------------------------------------------------------------------
AAL VARIABLE ANNUITY
Notes to Financial Statements--continued
AS OF DECEMBER 31, 1997
F: INVESTMENT TRANSACTIONS
For the year ended December 31, 1997, the cost of investment securities
purchased and the proceeds from investment securities sold (not including short-
term investments) were as follows:
<TABLE>
<CAPTION>
Portfolio Purchases Sales
- --------------------------------------------------------------------------------
<S> <C> <C>
Bond Portfolio.................. $ 12,151,457 $ 3,801,487
Balanced Portfolio.............. 141,692,939 12,076,345
Large Company Stock Portfolio... 148,457,990 2,121,456
Small Company Stock Portfolio... 91,833,289 31,957,208
</TABLE>
For the year ended December 31, 1997, the Bond Portfolio purchased $5,503,888
and sold $2,260,284 in U.S. government obligations.
For the year ended December 31,1997, the Balanced Portfolio purchased
$31,986,724 and sold $7,305,333 in U.S. government obligations.
The gross unrealized appreciation and depreciation on investments at December
31, 1997, were as follows:
<TABLE>
<CAPTION>
Net Unrealized
Portfolio Appreciation (Depreciation) Appreciation
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond Portfolio $ 525,574 $ (60,735) $ 464,839
Balanced Portfolio 42,238,912 (2,008,069) 40,230,843
Large Company Stock Portfolio 70,713,930 (3,834,795) 66,879,135
Small Company Stock Portfolio 29,931,334 (10,137,953) 19,793,381
</TABLE>
As of December 31, 1997, the cost of investment for federal income tax
purposes was the same as book except for the Balanced, Large Company Stock and
Small Company Stock Portfolios which are $266,765,467, $253,520,446 and
$132,354,064, respectively. Any differences between book and federal income tax
basis are due to wash sale losses.
<PAGE>
This Page Intentionally Left Blank
AAL Variable Annuity Annual Report
55
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
[AAL VARIABLE ANNUITY LOGO]
AAL Variable Product Series Fund, Inc.
Financial Highlights
The following table presents per share information for each Portfolio of the AAL
Variable Product Series Fund, Inc. for the period presented and should be read
in conjunction with the financial statements and the related notes.
<TABLE>
<CAPTION>
Money Market
Portfolio Bond Portfolio
------------------------------------ ------------------------------------
Period Ended Year Ended Year Ended Period Ended Year Ended Year Ended
12/31/95(1) 12/31/96 12/31/97 12/31/95(1) 12/31/96 12/31/97
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net asset value: beginning of period...... $1.00 $1.00 $1.00 $10.00 $10.23 $9.90
Income from Investment Operations:
- ----------------------------------
Net investment income..................... 0.03 0.05 0.05 0.34 0.63 0.64
Net realized and unrealized gains (losses)
on investments......................... 0.00 0.00 0.00 0.23 (0.33) 0.25
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.03 0.05 0.05 0.57 0.30 0.89
========================================================================================================================
Less Distributions:
- -------------------
From investment income.................... (0.03) (0.05) (0.05) (0.34) (0.63) (0.64)
From realized gains....................... 0.00 0.00 0.00 0.00 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.03) (0.05) (0.05) (0.34) (0.63) (0.64)
========================================================================================================================
Net increase (decrease) in net asset value 0.00 0.00 0.00 0.23 (0.33) 0.25
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value:
End of Period $1.00 $1.00 $1.00 $10.23 $9.90 $10.15
========================================================================================================================
Total return (a).......................... 3.02% 5.23% 5.33% 5.80% 3.10% 9.37%
Net assets, end of period (in thousands).. $7,045 $17,125 $25,460 $9,363 $17,666 $26,710
Ratios and Supplemental Data:
- -----------------------------
Ratio of expenses to average
net assets (b)......................... 0.35% 0.35% 0.35% 0.35% 0.35% 0.35%
Ratio of net investment income to
average net assets (b) (c)............. 5.71% 5.10% 5.24% 6.54% 6.51% 6.55%
Portfolio turnover rate................... N/A N/A N/A 6.51% 11.65% 18.41%
Average commission rate paid (d).......... N/A N/A N/A N/A N/A N/A
========================================================================================================================
(1) From commencement of operations on June 14, 1995.
(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 periods shown.
(b) Calculated on an annualized basis.
