<PAGE>
[LOGO]
AID ASSOCIATION FOR LUTHERANS
AAL VARIABLE PRODUCT SERIES FUND, INC.
AAL VARIABLE ANNUITY ACCOUNT I
AAL VARIABLE LIFE ACCOUNT I
ANNUAL REPORT
DECEMBER 31, 1998
AAL Variable Product
Money Market Portfolio
AAL Variable Product
Bond Portfolio
AAL Variable Product
Balanced Portfolio
AAL Variable Product
Large Company Stock Portfolio
AAL Variable Product
Small Company Stock Portfolio
AAL Variable Product
International Stock Portfolio
AAL Variable Product
High Yield Bond Portfolio
<PAGE>
YOUR LINK TO AID ASSOCIATION FOR LUTHERANS
800-CALL AAL
(800-225-5225)
Calls May Be Recorded
PRESS 1 PRESS 2 PRESS 3
PRESS 1
PRESS 2
PRESS 2
Please be prepared to give your name, certificate
number and Social Security number. Thank you!
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C>
PRESIDENT'S LETTER......................................................... 2
PORTFOLIO PERSPECTIVES
AAL Variable Product Money Market Portfolio.............................. 4
AAL Variable Product Bond Portfolio...................................... 6
AAL Variable Product Balanced Portfolio.................................. 8
AAL Variable Product Large Company Stock Portfolio....................... 10
AAL Variable Product Small Company Stock Portfolio....................... 12
AAL Variable Product International Stock Portfolio....................... 14
AAL Variable Product High Yield Bond Portfolio........................... 16
SCHEDULE OF INVESTMENTS
AAL Variable Product Money Market Portfolio.............................. 18
AAL Variable Product Bond Portfolio...................................... 20
AAL Variable Product Balanced Portfolio.................................. 25
AAL Variable Product Large Company Stock Portfolio....................... 41
AAL Variable Product Small Company Stock Portfolio....................... 50
AAL Variable Product International Stock Portfolio....................... 60
AAL Variable Product High Yield Bond Portfolio........................... 63
STATEMENT OF ASSETS AND LIABILITIES
AAL Variable Product Series Fund, Inc. .................................. 66
AAL Variable Annuity Account I........................................... 83
AAL Variable Life Account I.............................................. 93
STATEMENT OF OPERATIONS
AAL Variable Product Series Fund, Inc. .................................. 68
AAL Variable Annuity Account I........................................... 84
AAL Variable Life Account I.............................................. 94
STATEMENT OF CHANGES IN NET ASSETS
AAL Variable Product Series Fund, Inc. ................................. 70
AAL Variable Annuity Account I ......................................... 86
AAL Variable Life Account I ............................................ 96
NOTES TO FINANCIAL STATEMENTS
AAL Variable Product Series Fund, Inc. ................................. 72
AAL Variable Annuity Account I ......................................... 88
AAL Variable Life Account I ............................................ 98
FINANCIAL HIGHLIGHTS....................................................... 78
REPORT OF INDEPENDENT AUDITORS
AAL Variable Product Series Fund, Inc. .................................. 82
AAL Variable Annuity Account I........................................... 92
AAL Variable Life Account I ............................................. 102
</TABLE>
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
JANUARY 27, 1999.
DEAR MEMBER:
We are pleased to provide you with the annual report for the AAL Variable
Product Series Fund, Inc., AAL Variable Annuity Account I and AAL Variable Life
Account I. Details about performance and holdings for each individual portfolio
are included. We hope you take time to review this information.
[PICTURE APPEARS HERE]
JOHN O. GILBERT (LEFT) WITH STEVEN A. WEBER
1998 was a volatile year for investors in products tied to domestic financial
markets. The Dow Jones Industrial Average (Dow) reached a then new high at 9,337
in July and then dropped almost 1,000 points in a four-day span at the end of
August. Experts believe this kind of volatility was created by investor concern.
The economic situation in other parts of the world caused investor uncertainty
in U.S. financial markets and investors began to take their money out of
investments perceived as risky.
Despite the stock market volatility, the Dow ended the year up 16 percent at
9,181 and the Standard & Poor's(R) 500 Composite Stock Price Index finished up
26 percent for the year. This is the first time in history that the Dow posted
double-digit percentage gains four years in a row. Many experts
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
believe this was helped by the Federal Reserve Board lowering interest rates
three separate times near year-end.
In times of volatile markets, it is important to take a long-term, diversified
approach to investing. Even though the AAL Variable Annuity and Variable
Universal Life are primarily insurance products, if you are uncomfortable with
the volatility of the past year, you may want to rethink your mix of investment
options within these products.
We at AAL would like to thank you for your continued loyalty and confidence. We
look forward to serving you and encourage you to take advantage of all the
financial services offered to Lutherans and their families by AAL and its
affiliates. If you have questions regarding your variable annuity or variable
universal life certificates, please contact your local AAL representative or
call 800-225-5225 between 7a.m. and 8p.m. Central Time, Mon. through Fri., and
from 9a.m. to 1p.m. Central Time on Sat., to speak with an AAL variable products
service center representative.
Best regards,
/s/ John 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.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
............Total Net Assets...............$33,570,862................NAV.......
MONEY MARKET PORTFOLIO
HOW DID THE PORTFOLIO PERFORM DURING 1998?
The return on the Portfolio for 1998 was 5.31%. The 7-day yield, which more
closely reflects the current earnings, was 4.99% at year-end. Money market
returns were stable for most of the year. The federal funds rate was cut from
5.50% in September to 4.75% by Nov. 17, in a series of three decreases. The
federal funds rate is the most sensitive indicator of the direction of interest
rates, since it is set daily by banks which may lend federal funds to each other
on an overnight basis. These actions on the part of the Federal Reserve Board
(the Fed) caused rates available on short-term investments to decline by a
similar amount.
VALUE OF A $10,000 INVESTMENT
-----------------------------
<TABLE>
<CAPTION>
06-14-95 12-31-95 12-31-96 12-31-97 12-31-98
<S> <C> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO 10,000 10,302 10,841 11,419 12,024
SALOMON BROTHERS SHORT TERM INDEX 10,000 10,295 10,805 11,328 11,848
</TABLE>
*An index composed of 1-month Treasury bills.
HOW HAVE THE FED'S INTEREST RATE CUTS AFFECTED THE RETURNS AVAILABLE TO THE
PORTFOLIO?
[PICTURE APPEARS HERE]
As a result of the rate cuts, interest rates available on short-term investments
are approximately 0.75% lower than they were before the reductions. If Federal
Reserve policy remains constant throughout 1999, returns on the Portfolio are
likely to reflect the impact of the rate decreases, which occurred in the fourth
quarter of 1998.
AVERAGE ANNUAL TOTAL RETURNS/1/
----------------------------
As of December 31, 1998
<TABLE>
<CAPTION>
From Inception
1-Year Inception Date
------ --------- ----
<S> <C> <C> <C>
Fund Portfolio/2/............................. 5.31% 5.33% 6/14/95
Variable Annuity
Subaccount/3/................................. 4.02% 4.04% 6/15/95
Variable Life
Subaccount/3/................................. NA 3.29% 5/15/98
SEC Variable
Annuity Subaccount/4/......................... (2.53%) 2.97% 6/15/95
</TABLE>
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS.
/1/ TOTAL RETURNS - Total returns and unit values are subject to fluctuation.
Accumulation units, when redeemed, may be worth more or less than their
original value. Periods less than one year are not annualized. Actual
returns experienced by the contract owner, as reflected in the cash value of
the certificate, will be significantly less than those shown for the
Portfolios, because the owner's values are reduced by mortality and risk
expenses, and other charges and expenses related to the certificate's
insurance coverage.
/2/ FUND PORTFOLIO - Average annual total returns reflect reinvestment of all
dividends and capital gains distributions but do not reflect separate
account expenses or charges. However, these values reflect the deduction of
a 0.35% maximum 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 a 30-days'
notice, these total returns would have been lower.
/3/ VARIABLE SUBACCOUNTS - Annuity returns reflect the deduction of the 1.25%
mortality and expense risk fee, but do not reflect the $25 annual
maintenance charge (for accounts of less than $5,000) or surrender charges.
Life returns do not reflect charges assessed to individual certificate
owners.
/4/ SEC VARIABLE ANNUITY SUBACCOUNT - Reflects all fees and expenses and the
maximum surrender charge of 7% for the first contract year, declining by 1%
each year through the seventh.
Please refer to the hypothetical illustrations in the account prospectus which
show the effect on performance of various assumptions regarding the cost for
insurance protection. You may also obtain a personalized illustration of
historical performance which reflects the costs of your certificate's insurance
protection.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
.........$1.00..............NUMBER OF SECURITIES IN PORTFOLIO.........39........
