AAL(R)
AID ASSOCIATION FOR LUTHERANS
-------------------------------------
A FRATERNAL BENEFIT SOCIETY
[PHOTO APPEARS HERE]
Annual
Report
December 31, 1996
[AAL LOGO]
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A A L V A R I A B L E A N N
[AAL LOGO]
AID ASSOCIATION FOR LUTHERANS
- ---------------------------------
A FRATERNAL BENEFIT SOCIETY
DEAR MEMBER:
The year was one in which good news for the economy meant good news for the
markets. Business produced solid earnings and, with heavy demand for stock by
investors, stock indexes reached a number of new highs. Gross Domestic Product
was estimated at 3.4% and the core inflation rate (the Consumer Price Index
excluding the volatile food and energy components) was at a reasonable 2.6%. The
interest rate on 10-year U.S. Treasury bonds rose from 5.6% in January to over
7% at mid-year. These rates then declined to around 6% in December. This round
trip left total returns for bonds at just slightly below their coupon returns.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
ONE YEAR/1/ SINCE INCEPTION/1/
FUND PORTFOLIO ENDED 12/31/96 6/14/95--12/31/96
<S> <C> <C>
Money Market 5.23% 5.34%
Bond 3.10% 5.77%
Balanced 13.65% 16.47%
Large Company Stock 22.47% 25.68%
Small Company Stock 18.19% 18.93%
ONE YEAR/2/ SINCE INCEPTION/2/
VARIABLE SUBACCOUNT* ENDED 12/31/96 6/15/95--12/31/96
Money Market 3.93% 4.05%
Bond 1.81% 4.60%
Balanced 12.22% 14.98%
Large Company Stock 20.94% 23.93%
Small Company Stock 16.71% 17.19%
</TABLE>
1 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.
2 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.
* For the one year and since inception periods, the SEC Standardized Average
Total Returns for the five Subaccounts, reflecting all fees and expenses and the
maximum surrender charge (7% for the one year returns, 6% for the since
inception returns), are shown on the chart at the bottom left.
Investment returns and principal values are subject to fluctuation, and units,
when redeemed, may be worth more or less than their purchase price. Past
performance is not predictive of future results.
SEC RETURNS
<TABLE>
<CAPTION>
ONE YEAR SINCE INCEPTION
VARIABLE SUBACCOUNT ENDED 12/31/96 6/15/95--12/31/96
<S> <C> <C>
Money Market -2.62% 0.39%
Bond -4.60% 0.92%
Balanced 5.15% 10.93%
Large Company Stock 13.32% 19.57%
Small Company Stock 9.36% 13.06%
</TABLE>
1
<PAGE>
Our variable annuity product also found success during its first full year.
Assets increased from less than $90 million to over $350 million during 1996 as
members participated in this exceptional year for financial markets. This quick
success should be taken in the context of a long-term investment horizon. The
past two years saw total returns in the S&P 500(R) of about 23% for 1996
following a total return of 37.6% for 1995. This was the best combination of
consecutive returns in over 20 years.
Further discussion of the investment performance for each of our Portfolios for
the AAL Variable Product Series Fund, Inc. follows this letter. We hope to
continue to meet your expectations for performance, value and service.
Sincerely,
/s/ John O. Gilbert /s/ Steven A. Weber
John O. Gilbert Steven A. Weber
President & Chief Executive Officer President
Aid Association for Lutherans AAL Variable Product Series Fund, Inc.
<TABLE>
<CAPTION>
PORTFOLIO ASSETS
TOTAL NET ASSETS TOTAL NET ASSETS
AS OF 12/31/95 AS OF 12/31/96
<S> <C> <C>
Money Market Portfolio $ 7,044,642 $ 17,125,033
Bond Portfolio $ 9,362,832 $ 17,666,369
Balanced Portfolio $28,758,722 $126,517,669
Large Company Stock Portfolio $23,138,378 $120,088,690
Small Company Stock Portfolio $15,665,864 $ 70,209,390
TOTAL $83,970,438 $351,607,151
</TABLE>
2
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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
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>
VALUE OF A $10,000 INVESTMENT
[BAR CHART APPEARS HERE:]
<S> <C> <C>
AAL MONEY SALOMON BROTHERS
MARKET SHORT-TERM
PORTFOLIO INDEX**
6/14/95 $10,000 $10,000
12/31/95 $10,302 $10,292
6/14/96 $10,571 $10,547
12/31/96 $10,841 $10,801
</TABLE>
The average annual total returns and the ending account value in the line graph
and bar chart reflect reinvestment of all dividends and capital gains
distributions but do not reflect separate account expenses or charges. Past
performance is not predictive of future results.
*Investments in the Portfolio are neither insured nor guaranteed by the U.S.
government or any financial institution. There is not assurance that the
Portfolio will be able to maintain a net asset value of $1.00 per share.
**This is an index composed of 1-month Treasury bills.
AVERAGE ANNUAL TOTAL RETURNS
[BAR CHART APPEARS HERE:]
AAL MONEY MARKET PORTFOLIO
1-YEAR SINCE INCEPTION
6/14/95
5.23% 5.34%
3
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A A L V A R I A B L E A N N U I T Y
The Federal Reserve stayed on an even keel throughout 1996, reducing the Fed
Funds rate from 5.50% to 5.25% in late January and holding it there for the
remainder of the year. In addition to stable interest rates, core inflation, as
measured by the Consumer Price Index, was a relatively low 2.6% for the year.
This combination resulted in attractive money market interest rates as compared
to the low rates prevalent during the past few years. Total return for the
portfolio for 1996 was 5.2% which compared favorably with the Salomon Brothers
Short-Term Index** of 5.0%.
[PHOTO OF ALAN D. ONSTAD APPEARS HERE]
PORTFOLIO MANAGER:
Alan D. Onstad
CFA - 1993
BBA - 1973, Concordia College
Al began his investment career with AAL in 1973.
SECTOR ALLOCATIONS
[PIE CHART APPEARS HERE]
UTILITIES............23.6%
FINANCE..............15.0%
TELEPHONE............13.8%
TRANSPORTATION.......10.0%
ELECTRONICS.......... 9.2%
FOOD & AGRICULTURE... 8.2%
OTHER
DRUGS/CHEMICALS..... 7.3%
MEDIA............... 6.1%
RETAIL.............. 3.5%
TRAVEL & RECREATION. 3.3%
-----
20.2%
LARGEST HOLDINGS
1. CAROLINA POWER & LIGHT, INC. .. 5.350%, 3/27/97
2. R.R. DONNELLEY & SONS COMPANY.. 6.750%, 1/3/97
3. SOUTHERN CAL EDISON COMPANY.... 5.300%, 1/10/97
4. BENEFICIAL CORPORATION......... 5.320%, 1/28/97
5. EXXON IMPERIAL, INC. .......... 5.270%, 1/9/97
[AAL LOGO]
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A A L V A R I A B L E A N N U I T Y
Bond Portfolio
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 Brothers Aggregate Bond Index.
VALUE OF A $10,000 INVESTMENT
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
- -----------------------------------------------
AAL BOND PORTFOLIO LEHMAN INDEX
- -----------------------------------------------
<S> <C> <C>
6/14/95 $10,000 $10,000
12/31/95 $10,580 $10,617
6/14/96 $10,744 $10,809
12/31/96 $10,908 $11,000
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
- -------------------------------
SINCE INCEPTION
1-YEAR 6/14/95
- -------------------------------
<S> <C>
3.10% 5.77%
</TABLE>
The average annual total returns and the ending account value in the line
graph and bar chart reflect reinvestment of all dividends and capital gains
distributions but do not reflect separate account expenses or charges. Past
performance is not predictive of future results.
* This is 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.
5
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A A L V A R I A B L E A N N U I T Y
Interest rates rose during the first half of the year reflecting investors'
concerns that reports of strong economic growth would lead to an increase in the
inflation rate. Further uncertainty arose as speculation occurred regarding what
actions, if any, the Federal Reserve would take if it anticipated increased
inflation, particularly in an election year. These concerns dissipated during
the second half of the year and interest rates declined, almost returning to
what they were at the beginning of the year. This resulted in slightly lower
bond prices that offset some of the interest income generated by the bonds.
Total return for the Portfolio for 1996 was 3.1%, compared to the 3.6% total
return of the Lehman Brothers Aggregate Bond Index* that is our benchmark.
SECTOR ALLOCATIONS
[PIE CHART APPEARS HERE]
U.S. TREASURY SECURITIES...44.9%
U.S. GOVERNMENT AGENCIES...35.4%
CORPORATE BONDS............12.5%
OTHER
CANADIAN GOVERNMENT...... 2.8%
ASSET-BACKED............. 1.4%
UTILITY.................. 2.7%
MONEY MARKET INSTRUMENTS. 0.3%
---
7.2%
[PHOTO OF JERRY SCHEEL]
PORTFOLIO MANAGER:
R. Jerry Scheel
BBA - Univ. of Wisconsin-Oshkosh
Jerry has 26 years of investment
experience with AAL.
LARGEST HOLDINGS
1. U.S. TREASURY BOND.....9.875%, 11/15/15
2. U.S. TREASURY BOND....10.375%, 11/15/12
3. U.S. TREASURY BOND.....7.875%, 2/15/21
4. U.S. TREASURY NOTE.....7.875%, 4/15/98
5. U.S. TREASURY NOTE.....6.875%, 7/31/99
[LOGO]
6
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A A L V A R I A B L E A N N U I T Y
Balanced Portfolio
- ------------------
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.
THE 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.
VALUE OF A $10,000 INVESTMENT
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
LEHMAN BROTHERS
AAL BALANCED S&P 500(R) AGGREGATE BLENDED SALOMON BROTHERS
PORTFOLIO INDEX BOND INDEX INDEX* SHORT-TERM INDEX
--------- ----- ---------- ------ ----------------
<S> <C> <C> <C> <C> <C>
6/14/95 $10,000 $10,000 $10,000 $10,000 $10,000
12/31/95 11,146 11,631 10,617 11,142 10,292
6/14/96 11,906 12,966 10,809 11,969 10,547
12/31/96 12,667 14,301 11,000 12,796 10,801
</TABLE>
The average annual total returns and the ending account value in the line
graph and bar chart reflect reinvestment of all dividends and capital gains
distributions but do not reflect separate account expenses or charges. Past
performance is not predictive of future results.
* This index is a blend of the S&P 500(R) Index (55%), Lehman Index (35%) and
Salomon Index (10%).
AVERAGE ANNUAL TOTAL RETURNS
[BAR CHART APPEARS HERE]
AAL BALANCED PORTFOLIO
1 YEAR 13.65%
SINCE INCEPTION
6/14/95 16.47%
7
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E A N N U I T Y
1996 presented a combination of factors that operated favorably on all three
asset classes contained in the Portfolio: stocks, bonds and money market
instruments. All reported positive returns for the year as the economy was
favored with business growth and expansion, low interest rates and an inflation
rate that was both low and stable. Total return for the Portfolio for 1996 was
13.7%.
[PHOTO OF JOHN A. LARSON APPEARS HERE]
PORTFOLIO MANAGER:
John A. Larson
MBA - 1976, Univ. of Wisconsin-Oshkosh
CFA - 1984
BA - 1969, Luther College
John began his investment career with AAL in 1978.
ASSET ALLOCATIONS
[PIE CHART APPEARS HERE]
COMMON STOCKS...........54.3%
BONDS...................36.2%
SHORT-TERM OBLIGATIONS...9.5%
LARGEST HOLDINGS
1. GENERAL ELECTRIC COMPANY
2. COCA-COLA COMPANY
3. EXXON CORPORATION
4. INTEL CORPORATION
5. MICROSOFT CORPORATION
[AAL LOGO]
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A A L V A R I A B L E A N N U I T Y
LARGE COMPANY STOCK PORTFOLIO
- -----------------------------
THE PORTFOLIO SEEKS: To achieve investment results that approximate the
performance of the Standard & Poor's 500(R) Composite Stock Price 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.
VALUE OF A $10,000 INVESTMENT
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
- ------------------------------------------
AAL LARGE
COMPANY S&P 500
STOCK PORTFOLIO
- ------------------------------------------
<S> <C> <C>
6/14/95 $10,000 $10,000
12/31/95 $11,639 $11,631
6/14/96 $12,946 $12,966
12/31/96 $14,254 $14,301
- -------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------
1 YEAR SINCE INCEPTION
6/14/95
- -------------------------------------
<S> <C>
22.47% 25.68%
- -------------------------------------
</TABLE>
The average annual total returns and the ending account value in the line
graph and bar chart reflect reinvestment of all dividends and capital gains
distributions but do not reflect separate account expenses or charges. Past
performance is not predictive of future results.
* This is 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.
9
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A A L V A R I A B L E A N N U I T Y
Stocks continued their strong performance in 1996. Investors experienced a
generally benevolent environment with moderate economic growth, good corporate
profits, and relatively low inflation and interest rates which resulted in a
number of new highs during the year in just about every equity index. This
strong performance was broadly based. Among the sectors within the Portfolio
showing strong performance were technology, financials, consumer goods and
energy. Investors responded to this positive performance with record inflows
into equity mutual funds. Our investors participated in this trend with net
assets in this Portfolio increasing from about $23 million to over $120 million.
Total return for the portfolio for 1996 was 22.5%, closely tracking the 23.0%
total return of the S&P 500(R) Index that is our benchmark.
[PHOTO OF DAVID SCHNARSKY APPEARS HERE]
PORTFOLIO MANAGER:
David Schnarsky
CFA - 1983
MBA - 1979, Univ. of
Wisconsin-Madison
BBA - 1975, Univ. of
Wisconsin-Madison
Dave has 16 years of investment experience and has been with AAL five years.
SECTOR ALLOCATIONS
[PIE CHART APPEARS HERE]
CONSUMER NON-DURABLES... 31.3%
FINANCE................. 15.3%
TECHNOLOGY.............. 13.7%
UTILITIES............... 11.3%
OTHER
ENERGY................ 9.0%
MATERIALS & SERVICES.. 9.0%
CAPITAL GOODS......... 5.6%
CONSUMER DURABLES..... 3.3%
TRANSPORTATION........ 1.5%
-----
28.4%
LARGEST HOLDINGS
1. GENERAL ELECTRIC COMPANY
2. COCA-COLA COMPANY
3. EXXON CORPORATION
4. INTEL CORPORATION
5. MICROSOFT CORPORATION
[AAL LOGO]
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A A L V A R I A B L E A N N U I T Y
SMALL COMPANY STOCK PORTFOLIO
- -----------------------------
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.
VALUE OF A $10,000 INVESTMENT
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
- ----------------------------------------
AAL SMALL WILSHIRE
COMPANY STOCK SMALL CAP
PORTFOLIO INDEX
- ----------------------------------------
<S> <C> <C>
6/14/95 $10,000 $10,000
12/31/95 $11,070 $11,181
6/14/95 $12,077 $12,288
12/31/95 $13,084 $13,394
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
- ---------------------------------
1-YEAR SINCE INCEPTION 6/14/95
- ---------------------------------
<S> <C>
18.19% 18.93%
- ---------------------------------
</TABLE>
The average annual total returns and the ending account value in the line
graph and bar chart reflect reinvestment of all dividends and capital gains
distributions but do not reflect separate account expenses or charges. Past
performance is not predictive of future results.
* This is an index comprised of 250 stocks designed to represent performance
attributes of the smaller capitalization segment of the U.S. equity markets.
11
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A A L V A R I A B L E A N N U I T Y
Small capitalization stocks benefited from the combination of moderate economic
growth and relatively low interest and inflation rates. The performance of
energy stocks provided the biggest benefit to the Portfolio. Oil and gas
inventories were very low, and worldwide demand rose with increased usage for
transportation combined with cooler than normal temperatures in many areas. The
Portfolio also benefited from gains in the financial sector. Strong demands for
home and consumer loans and manageable default rates provided a firm foundation
for banks and other financial services firms to increase earnings.
Total return for the Portfolio for 1996 was 18.2%, compared to the 19.8% total
return of the Wilshire Small Cap Index* that is our benchmark.
[PHOTO OF MICHEAE R. HOCHHOLZER APPEARS HERE]
PORTFOLIO MANAGER:
Michael R. Hochholzer
MBA - 1995, Univ. of Chicago
CFA - 1992
BBA - 1989, Univ. of
Wisconsin-Oshkosh
Mike began his investment career with AAL in 1989.
SECTOR ALLOCATIONS
[PIE CHART APPEARS HERE]