(c) Without reimbursements the above ratios, on an annualized basis, would have been:
Ratio of expenses to average net assets... 1.40% 0.65% 0.46% 1.25% 0.68% 0.52%
Ratio of net investment income to average
net assets.............................. 4.66% 4.80% 5.13% 5.64% 6.18% 6.38%
(d) Amount shown reflects the average brokerage commission paid on each share of stock traded by the Portfolio during
the period presented.
</TABLE>
56 AAL Variable Annuity Annual Report
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
<TABLE>
<CAPTION>
Large Company Small Company
Balanced Portfolio Stock Portfolio Stock Portfolio
- -------------------------------------- -------------------------------------- --------------------------------------
Period Ended Year Ended Year Ended Period Ended Year Ended Year Ended Period Ended Year Ended Year Ended
12/31/95(1) 12/31/96 12/31/97 12/31/95(1) 12/31/96 12/31/97 12/31/95(1) 12/31/96 12/31/97
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$10.00 $10.92 $11.96 $10.00 $11.51 $13.83 $10.00 $10.99 $12.54
0.22 0.41 0.46 0.11 0.23 0.23 0.08 0.12 0.11
0.92 1.05 2.09 1.52 2.34 4.25 0.99 1.86 3.05
- --------------------------------------------------------------------------------------------------------------------------------
1.14 1.46 2.55 1.63 2.57 4.48 1.07 1.98 3.16
================================================================================================================================
(0.21) (0.41) (0.46) (0.11) (0.23) (0.23) (0.07) (0.12) (0.11)
(0.01) (0.01) 0.00 (0.01) (0.02) (0.02) (0.01) (0.31) (0.71)
- --------------------------------------------------------------------------------------------------------------------------------
(0.22) (0.42) (0.46) (0.12) (0.25) (0.25) (0.08) (0.43) (0.82)
================================================================================================================================
0.92 1.04 2.09 1.51 2.32 4.23 0.99 1.55 2.34
- --------------------------------------------------------------------------------------------------------------------------------
$10.92 $11.96 $14.05 $11.51 $13.83 $18.06 $10.99 $12.54 $14.88
================================================================================================================================
11.46% 13.65% 21.71% 16.39% 22.47% 32.59% 10.70% 18.19% 25.37%
$28,759 $126,518 $306,501 $23,138 $120,089 $318,475 $15,666 $70,209 $152,928
0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35%
4.07% 3.89% 3.62% 2.27% 1.97% 1.48% 1.43% 1.14% 0.81%
2.29% 5.43% 6.86% 0.47% 1.77% 1.00% 2.85% 20.14% 29.65%
$0.0400 $0.0400 $0.0400 $0.0400 $0.0400 $0.0400 $0.0400 $0.0400 $0.0400
================================================================================================================================
1.15% 0.60% 0.43% 1.26% 0.63% 0.43% 1.37% 0.75% 0.45%
3.27% 3.65% 3.53% 1.37% 1.69% 1.39% 0.41% 0.74% 0.71%
</TABLE>
AAL Variable Annuity Annual Report 57
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
[AAL VARIABLE ANNUITY LOGO]
AAL Variable Product Series Fund, Inc.
Report of Independent Auditors
The Board of Directors and Shareholders
AAL Variable Product Series Fund, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedule of investments, of AAL Variable Product Series Fund, Inc.
(comprised of the Money Market Portfolio, Bond Portfolio, Balanced Portfolio,
Large Company Stock Portfolio and Small Company Stock Portfolio), as of December
31, 1997, and the related statements of operations, statements of changes in net
assets and financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits 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 and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian.