DO YOU FORESEE ANY CHANGES IN THE ECONOMY THAT MAY RESULT IN THE FED RAISING
INTEREST RATES IN THE NEAR TERM?
The primary impetus that would cause the Fed to raise interest rates would be in
anticipation of higher rates of inflation. This could occur from labor shortages
and a resultant increase in costs to attract skilled workers. Another factor
leading to higher inflation would be an overheating of the economy, caused by
increased consumer spending levels. While we do not expect either of these
outcomes at the current time, we are constantly monitoring economic events to
take advantage of changes in the environment.
/s/ Alan D. Onstad
Alan D. Onstad
PORTFOLIO MANAGER
An investment in the Money Market Portfolio is not insured or guaranteed by the
Federal Deposit Insurance Corporation (FDIC) or any other government agency.
Although the Portfolio seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Portfolio.
5 LARGEST HOLDINGS
------------------
<TABLE>
<CAPTION>
Interest Maturity % of Portfolio
Security Rate* Date 12/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Hershey Foods Corporation.................. 5.350% 1/26/99 3.6%
Ford Motor Credit Corporation.............. 5.400% 1/28/99 3.6%
Countrywide Home Mortgage.................. 5.250% 1/14/99 3.5%
H. J. Hienz Corporation.................... 5.250% 2/5/99 3.5%
Wisconsin Electric Corporation............. 5.270% 1/12/99 3.4%
</TABLE>
* The interest rate shown reflects the coupon rate, or, for the securities
purchased at a discount, the discount rate at the date of purchase.
Value of a $10,000 Investment
SECTOR ALLOCATIONS
------------------
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
% of Portfolio
12/31/98
--------
<S> <C>
. Utilities....................................................... 34%
. Consumer Non-Durables........................................... 26%
. Finance......................................................... 19%
. Consumer Durables............................................... 10%
. Technology...................................................... 5%
. Energy.......................................................... 3%
. Materials & Services............................................ 3%
--------
TOTAL 100%
</TABLE>
CREDIT QUALITY
--------------
AVERAGE QUALITY: FIRST TIER
MATURITY
--------
AVERAGE MATURITY: 22 DAYS
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
.............Total Net Assets...............$42,207,168..............NAV........
BOND PORTFOLIO.
HOW DID THE PORTFOLIO PERFORM RELATIVE TO THE U.S. BOND MARKET DURING 1998, AND
WHAT FACTORS AFFECTED PERFORMANCE?
The Portfolio performed well during 1998 relative to the bond market in general.
The bond market experienced a dramatic increase in interest rate risk premium
for corporate securities around mid-year. Corporate bond buyers demanded a
higher spread over Treasury securities than they had in the first half of 1998
to justify purchases of lower quality corporate bonds. The investing public
accepted this dramatic rise in U.S. credit spreads as the consequence of
emerging market events and the liquidity problems that ensued. On December 31,
1998, all of the Portfolio's securities were of investment-grade, and 78% was
rated AAA, the highest rating achievable. The high quality helped the Portfolio
avoid most of the adverse spread widening.
WHICH AREA OF THE INVESTMENT-GRADE BOND MARKET (E.G., U.S. TREASURY, CORPORATE,
MORTGAGE-BACKED AND ASSET-BACKED) PROVIDED THE MOST ATTRACTIVE RETURNS FOR
INVESTORS DURING 1998? TO WHAT DEGREE DID THE PORTFOLIO TAKE ADVANTAGE OF THESE
OPPORTUNITIES?
[PICTURE APPEARS HERE]
The longest-term U.S. Treasury bonds provided the highest total returns for the
year, coming in at 14.2%. Long-term government agency and the highest quality
corporate securities were not far behind. The Portfolio had approximately 38% in
U.S. Treasurys and 9% in government agency securities. With maturities ranging
from one to 30 years, the Portfolio captured a good portion of the best
performing sectors of the bond market during 1998.
AVERAGE ANNUAL TOTAL RETURNS/1/
----------------------------
As of December 31, 1998
<TABLE>
<CAPTION>
From Inception
1-Year Inception Date
------------------------------
<S> <C> <C> <C>
Fund Portfolio/2/............................. 8.59% 7.56% 6/14/95
Variable Annuity
Subaccount/3/................................. 7.24% 6.29% 6/15/95
Variable Life
Subaccount/3/................................. NA 6.23% 5/15/98
SEC Variable
Annuity Subaccount/4/......................... 0.48% 5.20% 6/15/95
</TABLE>
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS.
/1/ TOTAL RETURNS - Total returns and unit values are subject to fluctuation.
Accumulation units, when redeemed, may be worth more or less than their
original value. Periods less than one year are not annualized. Actual
returns experienced by the contract owner, as reflected in the cash value of
the certificate, will be significantly less than those shown for the
Portfolios, because the owner's values are reduced by mortality and risk
expenses, and other charges and expenses related to the certificate's
insurance coverage.
/2/ FUND PORTFOLIO - Average annual total returns reflect reinvestment of all
dividends and capital gains distributions but do not reflect separate
account expenses or charges. However, these values reflect the deduction of
a 0.35% maximum 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 a 30-days'
notice, these total returns would have been lower.
/3/ VARIABLE SUBACCOUNTS - Annuity returns reflect the deduction of the 1.25%
mortality and expense risk fee, but do not reflect the $25 annual
maintenance charge (for accounts of less than $5,000) or surrender charges.
Life returns do not reflect charges assessed to individual certificate
owners.
/4/ SEC VARIABLE ANNUITY SUBACCOUNT - Reflects all fees and expenses and the
maximum surrender charge of 7% for the first contract year, declining by 1%
each year through the seventh.
Please refer to the hypothetical illustrations in the account prospectus which
show the effect on performance of various assumptions regarding the cost for
insurance protection. You may also obtain a personalized illustration of
historical performance which reflects the costs of your certificate's insurance
protection.
VALUE OF A $10,000 INVESTMENT
-----------------------------
<TABLE>
<CAPTION>
06-14-95 12-31-95 12-31-96 12-31-97 12-31-98
<S> <C> <C> <C> <C> <C>
BOND PORTFOLIO 10,000 10,580 10,909 11,930 12,955
LEHMAN BROTHERS AGGREGATE BOND INDEX 10,000 10,616 10,999 12,062 13,101
</TABLE>
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT.
........$10.36.............Number of Securities in Portfolio...........157......
HOW WAS THE PERFORMANCE OF THE U.S. BOND MARKET AFFECTED IN 1998 BY THE
FINANCIAL TURMOIL EXPERIENCED BY RUSSIA, BRAZIL AND ASIA?
Financial problems in these areas of the world have had a deflationary impact on
U.S. markets. The global liquidity crisis triggered by the Russian debt default
debacle resulted in the Federal Reserve Board taking action by lowering
short-term interest rates to preempt a possible global recession. Devaluation of
the Brazilian currency and excess manufacturing capacity in Asia resulted in a
flood of inexpensive imports into the U.S., which helped keep inflation low and
allowed Treasury interest rates to decline during the second half of 1998.
/s/ R. Jerry Scheel
R. Jerry Scheel
PORTFOLIO MANAGER
MATURITY
--------
AVERAGE MATURITY: 7.80 YEARS
5 LARGEST HOLDINGS
------------------
<TABLE>
<CAPTION>
Interest Maturity % of Portfolio
Security Rate Date 12/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Enterprise Oil Notes.................... 6.500% 5/01/05 1.2%
U.S. Treasury Bond...................... 8.125% 8/15/19 1.2%
U.S. Treasury Bond...................... 7.875% 2/15/21 1.2%
U.S. Treasury Bond...................... 8.750% 5/15/17 1.2%
U.S. Treasury Bond...................... 8.250% 2/15/20 1.1%
</TABLE>
Bond Portfolio
SECTOR ALLOCATIONS
-------------------
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
% of Portfolio
12/31/98
----------
<S> <C>
. U.S. Government Obligations.................................... 37%
. U.S. Government Agency Obligations............................. 37%
. Corporate Obligations.......................................... 19%
. Short-Term Obligations......................................... 3%
. Other Government Securities.................................... 2%
. Asset-Backed Securities........................................ 1%
. Utility Bonds.................................................. 1%
----------
Total 100%
</TABLE>
CREDIT QUALITY
--------------
AVERAGE QUALITY: AAA
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
% of Portfolio
12/31/98
----------
<S> <C>
. AAA........................................................... 79%
. AA............................................................ 4%
. A............................................................. 10%
. BBB........................................................... 7%
----------
Total 100%
</TABLE>
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
<TABLE>
<S> <C>
..........TOTAL NET ASSETS...............$545,336,915..........................NAV............
</TABLE>
BALANCED PORTFOLIO
[PICTURE APPEARS HERE]
HOW DID THE U.S. STOCK AND BOND MARKETS PERFORM DURING 1998?