CONSUMER NON-DURABLES.......... 23.0%
MATERIALS & SERVICES........... 20.1%
FINANCE........................ 18.5%
TECHNOLOGY..................... 11.3%
OTHER
UTILITIES..................... 7.9%
ENERGY........................ 6.4%
CAPITAL GOODS................. 5.5%
CONSUMER DURABLES............. 4.5%
TRANSPORTATION................ 2.8%
-----
27.1%
LARGEST HOLDINGS
1. WESTERN DIGITAL CORPORATION
2. NORAM ENERGY CORPORATION
3. JONES APPAREL GROUP
4. BJ SERVICES CORPORATION
5. ROWAN COMPANIES, INC.
[AAL LOGO]
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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
-----------------------------------------------
Schedule of Investments as of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY MARKET
AMOUNT RATE DATE VALUE
- -------------------------------------------------------------------------------------
Commercial Paper (96.4%)
-----------------------
<C> <S> <C> <C> <C>
$300,000 Alabama Power Company.......................5.310% 01/07/97 $ 299,735
325,000 Alabama Power Company.......................5.320 02/06/97 323,271
490,000 Associates Corporation of North America.....5.310 01/21/97 488,555
178,000 AT&T Corporation............................5.400 04/02/97 175,570
290,000 AT&T Corporation............................5.320 01/02/97 289,957
100,000 AT&T Corporation............................5.400 01/10/97 99,865
108,000 Bell Atlantic Network Funding...............5.350 01/23/97 107,647
507,000 Bell Atlantic Network Funding...............5.400 01/24/97 505,251
550,000 Bell South Telecommunications...............5.280 02/13/97 546,531
600,000 Beneficial Corporation......................5.320 01/28/97 597,606
500,000 Cargill, Inc................................5.500 01/08/97 499,465
625,000 Carolina Power & Light, Inc.................5.350 03/27/97 617,105
400,000 Consolidated Natural Gas Company............5.800 01/09/97 399,484
190,000 CountryWide Home, Inc.......................5.690 01/07/97 189,820
400,000 CountryWide Home, Inc.......................5.630 01/07/97 399,625
491,000 CS First Boston, Inc........................5.320 01/15/97 489,984
369,000 E.I. DuPont de Nemours & Company............5.270 01/30/97 367,434
250,000 E.I. DuPont de Nemours & Company............5.310 01/27/97 249,041
589,000 Exxon Imperial, Inc.........................5.270 01/09/97 588,310
283,000 Ford Motor Credit Company...................5.310 01/13/97 282,499
190,000 Ford Motor Credit Company...................5.380 01/17/97 189,546
413,000 Gannett Company.............................5.350 01/13/97 412,264
403,000 General Electric Capital Corporation........5.420 01/14/97 402,211
</TABLE>
<TABLE>
<CAPTION>
<C> <S> <C> <C> <C>
$361,000 General Motors Acceptance Corporation.......5.340% 01/31/97 $ 359,394
240,000 General Motors Acceptance Corporation.......5.350 01/17/97 239,429
553,000 GTE -- California...........................5.540 01/29/97 550,617
562,000 H.J. Heinz, Inc.............................5.400 01/29/97 559,640
545,000 IBM Credit Corporation......................5.460 01/31/97 542,520
300,000 Kellogg Company.............................5.370 01/14/97 299,418
419,000 Massachusetts Electric Company..............6.000 01/03/97 418,860
300,000 Merrill Lynch & Company, Inc................5.330 01/22/97 299,067
404,000 New England Power Company...................5.600 01/02/97 403,937
250,000 New England Power Company...................5.550 01/03/97 249,923
600,000 R.R. Donnelley & Sons Company...............6.750 01/03/97 599,775
350,000 Schering Corporation........................5.240 03/25/97 345,772
250,000 Schering Corporation........................5.300 01/29/97 248,970
577,000 Sears Roebuck Acceptance Corporation........5.320 02/14/97 573,248
600,000 Southern California Edison Company..........5.300 01/10/97 599,205
571,000 United Parcel Service, Inc..................5.230 01/23/97 569,175
233,000 Walt Disney Company.........................5.460 01/06/97 232,824
317,000 Walt Disney Company.........................5.270 01/06/97 316,768
425,000 Xerox Corporation...........................5.300 01/16/97 424,062
148,000 Xerox Corporation...........................5.280 01/16/97 147,674
-----------
Total Investments (96.4%)
(amortized cost $16,501,054).................................. 16,501,054
Other Assets, less
Liabilities (3.6%)............................................ 623,979
-----------
NET ASSETS (100.0%).............................................$17,125,033
===========
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
13
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A A L V A R I A B L E A N N U I T Y
[AAL LOGO] Bond Portfolio
--------------
Schedule of Investments as of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY MARKET
AMOUNT RATE DATE VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Obligations (44.4%)
-----------------------------------
$205,000 U.S. Treasury Bond........... 6.250% 06/30/98 $ 205,961
160,000 U.S. Treasury Bond........... 7.000 07/15/06 166,250
250,000 U.S. Treasury Bond...........10.375 11/15/12 322,031
250,000 U.S. Treasury Bond........... 9.875 11/15/15 333,750
250,000 U.S. Treasury Bond........... 7.250 05/15/16 263,984
100,000 U.S. Treasury Bond........... 7.500 11/15/16 108,219
250,000 U.S. Treasury Bond........... 8.125 08/15/19 288,906
275,000 U.S. Treasury Bond........... 7.875 02/15/21 310,664
190,000 U.S. Treasury Bond........... 7.625 11/15/22 209,653
250,000 U.S. Treasury Bond........... 7.125 02/15/23 260,859
250,000 U.S. Treasury Bond........... 6.250 08/15/23 234,297
235,000 U.S. Treasury Bond........... 7.500 11/15/24 256,958
100,000 U.S. Treasury Note........... 5.875 07/31/97 100,063
90,000 U.S. Treasury Note........... 5.500 09/30/97 89,775
100,000 U.S. Treasury Note........... 7.375 11/15/97 101,156
200,000 U.S. Treasury Note........... 7.875 01/15/98 203,812
250,000 U.S. Treasury Note........... 7.250 02/15/98 253,359
300,000 U.S. Treasury Note........... 7.875 04/15/98 307,031
250,000 U.S. Treasury Note........... 5.375 05/31/98 248,125
250,000 U.S. Treasury Note........... 5.875 08/15/98 249,688
250,000 U.S. Treasury Note........... 7.125 10/15/98 255,000
250,000 U.S. Treasury Note........... 5.125 11/30/98 246,484
250,000 U.S. Treasury Note........... 6.375 01/15/99 252,344
250,000 U.S. Treasury Note........... 6.750 05/31/99 254,219
215,000 U.S. Treasury Note........... 6.750 06/30/99 218,762
300,000 U.S. Treasury Note........... 6.875 07/31/99 306,094
250,000 U.S. Treasury Note........... 7.500 10/31/99 259,297
100,000 U.S. Treasury Note........... 7.750 12/31/99 104,562
160,000 U.S. Treasury Note........... 7.125 02/29/00 164,700
250,000 U.S. Treasury Note........... 5.875 06/30/00 248,125
250,000 U.S. Treasury Note........... 8.500 11/15/00 270,000
185,000 U.S. Treasury Note........... 8.000 05/15/01 197,661
200,000 U.S. Treasury Note........... 6.250 02/15/03 199,812
250,000 U.S. Treasury Note........... 5.750 08/15/03 242,500
100,000 U.S. Treasury Note........... 7.250 05/15/04 105,250
----------
Total U.S. Government
Obligations....................................... 7,839,351
----------
U.S. Government Agency Obligations (35.0%)
------------------------------------------
250,000 Federal Home Loan
Bank Notes.................. 9.250 11/25/98 264,380
245,000 Federal Home Loan Bank
Debentures.................. 5.440 10/15/03 230,203
164,187 Federal Home Loan Mortgage
Corporation Gold
7-Yr. Balloon............... 7.000 06/01/02 164,854
210,164 Federal Home Loan
Mortgage Corporation
15-Yr. Pass Through......... 7.000 02/01/11 210,099
$250,173 Federal Home Loan
Mortgage Corporation
30-Yr. Pass Through......... 7.000% 06/01/26 $ 245,483
209,731 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through......... 6.500 04/01/24 200,490
230,628 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through......... 7.500 08/01/25 230,916
213,632 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through......... 8.000 01/01/26 217,704
247,454 Federal National
Mortgage Association
15-Yr. Pass Through......... 6.000 04/01/11 237,943
244,977 Federal National
Mortgage Association
15-Yr. Pass Through......... 7.500 07/01/11 248,269
250,000 Federal National Mortgage
Association Medium
Term Note................... 5.200 04/30/98 248,104
249,454 Federal National
Mortgage Association
7-Yr. Balloon............... 6.500 10/01/03 246,805
202,940 Federal National
Mortgage Association
30-Yr. Pass Through.........10.500 08/01/20 224,374
126,703 Federal National
Mortgage Association
30-Yr. Pass Through......... 9.000 02/01/25 133,514
214,156 Federal National
Mortgage Association
30-Yr. Pass Through......... 8.500 11/15/25 221,718
233,389 Federal National
Mortgage Association
30-Yr. Pass Through......... 7.500 01/01/26 233,316
247,752 Federal National
Mortgage Association
30-Yr. Pass Through......... 7.000 02/01/26 242,410
247,719 Federal National
Mortgage Association
30-Yr. Pass Through......... 6.500 05/01/26 236,339
228,222 Government National
Mortgage Association
30-Yr. Pass Through......... 7.500 03/15/23 228,365
239,843 Government National
Mortgage Association
30-Yr. Pass Through......... 7.000 01/15/24 234,671
223,502 Government National
Mortgage Association
30-Yr. Pass Through......... 9.000 09/15/24 235,516
227,645 Government National
Mortgage Association
30-Yr. Pass Through......... 8.000 06/15/25 232,197
</TABLE>
The accompanying notes to the financial statements
are an integral part of this schedule.
14
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO]
Bond Portfolio
- --------------
Schedule of Investments as of December 31, 1996--Continued
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY MARKET
AMOUNT RATE DATE VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Agency Obligations--Continued
-------------------------------------------------------------------
$246,562 Government National
Mortgage Association
30-Yr. Pass Through............. 6.000% 05/15/26 $ 228,841
250,000 Government National
Mortgage Association
30-Yr. Pass Through............. 8.500 12/15/26 258,906
232,520 Government National
Mortgage Association
15-Yr. Pass Through............. 6.500 03/01/09 229,468
250,000 Private Export Funding
Corporation..................... 6.240 05/15/02 247,957
250,000 Tennessee Valley Authority....... 6.000 11/01/00 247,628
-----------
Total U.S. Government
Agency Obligations................................. 6,180,470
-----------
Asset-Backed Securities (1.4%)
-------------------------------------------------------------------
250,000 NationsBank Credit Card Trust
Certificate..................... 6.000 12/15/05 241,135
-----------
Corporate Obligations (12.4%)
-------------------------------------------------------------------
225,000 Abbott Laboratories Note......... 6.800 05/15/05 225,559
250,000 American Express Company
Note............................ 6.750 06/01/01 251,582
250,000 Browning-Ferris Industries,
Inc. Note....................... 7.875 03/15/05 262,818
250,000 Columbia Gas System Note......... 7.320 11/28/10 245,640
250,000 Ford Motor Credit
Corporation Note................ 8.200 02/15/02 265,463
200,000 General Motors Acceptance
Corporation Note................ 9.625 12/15/01 223,674
250,000 Household Finance
Corporation Note................ 6.875 03/01/03 250,242
250,000 PepsiCo Inc. Note................ 5.700 11/01/08 226,000
225,000 Xerox Corporation Note........... 9.750 03/15/00 246,095
-----------
Total Corporate Obligations......................... 2,197,073
-----------
Utility Bonds (2.6%)
-------------------------------------------------------------------
200,000 Baltimore Gas & Electric
Company First Refunding
Mortgage Bond................... 7.500% 01/15/07 207,962
250,000 Texas Utilities Company
First Mortgage Bond............. 7.375 08/01/01 257,177
-----------
Total Utility Bonds................................. 465,139
-----------
Other Government Securities (2.8%)
-------------------------------------------------------------------
200,000 Province of Ontario Senior
Global Bond..................... 6.125 06/28/00 199,558
250,000 Province of Quebec
Global Bond..................... 11.000 06/15/15 289,565
-----------
Total Other Government
Securities......................................... 489,123
-----------
Total Long-Term Securities
(cost basis $17,551,011)........................... 17,412,291
-----------
Short-Term Investments (0.3%)
-------------------------------------------------------------------
55,589 Money Market Deposit
Account #10 -- Citibank............................ 55,589
-----------
Total Short-Term Investments
(cost basis $55,589)............................... 55,589
-----------
Total Investments (98.9%)
(cost basis $17,606,600)........................... 17,467,880
Other Assets, less Liabilities (1.1%)............... 198,489
-----------
NET ASSETS (100.0%)................................. $17,666,369
===========
</TABLE>
The accompanying notes to the financial statements
are an integral part of this schedule.
15
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO] Balanced Portfolio
------------------
Schedule of Investments as of December 31, 1996
<TABLE>
<CAPTION>
SHARES COMMON STOCK (53.9%) MARKET VALUE
<S> <C> <C>
Aerospace (1.3%)
-----------------
4,509 Boeing Company................................... $ 479,666
800 General Dynamics Corporation..................... 56,400
700 Goodrich (B.F.) Company.......................... 28,350
2,400 Lockheed Martin Corporation...................... 219,600
2,600 McDonnell Douglas Corporation.................... 166,400
700 Northrop Grumman Corporation..................... 57,925
2,900 Raytheon Company................................. 139,563
2,600 Rockwell International Corporation............... 158,275
1,600 TRW, Inc......................................... 79,200
1,000 Textron, Inc..................................... 94,250
2,900 United Technologies Corporation.................. 191,400
----------
1,671,029
----------
Air Transportation (0.2%)
--------------------------
1,100 AMR Corporation*................................. 96,938
900 Delta Air Lines, Inc............................. 63,787
1,400 Federal Express Corporation*..................... 62,300
1,700 Southwest Airlines Company....................... 37,613
700 USAir Group, Inc.*............................... 16,362
----------
277,000
----------
Apparel (0.3%)
---------------
900 Fruit of the Loom, Inc.*......................... 34,088
900 Liz Claiborne, Inc............................... 34,762
3,500 Nike, Inc........................................ 209,125
700 Reebok International, Ltd........................ 29,400
400 Russell Corporation.............................. 11,900
200 Springs Industries, Inc.......................... 8,600
600 Stride Rite Corporation.......................... 6,000
800 V F Corporation.................................. 54,000
----------
387,875
----------
Banks (4.2%)
------------
5,270 Banc One Corporation............................. 226,610
1,900 Bank of Boston Corporation....................... 122,075
4,700 Bank of New York Company, Inc.................... 158,625
4,400 BankAmerica Corporation.......................... 438,900
1,000 Bankers Trust New York Corporation............... 86,250
2,400 Barnett Banks, Inc............................... 98,700
1,900 Boatmen's Bancshares, Inc........................ 122,550
5,340 Chase Manhattan Corporation...................... 476,595
5,700 Citicorp......................................... 587,100
1,400 Comerica, Inc.................................... 73,325
2,700 Corestates Financial Corporation................. 140,062
1,300 Fifth Third Bancorp.............................. 81,656
1,700 First Bank System, Inc........................... 116,025
3,943 First Chicago NBD Corporation.................... 211,936
3,505 First Union Corporation.......................... 259,370
3,156 Fleet Financial Group, Inc....................... 157,406
2,800 Keycorp.......................................... 141,400
2,300 J.P. Morgan & Company, Inc....................... 224,538
1,600 Mellon Bank Corporation.......................... 113,600
2,700 National City Corporation........................ 121,162
3,500 Nationsbank Corporation.......................... 342,125
4,500 Norwest Corporation.............................. 195,750
4,100 PNC Bank Corporation............................. 154,263
700 Republic NY Corporation.......................... 57,137
2,700 Suntrust Banks, Inc.............................. 132,975
1,800 U S Bancorp...................................... 80,888
2,000 Wachovia Corporation............................. 113,000
1,166 Wells Fargo & Company............................ 314,528
----------
5,348,551
----------
Brokerage (0.2%)
-----------------
2,000 Merrill Lynch & Company, Inc..................... 163,000
1,900 Morgan Stanley Group, Inc........................ 108,538
1,300 Salomon, Inc..................................... 61,262
----------
332,800
----------
Business Machines (3.6%)
-------------------------
2,100 3Com Corporation*................................ 154,088
1,400 Amdahl Corporation*.............................. 16,975
1,500 Apple Computer, Inc.............................. 31,312
500 Autodesk, Inc.................................... 14,000
2,300 Bay Networks, Inc.*.............................. 48,013
1,900 Cabletron Systems, Inc.*......................... 63,175
800 Ceridian Corporation*............................ 32,400
7,900 Cisco Systems, Inc.*............................. 502,638
3,300 Compaq Computers, Inc.*.......................... 245,025
400 Data General Corporation*........................ 5,800
2,200 Dell Computer Corporation*....................... 116,875
1,900 Digital Equipment Corporation*................... 69,112
1,500 Honeywell, Inc................................... 98,625
6,300 International Business Machines Corporation...... 951,300
500 Intergraph Corporation*.......................... 5,125
14,500 Microsoft Corporation*........................... 1,198,062
4,200 Novell, Inc.*.................................... 39,769
8,000 Oracle Systems Corporation*...................... 334,000
1,800 Pitney-Bowes, Inc................................ 98,100
2,700 Seagate Technology, Inc.*........................ 106,650
2,100 Silicon Graphics, Inc.*.......................... 53,550
4,400 Sun Microsystems, Inc.*.......................... 113,025
1,400 Tandem Computers, Inc.*.......................... 19,250
2,100 Unisys Corporation*.............................. 14,175
3,900 Xerox Corporation................................ 205,237
----------
4,536,281
----------
Business Services (1.0%)
------------------------
3,500 Automatic Data Processing, Inc................... 150,062
1,200 Block (H.R.), Inc................................ 34,800
2,500 Browning-Ferris Industries, Inc.................. 65,625
</TABLE>
The accompanying notes to the financial statements are an integral part of
this schedule.
16
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO]
Balanced Portfolio
- ----------------------------------------------------------
Schedule of Investments as of December 31, 1996--Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCK MARKET VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
Business Services--Continued
---------------------------
2,100 Cognizant Corporation.................................... $ 69,300
4,450 Computer Associates International, Inc................... 221,387
900 Computer Sciences Corporation*........................... 73,913
1,000 Deluxe Corporation....................................... 32,750
800 Ecolab, Inc.............................................. 30,100
5,500 First Data Corporation................................... 200,750
1,000 Interpublic Group of Companies, Inc...................... 47,500
400 John H. Harland Company.................................. 13,200
3,800 Laidlaw, Inc............................................. 43,700
1,200 Moore Corporation, Ltd................................... 24,450
600 National Service Industries, Inc......................... 22,425
700 Safety Kleen Corporation................................. 11,462
300 Shared Medical Systems Corporation....................... 14,775
2,000 Dun & Bradstreet Corporation............................. 47,500
5,900 WMX Technologies, Inc.................................... 192,488
----------
1,296,187
----------
Chemicals (1.9%)
----------------
1,400 Air Products & Chemicals, Inc............................ 96,775
6,900 E.I. Du Pont de Nemours & Company........................ 651,188
900 Eastman Chemical Company................................. 49,725
800 Great Lakes Chemical Corporation......................... 37,400
1,300 Hercules, Inc............................................ 56,225
5,100 Minnesota Mining & Manufacturing Company................. 422,662
7,200 Monsanto Company......................................... 279,900
1,700 Morton International, Inc................................ 69,275
800 Nalco Chemical Company................................... 28,900
2,200 PPG Industries, Inc...................................... 123,475
1,900 Praxair, Inc............................................. 87,638
800 Rohm & Haas Company...................................... 65,300
600 Sigma-Aldrich Corporation................................ 37,462
2,900 The Dow Chemical Company................................. 227,288
1,500 Union Carbide Corporation................................ 61,312
1,100 W.R. Grace & Company..................................... 56,925
----------
2,351,450
----------
Construction (0.2%)
-------------------
500 Armstrong World Industries, Inc.......................... 34,750
300 Centex Corporation....................................... 11,287
600 Crane Company............................................ 17,400
1,000 Fluor Corporation........................................ 62,750
400 Kaufman & Broad Home Corporation......................... 5,150
1,900 Masco Corporation........................................ 68,400
600 Owens-Corning Fiberglass Corporation..................... 25,575
300 Pulte Corporation........................................ 9,225
1,000 Sherwin-Williams Company................................. 56,000
1,000 Stanley Works............................................ 27,000
----------
317,537
----------
Consumer Durables (0.2%)
-------------------------
1,000 Black & Decker Corporation............................... $ 30,125
1,200 Maytag Corporation....................................... 23,700
1,900 Newell Company........................................... 59,850
800 Tupperware Corporation................................... 42,900
900 Whirlpool Corporation.................................... 41,962
----------
198,537
----------
Containers (0.1%)
-----------------
300 Ball Corporation......................................... 7,800
700 Bemis Company, Inc....................................... 25,812
1,600 Crown Cork & Seal Company, Inc........................... 87,000
1,200 Stone Container Corporation.............................. 17,850
----------
138,462
----------
Cosmetics (1.4%)
----------------
300 Alberto-Culver Company................................... 14,400
1,600 Avon Products, Inc....................................... 91,400
600 Clorox Company........................................... 60,225
1,800 Colgate-Palmolive Company................................ 166,050
5,400 Gillette Company......................................... 419,850
1,300 International Flavors and Fragrances, Inc................ 58,500
8,300 Procter & Gamble Company................................. 892,250
----------
1,702,675
----------
Drugs & Medicine (5.5%)
-----------------------
9,400 Abbott Laboratories...................................... 477,050
800 Allergan, Inc............................................ 28,500
1,000 Alza Corporation*........................................ 25,875
7,800 American Home Products Corporation....................... 457,275
3,200 Amgen, Inc.*............................................. 174,000
700 Bard (C.R.), Inc......................................... 19,600
700 Bausch & Lomb, Inc....................................... 24,500
3,300 Baxter International, Inc................................ 135,300
1,500 Becton, Dickinson and Company............................ 65,063
1,200 Beverly Enterprises, Inc.*............................... 15,300
1,400 Biomet, Inc.*............................................ 21,175
2,200 Boston Scientific Corporation*........................... 132,000
6,100 Bristol-Myers Squibb Company............................. 663,375
8,150 Columbia/HCA Healthcare Corporation...................... 332,112
6,700 Eli Lilly & Company...................................... 489,100
1,900 Humana, Inc.*............................................ 36,338
16,200 Johnson & Johnson........................................ 805,950
900 Mallinckrodt Group, Inc.................................. 39,712
700 Manor Care, Inc.......................................... 18,900
2,900 Medtronic, Inc........................................... 197,200
14,600 Merck & Company, Inc..................................... 1,157,050
7,800 Pfizer, Inc.............................................. 646,425
6,180 Pharmacia & Upjohn, Inc.................................. 244,882
4,500 Schering-Plough Corporation.............................. 291,375
</TABLE>
The accompanying notes to the financial statements
are an integral part of this schedule.