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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AAL
Variable Product Series Fund, Inc. as of December 31, 1997, and the results of
its operations, changes in net assets and financial highlights for each of the
periods indicated therein, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
January 30, 1998
58 AAL Variable Annuity Annual Report
<PAGE>
===============================================================================
AAL VARIABLE ANNUITY
[AAL VARIABLE ANNUITY LOGO]
AAL Variable Annuity Account I
Statement of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
Assets
- ------
<S> <C>
Investments in AAL Variable Product Series Fund, Inc.:
Money Market Subaccount:
- ------------------------
Money Market Portfolio, 25,460,293 shares at net asset value of
$1.00 per share (cost $25,460,293)............................................................. $ 25,464,096
Bond Subaccount:
- ----------------
Bond Portfolio, 2,132,415 shares at net asset value of $10.15 per
share (cost $21,275,289)....................................................................... 21,636,485
Balanced Subaccount:
- --------------------
Balanced Portfolio, 21,814,321 shares at net asset value of $14.05
per share (cost $269,013)...................................................................... 306,498,548
Large Company Stock Subaccount:
- -------------------------------
Large Company Stock Portfolio, 17,633,787 shares at net asset
value of $18.06 per share (cost $255,002,372).................................................. 318,474,657
Small Company Stock Subaccount:
- -------------------------------
Small Company Stock Portfolio, 10,274,711 shares at net asset
value of $14.88 per share (cost $133,952,023).................................................. 152,921,460
- ----------------------------------------------------------------------------------------------------------------------
Total Investments 824,995,246
- ----------------------------------------------------------------------------------------------------------------------
Liabilities --
- ----------------------------------------------------------------------------------------------------------------------
Net Assets 824,995,246
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Unit Extended
Units Value Value
=============================================
<S> <C> <C> <C>
Net assets are represented by:
Money Market Subaccount............................................ 23,019,814 1.10 $ 25,464,096
Bond Subaccount.................................................... 1,869,057 11.57 21,636,485
Balanced Subaccount................................................ 20,544,311 14.91 306,498,548
Large Company Stock Subaccount..................................... 17,445,874 18.25 318,474,657
Small Company Stock Subaccount..................................... 9,660,146 15.82 152,921,460
- ----------------------------------------------------------------------------------------------------------------------
Total Net Assets $824,995,246
======================================================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 59
<PAGE>
===============================================================================
AAL VARIABLE ANNUITY
[AAL VARIABLE ANNUITY LOGO]
AAL Variable Annuity Account I
Statement of Operations
FOR THE YEAR ENDED DECEMBER 31, 1997
[LOGO]
<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......................... $ 13,615,121 $1,102,027 $1,058,145 $ 7,403,928 $ 3,185,103 $ 865,918
Capital gain distributions........ 7,363,115 -- -- 101,264 327,630 6,934,221
- -------------------------------------------------------------------------------------------------------------------
Total Investment Income........... 20,978,236 1,102,027 1,058,145 7,505,192 3,512,733 7,800,139
- -------------------------------------------------------------------------------------------------------------------
Expenses Mortality and Expense
- ------------------------------
Risk charges...................... 7,194,626 265,569 203,423 2,581,842 2,749,255 1,394,537
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income............. 13,783,610 836,458 854,722 4,923,350 763,478 6,405,602
- -------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gains
on Investments
- --------------
Net realized gains (losses) from
investment transactions...... 60,921 -- (9,732) 43,784 -- 26,869
Change in net unrealized
appreciation/depreciation
on investments............... 97,567,574 -- 461,285 30,694,969 52,011,575 14,399,745
- -------------------------------------------------------------------------------------------------------------------
Net Gains on Investments.......... 97,628,495 -- 451,553 30,738,753 52,011,575 14,426,614
- -------------------------------------------------------------------------------------------------------------------
Net Increase in
Net Assets Resulting
from Operations................... $111,412,105 $ 836,458 $1,306,275 $35,662,103 $52,775,053 $20,832,216
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
60 AAL Variable Annuity Annual Report
<PAGE>
==============================================================================
AAL VARIABLE ANNUITY
[AAL VARIABLE ANNUITY LOGO]
AAL Variable Annuity Account I
Statement of Changes in Net Assets
<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>
Net assets at
January 1, 1996 $ 49,067,192 $ 5,045,423 $ 4,244,412 $ 15,100,546 $ 14,505,273 $ 10,171,538
Increase (decrease) in net assets
Net investment income................ 4,535,057 400,491 470,599 1,662,672 501,243 1,500,052