The U.S. equity market performed exceptionally well in 1998 for owners of large
capitalization stocks, but proved to be a difficult year for owners of small
company stocks. The S&P 500 Index* advanced 28.6% in 1998, while the S&P
SmallCap 600 Index** declined 1.3%. The advance in the S&P 500 in 1998 followed
exceptional returns in the previous three years (33.4% in 1997, 23.0% in 1996
and 37.6% in 1995). The compound annual return of the S&P 500 Index has been
30.4% over the last four years. We do not expect returns from the S&P 500 to be
of nearly the same magnitude over the next several years, but to revert to more
normal returns that have historically averaged about 10% per year. Although
returns from the bond market were dwarfed by comparison to the S&P 500 in 1998,
the Lehman Brothers Aggregate Bond Index*** did deliver an 8.7% return. Interest
rates declined by more than 1% for most
*An unmanaged index comprised of 500 common stocks representative of the
stock market as a whole. "S&P 500" is a trademark of The McGraw-Hill
Companies, 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.
**An unmanaged index comprised of 600 stocks designed to represent
performance of the small-cap segment of the U.S. equity markets.
***An unmanaged 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.
****This index is a blend of the S&P 500(R) Index (55%), Lehman Index (35%) and
Salomon Index (10%).
*****An index composed of 1-month Treasury bills.
AVERAGE ANNUAL TOTAL RETURNS/1/
-------------------------------
As of December 31, 1998
<TABLE>
<CAPTION>
From Inception
1-Year Inception Date
------------------------------
<S> <C> <C> <C>
Fund Portfolio/2/.............................. 19.27% 18.71% 6/14/95
Variable Annuity Subaccount/3/................. 17.79% 17.22% 6/15/95
Variable Life Subaccount/3/.................... NA 9.45% 5/15/98
SEC Variable Annuity Subaccount/4/............. 10.37% 16.02% 6/15/95
</TABLE>
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS.
/1/ TOTAL RETURNS -- Total returns and unit values are subject to fluctuation.
Accumulation units, when redeemed, may be worth more or less than their
original value. Periods less than one year are not annualized. Actual
returns experienced by the contract owner, as reflected in the cash value
of the certificate, will be significantly less than those shown for the
Portfolios, because the owner's values are reduced by mortality and risk
expenses, and other charges and expenses related to the certificate's
insurance coverage.
/2/ FUND PORTFOLIO -- Average annual total returns reflect reinvestment of all
dividends and capital gains distributions but do not reflect separate
account expenses or charges. However, these values reflect the deduction of
a 0.35% maximum 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 a
30-days' notice, these total returns would have been lower.
/3/ VARIABLE SUBACCOUNTS -- Annuity returns reflect the deduction of the 1.25%
mortality and expense risk fee, but do not reflect the $25 annual
maintenance charge (for accounts of less than $5,000) or surrender charges.
Life returns do not reflect charges assessed to individual certificate
owners.
/4/ SEC VARIABLE ANNUITY SUBACCOUNT -- Reflects all fees and expenses and the
maximum surrender charge of 7% for the first contract year, declining by 1%
each year through the seventh.
Please refer to the hypothetical illustrations in the account prospectus which
show the effect on performance of various assumptions regarding the cost for
insurance protection. You may also obtain a personalized illustration of
historical performance which reflects the costs of your certificate's insurance
protection.
VALUE OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
06-14-95 12-31-95 12-31-96 12-31-97 12-31-98
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balanced Portfolio 10,000 11,146 12,667 15,416 18,387
S&P 500 Index 10,000 11,630 14,298 19,067 24,515
Lehman Brothers Aggregate Bond Index 10,000 10,616 10,999 12,062 13,101
Blended Index 10,000 11,133 12,707 15,492 18,514
Salomon Brothers Short Term Index 10,000 12,295 10,805 11,328 11,848
</TABLE>
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
<TABLE>
<S> <C> <C>
........$15.97.............................0umber of Securities in Portfolio..............806.........
</TABLE>
maturities in 1998, which allowed investment- grade bond investors to realize
appreciation in the value of their portfolios, together with their return from
interest income.
IS ANY CONSIDERATION BEING GIVEN TO INCREASE THE PORTFOLIO'S STOCK WEIGHTING TO
TAKE ADVANTAGE OF THE CONTINUED STRONG PERFORMANCE BY STOCKS?
We regularly assess valuation levels of the market and develop a forecast of our
return expectations for the S&P 500 (stocks), the Lehman Brothers Aggregate Bond
Index (bonds) and commercial paper (cash). Because of the high valuation levels
of the S&P 500, we currently maintain a neutral weighting in stocks (55%), and
will look to underweight stocks relative to bonds and cash if the S&P 500 stock
index begins to decline and shows continued weakness.
/s/ Reginald L. Pfeifer
Reginald L. Pfeifer
PORTFOLIO MANAGER
ASSET MIX
---------
Balanced Portfolio
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
% of Portfolio
12/31/98
--------
<S> <C> <C>
. Common Stocks................. 55%
. Long-Term Obligations......... 35%
. Short-Term Obligations........ 10%
------
Total 100%
</TABLE>
5 LARGEST BOND HOLDINGS
-----------------------
<TABLE>
<CAPTION>
INTEREST MATURITY % OF PORTFOLIO
SECURITY RATE DATE 12/31/98
- ----------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond.... 5.250% 1/31/01 0.42%
U.S. Treasury Bond.... 8.750% 5/15/17 0.38%
U.S. Treasury Bond.... 7.625% 2/15/25 0.36%
U.S. Treasury Bond.... 10.750% 2/15/03 0.34%
U.S. Treasury Bond.... 6.875% 8/15/25 0.33%
</TABLE>
5 LARGEST MONEY MARKET HOLDINGS
-------------------------------
<TABLE>
<CAPTION>
Interest Maturity % of Portfolio
Security Rate* Date 12/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
General Motors Acceptance
Corporation..................... 5.170% 1/12/99 1.43%
Ford Motor Credit Company....... 5.170% 11/15/99 1.13%
GTE Corporation................. 5.500% 2/12/99 1.09%
American Express Credit......... 5.850% 1/4/99 0.98%
Sears Roebuck Acceptance
Corporation..................... 5.350% 1/11/99 0.90%
</TABLE>
5 LARGEST COMMON STOCK HOLDINGS
-------------------------------
<TABLE>
<CAPTION>
%of Portfolio
Security 12/31/98
--------------------------------------------------------
<S> <C>
Microsoft Corporation...................... 1.9%
General Electric Company................... 1.9%
Intel Corporation.......................... 1.1%
Wal-Mart Stores, Inc....................... 1.0%
Exxon Corporation.......................... 1.0%
</TABLE>
* The interest rate reflects the discount rate at the date of purchase.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
<TABLE>
<S> <C> <C>
............Total Net Assets................$572,360,986................NAV................
</TABLE>
LARGE COMPANY STOCK PORTFOLIO
HOW DID LARGE-CAP STOCKS PERFORM DURING 1998, AND WHAT FACTORS AFFECTED
PERFORMANCE?
[PICTURE APPEAES HERE]
Large cap stocks lead the way in 1998, significantly outperforming smaller
capitalization stocks. Even within the S&P 500 Index*, the larger the
capitalization, the better the performance of the stock. The top capitalization
quintile, which is comprised of the 100 largest stocks in the S&P 500 Index,
had a return of 36.4% vs. a 5.6% return for the other 400 stocks in the Index
and a 28.6% return for the Index as a whole. The factors that led to this
performance included reasonably robust profit improvement for many of these
larger companies due to their position as market leaders in their respective
industries, and their ability to grow earnings through cost reduction due to
the large size of their operations. Also, many of the industries of these large
companies were among the most successful during the year, including computer
hardware, computer software, pharmaceuticals, electronics, retailing,
telecommunications services, equipment and autos.
*An unmanaged index comprised of 500 common stocks representative of the stock
market as a whole. "S&P 500" is a trademark of The McGraw-Hill Companies, 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.
AVERAGE ANNUAL TOTAL RETURNS/1/
-------------------------------
As of December 31, 1998
<TABLE>
<CAPTION>
From Inception
1-Year Inception Date
----------------------------------
<S> <C> <C> <C>
Fund Portfolio/2/................... 28.36% 28.35% 6/14/95
Variable Annuity
Subaccount/3/....................... 26.76% 26.68% 6/15/95
Variable Life
Subaccount/3/....................... NA 12.00% 5/15/98
SEC Variable
Annuity Subaccount/4/............... 18.78% 25.37% 6/15/95
</TABLE>
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS.
/1/ TOTAL RETURNS -- Total returns and unit values are subject to fluctuation.
Accumulation units, when redeemed, may be worth more or less than their
original value. Periods less than one year are not annualized. Actual
returns experienced by the contract owner, as reflected in the cash value of
the certificate, will be significantly less than those shown for the
Portfolios, because the owner's values are reduced by mortality and risk
expenses, and other charges and expenses related to the certificate's
insurance coverage.