17
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO] Balanced Portfolio
------------------
Schedule of Investments as of December 31, 1996--Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCK MARKET VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
Drugs & Medicine--Continued
---------------------------
950 St. Jude Medical, Inc.*.................................. $ 40,494
2,600 Tenet Healthcare Corporation*............................ 56,875
800 U.S. Surgical Corporation................................ 31,500
2,200 United Healthcare Corporation............................ 99,000
3,300 Warner-Lambert Company................................... 247,500
----------
6,973,426
----------
Electronics (2.6%)
------------------
2,628 AMP, Inc................................................. 100,850
1,600 Advanced Micro Devices, Inc.*............................ 41,200
2,200 Applied Materials, Inc.*................................. 79,062
500 EG&G, Inc................................................ 10,063
2,800 EMC Corporation*......................................... 92,750
1,600 General Instrument Corporation*.......................... 34,600
600 General Signal Corporation............................... 25,650
500 Harris Corporation....................................... 34,312
12,300 Hewlett-Packard Company.................................. 618,075
10,000 Intel Corporation........................................ 1,309,375
1,500 LSI Logic Corporation*................................... 40,125
2,500 Micron Technology, Inc................................... 72,813
7,200 Motorola, Inc............................................ 441,900
1,600 National Semiconductor Corporation*...................... 39,000
500 Perkin Elmer Corporation................................. 29,437
900 Scientific-Atlanta, Inc.................................. 13,500
400 Tektronix, Inc........................................... 20,500
2,200 Tellabs, Inc.*........................................... 82,775
2,300 Texas Instruments, Inc................................... 146,625
700 Thomas & Betts Corporation............................... 31,063
----------
3,263,675
----------
Energy & Utilities (2.0%)
-------------------------
2,300 American Electric Power Company.......................... 94,588
1,800 Baltimore Gas & Electric Company......................... 48,150
1,900 CINergy Corporation...................................... 63,412
1,800 Carolina Power & Light Company........................... 65,700
2,500 Central & Southwest Corporation.......................... 64,063
1,300 Coastal Corporation...................................... 63,537
700 Columbia Gas System, Inc................................. 44,538
2,800 Consolidated Edison Company of New York.................. 81,900
1,200 Consolidated Natural Gas Company......................... 66,300
1,700 DTE Energy Company....................................... 55,037
2,400 Duke Power Company....................................... 111,000
2,200 Dominion Resources, Inc.................................. 84,700
5,200 Edison International..................................... 103,350
3,100 Enron Corporation........................................ 133,688
800 Enserch Corporation...................................... 18,400
2,800 Entergy Corporation...................................... 77,700
2,200 FPL Group, Inc........................................... 101,200
1,400 General Public Utilities Corporation..................... 47,075
2,900 Houston Industries, Inc.................................. 65,612
1,700 Niagara Mohawk Power Corporation......................... $ 16,788
600 Nicor, Inc............................................... 21,450
1,600 NorAm Energy Corporation................................. 24,600
800 Northern States Power Company............................ 36,700
300 ONEOK, Inc............................................... 9,000
1,800 Ohio Edison Company...................................... 40,950
1,900 P P & L Resources, Inc................................... 43,700
3,500 PacifiCorp............................................... 71,750
1,000 Pacific Enterprises...................................... 30,375
5,000 Pacific Gas & Electric Company........................... 105,000
1,800 PanEnergy Corporation.................................... 81,000
2,700 Peco Energy Company...................................... 68,175
400 Peoples Energy Corporation............................... 13,550
2,900 Public Service Enterprise................................ 79,025
1,000 Sonat, Inc............................................... 51,500
8,100 Southern Company......................................... 183,262
2,700 Texas Utilities Company.................................. 110,025
2,600 Unicom Corporation....................................... 70,525
1,200 Union Electric Company................................... 46,200
1,950 Williams Companies, Inc.................................. 73,125
----------
2,566,650
----------
Energy--Raw Materials (0.6%)
----------------------------
1,700 Baker Hughes, Inc........................................ 58,650
1,500 Burlington Resources, Inc................................ 75,563
2,100 Dresser Industries, Inc.................................. 65,100
200 Eastern Enterprises...................................... 7,075
1,500 Halliburton Company...................................... 90,375
300 Helmerich & Payne, Inc................................... 15,637
400 Louisiana Land and Explorations Company.................. 21,450
600 McDermott International, Inc............................. 9,975
4,000 Occidental Petroleum Corporation......................... 93,500
3,000 Schlumberger, Ltd........................................ 299,625
3,032 Union Pacific Resources Group, Inc....................... 88,686
----------
825,636
----------
Food & Agriculture (3.4%)
-------------------------
6,602 Archer-Daniels-Midland Company........................... 145,244
1,700 CPC International, Inc................................... 131,750
2,800 Campbell Soup Company.................................... 224,700
30,300 Coca-Cola Company........................................ 1,594,538
2,900 ConAgra, Inc............................................. 144,275
400 Fleming Companies, Inc................................... 6,900
1,900 General Mills, Inc....................................... 120,412
4,450 H.J. Heinz Company....................................... 159,088
1,900 Hershey Foods Corporation................................ 83,125
2,600 Kellogg Company.......................................... 170,625
18,800 PepsiCo, Inc............................................. 549,900
1,000 Pioneer Hi-Bred International, Inc....................... 70,000
1,600 Quaker Oats Company...................................... 61,000
1,300 Ralston Purina Corporation............................... 95,387
5,900 Sara Lee Corporation..................................... 219,775
800 Supervalu, Inc........................................... 22,700
</TABLE>
The accompanying notes to the financial statements
are an integral part of this schedule.
18
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO]
Balanced Portfolio
Schedule of Investments as of December 31, 1996--Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCK MARKET VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
Food & Agriculture--Continued
-----------------------------
2,200 Sysco Corporation........................................ $ 71,775
1,900 Unilever N.V............................................. 332,975
1,200 Whitman Corporation...................................... 27,450
1,400 Wrigley (Wm) Jr. Company................................. 78,750
----------
4,310,369
----------
Gold (0.2%)
-----------
4,300 Barrick Gold Corporation................................. 123,625
2,700 Battle Mountain Gold Company............................. 18,563
1,700 Homestake Mining Company................................. 24,225
1,200 Newmont Mining Corporation............................... 53,700
2,900 Placer Dome, Inc......................................... 63,075
1,500 Santa Fe Pacific Gold Corporation........................ 23,062
----------
306,250
----------
Insurance (2.0%)
----------------
1,814 Aetna Life & Casualty Company............................ 145,120
500 Alexander & Alexander Services, Inc...................... 8,688
5,448 Allstate Corporation..................................... 315,303
2,500 American General Corporation............................. 102,187
5,700 American International Group, Inc........................ 617,025
1,300 Aon Corporation.......................................... 80,763
2,100 Chubb Corporation........................................ 112,875
900 Cigna Corporation........................................ 122,962
1,000 General Re Corporation................................... 157,750
1,400 ITT Hartford Group, Inc.................................. 94,500
900 Jefferson-Pilot Corporation.............................. 50,963
1,300 Lincoln National Corporation............................. 68,250
500 MBIA, Inc................................................ 50,625
700 MGIC Investment Corporation.............................. 53,200
900 Marsh & McLennan Companies, Inc.......................... 93,600
1,100 Providian Corporation.................................... 56,512
1,500 Safeco Corporation....................................... 59,156
1,000 St. Paul Companies, Inc.................................. 58,625
900 Torchmark Corporation.................................... 45,450
800 Transamerica Corporation................................. 63,200
1,400 USF&G Corporation........................................ 29,225
350 USLIFE Corporation....................................... 11,638
900 Unum Corporation......................................... 65,025
----------
2,462,642
----------
Liquor (0.4%)
-------------
6,100 Anheuser-Busch Companies, Inc............................ 244,000
800 Brown-Foreman Corporation................................ 36,600
400 Coors (Adolph) Company................................... 7,600
4,500 Seagram Company, Ltd..................................... 174,375
----------
462,575
----------
Media (0.9%)
------------
3,900 Comcast Corporation, Class A............................. 69,469
1,200 Dow Jones & Company, Inc................................. 40,650
1,700 Gannett Company, Inc..................................... 127,288
400 King World Productions, Inc.*............................ 14,750
1,200 Knight-Ridder Inc........................................ 45,900
1,200 McGraw-Hill, Inc......................................... 55,350
300 Meredith Corporation..................................... 15,825
1,200 New York Times Company................................... 45,600
1,800 R.R. Donnelley & Sons Company............................ 56,475
8,000 Tele-Communications, Inc.*............................... 104,500
7,000 Time Warner, Inc......................................... 262,500
1,300 Times Mirror Company..................................... 64,675
700 Tribune Company.......................................... 55,212
4,300 Viacom, Inc.*............................................ 149,962
----------
1,108,156
----------
Miscellaneous Finance (1.6%)
----------------------------
1,300 Ahmanson (H.F.) & Company................................ 42,250
5,800 American Express Company................................. 327,700
700 Beneficial Corporation................................... 44,363
2,000 Dean Witter Discover and Company......................... 132,500
13,300 Federal National Mortgage Association.................... 495,425
2,200 Federal Home Loan Mortgage Corporation................... 242,275
700 Golden West Financial Corporation........................ 44,187
1,600 Great Western Financial Corporation...................... 46,400
1,700 Green Tree Financial Corporation......................... 65,662
1,200 Household International Corporation...................... 110,700
2,700 MBNA Corporation......................................... 112,050
7,800 Travelers Group, Inc..................................... 353,925
----------
2,017,437
----------
Motor Vehicles (1.2%)
---------------------
8,800 Chrysler Corporation..................................... 290,400
500 Cummins Engine Company, Inc.............................. 23,000
1,200 Dana Corporation......................................... 39,150
900 Eaton Corporation........................................ 62,775
700 Echlin, Inc.............................................. 22,138
400 Fleetwood Enterprises, Inc............................... 11,000
14,400 Ford Motor Company....................................... 459,000
1,500 Genuine Parts Company.................................... 66,750
9,200 General Motors Corporation............................... 512,900
1,400 ITT Industries, Inc...................................... 34,300
----------
1,521,413
----------
Non-Durables (0.6%)
-------------------
900 American Greetings Corporation, Class A.................. 25,538
1,900 Darden Restaurants, Inc.................................. 16,625
900 Harcourt General, Inc.................................... 41,512
1,000 Hasbro, Inc.............................................. 38,875
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
19
<PAGE>
A A L V A R I A B L E A N N U I T Y
[AAL LOGO] BALANCED PORTFOLIO
------------------
Schedule of Investments as of December 31, 1996--Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCK MARKET VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
Non-Durables--Continued
----------------------
400 Jostens, Inc............................................. $ 8,450
300 Luby's Cafeterias, Inc................................... 5,962
3,325 Mattel, Inc.............................................. 92,269
8,500 McDonald's Corporation................................... 384,625
1,800 Rubbermaid Inc........................................... 40,950
600 Ryans Family Steak House*................................ 4,125
2,800 Service Corporation International........................ 78,400
500 Shoneys, Inc.*........................................... 3,500
1,500 Wendy's International, Inc............................... 30,750
----------
771,581
----------
Non-Ferrous Metals (0.4%)
-------------------------
2,700 Alcan Aluminum, Ltd...................................... 90,788
2,100 Aluminum Company of America.............................. 133,875
500 Asarco, Inc.............................................. 12,437
1,100 Cyprus Minerals Company.................................. 25,713
1,600 Echo Bay Mines, Ltd...................................... 10,600
1,650 Engelhard Corporation.................................... 31,556
2,300 Freeport-McMoran Copper & Gold, Class B.................. 68,712
2,000 Inco, Ltd................................................ 63,750
800 Phelps Dodge Corporation................................. 54,000
800 Reynolds Metals Company.................................. 45,100
----------
536,531
----------
Oil--Domestic (0.7%)
--------------------
1,100 Amerada Hess Corporation................................. 63,663
800 Ashland Oil, Inc......................................... 35,100
2,000 Atlantic Richfield Company............................... 265,000
600 Kerr-McGee Corporation................................... 43,200
1,200 Oryx Energy Company*..................................... 29,700
600 Pennzoil Corporation..................................... 33,900
3,200 Phillips Petroleum Company............................... 141,600
1,000 Rowan Companies, Inc.*................................... 22,625
1,100 Santa Fe Energy Resources, Inc.*......................... 15,263
800 Sun Company, Inc......................................... 19,500
3,500 USX-Marathon Group, Inc.................................. 83,562
3,000 Unocal Corporation....................................... 121,875
----------
874,988
----------
Oil--International (3.6%)
------------------------
6,100 Amoco Corporation........................................ 491,050
8,000 Chevron Corporation...................................... 520,000
15,100 Exxon Corporation........................................ 1,479,800
4,800 Mobil Corporation........................................ 586,800
6,500 Royal Dutch Petroleum Company............................ 1,109,875
3,200 Texaco, Inc.............................................. 314,000
700 Western Atlas, Inc.*..................................... 49,613
----------
4,551,138
----------
Optical & Photo (0.4%)
----------------------
2,800 Corning, Inc............................................. $ 129,500
4,000 Eastman Kodak Company.................................... 321,000
600 Polaroid Corporation..................................... 26,100
----------
476,600
----------
Paper & Forest Products (0.9%)
------------------------------
1,600 Alco Standard Corporation................................ 82,600
600 Boise Cascade Corporation................................ 19,050
1,200 Champion International Corporation....................... 51,900
1,100 Georgia-Pacific Corporation.............................. 79,200
3,602 International Paper Company.............................. 145,431
1,000 James River Corporation of Virginia...................... 33,125
3,390 Kimberly-Clark Corporation............................... 322,897
1,300 Louisiana-Pacific Corporation............................ 27,463
600 Mead Corporation......................................... 34,875
400 Potlatch Corporation..................................... 17,200
700 Temple-Inland, Inc....................................... 37,887
800 Union Camp Corporation................................... 38,200
1,200 Westvaco Corporation..................................... 34,500
2,400 Weyerhaeuser Company..................................... 113,700
700 Willamette Industries.................................... 48,738
----------
1,086,766
----------
Producers Goods (3.1%)
----------------------
3,400 Allied-Signal Inc........................................ 227,800
1,200 Avery Dennison Corporation............................... 42,450
400 Briggs & Stratton Corporation............................ 17,600
900 Case Corporation......................................... 49,050
2,300 Caterpillar, Inc......................................... 173,075
400 Cincinnati Milacron, Inc................................. 8,750
1,300 Cooper Industries, Inc................................... 54,763
3,100 Deere & Company.......................................... 125,937
1,400 Dover Corporation........................................ 70,350
2,700 Emerson Electric Company................................. 261,225
500 FMC Corporation*......................................... 35,063
500 Foster Wheeler Corporation............................... 18,562
20,000 General Electric Company................................. 1,977,500
400 Giddings & Lewis, Inc.................................... 5,150
600 Harnischfeger Industries, Inc............................ 28,875
1,500 Illinois Tool Works, Inc................................. 119,813
1,300 Ingersoll-Rand Company................................... 57,850
500 Johnson Controls, Inc.................................... 41,437
500 Millipore Corporation.................................... 20,688
100 NACCO Industries, Inc.................................... 5,350
800 Navistar International Corporation*...................... 7,300
1,400 Pall Corporation......................................... 35,700
900 Parker Hannifin Corporation.............................. 34,875
600 Raychem Corporation...................................... 48,075
700 Snap-On, Inc............................................. 24,937
2,100 Tenneco, Inc............................................. 94,763
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
20
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[ALL LOGO]
Balanced Portfolio
- ---------------------------------------------------------
Schedule of Investments as of December 31, 1996-Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCK MARKET VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
Producers Goods-Continued
-------------------------
400 Timken Company........................................... $ 18,350
300 Trinova Corporation...................................... 10,912
2,000 Tyco International Ltd................................... 105,750
600 W.W. Grainger, Inc....................................... 48,150
5,100 Westinghouse Electric Company............................ 101,363
----------
3,871,463
----------
Railroad & Shipping (0.5%)
--------------------------
1,864 Burlington Northern, Inc................................. 161,003
2,700 CSX Corporation.......................................... 114,075
1,000 Conrail, Inc............................................. 99,625
1,500 Norfolk Southern Corporation............................. 131,250
3,000 Union Pacific Corporation................................ 180,375
----------
686,328
----------
Retail (2.4%)
-------------
3,100 Albertson's, Inc......................................... 110,438
1,800 American Stores Company.................................. 73,575
4,750 CUC International, Inc.*................................. 112,812
1,300 CVS Corporation.......................................... 53,788
1,200 Charming Shoppes, Inc.................................... 6,075
1,200 Circuit City Stores, Inc................................. 36,150
2,600 Dayton Hudson Corporation................................ 102,050
1,400 Dillard Department Stores, Inc........................... 43,225
2,500 Federated Department Stores, Inc.*....................... 85,312
3,400 GAP, Inc................................................. 102,425
700 Giant Food, Inc., Class A................................ 24,150
400 Great Atlantic & Pacific Tea Company, Inc................ 12,750
5,800 Home Depot, Inc.......................................... 290,725
2,900 J.C. Penney Company, Inc................................. 141,375
5,800 Kmart Corporation........................................ 60,175
1,500 Kroger Corporation*...................................... 69,750
200 Long's Drug Stores, Inc.................................. 9,825
2,100 Lowe's Companies, Inc.................................... 74,550
3,100 May Department Stores Company............................ 144,925
400 Mercantile Stores Company, Inc........................... 19,750
1,000 Nordstrom, Inc........................................... 35,438
700 Pep Boys - Manny, Moe, & Jack............................ 21,525
2,300 Price/Costco, Inc.*...................................... 57,788
1,500 Rite Aid Corporation..................................... 59,625
4,800 Sears Roebuck & Company.................................. 221,400
900 TJX Companies, Inc....................................... 42,637
700 Tandy Corporation........................................ 30,800
3,270 The Limited, Inc......................................... 60,086
3,300 Toys "R" Us, Inc.*....................................... 99,000
27,800 Wal-Mart Stores, Inc..................................... 635,925
3,000 Walgreen Company......................................... 120,000
1,800 Winn-Dixie Stores, Inc................................... 56,925
1,600 Woolworth Corporation*................................... 35,000
----------
3,049,974
----------
Steel (0.1%)
-------------
2,062 Allegheny Teledyne, Inc.................................. $ 47,426
1,200 Armco, Inc.*............................................. 4,950
1,300 Bethlehem Steel Corporation*............................. 11,700
500 Inland Steel Industries, Inc............................. 10,000
1,100 Nucor Corporation........................................ 56,100
1,000 USX-US Steel Group, Inc.................................. 31,375
1,100 Worthington Industries, Inc.............................. 19,938
----------
181,489
----------
Telephone (4.1%)
----------------
2,300 ALLTEL Corporation....................................... 72,162
19,700 AT&T Corporation......................................... 856,950
6,100 Airtouch Communications, Inc.*........................... 154,025
6,700 Ameritech Corporation.................................... 406,188