Net realized gains (losses) from
investment transactions......... 16,258 -- (2,206) -- 14,530 3,934
Change in unrealized appreciation/
depreciation of investments..... 21,169,539 -- (171,177) 6,291,426 10,703,165 4,346,125
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations 25,720,854 400,491 297,216 7,954,098 11,218,938 5,850,111
================================================================================================================================
Capital Share Transactions
Transfers of net premiums....... 245,892,983 89,932,449 6,817,612 62,455,166 55,256,374 31,431,382
Transfers of death benefits..... (1,586,902) (5,265) (35,349) (867,172) 439,904 (239,212)
Transfers of surrenders......... (3,214,380) (381,433) (236,581) (1,327,365) (817,260) (451,741)
Transfers between subaccounts... (2,807,732) (79,864,569) 1,628,633 28,258,946 29,990,046 17,179,212
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Capital
Share Transactions 238,283,969 9,681,182 8,174,315 88,519,575 83,989,256 47,919,641
================================================================================================================================
Total Increase in Net Assets 264,004,823 10,081,673 8,471,531 96,473,673 95,208,194 53,769,752
================================================================================================================================
Net assets at
December 31, 1996 313,072,015 15,127,096 12,715,943 111,574,219 109,713,467 63,941,290
Increase (decrease) in net assets
Net investment income................ 13,783,610 836,458 854,722 4,923,350 763,478 6,405,602
Net realized gains (losses) from
investment transactions......... 60,921 -- (9,732) 43,784 -- 26,869
Change in unrealized appreciation/
depreciation of investments..... 97,567,574 -- 461,285 30,694,969 52,011,575 14,399,745
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting in Operations 111,412,105 836,458 1,306,275 35,662,103 52,775,053 20,832,216
================================================================================================================================
Capital Share Transactions
Transfers of net premiums....... 418,962,388 158,275,206 5,588,348 109,666,841 100,328,693 45,103,300
Transfers of death benefits..... (3,458,133) (79,044) (265,091) (1,821,655) (780,984) (511,359)
Transfers of surrenders......... (11,336,055) (699,487) (499,880) (5,125,578) (3,272,494) (1,738,616)
Transfers between subaccounts... (3,657,074) (147,996,133) 2,790,890 56,542,618 59,710,922 25,294,629
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Capital
Share Transactions 400,511,126 9,500,542 7,614,267 159,262,226 155,986,137 68,147,954
================================================================================================================================
Total Increase in Net Assets 511,923,231 10,377,000 8,920,542 194,924,329 208,761,190 88,980,170
================================================================================================================================
Net Assets at
December 31, 1997 $824,995,246 $ 25,464,096 $21,636,485 $1,306,498,548 $318,474,657 $152,921,460
================================================================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 61
<PAGE>
===============================================================================
AAL VARIABLE ANNUITY
[AAL VARIABLE ANNUITY LOGO]
AAL Variable Annuity Account I
Notes to Financial Statements
AS OF DECEMBER 31, 1997
A: 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 has five separate subaccounts, each of which invests solely, as
directed by contract owners, in a different portfolio of 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 unrealized appreciation or depreciation of
investments. Dividends and capital gain distributions paid to the Account are
automatically reinvested in shares of the Fund on the payment date.
B: 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 and 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. This fee is waived if 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.
Transfer Charge Contract owners may request transfers of all or part of a
certificate's accumulated value among the subaccounts and/or the fixed account,
prior to the annuity commencement date. The contract owner may make two
transfers from one or more subaccounts to other subaccounts or the fixed account
in each certificate year without charge. Thereafter, each transfer will be
subject to a $10 transfer charge.
C: 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 gains 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.
D: Investment Transactions
The aggregate cost of investment securities purchased and proceeds from
investment securities sold by subaccount are as follows:
<TABLE>
Year Ended December 31, 1997 Purchases Sales
============================================================
<S> <C> <C>
Money Market Subaccount......... $52,006,464 $41,671,205
Bond Subaccount................. 9,912,197 1,443,207
Balanced Subaccount............. 164,350,968 165,393
Large Company Stock
Subaccount.................... 156,749,615 --
Small Company Stock
Subaccount.................... 74,629,170 75,616
- ------------------------------------------------------------
Combined $457,648,414 $43,355,421
============================================================
Year Ended December 31, 1996
============================================================
Money Market Subaccount......... $36,325,718 $26,245,327
Bond Subaccount................. 9,323,583 678,670
Balanced Subaccount............. 90,182,247 --
Large Company Stock