/2/ FUND PORTFOLIO -- Average annual total returns reflect reinvestment of all
dividends and capital gains distributions but do not reflect separate
account expenses or charges. However, these values reflect the deduction of
a 0.35% maximum 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 a 30-days'
notice, these total returns would have been lower.
/3/ VARIABLE SUBACCOUNTS -- Annuity returns reflect the deduction of the 1.25%
mortality and expense risk fee, but do not reflect the $25 annual
maintenance charge (for accounts of less than $5,000) or surrender charges.
Life returns do not reflect charges assessed to individual certificate
owners.
/4/ SEC VARIABLE ANNUITY SUBACCOUNT -- Reflects all fees and expenses and the
maximum surrender charge of 7% for the first contract year, declining by 1%
each year through the seventh.
Please refer to the hypothetical illustrations in the account prospectus which
show the effect on performance of various assumptions regarding the cost for
insurance protection. You may also obtain a personalized illustration of
historical performance which reflects the costs of your certificate's insurance
protection.
VALUE OF A $10,000 INVESTMENT
-----------------------------
$10,000 INVESTMENT PLOT POINTS FOR THE ANNUAL REPORT
<TABLE>
<CAPTION>
06-14-95 12-31-95 12-31-96 12-31-97 12-31-98
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LARGE COMPANY STOCK PORTFOLIO 10,000 11,639 14,254 18,900 24,259
S&P 500 INDEX 10,000 11,630 14,298 19,067 24,515
</TABLE>
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
........$22.90............Number of Securities in Portfolio.........503........
WHY HAVE LARGE-CAP STOCKS CONTINUED TO OUTPERFORM SMALL-AND MID-CAP STOCKS?
Several reasons could be given for large-cap stock outperformance: the robust
profits generated by the various industries cited previously, the degree of
confidence that investors placed on the sustainability of this profit growth,
and the large capital inflows experienced in this sector of the equity markets.
Although profit growth wasn't absent from the profile of many smaller companies,
even those whose profit trends were above average may have suffered from a lack
of investor confidence in the sustainability of this growth.
DO YOU FEEL THE S&P 500 INDEX CAN CONTINUE TO PRODUCE DOUBLE-DIGIT RETURNS IN
THE YEAR AHEAD, GIVEN THE CURRENT ECONOMIC ENVIRONMENT?
I would not expect the S&P 500 Index to produce double-digit returns this year
due to a variety of reasons: the current valuation of the stock market, trends
in corporate profitability and the outlook for interest rates. The valuation of
the stock market is at all-time highs with the price-earnings (P/E) ratio of the
S&P 500 Index at 28 times expected 1999 earnings, about twice the historical
average. This level makes it hard to expect further expansion of the P/E
multiple. One factor that affects the multiple of the stock market is the
profitability of companies in the market. Using return on equity (ROE) as a
measure of profitability, it appears that the aggregate ROE has peaked in the
past 12 to 18 months and is starting to decline, suggesting that the market's
P/E multiple is likely to peak and possibly decline. Finally, declining interest
rates also enable the market multiple to rise. It is possible that the decline
in interest rates experienced over the past decade may start to flatten if the
economy remains reasonably strong. The Federal Reserve will be less likely to
lower interest rates further in a strong economy.
/s/ David J. Schnarsky
David J. Schnarsky
PORTFOLIO MANAGER
SECTOR ALLOCATIONS
------------------
[PIE CHART APPEARS HERE]
% of Portfolio
12/31/98
--------
. Consumer Non-Durables 33%
. Technology 17%
. Finance 15%
. Utilities 14%
. Energy 6%
. Materials & Services 6%
. Capital Goods 5%
Consumer Durables 2%
Transportation 1%
Short-Term Obligations 1%
--------
Total 100%
5 LARGEST HOLDINGS
------------------
% of Portfolio
Security 12/31/98
- -----------------------------------------------------------------------------
Microsoft Corporation 3.5%
General Electric Company 3.4%
Intel Corporation 2.0%
Wal-Mart Stores, Inc. 1.8%
Exxon Corporation 1.8%
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
............Total Net Assets..............$198,320,564.........NAV..............
SMALL COMPANY STOCK PORTFOLIO
HOW DID SMALL-CAP STOCKS PERFORM DURING 1998, AND WHAT FACTORS AFFECTED
PERFORMANCE?
[PICTURE APPEARS HERE]
The S&P SmallCap 600 Index* was down 1.3% in 1998. This compared to a 28.6%
return for the S&P 500 Index**. Two major factors, liquidity and predictable
earnings growth, contributed to this performance discrepancy. The Federal
Reserve reduced interest rates which expanded the amount of liquidity in the
economy and benefited U.S. financial assets (stocks and bonds) as a result. As
stock valuations continued to increase, investors used this liquidity to buy
stocks of the safest and largest U.S. companies, driving valuations for
large-cap stocks even higher. The second half of 1998 also saw profit growth
decline for many U.S. companies. In a period of slowing profits, investors pay a
premium for those companies with highly visible future profits. The majority of
companies with this characteristic are large-cap stocks. The combination of the
above factors caused small-cap stocks to significantly underperform large-cap
stocks in 1998.
* An unmanaged index comprised of 600 stocks designed to represent
performance of the small-cap segment of the U.S. equity markets.
** An unmanaged index comprised of 500 common stocks representative of the
stock market as a whole. "S&P 500" is a trademark of The McGraw-Hill
Companies, 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.
*** An index comprised of 250 stocks designed to represent performance
attributes of the smaller capitalization segment of the U.S. equity
markets.
AVERAGE ANNUAL TOTAL RETURNS/1/
-------------------------------
As of December 31, 1998
FROM INCEPTION
1-YEAR INCEPTION DATE
-----------------------------
Fund Portfolio/2/.............. 0.14% 15.00% 6/14/95
Variable Annuity
Subaccount/3/.................. (1.11%) 13.46% 6/15/95
Variable Life
Subaccount/3/.................. NA (9.29%) 5/15/98
SEC Variable
Annuity Subaccount/4/.......... (7.34%) 12.29% 6/15/95
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS.
/1/ TOTAL RETURNS -- Total returns and unit values are subject to fluctuation.
Accumulation units, when redeemed, may be worth more or less than their
original value. Periods less than one year are not annualized. Actual
returns experienced by the contract owner, as reflected in the cash value of
the certificate, will be significantly less than those shown for the
Portfolios, because the owner's values are reduced by mortality and risk
expenses, and other charges and expenses related to the certificate's
insurance coverage.
/2/ FUND PORTFOLIO --Average annual total returns reflect reinvestment of all
dividends and capital gains distributions but do not reflect separate
account expenses or charges. However, these values reflect the deduction of
a 0.35% maximum 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 a 30-days'
notice, these total returns would have been lower.
/3/ VARIABLE SUBACCOUNTS -- Annuity returns reflect the deduction of the 1.25%
mortality and expense risk fee, but do not reflect the $25 annual
maintenance charge (for accounts of less than $5,000) or surrender charges.
Life returns do not reflect charges assessed to individual certificate
owners.
/4/ SEC VARIABLE ANNUITY SUBACCOUNT -- Reflects all fees and expenses and the
maximum surrender charge of 7% for the first contract year, declining by 1%
each year through the seventh.
Please refer to the hypothetical illustrations in the account prospectus which
show the effect on performance of various assumptions regarding the cost for
insurance protection. You may also obtain a personalized illustration of
historical performance which reflects the costs of your certificate's insurance
protection.
VALUE OF A $10,000 INVESTMENT
-----------------------------
SMALL COMPANY STOCK PORTFOLIO 10,000 11,070 13,084 16,403 16,425
WILSHIRE SMALL CAP INDEX 10,000 11,181 13,383 16,972 16,867
S&P 600 INDEX 10,000 11,510 13,962 17,533 17,301
MIXED WILSHIRE & S&P 600 10,000 11,181 13,383 16,972 17,056
Prior March 1, 1998, the Portfolio's objective was to approximate the
performance of the Wilshire Small Cap Index. The change to the S&P Small Cap 600
Index was made because it reflects more current market data and information is
available on a daily basis.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
........$12.40........ Number of Securities in Portfolio..........602..........
WHICH SMALL-CAP INDUSTRY SECTORS SHOWED THE GREATEST STRENGTH DURING 1998? WHICH
SECTORS WERE THE WEAKEST?
The following table lists the best performing and worst performing sectors for
the S&P SmallCap 600 Index and their corresponding returns for 1998.