700 Andrew Corporation....................................... 37,144
5,400 Bell Atlantic Corporation................................ 349,650
12,100 BellSouth Corporation.................................... 488,538
1,400 DSC Communications Corporation*.......................... 25,025
11,700 GTE Corporation.......................................... 532,350
7,750 Lucent Technologies, Inc................................. 358,437
8,300 MCI Communications Corporation........................... 271,306
3,100 Northern Telecom Ltd..................................... 191,812
5,300 Nynex Corporation........................................ 255,063
5,200 Pacific Telesis Group.................................... 191,100
7,300 SBC Communications, Inc.................................. 377,775
5,200 Sprint Corporation....................................... 207,350
5,800 U S West, Inc............................................ 187,050
7,500 U. S. West Media Group*.................................. 138,750
4,900 WorldCom, Inc.*.......................................... 127,706
----------
5,228,381
----------
Tires & Rubber (0.1%)
--------------------
900 Cooper Tire & Rubber Company............................. 17,775
1,900 Goodyear Tire & Rubber................................... 97,612
----------
115,387
----------
Tobacco (1.1%)
--------------
2,100 American Brands, Inc..................................... 104,212
1,400 Loews Corporation........................................ 131,950
9,900 Phillip Morris Companies, Inc............................ 1,114,988
2,200 UST, Inc................................................. 71,225
----------
1,422,375
----------
Travel & Recreation (0.8%)
--------------------------
1,200 Brunswick Corporation.................................... 28,800
8,229 Disney (Walt) Company.................................... 572,944
1,600 HFS, Inc.*............................................... 95,600
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
21
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO]
Balanced Portfolio
------------------
Schedule of Investments as of December 31, 1996--Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCK MARKET VALUE
- --------------------------------------------------------
<S> <C>
Travel & Recreation--Continued
------------------------------
1,200 Harrah's Entertainment*............ $ 23,850
2,900 Hilton Hotels Corporation.......... 75,763
1,400 ITT Corporation*................... 60,725
1,600 Marriott International, Inc........ 88,400
----------
946,082
----------
Trucking & Freight (0.1%)
------------------------
400 Caliber System, Inc................ 7,700
500 PACCAR, Inc........................ 34,000
1,000 Ryder Systems, Inc................. 28,125
----------
69,825
----------
Total Common Stocks
(cost basis $58,778,536) 68,245,521
----------
*Non-income producing securities
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY MARKET
AMOUNT LONG-TERM DEBT SECURITIES (36.0%) RATE DATE VALUE
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Obligations (15.9%)
----------------------------------
$275,000 U.S. Treasury Bond.................... 9.000% 02/15/06 $330,859
575,000 U.S. Treasury Bond.................... 7.000 07/15/06 597,461
200,000 U.S. Treasury Bond....................10.375 11/15/12 257,625
250,000 U.S. Treasury Bond.................... 9.875 11/15/15 333,750
500,000 U.S. Treasury Bond.................... 7.500 11/15/16 541,094
250,000 U.S. Treasury Bond.................... 8.750 05/15/17 304,844
250,000 U.S. Treasury Bond.................... 8.125 08/15/19 288,906
250,000 U.S. Treasury Bond.................... 8.500 02/15/20 300,000
250,000 U.S. Treasury Bond.................... 7.875 02/15/21 282,422
300,000 U.S. Treasury Bond.................... 8.125 08/15/21 348,187
300,000 U.S. Treasury Bond.................... 8.000 11/15/21 343,875
250,000 U.S. Treasury Bond.................... 7.250 08/15/22 264,453
250,000 U.S. Treasury Bond.................... 7.625 11/15/22 275,859
250,000 U.S. Treasury Bond.................... 7.125 02/15/23 260,859
350,000 U.S. Treasury Bond.................... 6.250 08/15/23 328,015
350,000 U.S. Treasury Bond.................... 7.500 11/15/24 382,703
420,000 U.S. Treasury Bond.................... 7.625 02/15/25 466,331
500,000 U.S. Treasury Bond.................... 6.875 08/15/25 509,531
125,000 U.S. Treasury Note.................... 5.875 07/31/97 125,078
125,000 U.S. Treasury Note.................... 5.625 10/31/97 124,727
250,000 U.S. Treasury Note.................... 6.000 12/31/97 250,234
300,000 U.S. Treasury Note.................... 7.875 01/15/98 305,718
400,000 U.S. Treasury Note.................... 7.250 02/15/98 405,375
225,000 U.S. Treasury Note.................... 6.125 03/31/98 225,492
350,000 U.S. Treasury Note.................... 7.875 04/15/98 358,203
250,000 U.S. Treasury Note.................... 5.875 04/30/98 249,765
400,000 U.S. Treasury Note.................... 6.125 05/15/98 400,875
450,000 U.S. Treasury Note.................... 6.250 06/30/98 452,109
450,000 U.S. Treasury Note.................... 8.250 07/15/98 465,188
400,000 U.S. Treasury Note.................... 5.250 07/31/98 396,000
250,000 U.S. Treasury Note.................... 5.875 08/15/98 249,688
300,000 U.S. Treasury Note.................... 6.000 09/30/98 300,375
350,000 U.S. Treasury Note.................... 7.125 10/15/98 357,000
250,000 U.S. Treasury Note.................... 5.500 11/15/98 248,125
325,000 U.S. Treasury Note.................... 8.875 11/15/98 341,656
250,000 U.S. Treasury Note.................... 5.125 12/31/98 245,859
225,000 U.S. Treasury Note.................... 6.375 01/15/99 227,109
200,000 U.S. Treasury Note.................... 8.875 02/15/99 211,562
250,000 U.S. Treasury Note.................... 5.500 02/28/99 247,813
250,000 U.S. Treasury Note.................... 5.875 03/31/99 249,609
250,000 U.S. Treasury Note.................... 7.000 04/15/99 255,547
250,000 U.S. Treasury Note.................... 6.750 05/31/99 254,219
250,000 U.S. Treasury Note.................... 6.750 06/30/99 254,375
250,000 U.S. Treasury Note.................... 6.875 07/31/99 255,078
250,000 U.S. Treasury Note.................... 8.000 08/15/99 261,797
400,000 U.S. Treasury Note.................... 7.125 09/30/99 410,875
300,000 U.S. Treasury Note.................... 7.500 10/31/99 311,156
450,000 U.S. Treasury Note.................... 7.750 11/30/99 469,969
250,000 U.S. Treasury Note.................... 7.750 12/31/99 261,406
400,000 U.S. Treasury Note.................... 7.750 01/31/00 418,625
125,000 U.S. Treasury Note.................... 7.125 02/29/00 128,672
150,000 U.S. Treasury Note.................... 6.750 04/30/00 152,859
250,000 U.S. Treasury Note.................... 6.125 07/31/00 250,000
375,000 U.S. Treasury Note.................... 8.500 11/15/00 405,000
300,000 U.S. Treasury Note.................... 5.500 12/31/00 293,063
350,000 U.S. Treasury Note.................... 7.750 02/15/01 369,906
250,000 U.S. Treasury Note.................... 8.000 05/15/01 267,109
350,000 U.S. Treasury Note.................... 7.500 11/15/01 368,484
125,000 U.S. Treasury Note....................10.750 02/15/03 153,008
500,000 U.S. Treasury Note.................... 6.250 02/15/03 499,531
250,000 U.S. Treasury Note.................... 5.750 08/15/03 242,500
150,000 U.S. Treasury Note.................... 5.875 02/15/04 146,063
230,000 U.S. Treasury Note.................... 6.500 05/15/05 231,653
500,000 U.S. Treasury Note.................... 7.250 05/15/16 527,969
----------
Total U.S. Government
Obligations.......................... 20,043,198
----------
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Agency Obligations (13.1%)
------------------------------------------
<C> <S> <C> <C> <C>
250,000 Federal Home Loan
Bank Notes.............. 9.250 11/25/98 264,381
250,000 Federal Home Loan
Bank Debentures......... 7.260 09/06/01 258,680
188,711 Federal Home Loan Mortgage
Corporation Gold
15-Yr. Pass Through..... 7.500 08/01/10 191,423
240,449 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through..... 7.000 09/01/25 235,941
131,349 Federal Home Loan
Mortgage Corporation
Gold 7-Yr. Balloon...... 7.000 07/01/02 131,883
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
22
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO]
Balanced Portfolio
- ------------------
Schedule of Investments as of December 31, 1996--Continued
PRINCIPAL INTEREST MATURITY MARKET
AMOUNT LONG-TERM DEBT SECURITIES RATE DATE VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. Government Agency Obligations-Continued
--------------------------------------------
$251,850 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through....................... 7.500% 08/01/26 $252,164
249,849 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through....................... 8.000 11/01/26 254,611
247,283 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through....................... 7.500 07/01/26 247,592
251,181 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through....................... 6.000 07/01/26 233,619
250,000 Federal Home Loan Mortgage
Corporation Medium
Term Note................................. 6.395 05/16/00 251,224
217,393 Federal Home Loan Mortgage
Corporation Gold
5-Yr. Balloon............................. 5.500 12/01/99 212,163
251,178 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through....................... 7.000 05/01/26 246,469
248,985 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through....................... 6.500 11/01/26 238,014
183,765 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through....................... 9.000 04/01/25 194,102
191,851 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through....................... 6.500 04/01/24 183,398
175,647 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through....................... 8.500 09/01/25 181,959
253,523 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through....................... 8.000 01/01/26 258,355
247,205 Federal Home Loan Mortgage
Corporation Gold
30-Yr. Pass Through....................... 7.500 11/01/25 247,514
236,425 Federal Home Loan Mortgage
Corporation Gold
15-Yr. Pass Through....................... 6.500 04/01/09 232,287
580,000 Federal Home Loan
Mortgage Corporation
10-Yr. Conventional....................... 5.990 12/01/03 561,742
216,879 Federal Home Loan
Mortgage Corporation
15-Yr. Pass Through....................... 7.000 11/10/10 216,812
81,352 Federal National
Mortgage Association
15-Yr. Pass Through....................... 9.000 04/01/10 85,140
241,421 Federal National
Mortgage Association
15-Yr. Pass Through....................... 8.000 05/01/11 248,362
252,499 Federal National
Mortgage Association
15-Yr. Pass Through....................... 7.000 06/01/11 252,184
243,725 Federal National
Mortgage Association
15-Yr. Pass Through....................... 6.500 07/01/11 239,308
237,742 Federal National
Mortgage Association
15-Yr. Pass Through....................... 7.500 06/01/11 240,936
50,344 Federal National
Mortgage Association
15-Yr. Pass Through....................... 9.000 04/01/10 52,688
233,888 Federal National
Mortgage Association
15-Yr. Pass Through....................... 6.000 02/01/11 224,898
236,674 Federal National
Mortgage Association
30-Yr. Pass Through....................... 9.500 04/01/25 255,312
248,171 Federal National
Mortgage Association
30-Yr. Pass Through....................... 8.000 08/01/26 252,669
237,101 Federal National
Mortgage Association
30-Yr. Pass Through....................... 7.500 09/01/25 237,026
245,840 Federal National
Mortgage Association
30-Yr. Pass Through....................... 6.500 03/01/26 234,547
247,500 Federal National
Mortgage Association
30-Yr. Pass Through....................... 7.500 12/01/26 247,422
235,204 Federal National
Mortgage Association
30-Yr. Pass Through....................... 8.500 05/01/26 243,510
212,021 Federal National
Mortgage Association
30-Yr. Pass Through....................... 8.000 01/01/26 215,864
252,499 Federal National
Mortgage Association
30-Yr. Pass Through....................... 8.500 11/01/25 261,415
249,815 Federal National
Mortgage Association
30-Yr. Pass Through....................... 7.000 11/01/26 244,428
252,499 Federal National
Mortgage Association
30-Yr. Pass Through....................... 8.000 11/01/26 257,076
249,310 Federal National
Mortgage Association
30-Yr. Pass Through....................... 7.500 09/01/26 249,232
246,071 Federal National
Mortgage Association
30-Yr. Pass Through....................... 7.000 03/01/26 240,765
The accompanying notes to the financial statements are an integral part of this schedule.
</TABLE>
23
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO]
Balanced Portfolio
- ------------------
Schedule of Investments as of December 31, 1996-Continued
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PRINCIPAL INTEREST MATURITY MARKET
AMOUNT LONG-TERM DEBT SECURITIES RATE DATE VALUE
- ------------------------------------------------------------------------------------------
U.S. Government Agency Obligations-Continued
--------------------------------------------
$247,703 Federal National
Mortgage Association
30-Yr. Pass Through.............. 7.500% 07/01/26 $ 247,626
235,001 Federal National
Mortgage Association
30-Yr. Pass Through.............. 6.000 05/01/26 218,184
250,000 Federal National
Mortgage Association
10-Yr. Pass Through.............. 6.700 11/10/05 245,130
248,066 Federal National
Mortgage Association
7-Yr. Balloon.................... 6.500 10/01/03 245,431
175,000 Federal National
Mortgage Association
30-Yr. Pass Through.............. 8.100 08/12/19 195,730
234,244 Federal National
Mortgage Association
30-Yr. Pass Through.............. 7.000 01/01/26 229,193
202,940 Federal National
Mortgage Association
30-Yr. Pass Through..............10.500 08/01/20 224,374
250,000 Federal National
Mortgage Association
Medium Term Note................. 6.720 08/01/05 250,714
200,000 Federal National
Mortgage Association
Medium Term Note................. 5.200 04/30/98 198,483
202,680 Federal National
Mortgage Association
30-Yr. Pass Through.............. 7.500 10/01/24 202,616
250,557 Government National
Mortgage Association
15-Yr. Pass Through.............. 6.500 06/15/11 247,268
248,445 Government National
Mortgage Association
15-Yr. Pass Through.............. 7.500 07/15/11 252,871
250,734 Government National
Mortgage Association
15-Yr. Pass Through.............. 6.000 04/15/11 242,115
247,152 Government National
Mortgage Association
30-Yr. Pass Through.............. 7.500 10/15/26 247,306
239,344 Government National
Mortgage Association
30-Yr. Pass Through.............. 7.000 01/15/26 234,183
248,305 Government National
Mortgage Association
30-Yr. Pass Through.............. 6.000 05/15/26 230,458
243,230 Government National
Mortgage Association
30-Yr. Pass Through.............. 8.000 04/15/26 248,094
239,305 Government National
Mortgage Association
30-Yr. Pass Through.............. 9.000 08/15/26 252,167
247,350 Government National
Mortgage Association
30-Yr. Pass Through.............. 8.500 11/15/26 256,162
249,808 Government National
Mortgage Association
30-Yr. Pass Through.............. 7.500 05/15/26 249,965
248,462 Government National
Mortgage Association
30-Yr. Pass Through.............. 7.000 05/15/26 243,105
250,389 Government National
Mortgage Association
30-Yr. Pass Through.............. 8.500 06/15/26 259,309
202,241 Government National
Mortgage Association
30-Yr. Pass Through.............. 9.500 12/15/24 218,483
253,449 Government National
Mortgage Association
30-Yr. Pass Through.............. 7.500 04/15/26 253,607
189,828 Government National
Mortgage Association
30-Yr. Pass Through.............. 7.500 08/15/25 189,947
149,436 Government National
Mortgage Association
15-Yr. Pass Through.............. 6.500 05/15/09 147,474
193,263 Government National
Mortgage Association
30-Yr. Pass Through.............. 8.000 06/01/25 197,129
250,000 Private Export
Funding Corporation.............. 8.400 07/31/01 269,989
150,000 Private Export
Funding Corporation.............. 6.240 05/15/02 148,775
250,000 Student Loan
Marketing Association............ 6.050 09/14/00 248,077
250,000 Tennessee Valley
Authority........................ 6.375 06/15/05 245,284
----------
Total U.S. Government
Agency Obligations................................. 16,516,364
----------
Asset-Backed Securities (0.5%)
------------------------------
159,947 Western Financial
Grantor Trust................. 7.100 01/01/00 161,897
200,000 NationsBank Credit Card
Trust Certificate............. 6.000 12/15/05 192,908
250,000 Chemical MasterCard
Trust Series
1996-1 Class A................ 5.550 09/15/03 242,925
---------
Total Asset-Backed Securities.......................... 597,730
---------
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
24
<PAGE>
A A L V A R I A B L E A N N U I T Y
[AAL LOGO] Balanced Portfolio
------------------
Schedule of Investments as of December 31, 1996-Continued
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY MARKET
AMOUNT LONG-TERM DEBT SECURITIES RATE DATE VALUE
- ---------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Corporate Obligations (5.0%)
----------------------------
$ 200,000 Abbott Laboratories Notes........ 6.800% 05/15/05 $ 200,497
250,000 American Express
Credit Corporation.............. 6.125 11/15/01 245,278
250,000 American General Finance
Corporation Senior Notes........ 6.875 07/01/99 253,209
250,000 Associates Corporation N.A
Senior Notes.................... 6.000 12/01/02 241,055
225,000 Baker Hughes, Inc. Notes......... 8.000 05/15/04 238,012
250,000 Browning-Ferris Industries Inc
Senior Notes.................... 6.375 01/15/08 236,689
250,000 Columbia Gas System Notes........ 7.320 11/28/10 245,640
500,000 Columbia/HCA
Healthcare Notes................ 8.850 01/01/07 566,368
250,000 Commercial Credit Company Notes.. 6.750 05/15/00 252,097
250,000 E.I. Dupont de Nemours
and Company..................... 8.125 03/15/04 270,175
125,000 Eaton Corporation Notes.......... 6.375 04/01/99 125,345
250,000 General Motors Acceptance
Corporation Notes............... 9.625 12/15/01 279,592
250,000 Honeywell, Inc. Debentures....... 8.625 04/15/06 277,604
250,000 Household Finance Company........ 7.250 07/15/03 254,910
250,000 J.C. Penney & Company, Inc
Notes........................... 6.375 09/15/00 248,960
340,000 J.P. Morgan Notes................ 6.250 12/15/05 325,672
250,000 NorAm Energy Corporation......... 7.500 08/01/00 256,882
250,000 Noranda, Inc. Notes.............. 8.000 06/01/03 263,475
250,000 Norwest Financial, Inc
Senior Notes.................... 7.000 01/15/03 253,077
250,000 Penzoil Company.................. 10.125 11/15/09 292,785
250,000 Pepsico, Inc..................... 5.875 06/01/00 246,340
250,000 Rhone-Poulenc SA Notes........... 7.750 01/15/02 259,852
250,000 Warner-Lambert Notes............. 6.625 09/15/02 249,390
200,000 Weyerhaeuser Company
Debentures...................... 9.050 02/01/03 222,249
------------
Total Corporate Obligations...... 6,305,153
------------
Utility Bonds (0.6%)
---------------------
250,000 Baltimore Gas & Electric
Company First Refunding
Mortgage Bonds.................. 7.500 01/15/07 259,952
250,000 Pacificorp First
Mortgage Bonds.................. 6.750 04/01/05 246,201
250,000 Texas Utilities Company
First Mortgage Bonds............ 7.375 08/01/01 257,177
------------
Total Utility Bonds.............. 763,330
------------
Canadian Government (0.7%)
--------------------------
$ 500,000 Province of Quebec............... 7.500% 07/15/02 $ 517,599
250,000 Manitoba Province Canada......... 6.125 01/19/04 242,465
200,000 Province of Ontario
Senior Global Bonds............. 6.125 06/28/00 199,558
------------
Total Canadian Government........ 959,622
------------
Canadian Corporate Securities (0.2%)
-------------------------------------
250,000 Petro-Canada Ltd................. 8.600 01/15/10 286,175
------------
Total Long-Term
Debt Securities
(amortized cost basis $45,697,328) 45,471,572
------------
Short-Term Investments (9.4%)
-----------------------------
485,000 C.S. First Boston, Inc........... 5.350% 02/05/97 482,478
1,786,000 Carolina Power & Light
Company......................... 5.730 03/05/97 1,768,091
287,000 Ford Motor
Credit Corporation.............. 5.320 01/03/97 286,915
321,000 General Electric
Capital Corporation............. 5.310 01/15/97 320,337
615,000 General Electric
Capital Corporation............. 5.400 01/13/97 613,893
300,000 General Motors
Acceptance Corporation.......... 5.640 01/02/97 299,953
890,000 General Motors
Acceptance Corporation.......... 5.370 01/07/97 889,203
313,000 General Motors
Acceptance Corporation.......... 5.350 01/17/97 312,249
480,000 MDU Resources Group.............. 6.400 01/15/97 478,805
379,000 Merrill Lynch
& Company, Inc.................. 5.340 02/05/97 377,033
1,000,000 Merrill Lynch
& Company, Inc.................. 5.460 01/15/97 997,877
1,075,000 Merrill Lynch
& Company, Inc.................. 5.350 03/04/97 1,065,095
881,000 Merrill Lynch
& Company, Inc.................. 6.250 01/07/97 880,082
448,000 Pacific Gas & Electric........... 5.520 01/28/96 446,145
1,307,000 Sears Roebuck
Acceptance Corporation.......... 5.350 02/04/97 1,300,396
849,000 Walt Disney Company.............. 5.460 01/06/97 848,355
495,000 Xerox Credit Corporation......... 5.350 01/06/97 494,632
------------
Total Short-Term Investments
(amortized cost basis $11,861,539) 11,861,539
------------
Total Investments (99.3%)
(amortized cost basis $116,337,403) 125,578,632
Other Assets, less Liabilities (0.7%) 939,037
------------
NET ASSETS (100.0%).............. $126,517,669
============
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
25
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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
- -----------------------------------------------
Schedule of Investments as of December 31, 1996
<TABLE>
<CAPTION>
<C> <S> <C>
SHARES COMMON STOCK (98.3) MARKET VALUE
- --------------------------------------------------------------------------------
Aerospace (2.4%)
---------------
7,581 Boeing Company......................................... $ 806,386
1,300 General Dynamics Corporation........................... 91,650
1,100 Goodrich (B.F.) Company................................ 44,550
4,100 Lockheed Martin Corporation............................ 375,150
4,400 McDonnell Douglas Corporation.......................... 281,600
1,200 Northrop Grumman Corporation........................... 99,300
5,000 Raytheon Company....................................... 240,625
4,500 Rockwell International Corporation..................... 273,938
2,700 TRW, Inc............................................... 133,650
1,800 Textron, Inc........................................... 169,650
5,000 United Technologies Corporation........................ 330,000
----------
2,846,499
----------
Air Transportation (0.4%)
------------------------
1,900 AMR Corporation*....................................... 167,438
1,600 Delta Air Lines, Inc................................... 113,400
2,400 Federal Express Corporation*........................... 106,800
3,000 Southwest Airlines Company............................. 66,375
1,300 USAir Group, Inc.*..................................... 30,387
----------
484,400
----------
Apparel (0.5%)
-------------
1,600 Fruit of the Loom, Inc.*............................... 60,600
1,500 Liz Claiborne, Inc..................................... 57,938
6,100 Nike, Inc.............................................. 364,475
1,100 Reebok International, Ltd.............................. 46,200
800 Russell Corporation.................................... 23,800
400 Springs Industries, Inc................................ 17,200
1,000 Stride Rite Corporation................................ 10,000
1,400 V F Corporation........................................ 94,500
----------
674,713
----------
Banks (7.6%)
-----------
8,950 Banc One Corporation................................... 384,850
3,200 Bank of Boston Corporation............................. 205,600
8,200 Bank of New York Company, Inc.......................... 276,750
7,600 BankAmerica Corporation................................ 758,100
1,700 Bankers Trust New York Corporation..................... 146,625
4,100 Barnett Banks, Inc..................................... 168,612