Subaccount.................... 84,585,263 94,764
Small Company Stock
Subaccount.................... 49,443,937 24,244
- ------------------------------------------------------------
Combined $269,860,748 $27,043,005
============================================================
</TABLE>
62 AAL Variable Annuity Annual Report
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
[AAL LOGO]
AAL Variable Annuity Account I
Notes to Financial Statements--continued
DECEMBER 31, 1997
E: Summary of Changes from Unit Transactions
Transactions in units of each subaccount were as follows:
<TABLE>
<CAPTION>
Units Sold Units Redeemed Net Increase
--------------------------- ---------------------------- --------------------------
Units Amount Units Amount Units Amount
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
- ----------------------------
Money Market Subaccount............ 145,819,570 $158,275,206 137,026,017 $148,774,664 8,793,553 $ 9,500,542
Bond Subaccount.................... 752,545 8,379,238 69,453 764,971 683,092 7,614,267
Balanced Subaccount................ 12,055,929 166,209,458 504,518 6,947,233 11,551,411 159,262,225
Large Company Stock
Subaccount........................ 9,824,842 160,039,615 247,500 4,053,478 9,577,342 155,986,137
Small Company Stock
Subaccount........................ 4,812,850 70,397,928 156,237 2,249,976 4,656,613 68,147,952
- ----------------------------------------------------------------------------------------------------------------------------------
Combined 173,265,736 $563,301,445 138,003,725 $162,790,322 35,262,011 $400,511,123
==================================================================================================================================
Year Ended December 31, 1996
- ----------------------------
Money Market Subaccount............ 86,088,759 $ 89,932,449 76,793,796 $ 80,251,267 9,294,963 $ 9,681,182
Bond Subaccount.................... 809,088 8,446,245 26,051 271,930 783,037 8,174,315
Balanced Subaccount................ 7,814,622 90,714,112 186,577 2,194,537 7,628,045 88,519,575
Large Company Stock
Subaccount........................ 6,708,749 85,246,420 98,453 1,257,164 6,610,296 83,989,256
Small Company Stock
Subaccount........................ 4,134,778 48,610,594 60,000 690,953 4,074,778 47,919,641
- ----------------------------------------------------------------------------------------------------------------------------------
Combined 105,555,996 $322,949,820 77,164,877 $ 84,665,851 28,391,119 $238,283,969
==================================================================================================================================
</TABLE>
F: Net Assets
The Account has an unlimited number of accumulation units authorized with no par
value. Net assets as of December 31, 1997, 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...................... $686,041,417 $24,168,226 $19,907,207 $262,280,571 $253,680,638 $126,004,775
Accumulated undistributed net
investment income................... 18,586,961 1,295,870 1,379,327 6,688,841 1,306,565 7,916,358
Accumulated undistributed net
realized gain from investment
transactions........................ 78,744 -- (11,245) 43,930 15,169 30,890
Net unrealized appreciation
(depreciation) of investment........ 120,288,124 -- 361,196 37,485,206 63,472,285 18,969,437
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets $824,995,246 $25,464,096 $21,636,485 $306,498,548 $318,474,657 $152,921,460
==================================================================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
AAL Variable Annuity Annual Report 63
<PAGE>
================================================================================
AAL VARIABLE ANNUITY
[AAL VARIABLE ANNUITY LOGO]
AAL Variable Annuity Account I
Report of Independent Auditors
The Board of Directors and Certificate Owners
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,
1997, and the related statement of operations for the year then ended, and
changes in net assets for each of the two years in the period then ended. 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 audits.
We conducted our audits 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, 1997, 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 audits provide 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,
1997, and the results of their operations for the year then ended, and changes
in their net assets for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
January 28, 1998
The accompanying notes to the financial statements are an integral part of this
schedule.
64 AAL Variable Annuity Annual Report
<PAGE>
--------
AAL
Variable
Annuity
--------
Service Center
AAL Variable Products Service Center
4321 North Ballard Road
Appleton, WI 54919-0001
Telephone 800-CALL-AAL
--------
Investment Adviser and Transfer Agent
Aid Association for Lutherans
4321 North Ballard Road
Appleton, WI 54919-0001
--------
Custodian
Citibank, N.A.
111 Wall Street
New York, NY 10043
This report is submitted for the information of the certificate
owners of the AAL Variable Annuity Account I. It is not authorized
for distribution to prospective certificate owners unless preceded
or accompanied by a current prospectus for the AAL Variable
Annuity Account I and the AAL Variable Product Series Fund, Inc.
[AAL LOGO APPEARS HERE]
AAL CAPITAL MANAGEMENT CORPORATION
----------------------------------
222 West College Avenue, Appleton, WI 54919-0007
AAL Capital Management Corporation
is the distributor of the AAL Variable Annuity
and is a wholly-owned subsidiary of:
Aid Association for Lutherans
4321 North Ballard Road, Appleton, WI 54919-0001