- ----------------------------------------------------------------
Best Performing Returns Worst Performing Returns
- ----------------------------------------------------------------
Consumer Durables 10.9% Energy -43.4%
- ----------------------------------------------------------------
Materials &
Utilities 8.5% Services -3.7%
- ----------------------------------------------------------------
Transportation 4.6% Finance -0.1%
- ----------------------------------------------------------------
WHY HAVE SMALL-CAP STOCKS CONTINUED TO UNDERPERFORM MID- AND LARGE-CAP STOCKS?
DO YOU SEE THIS CONTINUING?
While no one has a crystal ball and the aforementioned factors remain, a
compelling argument can be made for small-cap stocks. First, the
underperformance of small-cap stocks has created a valuation gap with large-cap
stocks that has not been seen for the last 20 years. Second, small-cap stocks
offer better earnings growth than large-cap stocks. Finally, small-cap stocks
have seen a higher percentage of insider buying than large-cap stocks during
December. These factors suggest that small-cap stocks offer attractive
valuations with solid appreciation potential.
HAS STANDARD & POOR'S MADE ANY COMPANY CHANGES TO THE S&P SMALLCAP 600 INDEX
SINCE THE PORTFOLIO BEGAN USING THIS INDEX AS ITS BENCHMARK IN MARCH 1998?
Standard & Poor's adds and deletes companies in their indexes throughout the
year. Changes are typically made when a company has become too large or too
small for its current index or the company has been acquired through a merger or
acquisition. There were 88 company changes in the S&P SmallCap 600 Index in
1998. After February 1998, there were 71 company changes to the index. Most of
these changes were the result of mergers.
/s/ Brian J. Flanagan
Brian J. Flanagan
Portfolio Manager
SECTOR ALLOCATIONS
------------------
[PIE CHART APPEARS HERE]
% of Portfolio
12/31/98
--------
.Consumer Non-Durables 26%
.Materials & Services 20%
.Finance 16%
.Technology 13%
.Capital Goods 7%
.Consumer Durables 6%
.Utilities 6%
.Transportation 3%
.Energy 2%
.Short-Term Obligations 1%
Total 100%
5 LARGEST HOLDINGS
------------------
%of Portfolio
Security 12/31/98
- --------------------------------------------------------
Vitesse Semiconductor Corporation........ 1.0%
Samina Corporation....................... 0.9%
Medimmune, Inc........................... 0.8%
E*Trade Group, Inc....................... 0.7%
Astoria Financial Corporation............ 0.7%
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
..........TOTAL NET ASSETS..............$15,594,651.............NAV.............
INTERNATIONAL STOCK PORTFOLIO
HOW HAS THE PORTFOLIO PERFORMED SINCE ITS INTRODUCTION ON MARCH 2, 1998,
AND WHAT FACTORS AFFECTED PERFORMANCE?
Since its inception, the Portfolio returned 11.09%, vs. the MSCI EAFE
Index* return of 7.83%. Outperformance was due to overweight positions in
the continental European markets (most notably the Netherlands, Italy and
Spain), good stock selection in Europe, underweight positions in Japan and
the rest of Asia, and nominal exposure to the emerging markets.
*The Morgan Stanley Capital International Europe, Australasia, Far East
Index is a stock index designed to measure the investment returns of the
developed countries outside of North America. The index currently includes
stocks from 21 countries.
ARE THERE ANY COUNTRIES IN WHICH YOU ARE NOT CURRENTLY INVESTED THAT YOU
FEEL ARE WORTH WATCHING FOR FUTURE OPPORTUNITIES?
Other than some minor adjustments to current country weightings, we do not
anticipate any significant changes to our overall country exposure at this
point. The continuing crisis in emerging markets may provide stock-specific
opportunities at some point over the next 12 months, as valuations may
eventually become attractive.
HOW DID THE PORTFOLIO REACT TO THE FINANCIAL CRISES THAT SURFACED AMONG
SOME OF THE WORLD'S COUNTRIES DURING 1998?
The Portfolio held its own against the benchmark in the volatile third
quarter, returning -14.23% vs. -14.21% for the EAFE Index. This was above
the
[PICTURE APPPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS/1/
As of December 31, 1998
From Inception
International Year-To-Date 1-Year Inception Date
Fund Portfolio/2/....... 10.41% NA 10.41% 3/2/98
VA Subaccount/3/......... 9.27% NA 9.27% 3/3/98
VUL Subaccount/3/........ 2.51% NA 2.51% 5/15/98
SEC VA Subaccount/4/..... 2.39% NA 2.39% 3/3/98
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS.
/1/ TOTAL RETURNS - Total returns and unit values are subject to fluctuation.
Accumulation units, when redeemed, may be worth more or less than their
original value. Periods less than one year are not annualized. Actual
returns experienced by the contract owner, as reflected in the cash value
of the certificate, will be significantly less than those shown for the
Portfolios, because the owner's values are reduced by mortality and risk
expenses, and other charges and expenses related to the certificate's
insurance coverage.
/2/ FUND PORTFOLIO - Average annual total returns reflect reinvestment of all
dividends and capital gains distributions but do not reflect separate
account expenses or charges. However, these values reflect the deduction of
a 0.80% maximum 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 a
30-days' notice, these total returns would have been lower.
/3/ VARIABLE SUBACCOUNTS - Annuity returns reflect the deduction of the 1.25%
mortality and expense risk fee, but do not reflect the $25 annual
maintenance charge (for accounts of less than $5,000) or surrender charges.
Life returns do not reflect charges assessed to individual certificate
owners.
/4/ SEC VARIABLE ANNUITY SUBACCOUNT - Reflects all fees and expenses and the
maximum surrender charge of 7% for the first contract year, declining by 1%
each year through the seventh.
Please refer to the hypothetical illustrations in the account prospectus which
show the effect on performance of various assumptions regarding the cost for
insurance protection. You may also obtain a personalized illustration of
historical performance which reflects the costs of your certificate's insurance
protection.
VALUE OF A $10,000 INVESTMENT
INTERNATIONAL STOCK PORTFOLIO 10,000 11,041
MSCI EAFE Index 10,000 10,746
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
...........$11.05..........NUMBER OF SECURITIES IN PORTFOLIO........69..........
DISTRIBUTION OF COMMON STOCK HOLDINGS
-------------------------------------
[MAP APPEARS HERE]
International investing involves additional risks including currency
fluctuations, economic and political instability, and accounting standards.
median of the Lipper Universe. It then rallied nicely in the fourth quarter
(+18.03%). We believe the outlook for global equity markets looks better now
than during the height of the turmoil in late summer. Our view is that we are
through the worst. The primary challenges to this more favorable outlook
include: a failure of fiscal and monetary authorities to continue to promote
stimulative policies; a lack of effectiveness in achieving their ends; and a
worse than anticipated downturn in corporate profits. The current environment
necessitates disciplined stock selection more than ever. we are optimistic about
the prospects for achieving attractive returns.
/s/ Kathleen M. Harris
Kathleen M. Harris
PORTFOLIO MANAGER
/s/ L. Sean Roche
L. Sean Roche
PORTFOLIO MANAGER
ASSET MIX
[PIE CHART APPEARS HERE]
% of Portfolio
12/31/98
--------
. Common Stocks.................96.2%
. Short-Term Obligations.........3.8%
-------------
Total 100%
5 LARGEST HOLDINGS
------------------
%OF PORTFOLIO
SECURITY COUNTRY INDUSTRY 12/31/98
- ----------------------------------------------------------------------
BRITISH AEROSPACE........ United Kingdom Manufacturing 3.3%
GLAXO WELLCOME PLC....... United Kingdom Drugs 3.2%
NTT MOBILE COMMUNICATION
NETWORK, INC............. Japan Telephone 3.2%
SUEZ LYONNAISE DES EAUX.. France Construction 3.0%
TELELCOM ITALIA SPA...... Italy Telephone 3.0%
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
..........TOTAL NET ASSETS............$27,965,454.............NAV...............
HIGH YIELD BOND PORTFOLIO
HOW HAVE HIGH YIELD BONDS PERFORMED SINCE THE PORTFOLIO'S INTRODUCTION ON
MARCH 2, 1998?
The high yield bond market, as measured by the Merrill Lynch High Yield
Index, had a total return of 2.6% during this time period. The market was
fairly calm through July, but took an abrupt turn for the worse in August
when the Russian government devalued the ruble and defaulted on its debt.
This event caught the markets by surprise and sparked a "flight to quality"
trade by investors. In times of great uncertainty, investors will sell so
called "risky" assets in favor of "safe" investments. High yield bonds are
considered one of the more risky segments within the fixed-income sector,
as contrasted with U.S. government bonds. As a result, high yield bonds
showed negative returns for three consecutive months before recovering in
November. Within the high yield market, the better quality bonds
outperformed the lower-rated sectors. The highest quality bonds, or those
rated BB, returned 6.6% for all of 1998, while the single B sector returned
2.8%, and the lowest rated CCC sector had a negative return of 8.1%.