3,300 Boatmen's Bancshares, Inc.............................. 212,850
9,256 Chase Manhattan Corporation............................ 826,098
9,900 Citicorp............................................... 1,019,700
2,300 Comerica, Inc.......................................... 120,463
4,600 Corestates Financial Corporation....................... 238,625
2,200 Fifth Third Bancorp.................................... 138,187
2,800 First Bank System, Inc................................. 191,100
6,724 First Chicago NBD Corporation.......................... 361,415
6,040 First Union Corporation................................ 446,960
5,435 Fleet Financial Group, Inc............................. 271,071
4,700 Keycorp................................................ 237,350
4,000 J.P. Morgan & Company, Inc............................. 390,500
2,700 Mellon Bank Corporation................................ 191,700
4,600 National City Corporation.............................. 206,425
6,100 Nationsbank Corporation................................ 596,275
7,700 Norwest Corporation.................................... 334,950
7,100 PNC Bank Corporation................................... 267,138
1,200 Republic NY Corporation................................ 97,950
4,700 Suntrust Banks, Inc.................................... 231,475
3,200 US Bancorp............................................. 143,800
3,500 Wachovia Corporation................................... 197,750
1,900 Wells Fargo & Company.................................. 512,525
----------
9,174,844
----------
Brokerage (0.5%)
---------------
3,500 Merrill Lynch & Company, Inc........................... 285,250
3,200 Morgan Stanley Group, Inc.............................. 182,800
2,300 Salomon, Inc........................................... 108,387
----------
576,437
----------
Business Machines (6.6%)
-----------------------
3,700 3Com Corporation*...................................... 271,488
2,500 Amdahl Corporation*.................................... 30,312
2,600 Apple Computer, Inc.................................... 54,275
900 Autodesk, Inc.......................................... 25,200
4,100 Bay Networks, Inc.*.................................... 85,588
3,300 Cabletron Systems, Inc.*............................... 109,725
1,400 Ceridian Corporation*.................................. 56,700
13,700 Cisco Systems, Inc.*................................... 871,662
5,800 Compaq Computers, Inc.*................................ 430,650
800 Data General Corporation*.............................. 11,600
3,800 Dell Computer Corporation*............................. 201,875
3,200 Digital Equipment Corporation*......................... 116,400
2,700 Honeywell, Inc......................................... 177,525
10,900 International Business Machines Corporation............ 1,645,900
1,000 Intergraph Corporation*................................ 10,250
25,100 Microsoft Corporation*................................. 2,073,888
7,200 Novell, Inc.*.......................................... 68,175
13,650 Oracle Systems Corporation*............................ 569,887
3,100 Pitney-Bowes, Inc...................................... 168,950
5,300 Seagate Technology Inc.*............................... 209,350
3,600 Silicon Graphics, Inc.*................................ 91,800
7,600 Sun Microsystems, Inc.*................................ 195,225
2,500 Tandem Computers, Inc.*................................ 34,375
3,600 Unisys Corporation*.................................... 24,300
6,800 Xerox Corporation...................................... 357,850
----------
7,892,950
----------
Business Services (1.8%)
-----------------------
6,100 Automatic Data Processing, Inc........................ 261,538
2,200 Block (H.R.), Inc..................................... 63,800
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
26
<PAGE>
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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
- -----------------------------
Schedule of Investments as of December 31, 1996--Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCK MARKET VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
Business Services--Continued
----------------------------
4,500 Browning-Ferris Industries, Inc........................... $ 118,125
3,500 Cognizant Corporation..................................... 115,500
7,675 Computer Associates International, Inc.................... 381,831
1,600 Computer Sciences Corporation*............................ 131,400
1,700 Deluxe Corporation........................................ 55,675
1,300 Ecolab, Inc............................................... 48,913
9,300 First Data Corporation.................................... 339,450
1,700 Interpublic Group of Companies, Inc....................... 80,750
600 John H. Harland Company................................... 19,800
6,600 Laidlaw, Inc.............................................. 75,900
2,100 Moore Corporation, Ltd.................................... 42,787
1,000 National Service Industries, Inc.......................... 37,375
1,200 Safety Kleen Corporation.................................. 19,650
500 Shared Medical Systems Corporation........................ 24,625
3,500 The Dun & Bradstreet Corporation.......................... 83,125
10,100 WMX Technologies, Inc..................................... 329,512
----------
2,229,756
----------
Chemicals (3.4%)
----------------
2,400 Air Products & Chemicals, Inc............................. 165,900
11,900 E.I. Du Pont de Nemours & Company......................... 1,123,062
1,600 Eastman Chemical Company.................................. 88,400
1,300 Great Lakes Chemical Corporation.......................... 60,775
2,100 Hercules, Inc............................................. 90,825
8,900 Minnesota Mining & Manufacturing Co....................... 737,587
12,200 Monsanto Company.......................................... 474,275
3,000 Morton International, Inc................................. 122,250
1,400 Nalco Chemical Company.................................... 50,575
3,800 PPG Industries, Inc....................................... 213,275
3,300 Praxair, Inc.............................................. 152,213
1,400 Rohm & Haas Company....................................... 114,275
1,000 Sigma-Aldrich Corporation................................. 62,437
5,200 The Dow Chemical Company.................................. 407,550
2,700 Union Carbide Corporation................................. 110,363
1,800 W.R. Grace & Company...................................... 93,150
----------
4,066,912
----------
Construction (0.4%)
-------------------
900 Armstrong World Industries, Inc........................... 62,550
600 Centex Corporation........................................ 22,575
900 Crane Company............................................. 26,100
1,700 Fluor Corporation......................................... 106,675
800 Kaufman & Broad Home Corporation.......................... 10,300
3,300 Masco Corporation......................................... 118,800
1,100 Owens-Corning Fiberglass Corporation...................... 46,887
400 Pulte Corporation......................................... 12,300
1,800 Sherwin-Williams Company.................................. 100,800
1,800 Stanley Works............................................. 48,600
----------
555,587
----------
Consumer Durables (0.3%)
------------------------
1,800 Black & Decker Corporation................................ 54,225
2,100 Maytag Corporation........................................ 41,475
3,300 Newell Company............................................ 103,950
1,300 Tupperware Corporation.................................... 69,713
1,500 Whirlpool Corporation..................................... 69,937
----------
339,300
----------
Containers (0.2%)
-----------------
600 Ball Corporation.......................................... 15,600
1,100 Bemis Company, Inc........................................ 40,562
2,700 Crown Cork & Seal Company, Inc............................ 146,812
2,100 Stone Container Corporation............................... 31,238
----------
234,212
----------
Cosmetics (2.5%)
----------------
600 Alberto-Culver Company.................................... 28,800
2,800 Avon Products, Inc........................................ 159,950
1,100 Clorox Company............................................ 110,412
3,100 Colgate-Palmolive Company................................. 285,975
9,400 Gillette Company.......................................... 730,850
2,300 International Flavors and Fragrances, Inc................. 103,500
14,400 Procter & Gamble Company.................................. 1,548,000
----------
2,967,487
----------
Drugs & Medicine (10.1%)
------------------------
16,200 Abbott Laboratories....................................... 822,150
1,300 Allergan, Inc............................................. 46,312
1,700 Alza Corporation *........................................ 43,987
13,500 American Home Products Corporation........................ 791,438
5,500 Amgen, Inc.*.............................................. 299,062
1,200 Bard (C.R.), Inc.......................................... 33,600
1,100 Bausch & Lomb, Inc........................................ 38,500
5,700 Baxter International, Inc................................. 233,700
2,600 Becton, Dickinson and Company............................. 112,775
2,100 Beverly Enterprises, Inc.*................................ 26,775
2,400 Biomet, Inc............................................... 36,300
3,700 Boston Scientific Corporation*............................ 222,000
10,500 Bristol-Myers Squibb Company.............................. 1,141,875
14,000 Columbia/HCA Healthcare Corporation....................... 570,500
11,600 Eli Lilly & Company....................................... 846,800
1,600 Guidant Corporation....................................... 91,200
3,400 Humana, Inc.*............................................. 65,025
27,900 Johnson & Johnson......................................... 1,388,025
1,500 Mallinckrodt Group, Inc................................... 66,188
1,300 Manor Care, Inc........................................... 35,100
5,100 Medtronic, Inc............................................ 346,800
25,300 Merck & Company, Inc...................................... 2,005,025
13,600 Pfizer, Inc............................................... 1,127,100
10,515 Pharmacia & Upjohn, Inc................................... 416,657
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
27
<PAGE>
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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
- -----------------------------
Schedule of Investments as of December 31, 1996--Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCK MARKET VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
Drugs & Medicine--Continued
---------------------------
7,900 Schering-Plough Corporation.............................. $ 511,525
1,700 St. Jude Medical, Inc.*.................................. 72,462
4,600 Tenet Healthcare Corporation*............................ 100,625
1,300 US Surgical Corporation.................................. 51,188
3,900 United Healthcare Corporation............................ 175,500
5,800 Warner-Lambert Company................................... 435,000
-----------
12,153,194
-----------
Electronics (4.7%)
------------------
4,528 AMP, Inc................................................. 173,762
2,800 Advanced Micro Devices, Inc.*............................ 72,100
3,800 Applied Materials, Inc.*................................. 136,563
1,000 EG&G, Inc................................................ 20,125
4,800 EMC Corporation*......................................... 159,000
2,800 General Instrument Corporation*.......................... 60,550
1,000 General Signal Corporation............................... 42,750
800 Harris Corporation....................................... 54,900
21,300 Hewlett-Packard Company.................................. 1,070,325
17,300 Intel Corporation........................................ 2,265,219
2,700 LSI Logic Corporation*................................... 72,225
4,300 Micron Technology, Inc................................... 125,237
12,500 Motorola, Inc............................................ 767,188
2,900 National Semiconductor Corporation*...................... 70,687
900 Perkin Elmer Corporation................................. 52,988
1,600 Scientific-Atlanta, Inc.................................. 24,000
700 Tektronix, Inc........................................... 35,875
3,700 Tellabs, Inc.*........................................... 139,212
4,000 Texas Instruments, Inc................................... 255,000
1,100 Thomas & Betts Corporation............................... 48,812
-----------
5,646,518
-----------
Energy & Utilities (3.7%)
-------------------------
3,900 American Electric Power Company.......................... 160,388
3,100 Baltimore Gas & Electric Company......................... 82,925
3,300 CINergy Corporation...................................... 110,137
3,200 Carolina Power & Light Company........................... 116,800
4,400 Central & Southwest Corporation.......................... 112,750
2,200 Coastal Corporation...................................... 107,525
1,200 Columbia Gas System, Inc................................. 76,350
4,800 Consolidated Edison Company of New York.................. 140,400
2,000 Consolidated Natural Gas Company......................... 110,500
3,000 DTE Energy Company....................................... 97,125
4,200 Duke Power Company....................................... 194,250
3,800 Dominion Resources, Inc.................................. 146,300
9,000 Edison International..................................... 178,875
5,300 Enron Corporation........................................ 228,563
1,400 Enserch Corporation...................................... 32,200
4,800 Entergy Corporation...................................... 133,200
3,800 FPL Group, Inc........................................... 174,800
2,500 General Public Utilities Corporation..................... 84,062
4,900 Houston Industries, Inc.................................. 110,863
3,000 Niagara Mohawk Power Corporation*........................ 29,625
1,000 Nicor, Inc............................................... 35,750
2,900 NorAm Energy Corporation................................. 44,587
1,400 Northern States Power Company............................ 64,225
500 ONEOK, Inc............................................... 15,000
3,200 Ohio Edison Company...................................... 72,800
3,400 PP&L Resources, Inc...................................... 78,200
6,200 PacifiCorp............................................... 127,100
1,800 Pacific Enterprises...................................... 54,675
8,700 Pacific Gas & Electric Company........................... 182,700
3,200 PanEnergy Corporation.................................... 144,000
4,700 Peco Energy Company...................................... 118,675
700 Peoples Energy Corporation............................... 23,713
5,000 Public Service Enterprise................................ 136,250
1,800 Sonat, Inc............................................... 92,700
14,100 Southern Company......................................... 319,012
4,700 Texas Utilities Company.................................. 191,525
4,500 Unicom Corporation....................................... 122,063
2,100 Union Electric Company................................... 80,850
3,300 Williams Companies, Inc.................................. 123,750
-----------
4,455,213
-----------
Energy--Raw Materials (1.2%)
----------------------------
3,000 Baker Hughes, Inc........................................ 103,500
2,600 Burlington Resources, Inc................................ 130,975
3,700 Dresser Industries, Inc.................................. 114,700
400 Eastern Enterprises...................................... 14,150
2,600 Halliburton Company...................................... 156,650
500 Helmerich & Payne, Inc................................... 26,063
700 Louisiana Land and Exploration Company................... 37,537
1,100 McDermott International, Inc............................. 18,288
6,900 Occidental Petroleum Corporation......................... 161,287
5,200 Schlumberger, Ltd........................................ 519,350
5,272 Union Pacific Resources Group Inc........................ 154,206
-----------
1,436,706
-----------
Food & Agriculture (6.2%)
-------------------------
11,428 Archer-Daniels-Midland Company........................... 251,416
3,000 CPC International, Inc................................... 232,500
4,900 Campbell Soup Company.................................... 393,225
52,200 Coca-Cola Company........................................ 2,747,025
5,000 ConAgra, Inc............................................. 248,750
800 Fleming Companies, Inc................................... 13,800
3,300 General Mills, Inc....................................... 209,138
7,600 H.J. Heinz Company....................................... 271,700
3,200 Hershey Foods Corporation................................ 140,000
4,400 Kellogg Company.......................................... 288,750
32,600 PepsiCo, Inc............................................. 953,550
1,700 Pioneer Hi-Bred International, Inc....................... 119,000
2,800 Quaker Oats Company...................................... 106,750
2,200 Ralston Purina Corporation............................... 161,425
</TABLE>
The accompanying notes to the financial statements
are an integral part of this schedule.
28
<PAGE>
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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
- -----------------------------
Schedule of Investments as of December 31, 1996--Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCK MARKET VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
Food & Agriculture--Continued
-----------------------------
10,000 Sara Lee Corporation..................................... $ 372,500
1,400 Supervalu, Inc........................................... 39,725
3,700 Sysco Corporation........................................ 120,712
3,400 Unilever N.V............................................. 595,850
2,200 Whitman Corporation...................................... 50,325
2,400 Wrigley (Wm) Jr. Company................................. 135,000
----------
7,451,141
----------
Gold (0.4%)
-----------
7,400 Barrick Gold Corporation................................. 212,750
4,600 Battle Mountain Gold Company............................. 31,625
3,000 Homestake Mining Company................................. 42,750
2,100 Newmont Mining Corporation............................... 93,975
4,900 Placer Dome, Inc......................................... 106,575
2,700 Santa Fe Pacific Gold Corporation........................ 41,513
----------
529,188
----------
Insurance (3.6%)
----------------
3,149 Aetna Life & Casualty Company............................ 251,920
900 Alexander & Alexander Services, Inc...................... 15,638
9,441 Allstate Corporation..................................... 546,398
4,200 American General Corporation............................. 171,675
9,900 American International Group, Inc........................ 1,071,675
2,300 Aon Corporation.......................................... 142,887
3,700 Chubb Corporation........................................ 198,875
1,600 Cigna Corporation........................................ 218,600
1,800 General Re Corporation................................... 283,950
2,500 ITT Hartford Group, Inc.................................. 168,750
1,500 Jefferson-Pilot Corporation.............................. 84,938
2,200 Lincoln National Corporation............................. 115,500
900 MBIA, Inc................................................ 91,125
1,300 MGIC Investment Corporation.............................. 98,800
1,500 Marsh & McLennan Companies, Inc.......................... 156,000
2,000 Providian Corporation.................................... 102,750
2,600 Safeco Corporation....................................... 102,537
1,700 St. Paul Companies, Inc.................................. 99,663
1,500 Torchmark Corporation.................................... 75,750
1,400 Transamerica Corporation................................. 110,600
2,400 USF&G Corporation........................................ 50,100
650 USLIFE Corporation....................................... 21,612
1,600 Unum Corporation......................................... 115,600
----------
4,295,343
----------
Liquor (0.7%)
-------------
10,400 Anheuser-Busch Companies, Inc............................ 416,000
1,400 Brown-Forman Corporation................................. 64,050
800 Coors (Adolph) Company................................... 15,200
7,800 Seagram Company, Ltd..................................... 302,250
----------
797,500
----------
Media (1.6%)
------------
6,800 Comcast Corporation, Class A............................. $ 121,125
2,000 Dow Jones & Company, Inc................................. 67,750
3,000 Gannett Company, Inc..................................... 224,625
700 King World Productions, Inc.*............................ 25,812
1,900 Knight-Ridder, Inc....................................... 72,675
2,100 McGraw-Hill, Inc......................................... 96,863
600 Meredith Corporation..................................... 31,650
2,000 New York Times Company................................... 76,000
3,100 R.R. Donnelley & Sons Company............................ 97,263
13,900 Tele-Communications, Inc.*............................... 181,569
11,800 Time Warner, Inc......................................... 442,500
2,100 Times Mirror Company..................................... 104,475
1,300 Tribune Company.......................................... 102,537
7,400 Viacom, Inc.*............................................ 258,075
----------
1,902,919
----------
Miscellaneous Finance (2.9%)
----------------------------
2,200 Ahmanson (H.F.) & Company................................ 71,500
10,000 American Express Company................................. 565,000
1,100 Beneficial Corporation................................... 69,713
3,400 Dean Witter Discover and Company......................... 225,250
22,800 Federal National Mortgage Association.................... 849,300
3,700 Federal Home Loan Mortgage Corporation................... 407,462
1,200 Golden West Financial Corporation........................ 75,750
2,900 Great Western Financial Corporation...................... 84,100
2,900 Green Tree Financial Corporation......................... 112,013
2,100 Household International Corporation...................... 193,725
4,650 MBNA Corporation......................................... 192,975
13,300 Travelers Group, Inc..................................... 603,487
----------
3,450,275
----------
Motor Vehicles (2.2%)
---------------------
15,200 Chrysler Corporation..................................... 501,600
800 Cummins Engine Company, Inc.............................. 36,800
2,100 Dana Corporation......................................... 68,513
1,600 Eaton Corporation........................................ 111,600
1,300 Echlin, Inc.............................................. 41,112
700 Fleetwood Enterprises, Inc............................... 19,250
24,800 Ford Motor Company....................................... 790,500
2,500 Genuine Parts Company.................................... 111,250
15,900 General Motors Corporation............................... 886,425
2,500 ITT Industries, Inc...................................... 61,250
----------
2,628,300
----------
Non-Durables (1.1%)
-------------------
1,500 American Greetings Corporation, Class A.................. 42,563
3,300 Darden Restaurants, Inc.................................. 28,875
1,500 Harcourt General, Inc.................................... 69,187
1,800 Hasbro, Inc.............................................. 69,975
</TABLE>
The accompanying notes to the financial statements
are an integral part of this schedule.