[PICTURE APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS/1/
-------------------------------
As of December 31, 1998
FROM INCEPTION
HIGH YIELD BOND YEAR-TO-DATE 1-YEAR INCEPTION DATE
FUND PORTFOLIO/2/........... (3.25%) NA (3.25%) 3/2/98
VA SUBACCOUNT/3/............ (4.25%) NA (4.25%) 3/3/98
VUL SUBACCOUNT/3/........... (4.58%) NA (4.58%) 5/15/98
SEC VA SUBACCOUNT/4/........(10.28%) NA (10.28%) 3/3/98
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS.
/1/ TOTAL RETURNS - Total returns and unit values are subject to fluctuation.
Accumulation units, when redeemed, may be worth more or less than their
original value. Periods less than one year are not annualized. Actual
returns experienced by the contract owner, as reflected in the cash value
of the certificate, will be significantly less than those shown for the
Portfolios, because the owner's values are reduced by mortality and risk
expenses, and other charges and expenses related to the certificate's
insurance coverage.
/2/ FUND PORTFOLIO - Average annual total returns reflect reinvestment of all
dividends and capital gains distributions but do not reflect separate
account expenses or charges. However, these values reflect the deduction of
a 0.40% maximum 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 a
30-days' notice, these total returns would have been lower.
/3/ VARIABLE SUBACCOUNTS - Annuity returns reflect the deduction of the 1.25%
mortality and expense risk fee, but do not reflect the $25 annual
maintenance charge (for accounts of less than $5,000) or surrender charges.
Life returns do not reflect charges assessed to individual certificate
owners.
/4/ SEC VARIABLE ANNUITY SUBACCOUNT - Reflects all fees and expenses and the
maximum surrender charge of 7% for the first contract year, declining by 1%
each year through the seventh.
Please refer to the hypothetical illustrations in the account prospectus which
show the effect on performance of various assumptions regarding the cost for
insurance protection. You may also obtain a personalized illustration of
historical performance which reflects the costs of your certificate's insurance
protection.
VALUE OF A $10,000 INVESTMENT
-----------------------------
HIGH YIELD BOND PORTFOLIO 10,000 9,675
MERRILL LYNCH HIGH YIELD BOND INDEX 10,000 10,273
* An unmanaged index comprised of over 900 "cash-pay" high yield bonds
representative of the high yield market as a whole.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
...........$8.95..........NUMBER OF SECURITIES IN PORTFOLIO........82..........
HOW DID THE PORTFOLIO PERFORM DURING THIS PERIOD, AND WHAT FACTORS AFFECTED
PERFORMANCE?
The Portfolio returned a negative 2.9% during this period. The best performing
sector last year was media. This sector represents 12.5% of the Portfolio, and
consists of companies in the cable TV, radio and television broadcasting and
publishing industries. These industries are somewhat defensive because their
businesses are non-cyclical and based entirely in the United States. This sector
finished the year with a return of about 11%. On the other hand, the basic
materials sector (steel, paper and chemicals) has been most affected by weak
international economies. This sector finished the year with a slightly negative
return and currently accounts for 11.6% of the Portfolio. As 1999 unfolds, I
believe this sector presents the most interesting opportunities. The U.S.
economy remains strong and Asia is beginning to recover. I expect profitability
to improve this year for basic material companies and for their bonds to
outperform the market in 1999.
/S/ David G. Carroll
David G. Carroll
PORTFOLIO MANAGER
5 LARGEST HOLDINGS
------------------
INTEREST MATURITY % OF PORTFOLIO
SECURITY RATE DATE 12/31/98
- --------------------------------------------------------------------------------
CENTURY COMMUNICATION CORP.................... 8.750% 10/01/07 2.0%
GRAND CASINOS, INC............................ 10.125% 12/01/03 2.0%
COMCAST CELLULAR HOLDINGS, INC................ 9.500% 5/01/07 1.9%
SPANISH BROADCASTING SYSTEMS, INC............. 11.000% 3/15/04 1.9%
DAY INTERNATIONAL GROUP, INC.................. 11.125% 6/1/05 1.9%
ASSET MIX
---------
[PIE CHART APPEARS HERE]
% of Portfolio
12/31/98
--------
Long-Term Obligations.............. 98.6%
Short-Term Obligations............. 1.4%
----------
Total 100%
CREDIT QUALITY
--------------
AVERAGE QUALITY: B+
[PIE CHART APPEARS HERE]
% of Portfolio
12/31/98
. BB...............................25%
. B................................68%
. CCC..............................7%
----------
Total 100%
MATURITY
--------
AVERAGE MATURITY: 8.0 YEARS
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE PRODUCT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
INVESTMENT OBJECTIVE
--------------------
The Portfolio seeks to provide maximum current income, to the extent
consistent with liquidity and a stable net asset value of $1.00 per
share, by investing in a diversified portfolio of high-quality, short-
term money market instruments.
<TABLE>
<CAPTION>
PRINCIPAL COMMERCIAL INTEREST MATURITY MARKET
AMOUNT PAPER (98.3%) RATE(A) DATE VALUE
<S> <C> <C> <C> <C>
$ 282,000 Abbott Laboratories...................... 5.500% 1/13/99 $ 281,483
1,000,000 American General Finance Corporation..... 5.450 2/1/99 995,307
1,100,000 Ameritech Corporation.................... 5.350 1/20/99 1,096,894
745,000 Associates Corporation of North America.. 5.700 1/5/99 744,528
800,000 Bell Atlantic Network Funding............ 5.100 1/15/99 798,413
1,026,000 Bell South Telecommunications............ 5.050 1/11/99 1,024,561
213,000 Bell South Telecommunications............ 5.350 1/26/99 212,209
1,100,000 Carolina Power & Light, Inc.............. 5.200 1/25/99 1,096,187
396,000 CIT Group Holdings, Inc.................. 5.400 1/28/99 394,396
750,000 Coca-Cola Company........................ 4.950 1/21/99 747,938
1,113,000 Colgate-Palmolive Company................ 4.870 3/29/99 1,099,901
303,000 Consolidated Natural Gas Company......... 5.130 1/28/99 301,834
788,000 Consolidated Natural Gas Company......... 5.120 2/2/99 784,414
1,151,000 Countrywide Home Loans, Inc.............. 5.500 1/14/99 1,148,714
1,000,000 Duke Energy Corporation.................. 5.150 1/13/99 998,283
1,000,000 E.I. DuPont de Nemours & Company......... 5.130 1/29/99 996,010
371,000 Eaton Corporation........................ 5.250 1/22/99 369,864
499,000 Eaton Corporation........................ 5.500 1/25/99 497,170
$1,094,000 Exxon Asset Management................... 5.650% 1/6/99 $1,093,142
1,200,000 Ford Motor Credit Corporation............ 5.400 1/28/99 1,195,140
1,100,000 General Electric Capital Corporation..... 5.320 1/19/99 1,097,057
558,000 General Motors Acceptance Corporation.... 5.330 1/15/99 556,843
587,000 General Motors Acceptance Corporation.... 5.510 1/21/99 585,203
1,000,000 GTE Corporation.......................... 5.340 2/16/99 993,177
1,150,000 H.J. Heinz, Inc.......................... 5.250 2/5/99 1,144,130
1,200,000 Hershey Foods Corporation................ 5.350 1/26/99 1,195,542
960,000 Household Finance Corporation............ 5.340 1/4/99 959,573
970,000 International Business Machines Credit
Corporation.............................. 5.220 1/22/99 967,046
1,100,000 International Lease Finance Corporation.. 5.180 1/6/99 1,099,209
1,109,000 J.C. Penney Funding Corporation.......... 5.250 1/27/99 1,104,795
923,000 Lucent Technologies, Inc................. 5.130 1/8/99 922,079
1,056,000 Pepsico, Inc............................. 5.170 1/7/99 1,055,090
1,096,000 Procter & Gamble Company................. 4.850 2/12/99 1,089,798
941,000 SBC Communications, Inc.................. 5.150 1/21/99 938,308
707,000 Schering-Plough Corporation.............. 5.200 1/26/99 704,447
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT MONEY MARKET PORTFOLIO-CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL COMMERCIAL INTEREST MATURITY MARKET
AMOUNT PAPER (98.3% ) RATE(A) DATE VALUE
========================================================================================
<S> <C> <C> <C> <C>
$ 728,000 Southern California
Edison Company...........................5.200 1/12/99 $ 726,843
153,000 Southern California
Edison Company...........................5.400 1/14/99 152,702
713,000 Walt Disney Company......................5.150 1/5/99 712,592
1,125,000 Wisconsin Electric Power Company.........5.270 1/12/99 1,123,188
---------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (98.3%)
(amortized cost $33,004,010).....................................33,004,010
===========================================================================
---------------------------------------------------------------------------
OTHER ASSETS,
LESS LIABILITIES (1.7%).............................................566,852
===========================================================================
---------------------------------------------------------------------------
NET ASSETS (100.0%).............................................$33,570,862
===========================================================================
</TABLE>
(a) The interest rate shown reflects the discount rate at the date of purchase.
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE PRODUCT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
INVESTMENT OBJECTIVE
--------------------
The Portfolio seeks to achieve investment results that approximate the
total return of the Lehman Brothers Aggregate Bond Index by investing
primarily in bonds and other debt securities included in the index.
<TABLE>
<CAPTION>
PRINCIPAL LONG-TERM FIXED INCOME INTEREST MATURITY MARKET
AMOUNT SECURITIES (98.1%) RATE DATE VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (37.4%)
- -----------------------------------
$ 275,000 U.S. Treasury Notes........... 7.750% 12/31/99 $283,250
250,000 U.S. Treasury Notes........... 7.750 1/31/00 257,969
260,000 U.S. Treasury Notes........... 7.125 2/29/00 267,069
300,000 U.S. Treasury Notes........... 6.875 3/31/00 307,781
250,000 U.S. Treasury Notes........... 6.750 4/30/00 256,562
400,000 U.S. Treasury Notes........... 8.875 5/15/00 422,000
350,000 U.S. Treasury Notes........... 5.875 6/30/00 356,125
100,000 U.S. Treasury Notes........... 6.125 7/31/00 102,187
300,000 U.S. Treasury Notes........... 6.250 8/31/00 307,594
300,000 U.S. Treasury Notes........... 6.125 9/30/00 307,406
350,000 U.S. Treasury Notes........... 5.750 10/31/00 356,672
375,000 U.S. Treasury Notes........... 8.500 11/15/00 400,429
250,000 U.S. Treasury Notes........... 5.250 1/31/01 253,125
240,000 U.S. Treasury Notes........... 7.750 2/15/01 254,775
285,000 U.S. Treasury Notes........... 8.000 5/15/01 306,108
150,000 U.S. Treasury Notes........... 5.625 6/30/01 156,891
300,000 U.S. Treasury Notes........... 7.875 8/15/01 323,344
150,000 U.S. Treasury Notes........... 5.875 11/30/01 154,969
175,000 U.S. Treasury Notes........... 6.500 5/31/02 184,789
350,000 U.S. Treasury Notes........... 6.000 7/31/02 364,765
300,000 U.S. Treasury Notes........... 6.250 8/31/02 315,281
250,000 U.S. Treasury Notes........... 5.750 10/31/02 258,984
250,000 U.S. Treasury Notes........... 6.250 2/15/03 264,219
300,000 U.S. Treasury Notes........... 5.500 5/31/03 309,562
250,000 U.S. Treasury Notes........... 5.750 8/15/03 260,937
200,000 U.S. Treasury Notes........... 11.875 11/15/03 260,937
350,000 U.S. Treasury Notes........... 5.875 2/15/04 369,359
265,000 U.S. Treasury Notes........... 7.250% 5/15/04 $296,966
250,000 U.S. Treasury Notes........... 7.250 8/15/04 281,172
160,000 U.S. Treasury Notes........... 7.500 2/15/05 183,150
280,000 U.S. Treasury Notes........... 7.000 7/15/06 318,850
250,000 U.S. Treasury Notes........... 6.500 10/15/06 277,500
200,000 U.S. Treasury Notes........... 6.250 2/15/07 219,375
250,000 U.S. Treasury Notes........... 6.125 8/15/07 273,203
250,000 U.S. Treasury Bonds........... 10.375 11/15/12 345,625
250,000 U.S. Treasury Bonds........... 9.875 11/15/15 376,484
250,000 U.S. Treasury Bonds........... 7.250 5/15/16 303,281
275,000 U.S. Treasury Bonds........... 7.500 11/15/16 341,945
350,000 U.S. Treasury Bonds........... 8.750 5/15/17 487,375
375,000 U.S. Treasury Bonds........... 8.125 8/15/19 501,445
350,000 U.S. Treasury Bonds........... 8.250 2/15/20 485,953
375,000 U.S. Treasury Bonds........... 7.875 2/15/21 494,180
280,000 U.S. Treasury Bonds........... 8.125 5/15/21 378,437
290,000 U.S. Treasury Bonds........... 7.625 11/15/22 376,456
250,000 U.S. Treasury Bonds........... 7.125 2/15/23 308,438
250,000 U.S. Treasury Bonds........... 6.250 8/15/23 279,688
260,000 U.S. Treasury Bonds........... 7.500 11/15/24 337,106
250,000 U.S. Treasury Bonds........... 6.875 8/15/25 303,281
300,000 U.S. Treasury Bonds........... 6.750 8/15/26 359,531
300,000 U.S. Treasury Bonds........... 6.625 2/15/27 354,844
200,000 U.S. Treasury Bonds........... 6.375 8/15/27 230,000
---------------------------------------------------------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS......................................... 15,777,374
===============================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT BOND PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL LONG-TERM FIXED INCOME INTEREST MATURITY MARKET
AMOUNT SECURITIES (98.1%) RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (37.7%)
- ------------------------------------------
$ 250,000 Federal Home Loan Bank Debentures............... 5.625% 3/19/01 $ 253,056
245,000 Federal Home Loan Bank Debentures............... 5.440 10/15/03 247,287
250,000 Federal Home Loan Bank Debentures............... 6.500 11/29/05 268,058
250,000 Federal Home Loan Mortgage Corporation.......... 5.125 10/15/00 245,169
255,000 Federal Home Loan Mortgage Corporation
Gold 7-Yr. Balloon.............................. 6.520 1/2/02 265,023
95,615 Federal Home Loan Mortgage Corporation
Gold 7-Yr. Balloon.............................. 7.000 7/1/02 97,756
126,840 Federal Home Loan Mortgage Corporation
15-Yr. Pass Through............................. 7.000 1/1/11 129,719
222,945 Federal Home Loan Mortgage Corporation
Gold 15-Yr. Pass Through........................ 6.500 1/1/13 226,361
218,142 Federal Home Loan Mortgage Corporation
Gold 15-Yr. Pass Through........................ 7.500 8/15/13 224,492
247,317 Federal Home Loan Mortgage Corporation
Gold 15-Yr. Pass Through........................ 6.000 9/1/13 248,323
168,377 Federal Home Loan Mortgage Corporation
30-Yr. Pass Through............................. 7.000 6/1/26 171,832
175,385 Federal Home Loan Mortgage Corporation
30-Yr. Pass Through............................. 7.500 10/1/27 180,132
159,437 Federal Home Loan Mortgage Corporation
Gold 30-Yr. Pass Through........................ 6.500 4/1/24 160,604
244,684 Federal Home Loan Mortgage Corporation
Gold 30-Yr. Pass Through........................ 7.000 5/1/24 249,761
140,826 Federal Home Loan Mortgage Corporation
Gold 30-Yr. Pass Through........................ 7.500 8/1/25 144,648
206,269 Federal Home Loan Mortgage Corporation
Gold 30-Yr. Pass Through........................ 8.500 11/1/25 216,040
104,026 Federal Home Loan Mortgage Corporation
Gold 30-Yr. Pass Through........................ 8.000 1/1/26 107,750
206,287 Federal Home Loan Mortgage Corporation
Gold 30-Yr. Pass Through........................ 7.000 4/1/27 210,346
$ 214,661 Federal Home Loan Mortgage Corporation
Gold 30-Yr. Pass Through........................ 7.500% 7/1/27 $ 220,386
9,199 Federal Home Loan Mortgage Corporation
Gold 30-Yr. Pass Through........................ 9.000 3/15/28 9,707
223,881 Federal Home Loan Mortgage Corporation
Gold 30-Yr. Pass Through........................ 7.000 5/1/28 228,291
251,317 Federal Home Loan Mortgage Corporation
Gold 30-Yr. Pass Through........................ 6.500 7/1/28 253,204
246,503 Federal Home Loan Mortgage Corporation
Gold 30-Yr. Pass Through........................ 6.000 8/1/28 243,473
249,450 Federal Home Loan Mortgage Corporation
Gold 30-Yr. Pass Through........................ 6.500 10/1/28 251,324
252,500 Federal Home Loan Mortgage Corporation
Gold 30-Yr. Pass Through........................ 6.500 12/1/28 254,396
250,000 Federal National Mortgage Association
Global Bond..................................... 7.875 2/24/05 284,581
250,000 Federal National Mortgage Association
Notes........................................... 9.050 4/10/00 262,311
250,000 Federal National Mortgage Association
Notes........................................... 4.720 12/11/00 248,807
250,000 Federal National Mortgage Association
Notes........................................... 6.450 4/23/01 257,769
250,000 Federal National Mortgage Association
Notes........................................... 7.500 2/11/02 266,989
250,000 Federal National Mortgage Association
Notes........................................... 6.000 5/15/08 263,793
250,000 Federal National Mortgage Association
Notes........................................... 5.960 9/11/28 258,351
198,828 Federal National Mortgage Association
7-Yr. Balloon................................... 6.500 10/1/03 201,555
193,786 Federal National Mortgage Association
15-Yr. Pass Through............................. 6.000 4/1/11 194,443
162,711 Federal National Mortgage Association
15-Yr. Pass Through............................. 7.500 7/1/11 167,416
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
ALL VARIABLE PRODUCT BOND PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL LONG-TERM FIXED INCOME INTEREST MATURITY MARKET
AMOUNT SECURITIES (98.1%) RATE DATE VALUE
===========================================================================================
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--CONTINUED
- ---------------------------------------------
$ 160,757 Federal National Mortgage Association
15-Yr. Pass Through............................. 8.000% 7/1/12 $166,073
87,900 Federal National Mortgage Association
15-Yr. Pass Through............................. 7.000 9/1/12 89,834
245,204 Federal National Mortgage Association
15-Yr. Pass Through............................. 6.500 12/1/12 248,730