29
<PAGE>
=====================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO] Large Company Stock Portfolio
Schedule of Investments as of December 31, 1996--Continued
<TABLE>
<CAPTION>
<C> <S> <C>
SHARES COMMON STOCK MARKET VALUE
- ---------------------------------------------------------------------
Non-Durables--Continued
-----------------------
800 Jostens, Inc.................................. $ 16,900
500 Luby's Cafeterias, Inc........................ 9,938
5,750 Mattel, Inc................................... 159,562
14,600 McDonald's Corporation........................ 660,650
3,100 Rubbermaid, Inc............................... 70,525
1,000 Ryans Family Steak House*..................... 6,875
4,900 Service Corporation International............. 137,200
1,000 Shoneys, Inc.*................................ 7,000
2,700 Wendy's International, Inc.................... 55,350
---------
1,334,600
---------
Non-Ferrous Metals (0.8%)
-------------------------
4,700 Alcan Aluminum, Ltd........................... 158,038
3,600 Aluminum Company of America................... 229,500
900 Asarco, Inc................................... 22,387
1,900 Cyprus Minerals Company....................... 44,413
2,900 Echo Bay Mines, Ltd........................... 19,212
3,000 Engelhard Corporation......................... 57,375
4,000 Freeport-McMoran Copper & Gold, Class B....... 119,500
3,500 Inco, Ltd..................................... 111,563
1,400 Phelps Dodge Corporation...................... 94,500
1,300 Reynolds Metals Company....................... 73,287
---------
929,775
---------
Oil--Domestic (1.2%)
--------------------
1,900 Amerada Hess Corporation...................... 109,962
1,300 Ashland Oil, Inc.............................. 57,038
3,400 Atlantic Richfield Company.................... 450,500
1,000 Kerr-McGee Corporation........................ 72,000
2,200 Oryx Energy Company*.......................... 54,450
1,000 Pennzoil Corporation.......................... 56,500
5,500 Phillips Petroleum Company.................... 243,375
1,800 Rowan Companies, Inc.*........................ 40,725
1,900 Santa Fe Energy Resources, Inc.*.............. 26,362
1,500 Sun Company, Inc.............................. 36,563
5,900 USX-Marathon Group, Inc....................... 140,862
5,200 Unocal Corporation............................ 211,250
---------
1,499,587
---------
Oil--International (6.6%)
-------------------------
10,500 Amoco Corporation............................. 845,250
13,800 Chevron Corporation........................... 897,000
26,100 Exxon Corporation............................. 2,557,800
8,400 Mobil Corporation............................. 1,026,900
11,300 Royal Dutch Petroleum Company................. 1,929,475
5,500 Texaco, Inc................................... 539,687
1,100 Western Atlas, Inc.*.......................... 77,963
---------
7,874,075
---------
SHARES COMMON STOCK MARKET VALUE
Optical & Photo (0.7%)
----------------------
4,800 Corning, Inc.................................. $ 222,000
7,000 Eastman Kodak Company......................... 561,750
900 Polaroid Corporation.......................... 39,150
---------
822,900
---------
Paper & Forest Products (1.6%)
------------------------------
2,700 Alco Standard Corporation..................... 139,388
1,000 Boise Cascade Corporation..................... 31,750
2,000 Champion International Corporation............ 86,500
1,900 Georgia-Pacific Corporation................... 136,800
6,203 International Paper Company................... 250,446
1,800 James River Corporation of Virginia........... 59,625
6,046 Kimberly-Clark Corporation.................... 575,881
2,300 Louisiana-Pacific Corporation................. 48,588
1,100 Mead Corporation.............................. 63,937
600 Potlatch Corporation.......................... 25,800
1,100 Temple-Inland, Inc............................ 59,538
1,400 Union Camp Corporation........................ 66,850
2,100 Westvaco Corporation.......................... 60,375
4,100 Weyerhaeuser Company.......................... 194,237
1,200 Willamette Industries......................... 83,550
---------
1,883,265
---------
Producers Goods (5.6%)
----------------------
6,000 Allied-Signal, Inc............................ 402,000
2,200 Avery Dennison Corporation.................... 77,825
600 Briggs & Stratton Corporation................. 26,400
1,500 Case Corporation.............................. 81,750
4,100 Caterpillar, Inc.............................. 308,525
800 Cincinnati Milacron, Inc...................... 17,500
2,200 Cooper Industries, Inc........................ 92,675
5,400 Deere & Company............................... 219,375
2,300 Dover Corporation............................. 115,575
4,800 Emerson Electric Company...................... 464,400
800 FMC Corporation*.............................. 56,100
800 Foster Wheeler Corporation.................... 29,700
34,500 General Electric Company...................... 3,411,188
700 Giddings & Lewis, Inc......................... 9,012
1,000 Harnischfeger Industries, Inc................. 48,125
2,600 Illinois Tool Works, Inc...................... 207,675
2,300 Ingersoll-Rand Company........................ 102,350
900 Johnson Controls, Inc......................... 74,588
900 Millipore Corporation......................... 37,237
200 NACCO Industries, Inc......................... 10,700
1,500 Navistar International Corporation*........... 13,688
2,400 Pall Corporation.............................. 61,200
1,500 Parker Hannifin Corporation................... 58,125
900 Raychem Corporation........................... 72,112
1,300 Snap-On, Inc.................................. 46,313
3,600 Tenneco, Inc.................................. 162,450
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
30
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO]
Large Company Stock Portfolio
- -----------------------------
Schedule of Investments as of December 31, 1996-Continued
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCK VALUE
- -------------------------------------------------------------------------------
<C> <S> <C>
Producers Goods-Continued
-------------------------
600 Timken Company........................................ $ 27,525
500 Trinova Corporation................................... 18,187
3,300 Tyco International, Ltd............................... 174,488
1,100 W.W. Grainger, Inc.................................... 88,275
8,900 Westinghouse Electric Company......................... 176,887
----------
6,691,950
----------
Railroad & Shipping (1.0%)
-------------------------
3,264 Burlington Northern, Inc.............................. 281,928
4,600 CSX Corporation....................................... 194,350
1,700 Conrail, Inc.......................................... 169,363
2,700 Norfolk Southern Corporation.......................... 236,250
5,200 Union Pacific Corporation............................. 312,650
----------
1,194,541
----------
Retail (4.4%)
------------
5,200 Albertson's, Inc...................................... 185,250
3,100 American Stores Company............................... 126,712
8,200 CUC International, Inc.*.............................. 194,750
2,200 CVS Corporation....................................... 91,025
2,200 Charming Shoppes, Inc................................. 11,138
2,000 Circuit City Stores, Inc.............................. 60,250
4,500 Dayton Hudson Corporation............................. 176,625
2,400 Dillard Department Stores, Inc........................ 74,100
4,300 Federated Department Stores, Inc.*.................... 146,737
5,900 Gap, Inc.............................................. 177,738
1,200 Giant Food, Inc., Class A............................. 41,400
800 Great Atlantic & Pacific Tea Company, Inc............. 25,500
10,000 Home Depot, Inc....................................... 501,250
4,800 J.C. Penney Company, Inc.............................. 234,000
10,100 Kmart Corporation*.................................... 104,787
2,600 Kroger Corporation*................................... 120,900
400 Long's Drug Stores, Inc............................... 19,650
3,600 Lowe's Companies, Inc................................. 127,800
5,200 May Department Stores Company......................... 243,100
800 Mercantile Stores Company, Inc........................ 39,500
1,700 Nordstrom, Inc........................................ 60,244
1,300 Pep Boys--Manny, Moe, & Jack.......................... 39,975
4,100 Price/Costco, Inc.*................................... 103,013
2,600 Rite Aid Corporation.................................. 103,350
8,200 Sears Roebuck & Company............................... 378,225
1,600 TJX Companies, Inc.................................... 75,800
1,200 Tandy Corporation..................................... 52,800
5,705 The Limited, Inc...................................... 104,829
5,700 Toys "R" Us, Inc.*.................................... 171,000
48,200 Wal-Mart Stores, Inc.................................. 1,102,575
5,100 Walgreen Company...................................... 204,000
3,100 Winn-Dixie Stores, Inc................................ 98,038
2,800 Woolworth Corporation*................................ 61,250
----------
5,257,311
----------
Steel (0.2%)
-----------
3,639 Allegheny Teledyne, Inc............................... 83,697
2,200 Armco, Inc.*.......................................... 9,075
2,300 Bethlehem Steel Corporation*.......................... 20,700
1,000 Inland Steel Industries, Inc.......................... 20,000
1,800 Nucor Corporation..................................... 91,800
1,700 USX-US Steel Group, Inc............................... 53,338
1,900 Worthington Industries, Inc........................... 34,437
----------
313,047
----------
Telephone (7.5%)
---------------
3,900 ALLTEL Corporation.................................... 122,363
33,800 AT&T Corporation...................................... 1,470,300
10,500 Airtouch Communications, Inc.*........................ 265,125
11,600 Ameritech Corporation................................. 703,250
1,250 Andrew Corporation*................................... 66,328
9,300 Bell Atlantic Corporation............................. 602,175
20,700 BellSouth Corporation................................. 835,762
2,400 DSC Communications Corporation*....................... 42,900
20,100 GTE Corporation....................................... 914,550
13,223 Lucent Technologies Inc............................... 611,564
14,300 MCI Communications Corporation........................ 467,431
5,500 Northern Telecom, Ltd................................. 340,313
9,200 Nynex Corporation..................................... 442,750
8,900 Pacific Telesis Group................................. 327,075
12,800 SBC Communications, Inc............................... 662,400
9,000 Sprint Corporation.................................... 358,875
10,000 U.S. West, Inc........................................ 322,500
13,100 U.S. West Media Group*................................ 242,350
8,500 WorldCom, Inc.*....................................... 221,531
----------
9,019,542
----------
Tires & Rubber (0.2%)
--------------------
1,700 Cooper Tire & Rubber Company.......................... 33,575
3,300 Goodyear Tire & Rubber................................ 169,537
----------
203,112
----------
Tobacco (2.0%)
-------------
3,600 American Brands, Inc.................................. 178,650
2,400 Loews Corporation..................................... 226,200
17,100 Phillip Morris Companies, Inc......................... 1,925,888
3,900 UST, Inc.............................................. 126,262
----------
2,457,000
----------
Travel & Recreation (1.4%)
-------------------------
2,000 Brunswick Corporation................................. 48,000
14,249 Disney (Walt) Company................................. 992,087
2,700 HFS, Inc.*............................................ 161,325
2,100 Harrah's Entertainment*............................... 41,738
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
31
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO]
Large Company Stock Portfolio
- ----------------------------------------------------------
Schedule of Investments as of December 31, 1996--Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCK MARKET VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Travel & Recreation-Continued
-----------------------------
5,100 Hilton Hotels Corporation................................ $ 133,237
2,400 ITT Corporation*......................................... 104,100
2,700 Marriott International, Inc.............................. 149,175
------------
1,629,662
------------
Trucking & Freight (0.1%)
-------------------------
800 Caliber System, Inc...................................... 15,400
800 PACCAR, Inc.............................................. 54,400
1,700 Ryder Systems, Inc....................................... 47,812
------------
117,612
------------
TOTAL COMMON STOCK
(COST BASIS $103,675,243)............................... $118,017,373
------------
<CAPTION>
PRINCIPAL
AMOUNT MARKET VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Short--Term Investments (1.4%)
------------------------------
$739,000 General Motors Acceptance Corporation 5.98%,
due 01/03/97............................................ $ 738,755
130,000 Merrill Lynch & Company, Inc. 6.60%,
due 01/02/97............................................ 129,976
846,000 Merrill Lynch & Company, Inc. 6.25%,
due 01/07/97............................................ 845,119
------------
TOTAL SHORT-TERM INVESTMENTS
(COST BASIS $1,713,850)................................. 1,713,850
------------
TOTAL INVESTMENTS (99.7%)
(COST BASIS $105,389,093)............................... 119,731,223
OTHER ASSETS, LESS LIABILITIES (0.3%).................... 357,467
------------
NET ASSETS (100.0%)...................................... $120,088,690
============
</TABLE>
*Non-income producing security
The accompanying notes to the financial statements
are an integral part of this schedule.
32
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO] Small Company Stock Portfolio
-----------------------------
Schedule of Investments as of December 31, 1996
<TABLE>
<CAPTION>
<C> <S> <C>
SHARES COMMON STOCK (99.0%) MARKET VALUE
-------------------------------------------------------------------------
Aerospace (0.9%)
----------------
13,200 Gencorp, Inc......................................... $239,250
7,400 Kaman Corporation.................................... 96,200
7,300 Thiokol Corporation.................................. 326,675
---------
662,125
---------
Air Transportation (1.3%)
-------------------------
8,000 Airborne Freight Corporation......................... 187,000
5,700 Alaska Airgroup, Inc. *.............................. 119,700
25,400 USAir Group, Inc. *.................................. 593,725
---------
900,425
---------
Apparel (1.8%)
--------------
7,100 Brown Group, Inc..................................... 130,463
10,800 Cone Mills Corporation *............................. 85,050
20,800 Jones Apparel Group *................................ 777,400
8,300 Kellwood Corporation................................. 166,000
8,900 The Dress Barn Corporation *......................... 133,500
---------
1,292,413
---------
Banks (6.9%)
------------
8,500 Astoria Financial Corporation........................ 313,438
17,400 City Steel National Corporation...................... 376,275
15,400 Compass Bancshares, Inc.............................. 612,150
12,100 Dauphin Deposit Corporation.......................... 399,300
11,700 First American Corporation - Tennessee............... 674,235
14,500 First Commerce Corporation........................... 563,688
9,800 Long Island Bancorp, Inc............................. 343,000
11,100 Magna Group, Inc..................................... 327,450
4,900 ONBANCorp., Inc...................................... 181,912
15,200 Peoples Bank of Bridgeport, Connecticut.............. 438,900
12,000 Rigs National Corp. - Washington..................... 207,000
14,505 Valley National Bancorp.............................. 371,690
---------
4,809,038
---------
Brokerage (0.6%)
----------------
---------
6,200 Alex Brown, Inc...................................... 449,500
---------
Business Machines (3.7%)
------------------------
22,800 AST Research, Inc. *................................. 95,475
26,300 Aura Systems, Inc. *................................. 57,531
19,950 Comdisco, Inc........................................ 633,413
7,700 Cyrix Corporation *.................................. 136,675
15,500 Data General Corporation *........................... 224,750
8,700 Exabyte Corporation *................................ 116,362
22,900 Quantum Corporation *................................ 655,513
13,000 Structural Dynamic Research *........................ 260,000
9,700 Verifone, Inc. *..................................... 286,150
7,400 Xircom, Inc.......................................... 160,950
---------
2,626,819
---------
Business Services (11.0%)
-------------------------
13,000 Cerner Corporation *................................. 201,500
25,100 Computervision Corporation *......................... 232,175
8,500 Credence Systems Corporation *....................... 171,063
18,000 Credit Acceptance Corporation *...................... 423,000
11,900 Employee Solutions, Inc. *........................... 243,950
13,200 FTP Software, Inc. *................................. 79,200
11,300 Hon Industries, Inc.................................. 372,900
11,000 Information Resources, Inc. *........................ 154,000
9,100 Integrated Health Services, Inc...................... 221,813
13,600 Intelligent Electronics, Inc......................... 108,800
9,700 Medic Computer Systems, Inc. *....................... 391,030
16,900 NetManage, Inc. *.................................... 101,400
17,000 Network General Corporation *........................ 514,250
5,100 New England Business Service, Inc.................... 109,650
15,900 Oak & Technology, Inc. *............................. 178,875
13,900 PHH Group, Inc....................................... 597,700
16,400 Pittston Company..................................... 442,800
15,100 Pixar, Inc. *........................................ 196,300
15,800 Psinet, Inc. *....................................... 171,825
14,100 Quarterdeck Corporation *............................ 58,162
18,800 S3, Inc. *........................................... 305,500
9,300 Shared Medical Systems Corporation................... 458,025
11,400 Standard Register Company............................ 370,500
21,600 Symantec Corporation *............................... 313,200
6,900 The Profit Recovery Group International, Inc. *...... 110,400
17,500 Wallace Computer Services, Inc....................... 603,750
11,900 Westpoint Stevens, Inc. *............................ 355,513
13,300 World Color Press, Inc. *............................ 256,025
---------
7,743,306
---------
Chemicals (2.2%)
----------------
11,000 ACX Technologies, Inc. *............................. 218,625
15,700 Calgon Carbon Corporation............................ 192,325
5,300 H.B. Fuller Company.................................. 249,100
17,600 Lawter International, Inc............................ 222,200
2,900 NCH Corporation...................................... 174,725
4,500 Petrolite Corporation................................ 216,000
13,800 Rollins, Inc......................................... 276,000
---------
1,548,975
---------
Construction (2.4%)
-------------------
11,300 Centex Corporation................................... 425,163
15,300 Kaufman & Broad Home Corporation..................... 196,987
4,400 Lawson Products, Inc................................. 96,250
14,000 Lennar Corporation................................... 381,500
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
33
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO] Small Company Stock Portfolio
-----------------------------
Schedule of Investments as of December 31, 1996-Continued
<TABLE>
<CAPTION>
<C> <S> <C>
SHARES COMMON STOCK MARKET VALUE
----------------------------------------------------------------
Construction-Continued
----------------------
9,200 Pulte Corporation............................ $282,900
8,600 Southdown, Inc............................... 267,675
---------
1,650,475
---------
Consumer Durables (1.1%)
------------------------
4,900 Bassett Furniture Industries, Inc............ 120,050
8,000 Kimball International, Inc................... 331,000
7,100 La Z Boy Chair Company....................... 209,450
7,100 Shorewood Packaging Corporation *............ 138,450
---------
798,950
---------
Containers (0.2%)
-----------------
---------
21,200 Gaylord Container Corporation *.............. 129,850
---------
Cosmetics (0.2%)
----------------
---------
3,900 Chemed Corporation........................... 142,350
---------
Drugs & Medicine (8.3%)
-----------------------
11,100 Acuson Corporation *......................... 270,563
5,700 Advanced Technology Labs, Inc. *............. 176,700
14,800 Advanced Tissue Sciences *................... 141,525
11,700 Alliance Pharmaceutical Corporation *........ 159,413
10,400 Ballard Medical Products..................... 193,700
11,400 Beckman Instruments, Inc..................... 437,475
15,700 Bergen Brunswig Corporation.................. 447,450
8,084 Block Drug Company........................... 371,847
9,600 Cephalon, Inc. *............................. 196,800
13,000 Coventry Corporation *....................... 120,452
5,300 Diagnostic Products Corporation.............. 137,137
11,300 Gilead Sciences Inc. *....................... 282,500
11,400 Haemonetics Corporation *.................... 215,175
25,200 Healthsource, Inc. *......................... 330,750
11,700 Herbalife International, Inc................. 381,713
12,500 ICN Pharmaceuticals, Inc..................... 245,312
11,200 Lincare Holdings Inc. *...................... 459,200
14,500 Liposome Company, Inc. *..................... 277,313
18,000 Mid Atlantic Medical Services *.............. 240,750
30,100 Perrigo Company *............................ 274,662
12,250 Summit Technology, Inc. *.................... 67,375
8,300 Ventritex *.................................. 204,387
6,200 West, Inc.................................... 175,150
---------
5,807,349
---------
Electronics (6.7%)
------------------
8,300 Avid Technology, Inc. *...................... 86,113
17,400 DSP Communications Inc. *.................... 337,125
15,100 Ess Technology, Inc. *....................... $424,687
23,600 Geotek Industries, Inc. *.................... 168,150
9,000 Gerber Scientific, Inc....................... 133,875
6,600 Global Village Communication *............... 21,037
11,100 IMP, Inc. *.................................. 24,628
15,300 Kemet Corporation *.......................... 355,725
14,500 Macromedia, Inc. *........................... 261,000
11,700 SCI Systems, Inc. *.......................... 522,113
13,400 Sequent Computer *........................... 237,850
11,800 Silicon Valley Group, Inc. *................. 237,475
10,300 Symbol Technologies, Inc. *.................. 455,775
18,200 VLSI Technology *............................ 434,525
17,300 Western Digital Corporation *................ 983,937
---------
4,684,015
---------
Energy-Raw Materials (2.8%)
---------------------------
15,100 BJ Services Corporation *.................... 770,100
3,300 Maxxam, Inc. *............................... 157,163
34,300 Nabors Industries, Inc. *.................... 660,275
9,700 Southwestern Energy Company.................. 146,712
9,600 Washington Energy Corporation................ 198,000
---------
1,932,250
---------
Food & Agriculture (3.1%)
-------------------------
22,000 Chiquita Brands International, Inc........... 280,500
5,300 Dreyers Grand Ice Cream, Inc................. 153,700
23,250 Flowers Industries, Inc...................... 499,875
7,000 International Multifoods Corporation......... 126,875
14,800 Interstate Bakeries Corporation.............. 727,050
13,000 Ralcorp Holding, Inc. *...................... 274,625
10,300 Savannah Foods and Industries, Inc........... 139,050
---------
2,201,675
---------
Gold (0.2%)
-----------
---------
16,200 Pegasus Gold, Inc. *......................... 122,513
---------
Insurance (5.1%)
----------------
19,600 20th Century Industries - California *....... 330,750
8,100 American Bankers Insurance Group, Inc........ 414,113
4,000 Foremost Corporation of America.............. 240,000
6,200 Integon Corporation.......................... 110,050
10,000 John Alden Financial Corporation............. 185,000
8,000 Liberty Corporation.......................... 314,000
5,300 Life Re Corporation.......................... 204,713
7,500 NAC Re Corporation........................... 254,062
45,100 Reliance Group Holdings...................... 411,537
11,200 United Companies Financial Corporation....... 298,200
4,800 Washington National Corporation.............. 132,000
24,700 Western National Corporation................. 475,475
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
34
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO]
Small Company Stock Portfolio
- ----------------------------------------------------------
Schedule of Investments as of December 31, 1996--Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCK MARKET VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
Insurance (Continued)
---------------------
6,900 Zenith National Insurance Corporation.................... $ 188,887
----------
3,558,787
----------
Media (2.7%)
------------
12,100 Banta George, Inc........................................ 276,788
11,826 Chris Craft Industries, Inc.*............................ 495,214
10,000 Golden Books Family Entertainment, Inc.*................. 111,250
5,800 Houghton Mifflin Company................................. 328,425
8,666 Pulitzer Publishing Company.............................. 401,886
9,900 TCA Cable TV............................................. 298,237
----------
1,911,800
----------
Miscellaneous Finance (5.3%)
----------------------------
11,100 Americredit Corporation*................................. 227,550
11,300 Amresco, Inc.*........................................... 302,275
17,700 Aztar Corporation*....................................... 123,900
18,900 California Federal Bank FSB.............................. 463,050
7,400 Coast Savings Financial.................................. 271,025
7,800 Collective Bancorp, Inc.................................. 273,975
18,500 Glendale Federal Bank FSB*............................... 430,125
5,300 Great Financial Corporation.............................. 154,363
12,900 Olympic Financial Ltd.*.................................. 185,437
17,100 Roosevelt Financial Group, Inc........................... 359,100
19,500 Sovereign Bancorp, Inc................................... 255,937
12,300 Standard Federal Bancorporation.......................... 699,563
----------
3,746,300
----------
Motor Vehicles (1.8%)
---------------------
9,000 Arvin Industries, Inc.................................... 222,750
10,000 Donaldson Company, Inc................................... 335,000
13,400 Federal Mogul Corporation................................ 294,800
6,600 Standard Products Corporation............................ 168,300
11,200 Superior Industries International........................ 259,000
----------
1,279,850
----------
Non-Durables & Entertainment (2.4%)
------------------------------------
6,300 A.T. Cross Company....................................... 73,237
19,700 Acclaim Entertainment, Inc.*............................. 64,025
10,800 Duty Free International, Inc............................. 156,600
6,400 Gibson Greetings, Inc.*.................................. 125,600
8,600 International Dairy Queen, Inc.*......................... 172,000
9,500 Luby's Cafeterias, Inc................................... 188,813
6,650 Ruby Tuesday, Inc........................................ 123,025
8,600 Russ Berrie & Company.................................... 154,800
8,100 Sbarro, Inc.............................................. 206,550
22,000 Sothebys Holdings, Inc................................... 409,750
----------
1,674,400
----------
Non-Ferrous Metals (1.1%)
-------------------------
6,400 Brush Wellman, Inc....................................... 104,800
8,600 Coeur D Alene Mines Corporation*......................... 130,075
55,100 Echo Bay Mines, Ltd...................................... 365,038
20,200 Helco Mining Company*.................................... 113,625
87,900 Sunshine Mining Company*................................. 82,406
----------
795,944
----------
Oil-Domestic (3.8%)
-------------------
17,300 Marine Drilling Company, Inc.*........................... 340,594
13,200 Pogo Producing Corporation............................... 623,700
14,000 Quaker State Corporation................................. 197,750
33,800 Rowan Companies, Inc.*................................... 764,725
15,900 Smith International, Inc.*............................... 713,512
----------
2,640,281
----------
Optical & Photo (0.7%)
----------------------
----------
10,500 Dentsply International, Inc.............................. 498,750
----------
Paper & Forest Products (1.5%)
------------------------------
9,200 Chesapeake Corporation................................... 288,650
14,700 Pentair Industries, Inc.................................. 474,075
14,050 Wausau Paper Mills Corporation........................... 259,925
----------
1,022,650
----------
Producers Goods (5.5%)
----------------------
12,000 Albany International Corporation, Class A................ 277,500
12,900 Ametek, Inc.............................................. 287,025
9,600 BW/IP Holding, Inc....................................... 158,400
10,400 Baldor Electric Company.................................. 256,100
15,700 Cincinnati Milacron, Inc................................. 343,438
5,900 Clarcor, Inc............................................. 130,537
13,100 Giddings & Lewis, Inc.................................... 168,663
8,400 Goulds Pumps, Inc........................................ 192,675
5,000 Handy & Harman........................................... 87,500
10,100 Kennametal, Inc.......................................... 392,637
8,800 Lattice Semiconductor Corporation*....................... 404,800
6,300 Measurex Corporation..................................... 151,200
3,400 NACCO Industries, Inc.................................... 181,900
7,200 Teleflex, Inc............................................ 375,300
12,200 Tencor Instruments*...................................... 321,775
4,900 Zurn Industries, Inc..................................... 128,012
----------
3,857,462
----------
Railroad & Shipping (0.5%)
--------------------------
12,300 OMI Corporation*........................................... 107,625
13,600 Overseas Shipholding Group, Inc............................ 231,200
----------
338,825
----------
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
35
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO]
Small Company Stock Portfolio
- --------------------------------------------------------------------------------
Schedule of Investments as of December 31, 1996--Continued
<TABLE>
<CAPTION>
SHARES COMMON STOCK MARKET VALUE
- --------------------------------------------------------------------------------
<C> <S> <C>
Real Property (0.5%)
--------------------
-----------
29,500 Catellus Development Corporation * $ 335,563
-----------
Retail Stores (3.3%)
--------------------
3,600 Blair Corporation........................................ 69,300
11,300 Cato Corporation......................................... 56,500
41,400 Charming Shoppes, Inc. *................................. 209,588
11,100 Eagle Hardware & Garden, Inc. *.......................... 230,325
13,000 Lands End, Inc. *........................................ 344,500
10,300 MacFrugals Bargains Close-Outs, Inc. *................... 269,087
12,200 Meyer (Fred), Inc. *..................................... 433,100
9,600 Ross Stores, Inc......................................... 480,000
7,100 Stanhome, Inc............................................ 188,150
-----------
2,280,550
-----------
Steel (1.2%)
------------
10,500 AK Steel Holding Corporation............................. 416,063
11,300 Birmingham Steel Corporation............................. 214,700
6,600 Carpenter Technology Corporation......................... 241,725
-----------
872,488
-----------
Telephone (1.3%)
----------------
11,933 International Cabletel, Inc. *........................... 301,308
19,300 Octel Communications Corporation *....................... 337,750
5,900 U.S. Long Distance Corporation *......................... 47,200
16,300 Vanguard Cellular Systems, Inc. *........................ 256,725
-----------
942,983
-----------
Tires & Rubber (0.5%)
---------------------
-----------
6,000 Carlisle Corporation..................................... 363,000
-----------
Travel & Recreation (0.7%)
--------------------------
16,500 Grand Casinos, Inc....................................... 222,750
6,400 Showboat, Inc............................................ 110,400
13,900 Station Casinos, Inc. *.................................. 140,737
-----------
473,887
-----------
Trucking & Freight (1.1%)
-------------------------
10,500 Arnold Industries, Inc................................... 166,688
15,000 J.B. Hunt Transport Services, Inc........................ 210,000
17,500 Rollins Truck Leasing Corporation........................ 220,937
11,000 Yellow Corporation *..................................... 158,125
-----------
755,750
-----------
Utilities & Energy (6.6%)
-------------------------
6,900 Central Hudson Gas & Electric Company.................... 216,488
5,400 Cilcorp, Inc............................................. 197,775
8,000 Eastern Utilities Associates............................. 139,000
11,800 IES Industries, Inc...................................... 352,525
11,200 MDU Resources Group...................................... 257,600
53,700 NorAm Energy Corporation................................. 825,638
10,700 ONAOK, Inc............................................... 321,000
5,400 Orange & Rockland Utilities, Inc......................... 193,725
16,500 Public Service Company of New Mexico..................... 323,812
24,800 Seagull Energy Corporation *............................. 545,600
12,000 Sierra Pacific Resources................................. 345,000
6,300 Southern Indiana Gas & Electric.......................... 218,137
10,400 Southwest Gas Corporation................................ 200,200
12,720 Tucson Electric Power *.................................. 211,470
13,100 Ugi Corporation.......................................... 293,112
-----------
4,641,082
Total Common Stocks -----------
(cost basis $63,733,349)............................... $69,492,380
-----------
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT Short-Term Investments (1.8%)
- --------------------------------------------------------------------------------
<C> <S> <C>
$750,000 General Motors Acceptance Corporation
5.98% due 01/03/97.................................. 749,751
100,000 Merrill Lynch & Company, Inc.
6.60%, due 01/02/97................................. 99,982
422,000 Merrill Lynch & Company, Inc.
6.25%, due 01/06/97................................ 421,633
Total Short-Term Investments
(cost basis $1,271,366)............................. 1,271,366
------------
Total Investments (100.8%)............................
(cost basis $65,004,715)............................ 70,763,746
Liabilities, less Other Assets (-0.8%)................ (554,356)
------------
NET ASSETS (100.0%).................................. $ 70,209,390
============
</TABLE>
The accompanying notes to the financial statements
are an integral part of this schedule.
36
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO]
AAL Variable Product Series Fund, Inc.
Statement of Assets and Liabilities
- --------------------------------------
December 31, 1996
<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: $16,501,054,
$17,606,600, $116,337,403, $105,389,093
and $65,004,715, respectively)............ $16,501,054 $17,467,880 $125,578,632 $119,731,223 $70,763,746
Dividends and interest receivable........... -- 216,570 753,334 197,295 69,411
Receivable for fund shares sold............. 798,351 3,456 411,732 329,452 232,175
Cash........................................ 88 -- 576 459 691
-------------------------------------------------------------------------
TOTAL ASSETS................................ $17,299,493 $17,687,906 $126,744,274 $120,258,429 $71,066,023
=========================================================================
LIABILITIES
Payable for investments purchased........... $ -- $ -- $ -- $ -- $ 757,621
Income distributions payable................ 2,347 -- -- -- --
Payable for fund shares reacquired.......... 166,747 15,976 187,056 132,424 77,346
Investment advisory fee payable............. 5,366 5,561 39,549 37,315 21,666
-------------------------------------------------------------------------
TOTAL LIABILITIES........................... 174,460 21,537 226,605 169,739 856,633
-------------------------------------------------------------------------
NET ASSETS
Capital stock - par value ($0.001/share).... 17,125 1,785 10,583 8,681 5,600
Capital stock - additional paid-in capital.. 17,107,908 17,815,760 117,273,254 105,728,907 64,361,978
Undistributed net investment income......... -- 818 4,251 6,484 3,733
Accumulated net realized gain (loss)........ -- (13,274) (11,648) 2,488 79,048
Net unrealized appreciation (depreciation)
on investments............................ -- (138,720) 9,241,229 14,342,130 5,759,031
-------------------------------------------------------------------------
TOTAL NET ASSETS............................ 17,125,033 17,666,369 126,517,669 120,088,690 70,209,390
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TOTAL LIABILITIES AND NET ASSETS............ $17,299,493 $17,687,906 $126,744,274 $120,258,429 $71,066,023
=========================================================================
CAPITAL SHARES OUTSTANDING -------------------------------------------------------------------------
(2 BILLION SHARES AUTHORIZED)............. 17,125,033 1,784,339 10,582,524 8,681,150 5,600,467
-------------------------------------------------------------------------
NET ASSET VALUE PER SHARE................... $ 1.00 $ 9.90 $ 11.96 $ 13.83 $ 12.54
=========================================================================
The accompanying notes to the financial statements are an integral part of this statement.
</TABLE>
37
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[ALL LOGO]
AAL Variable Product Series Fund, Inc.
Statement of Operations
- --------------------------------------
For the Year Ended December 31, 1996
<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.............................................. $ - $ - $ 913,774 $ 1,406,316 $ 552,058
Interest............................................... 675,976 943,006 2,210,176 65,691 42,648
------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................ 675,976 943,006 3,123,950 1,472,007 594,706
------------------------------------------------------------------------
EXPENSES
Adviser fees........................................... 43,414 48,124 257,782 221,856 139,625
Professional fees...................................... 17,231 19,821 43,919 36,691 28,149
Custody fees........................................... 7,861 4,561 49,581 77,596 90,161
Registration fees...................................... 560 560 560 560 560
Printing and postage expense........................... 7,098 9,738 41,917 34,150 22,579
Pricing of investments................................. 748 6,111 27,209 15,474 7,737
Director fees.......................................... 2,134 2,480 10,758 8,845 5,783
Director and Officer Insurance fees.................... 915 1,048 4,837 4,016 2,606
Fidelity Bond Insurance fees........................... 426 496 2,152 1,769 1,156
Other fees............................................. 155 177 738 593 397
------------------------------------------------------------------------
TOTAL EXPENSES BEFORE REIMBURSEMENT.................... 80,542 93,116 439,453 401,550 298,753
------------------------------------------------------------------------
Less expenses reimbursed by Adviser (See Note 3)....... (37,128) (44,992) (181,671) (179,694) (159,128)
------------------------------------------------------------------------
NET EXPENSES........................................... 43,414 48,124 257,782 221,856 139,625
------------------------------------------------------------------------
------------------------------------------------------------------------
NET INVESTMENT INCOME.................................. 632,562 894,882 2,866,168 1,250,151 455,081
------------------------------------------------------------------------
Net realized and unrealized gains (losses)
on investments:
Net realized gains (losses) on investments............. - (11,087) 68,259 134,531 1,776,380
Change in net unrealized appreciation
(depreciation) on investments....................... - (329,337) 7,588,007 12,453,248 5,052,970
NET REALIZED AND UNREALIZED GAINS (LOSSES)
------------------------------------------------------------------------
ON INVESTMENTS...................................... - (340,424) 7,656,266 12,587,779 6,829,350
------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
------------------------------------------------------------------------
RESULTING FROM OPERATIONS........................... $ 632,562 $554,458 $10,522,434 $13,837,930 $7,284,431
========================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
38
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO] AAL Variable Product Series Fund, Inc.
Statement of Changes in Net Assets
--------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET BOND
-------------------------- ---------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 (1) 1996 1995 (1) 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income....................... $ 138,514 $ 632,562 $ 235,838 $ 894,882
Net realized gains (losses) on investments.. - - (2,187) (11,087)
Change in net unrealized appreciation
(depreciation) on investments............. - - 190,617 (329,337)
NET INCREASE IN NET ASSETS.................. -------------------------------------------------------
RESULTING FROM OPERATIONS................. 138,514 632,562 424,268 554,458
-------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income.................. (138,514) (632,562) (234,068) (895,834)
From net realized gains on investments...... - - - -
TOTAL DISTRIBUTIONS -------------------------------------------------------
TO SHAREHOLDERS........................... (138,514) (632,562) (234,068) (895,834)
-------------------------------------------------------
FUND SHARE TRANSACTIONS
Net proceeds from shares sold............... 20,659,662 90,853,453 9,354,566 9,674,088
Reinvested distributions.................... 75,601 531,130 65,068 582,334
Cost of shares redeemed..................... (13,690,621) (81,304,192) (247,002) (1,611,509)
NET INCREASE IN NET ASSETS FROM -------------------------------------------------------
FUND SHARE TRANSACTIONS................... 7,044,642 10,080,391 9,172,632 8,644,913
-------------------------------------------------------
-------------------------------------------------------
TOTAL INCREASE IN NET ASSETS................ 7,044,642 10,080,391 9,362,832 8,303,53
NET ASSETS BEGINNING OF PERIOD.............. - 7,044,642 - 9,362,832
-------------------------------------------------------
NET ASSETS END OF PERIOD.................... $ 7,044,642 $ 17,125,033 $9,362,832 $17,666,369
-------------------------------------------------------
Undistributed Net Investment Income $ - $ - $ 1,770 $ 818
=======================================================
</TABLE>
(1) From commencement of operations on June 14, 1995.
The accompanying notes to the financial statements are an integral part of this
statement.
39
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED LARGE COMPANY SMALL COMPANY
----------------------------- --------------------------- --------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 (1) 1996 1995 (1) 1996 1995 (1) 1996
----------------------------- --------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 412,819 $ 2,866,168 $ 171,427 $ 1,250,151 $ 70,494 $ 455,081
1,254 68,259 4,092 134,531 17,344 1,776,380
1,653,222 7,588,007 1,888,882 12,453,248 706,061 5,052,970
---------------------------------------------------------------------------------------
2,067,295 10,522,434 2,064,401 13,837,930 793,899 7,284,431
---------------------------------------------------------------------------------------
(409,743) (2,864,993) (170,454) (1,244,640) (70,275) (451,567)
(420) (80,741) (2,658) (133,477) (5,645) (1,709,031)
---------------------------------------------------------------------------------------
(410,163) (2,945,734) (173,112) (1,378,117) (75,920) (2,160,598)
---------------------------------------------------------------------------------------
27,118,805 91,170,554 21,420,587 85,666,241 15,020,586 48,998,038
141,211 2,419,867 82,106 1,194,738 36,908 1,941,548
(158,426) (3,408,174) (255,604) (2,370,480) (109,609) (1,519,893)
---------------------------------------------------------------------------------------
27,101,590 90,182,247 21,247,089 84,490,499 14,947,885 49,419,693
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
28,758,722 97,758,947 23,138,378 96,950,312 15,665,864 54,543,526
- 28,758,722 - 23,138,378 - 15,665,864
---------------------------------------------------------------------------------------
$28,758,722 $126,517,669 $23,138,378 $120,088,690 $15,665,864 $70,209,390
---------------------------------------------------------------------------------------
$ 3,076 $ 4,251 $ 973 $ 6,484 $ 219 $ 3,733
=======================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
40
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO] AAL Variable Product Series Fund, Inc.
Notes to Financial Statements
--------------------------------------
NOTE 1: DESCRIPTION OF FUND
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, the Bond, the
Balanced, the Large Company Stock and the 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"). The Fund commenced
operations on June 14, 1995, with the sale of 2,000,000, 500,000, 1,250,000,
750,000 and 500,000 shares of the Money Market, Bond, Balanced, Large Company
Stock and Small Company Stock Portfolios, respectively, to AAL.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Valuation of Investments
Securities traded on national securities exchanges and NASDAQ are valued
at the last reported sales price. Fixed income securities are valued at
market using quotations provided by an independent pricing service. 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 AAL under the supervision of the Funds' Board
of Directors.
(b) Federal Income Taxes
No provision for federal income taxes has been made since each Portfolio
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 respective Portfolios. As of December 31,
1996, the Bond Portfolio has capital loss carryforwards of $2,187 expiring
in 2003 and $11,087 expiring in 2004. It is management's intention to make
no distribution of any future net realized capital gains until the Federal
income tax capital loss carryforwards are exhausted.
(c) Distributions to Shareholders
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.
(d) Other
For financial statement purposes, 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.
41
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO] AAL Variable Product Series Fund, Inc.
Notes to Financial Statements
--------------------------------------
NOTE 3: 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 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.
A Special Meeting of the Fund's Shareholders was held on April 24, 1996, at
which the shareholders approved an amendment to the Investment Advisory
Agreement between the Fund and AAL so as to extend the initial two-year term of
the agreement and to provide for annual renewal thereafter. No other terms or
conditions of the Investment Advisory Agreement were affected.
Certain officers and directors of the Fund are also officers of AAL and CMC.
For the period ended December 31, 1996, directors of the Fund not affiliated
with AAL or CMC received directors fees in the amount of $30,000. 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, 1996, all of the shares of
each Portfolio are owned by AAL and the Variable Account I.
NOTE 4: 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 its 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 or at a short-term fixed rate of interest. There
were no line of credit borrowings during the year ended December 31, 1996.
NOTE 5: CAPITAL SHARE TRANSACTIONS
Transactions in Portfolio shares for the period June 14, 1995 (commencement of
operations) to December 31, 1995 and for the year ended December 31, 1996 were
as follows:
<TABLE>
<CAPTION>
SHARES SOLD REINVESTED DISTRIBUTIONS SHARES REDEEMED NET INCREASE
------------------------- ------------------------- --------------------------- -----------------------
Period Year Period Year Period Year Period Year
Ended Ended Ended Ended Ended Ended Ended Ended
Portfolio 12/31/95 12/31/96 12/31/95 12/31/96 12/31/95 12/31/96 12/31/95 12/31/96
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market............. 20,659,662 90,853,453 75,601 531,130 (13,690,621) (81,304,192) 7,044,642 10,080,391
Bond..................... 932,861 973,525 6,453 59,044 (24,555) (162,989) 914,759 869,580
Balanced................. 2,634,240 8,037,428 13,209 210,391 (15,089) (297,655) 2,632,360 7,950,164
Large Company Stock...... 2,026,389 6,764,808 7,351 91,308 (23,746) (184,960) 2,009,994 6,671,156
Small Company Stock...... 1,432,409 4,146,639 3,406 156,387 (10,249) (128,125) 1,425,566 4,174,901
</TABLE>
42
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[LOGO AAL] AAL Variable Product Series Fund, Inc.
Notes to Financial Statements
--------------------------------------
NOTE 6: INVESTMENT TRANSACTIONS
For the year ended December 31, 1996, the cost of investment securities
purchased and the proceeds from investment securities sold (not including
short-term investments) were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
---------- ----------
Year Ended Year Ended
Portfolio 12/31/96 12/31/96
- ------------------------------------------------------------------------------
<S> <C> <C>
Bond................................................. $10,136,218 $1,559,089
Balanced............................................. 83,247,800 3,651,217
Large Company Stock.................................. 83,656,350 1,117,810
Small Company Stock.................................. 55,313,910 8,005,283
</TABLE>
The gross and net unrealized appreciation (depreciation) on investments for the
year ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
12/31/96
-------------------------------------------
Net
Unrealized
Appreciation
Portfolio Appreciation (Depreciation) (Depreciation)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond.............................. $ 59,913 $ (198,633) $ (138,720)
Balanced.......................... 10,318,558 (1,077,329) 9,241,229
Large Company Stock............... 15,468,246 (1,126,116) 14,342,130
Small Company Stock............... 9,792,828 (4,033,797) 5,759,031
</TABLE>
The book and federal income tax basis of securities were the same for all
Portfolios.
SHAREHOLDERS MEETING - UNAUDITED
A special shareholders meeting was held on April 24, 1996, at which time an
amendment to the existing Investment Advisory Agreement between AAL Variable
Product Series Fund, Inc. and Aid Association for Lutherans was approved.
<TABLE>
<CAPTION>
Votes For Total Votes %
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actual Votes Received from Contract Holders........... 6,934,234.990 7,013,902.686 98.864
Echo Vote of Unvoted Units............................ 7,248,883.875 7,330,173.286 98.891
Unit Summary.......................................... 14,183,118.860 14,344,075.960 98.878
Echo Vote of Variable Annuity Fund Shares............. 14,473,735.650 14,637,043.650 98.884
Echo Vote of AAL Capital Investment Shares............ 4,935,350.115 4,999,998.532 98.707
Total Vote............................................ 19,409,085.750 19,637,042.180 98.839
</TABLE>
The above approval was by the requisite percentage required by the Investment
Company Act of 1940.
43
<PAGE>
This Page Intentionally Left Blank
-----------------------------------
44
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL 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 periods presented, which should be
read in conjunction with the financial statements and the related notes.
<TABLE>
<CAPTION>
MONEY MARKET BOND
PORTFOLIO PORTFOLIO
--------------------------- ---------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995(1) 1996 1995(1) 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value: Beginning of period............. $ 1.00 $ 1.00 $ 10.00 $ 10.23
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................ 0.03 0.05 0.34 0.63
Net realized and unrealized gains (losses)
on investments.................................. 0.00 0.00 0.23 (0.33)
---------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS................. 0.03 0.05 0.57 0.30
---------------------------------------------------------
LESS DISTRIBUTIONS
From investment income........................... (0.03) (0.05) (0.34) (0.63)
From net realized gains.......................... 0.00 0.00 0.00 0.00
---------------------------------------------------------
TOTAL DISTRIBUTIONS.............................. (0.03) (0.05) (0.34) (0.63)
---------------------------------------------------------
Net increase (decrease) in net asset value....... 0.00 0.00 0.23 (0.33)
Net asset value: End of period................... $ 1.00 $ 1.00 $ 10.23 $ 9.90
=========================================================
Total return (not annualized)(a)................. 3.02% 5.23% 5.80% 3.10%
Net assets: End of period........................ $7,044,642 $17,125,033 $9,362,832 $17,666,369
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net assets (b) (c).. 0.35% 0.35% 0.35% 0.35%
Ratio of net investment income to
average net assets (b) (c)..................... 5.71% 5.10% 6.54% 6.51%
Portfolio turnover rate.......................... N/A N/A 6.51% 11.65%
Average commission rate paid (d)................. N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(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
period shown.
(b) Calculated on an annualized basis.
(c) Without reimbursements the above ratios, on an annualized basis, would have
been:
<TABLE>
<S> <C> <C> <C> <C>
Ratio of expenses to average net assets.............. 1.40% 0.65% 1.25% 0.68%
Ratio of net investment income to average net assets. 4.66% 4.80% 5.64% 6.18%
</TABLE>
(d) Amount shown reflects the average brokerage commission paid on each share
of stock traded by the Portfolio during the period presented.
45
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
<TABLE>
<CAPTION>
BALANCED LARGE COMPANY SMALL COMPANY
PORTFOLIO STOCK PORTFOLIO STOCK PORTFOLIO
- -------------------------- -------------------------- --------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995(1) 1996 1995(1) 1996 1995(1) 1996
- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
$ 10.00 $ 10.92 $ 10.00 $ 11.51 $ 10.00 $ 10.99
0.22 0.41 0.11 0.23 0.08 0.12
0.92 1.05 1.52 2.34 0.99 1.86
- -------------------------------------------------------------------------------------
1.14 1.46 1.63 2.57 1.07 1.98
- -------------------------------------------------------------------------------------
(0.21) (0.41) (0.11) (0.23) (0.07) (0.12)
(0.01) (0.01) (0.01) (0.02) (0.01) (0.31)
- -------------------------------------------------------------------------------------
(0.22) (0.42) (0.12) (0.25) (0.08) (0.43)
- -------------------------------------------------------------------------------------
0.92 1.04 1.51 2.32 0.99 1.55
$ 10.92 $ 11.96 $ 11.51 $ 13.83 $ 10.99 $ 12.54
=====================================================================================
11.46% 13.65% 16.39% 22.47% 10.70% 18.19%
$28,758,722 $126,517,669 $23,138,378 $120,088,690 $15,665,864 $70,209,390
0.35% 0.35% 0.35% 0.35% 0.35% 0.35%
4.07% 3.89% 2.27% 1.97% 1.43% 1.14%
2.29% 5.43% 0.47% 1.77% 2.85% 20.14%
$ 0.0400 $ 0.0400 $ 0.0400 $ 0.0400 $ 0.0400 $ 0.0400
- -------------------------------------------------------------------------------------
1.15% 0.60% 1.26% 0.63% 1.37% 0.75%
3.27% 3.65% 1.37% 1.69% 0.41% 0.74%
</TABLE>
46
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO] Report of Independent Auditors
------------------------------
The Board of Directors and Shareholders
AAL Variable Product Series Fund, Inc.
We have audited the accompanying statement of assets and liabilities of the AAL
Variable Product Series Fund, Inc. (comprised of the Money Market, Bond,
Balanced, Large Company Stock and Small Company Stock Portfolios), including
the schedule of investments, as of December 31, 1996, the related statements of
operations for the year then ended, and changes in net assets and financial
highlights for the year ended December 31, 1996 and for the period from June
14, 1995 (inception of operations) to December 31, 1995. These financial
statements and financial highlights are the responsibility of the Funds'
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 the 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. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian and brokers. 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 each
of the Portfolios of the AAL Variable Product Series Fund, Inc. as of December
31, 1996, and the results of their operations for the year ended December 31,
1996, and changes in their net assets and financial highlights for the year
ended December 31, 1996 and the period from June 14, 1995 to December 31, 1995,
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
January 31, 1997
47
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL
LOGO]
AAL Variable Annuity Account I
Statement of Net Assets
--------------------------------------------------------------------------
December 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ASSETS
Investments in AAL Variable Product Series Fund, Inc.:
Money Market Subaccount:
Money Market Portfolio, 15,125,033 shares at net asset value of
$1.00 per share (cost $15,125,033)....................................................... $ 15,127,096
Bond Subaccount:
Bond Portfolio, 1,284,339 shares at net asset value of $9.90 per
share (cost $12,816,031)................................................................. 12,715,943
Balanced Subaccount:
Balanced Portfolio, 9,332,524 shares at net asset value of $11.96 per
share (cost $104,783,982)................................................................ 111,574,219
Large Company Stock Subaccount:
Large Company Stock Portfolio, 7,931,150 shares at net asset
value of $13.83 per share (cost $98,252,758)............................................. 109,713,467
Small Company Stock Subaccount:
Small Company Stock Portfolio, 5,100,467 shares at net asset
value of $12.54 per share (cost $59,371,599)............................................. 63,941,290
------------
TOTAL INVESTMENTS (cost $290,349,403) 313,072,015
LIABILITIES............................................................................... --
------------
NET ASSETS................................................................................ $313,072,015
============
UNIT EXTENDED
UNIT VALUE VALUE
Net Assets are represented by: ...............................................
Money Market Subaccount.................................. 14,226,261 1.06 $ 15,127,096
Bond Subaccount.......................................... 1,185,965 10.72 12,715,943
Balanced Subaccount...................................... 8,992,900 12.41 111,574,219
Large Company Stock Subaccount........................... 7,868,532 13.93 109,713,467
Small Company Stock Subaccount........................... 5,003,533 12.78 63,941,290
------------
TOTAL NET ASSETS........................................................................... $313,072,015
============
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
48
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO] AAL Variable Annuity Account I
Statement of Operations
------------------------------------
For the Year Ended December 31, 1996
<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................................... $ 4,925,945 $532,412 $ 582,334 $2,348,742 $ 1,072,890 $ 389,567
Capital gain distributions.................. 1,744,953 -- -- 71,124 121,848 1,551,981
---------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME..................... 6,670,898 532,412 582,334 2,419,866 1,194,738 1,941,548
EXPENSES
Mortality and expense
risk charges............................... 2,135,841 131,921 111,735 757,194 693,495 441,496
---------------------------------------------------------------------------------
NET INVESTMENT INCOME....................... 4,535,057 400,491 470,599 1,662,672 501,243 1,500,052
NET REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on
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 GAINS (LOSSES)
ON INVESTMENTS............................. 21,185,797 -- (173,383) 6,291,426 10,717,695 4,350,059
---------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.................. $25,720,854 $400,491 $ 297,216 $7,954,098 $11,218,938 $5,850,111
=================================================================================
The accompanying notes to the financial statements are an integral part of this statement.
</TABLE>
49
<PAGE>
================================================================================
[AAL LOGO] A A L V A R I A B L E A N N U I T Y
AAL Variable Annuity Account I
Statement of Changes in Net Assets
- ----------------------------------
For the Period from June 15, 1995 to December 31, 1995 and the Year Ended
December 31, 1996
<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 JUNE 15, 1995 $ -- $ -- $ -- $ -- $ -- $ --
INCREASE (DECREASE) IN NET ASSETS
Net investment income................ 268,293 58,921 54,006 102,818 41,844 10,704
Net realized gain on
investment transactions............ 1,564 -- 692 146 639 87
Change in unrealized
appreciation of investments........ 1,551,010 -- 71,089 498,811 757,544 223,566
NET INCREASE IN NET ASSETS........... ---------------------------------------------------------------------------------------
RESULTING FROM OPERATIONS.......... 1,820,867 58,921 125,787 601,775 800,027 234,357
Capital share transactions
Transfers of net premiums............ 47,610,113 18,249,874 2,841,432 9,540,542 9,985,987 6,992,278
Transfers of surrenders.............. (136,290) (64,439) (18,376) (25,229) (13,024) (15,222)
Transfers............................ (227,498) (13,198,933) 1,295,569 4,983,458 3,732,283 2,960,125
NET INCREASE IN ASSETS RESULTING ---------------------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS.... 47,246,325 4,986,502 4,118,625 14,498,771 13,705,246 9,937,181
---------------------------------------------------------------------------------------
TOTAL INCREASE....................... 49,067,192 5,045,423 4,244,412 15,100,546 14,505,273 10,171,538
---------------------------------------------------------------------------------------
NET ASSETS AT DECEMBER 31, 1995...... 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 gain (loss) from
investment transactions............ 16,258 -- (2,206) -- 14,350 3,934
Change in unrealized
appreciation 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............................ (2,807,732) (79,864,569) 1,628,633 28,258,946 29,990,046 17,179,212
NET INCREASE IN 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....................... 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
=======================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
50
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[ALL LOGO]
AAL Variable Annuity Account I
Notes to Financial Statements
- ------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The AAL Variable Annuity Account I (the Account) is a unit investment trust
registered under the Investment Company Act of 1940. The Account was established
as a separate investment account within Aid Association for Lutherans (AAL) to
fund flexible premium deferred variable annuity insurance certificates. The
Account commenced operations on June 15, 1995.
The Account has five separate subaccounts, each of which invests solely, as
directed by contract owners, in a different portfolio of AAL Variable Product
Series Fund, Inc. (the Fund), an open-end, diversified management investment
company sponsored by AAL. Contract owners also may direct investments to a
guaranteed interest subaccount held in the general account of AAL.
Investments in shares of the Fund are stated at market value, which is the
closing net asset value per share as determined by the Fund. The first-in,
first-out basis has been used in determining the net realized gain or loss from
investment transactions and the cost basis for determining unrealized
appreciation or depreciation on investments. Dividends and capital gain
distributions paid to the Account are automatically reinvested in shares of the
Fund on the payment date.
NOTE 2: EXPENSE CHARGES
The Account pays AAL certain amounts relating to the distribution and
administration of the certificates funded by the Account and as reimbursement
for certain mortality and other risks assumed by AAL. The following summarizes
those amounts.
MORTALITY AND EXPENSE RISK CHARGE
AAL deducts a daily mortality and expense risk charge from the Account at an
annual rate of 1.25% of the average daily net asset value of the Account. These
charges are deducted by AAL in return for its assumption of risks associated
with adverse mortality experience or excess administrative expenses in
connection with certificates issued.
CERTIFICATE MAINTENANCE CHARGE
Prior to the annuity payment period, a certificate owner is assessed a
certificate maintenance charge of $25 per certificate year, that is deducted by
AAL, to reimburse it for administrative expenses related to the contract, unless
the sum of premiums received by AAL less the sum of any withdrawals and
withdrawal charges from the certificate is $5,000 or more at the time the
deduction would be made. A portion of this charge may be deducted from funds
held outside of the Account (i.e., in the Fixed Account).
WITHDRAWAL AND SURRENDER CHARGES
A withdrawal and surrender charge is imposed in the event of a full or partial
surrender in excess of 10% of the accumulated value during the first seven
contract years. The amount charged is 7% of the amount surrendered during the
first contract year and declines by 1% in each of the next six contract years.
No surrender charge is deducted if the partial surrender or surrender occurs
after seven full contract years.
TRANSFER CHARGE
Contract owners may request transfers of all or part of a certificate's
accumulated value among the subaccounts and/or the fixed annuity, prior to the
annuity commencement date. The contract owner may make two transfers from one or
more subaccounts to other subaccounts or the fixed annuity in each certificate
year without charge. Thereafter, each transfer will be subject to a $10 transfer
charge.
NOTE 3: FEDERAL INCOME TAXES
The operations of the Account form a part of the operations of AAL. AAL, a
fraternal benefit society, qualifies as a tax-exempt organization under the
Internal Revenue Code. Under current law, no federal income taxes are payable
with respect to the Account's net investment income and net realized gain on
investments. Accordingly, no charge for income taxes is currently being made to
the Account. If such taxes are incurred by AAL in the future, a charge to the
Account may be assessed.
51
<PAGE>
================================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO]
AAL Variable Annuity Account I
Notes to Financial Statements
- ------------------------------
NOTE 4: INVESTMENT TRANSACTIONS
The aggregate cost of investment securities purchased and proceeds from
investment securities sold by subaccount for the year ended December 31,
1996 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------ ------------------
PORTFOLIO
- --------------------------------------------------------------------------------
<S> <C> <C>
Money Market Subaccount.......... $ 36,325,718 $26,245,327
Bond Subaccount.................. 9,323,583 680,875
Balanced Subaccount.............. 90,182,247 0
Large Company Stock Subaccount... 84,585,263 80,234
Small Company Stock Subaccount... 49,443,937 20,310
---------------------------------------------
COMBINED $269,860,748 $27,026,746
=============================================
</TABLE>
NOTE 5: SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
Transactions in units of each subaccount of the Account for the year ended
December 31, 1996 and for the period from June 15, 1995 to December 31, 1995,
were as follows:
<TABLE>
<CAPTION>
Units Sold Units Redeemed Net Increase
------------------------ ----------------------- ------------------------
Year Ended 12/31/96 Units Amount Units Amount Units Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
============================================================================
Units Sold Units Redeemed Net Increase
------------------------ ----------------------- ------------------------
Period Ended 12/31/95 Units Amount Units Amount Units Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Money Market Subaccount........................... 17,995,748 $ 18,249,874 13,064,450 $13,263,372 4,931,298 $ 4,986,502
Bond Subaccount................................... 404,717 4,137,001 1,790 18,376 402,927 4,118,625
Balanced Subaccount............................... 1,367,146 14,524,000 2,291 25,229 1,364,855 14,498,771
Large Company Stock Subaccount.................... 1,259,381 13,718,270 1,144 13,024 1,258,237 13,705,246
Small Company Stock Subaccount.................... 930,171 9,952,403 1,416 15,222 928,755 9,937,181
----------------------------------------------------------------------------
COMBINED.......................................... 21,957,163 $ 60,581,548 13,071,091 $13,335,223 8,886,072 $ 47,246,325
============================================================================
</TABLE>
52
<PAGE>
===============================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO] AAL Variable Annuity Account I
Notes to Financial Statements
------------------------------
NOTE 6: NET ASSETS
The Account has an unlimited number of accumulation units authorized with no
par value. Net assets as of December 31, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
LARGE SMALL
MONEY COMPANY COMPANY
MARKET BOND BALANCED STOCK STOCK
DECEMBER 31, 1996 COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Paid-in capital................. $285,530,294 $14,667,684 $12,292,940 $103,018,346 $ 97,694,502 $57,856,822
Accumulated undistributed
net investment income......... 4,803,350 459,412 524,605 1,765,490 543,087 1,510,756
Accumulated undistributed net
realized gain from investment
transactions.................. 17,822 - (1,514) 146 15,169 4,021
Net unrealized appreciation
(depreciation) of investments 22,720,549 - (100,088) 6,790,237 11,460,709 4,569,691
--------------------------------------------------------------------------------
NET ASSETS...................... $313,072,015 $15,127,096 $12,715,943 $111,574,219 $109,713,467 $63,941,290
================================================================================
LARGE SMALL
MONEY COMPANY COMPANY
MARKET BOND BALANCED STOCK STOCK
DECEMBER 31, 1995 COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
Paid-in capital................. $ 47,246,325 $ 4,986,502 $ 4,118,625 $ 14,498,771 $ 13,705,246 $ 9,937,181
Accumulated undistributed
net investment income......... 268,293 58,921 54,006 102,818 41,844 10,704
Accumulated undistributed net
realized gain from investment
transactions.................. 1,564 - 692 146 639 87
Net unrealized appreciation
of investments.................. 1,551,010 - 71,089 498,811 757,544 223,566
--------------------------------------------------------------------------------
NET ASSETS...................... $ 49,067,192 $ 5,045,423 $ 4,244,412 $ 15,100,546 $ 14,505,273 $10,171,538
================================================================================
</TABLE>
53
<PAGE>
===============================================================================
A A L V A R I A B L E A N N U I T Y
[AAL LOGO]
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,
1996, and the related statements of operations for the year then ended, and
changes in net assets for the year ended December 31, 1996 and for the period
from June 15, 1995 (inception of operations) to December 31, 1995. These
financial statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our 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, 1996,
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,
1996, and the results of their operations and changes in their net assets for
the year then ended and the changes in their net assets for the period from
June 15, 1995 to December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
January 29, 1997
54
<PAGE>
[AAL LOGO]
Service Center
AAL Variable Annuity Service Center
P.O. Box 419108
Kansas City, Missouri 64141-6108
Telephone 800-778-1762
-----
Investment Adviser and Transfer Agent
Aid Association for Lutherans
4321 North Ballard Road
Appleton, Wisconsin 54919-0001
-----
Custodian
Citibank, N.A.
111 Wall Street
New York, New York 10043
-----
Independent Auditors
Ernst & Young LLP
111 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
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]
AAL Capital Management Corporation
----------------------------------
222 West College Avenue, Appleton, WI 54919-0007
800-778-1762 414-734-7633
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