243,195 Federal National Mortgage Association
15-Yr. Pass Through............................. 6.500 6/1/13 246,692
117,319 Federal National Mortgage Association
30-Yr. Pass Through............................. 10.500 8/1/20 127,727
221,399 Federal National Mortgage Association
30-Yr. Pass Through............................. 8.000 12/1/24 229,491
59,797 Federal National Mortgage Association
30-Yr.Pass Through.............................. 9.000 2/1/25 63,281
92,216 Federal National Mortgage Association
30-Yr. Pass Through............................. 8.500 12/1/25 96,641
158,503 Federal National Mortgage Association
30-Yr. Pass Through............................. 7.500 1/1/26 162,812
195,711 Federal National Mortgage Association
30-Yr. Pass Through............................. 7.000 2/1/26 199,764
205,146 Federal National Mortgage Association
30-Yr. Pass Through............................. 6.500 5/1/26 206,506
146,437 Federal National Mortgage Association
30-Yr. Pass Through............................. 8.000 9/1/26 151,628
148,094 Federal National Mortgage Association
30-Yr. Pass Through............................. 7.500 2/1/27 152,090
183,836 Federal National Mortgage Association
30-Yr. Pass Through............................. 7.000 3/1/27 187,643
240,241 Federal National Mortgage Association
30-Yr. Pass Through............................. 6.500 8/1/27 241,911
205,014 Federal National Mortgage Association
30-Yr. Pass Through............................. 7.500 11/1/27 210,549
$ 181,307 Federal National Mortgage Association
30-Yr. Pass Through............................. 7.000% 1/1/28 $185,000
244,728 Federal National Mortgage Association
30-Yr. Pass Through............................. 6.000 5/1/28 241,568
495,479 Federal National Mortgage Association
30-Yr. Pass Through............................. 6.500 9/1/28 498,889
252,033 Federal National Mortgage Association
30-Yr. Pass Through............................. 7.000 10/1/28 257,154
252,500 Federal National Mortgage Association
30-Yr. Pass Through............................. 7.000 12/1/28 257,631
250,000 Federal National Mortgage Association
30-Yr. Pass Through............................. 6.500 12/30/28 251,721
250,000 Federal National Mortgage Association
30-Yr. Pass Through............................. 9.000 12/30/28 264,245
166,089 Government National Mortgage Association
15-Yr. Pass Through............................. 6.500 6/15/09 169,358
157,466 Government National Mortgage Association
30-Yr. Pass Through............................. 7.500 3/15/23 162,344
163,572 Government National Mortgage Association
30-Yr. Pass Through............................. 7.000 1/15/24 167,431
126,900 Government National Mortgage Association
30-Yr. Pass Through............................. 9.000 9/15/24 135,791
117,401 Government National Mortgage Association
30-Yr. Pass Through............................. 8.000 6/15/25 121,885
240,457 Government National Mortgage Association
30-Yr. Pass Through............................. 6.000 5/15/26 238,326
156,962 Government National Mortgage Association
30-Yr. Pass Through............................. 8.000 9/15/26 162,939
199,889 Government National Mortgage Association
30-Yr.Pass Through.............................. 8.000 10/15/26 207,501
113,506 Government National Mortgage Association
30-Yr. Pass Through............................. 8.500 12/15/26 120,549
185,186 Government National Mortgage Association
30-Yr. Pass Through............................. 7.500 3/15/27 190,927
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT BOND PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
BOND PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL LONG-TERM FIXED INCOME INTEREST MATURITY MARKET
AMOUNT SECUTIRIES (98.1%) RATE DATE VALUE
=====================================================================================================
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--CONTINUED
- ---------------------------------------------
$ 213,707 Government National Mortgage Association
30-Yr. Pass Through................................... 7.500% 10/15/27 $ 220,332
247,019 Government National Mortgage Association
30-Yr. Pass Through................................... 7.000 11/15/27 252,712
239,199 Government National Mortgage Association
30-Yr. Pass Through................................... 7.000 1/15/28 244,732
245,666 Government National Mortgage Association
30-Yr. Pass Through................................... 6.500 7/15/28 248,125
246,724 Government National Mortgage Association
30-Yr. Pass Through................................... 7.000 8/15/28 252,430
252,500 Government National Mortgage Association
30-Yr. Pass Through................................... 6.500 12/15/28 255,027
250,000 Private Export Funding Corporation.................... 6.240 5/15/02 258,385
250,000 Tennessee Valley Authority............................ 6.000 11/1/00 254,667
------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS.............. 15,914,194
==========================================================================================
ASSET-BACKED SECURITIES (0.6%)
- ------------------------------
250,000 NationsBank Credit Card
Trust Certificate..................................... 6.000 12/15/05 256,315
------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES......................... 256,315
==========================================================================================
CORPORATE OBLIGATIONS (18.8%)
- -----------------------------
225,000 Abbott Laboratories
Notes................................................. 6.800 5/15/05 244,267
250,000 American Express Company
Senior Notes.......................................... 6.750 6/1/01 257,275
250,000 Archer-Daniels-Midland Company........................ 8.125 6/1/12 307,027
250,000 Associates Corporation
N.A. Senior Note...................................... 6.250 11/1/08 257,953
250,000 Browning-Ferris Industries, Inc.
Senior Notes.......................................... 6.375 1/15/08 245,357
250,000 Caterpillar, Inc...................................... 9.000 4/15/06 299,232
250,000 Chase Credit Card Master Trust........................ 6.194 8/15/05 257,082
250,000 Columbia Gas Systems Notes............................ 7.320 11/28/10 266,175
250,000 Commercial Credit Company Notes....................... 6.625% 11/15/06 263,112
250,000 Crown Cork & Seal Notes............................... 6.750 4/15/03 252,225
250,000 Enron Corporation Notes............................... 6.875 10/15/07 259,985
500,000 Enterprise Oil Notes.................................. 6.500 5/1/05 502,258
250,000 First Bank System Notes............................... 7.625 5/1/05 275,395
250,000 Ford Motor Credit
Corporation Notes..................................... 8.200 2/15/02 268,366
250,000 Foster Wheeler
Corporation Notes..................................... 6.750 11/15/05 233,203
250,000 General Electric
Corporation Notes..................................... 8.750 5/21/07 303,561
200,000 General Motors Acceptance
Corporation Notes..................................... 9.625 12/15/01 222,461
250,000 Household Finance
Corporation Notes..................................... 6.875 3/1/03 260,400
300,000 IBM Corporation Notes................................. 7.250 11/1/02 320,225
250,000 MCI Worldcom, Inc..................................... 6.950 8/15/28 268,815
250,000 PepsiCo, Inc. Notes................................... 5.700 11/1/08 250,504
250,000 PG&E Gas Transmission,
NW.................................................... 7.100 6/1/05 269,900
250,000 Republic New York
Corporation........................................... 8.250 11/1/01 265,010
250,000 Service Corporation
International Notes................................... 6.300 3/15/03 254,659
250,000 TCI Communications,
Inc................................................... 6.375 5/1/03 258,644
250,000 Tenneco, Inc.......................................... 8.075 10/1/02 266,864
350,000 Thermo Electron
Corporation........................................... 7.625 10/30/08 366,349
200,000 Tosco Corporation First
Mortgage Bonds........................................ 9.625 3/15/02 218,061
225,000 Xerox Corporation
Notes................................................. 9.750 3/15/00 236,620
------------------------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS........................... 7,950,985
==========================================================================================
UTILITY BONDS (1.2%)
- --------------------
200,000 Baltimore Gas & Electric
Company First Refunding
Mortgage Bonds........................................ 7.500 1/15/07 223,579
250,000 Texas Utilities Company
First Mortgage Bonds.................................. 7.375 8/1/01 261,483
------------------------------------------------------------------------------------------
TOTAL UTILITY BONDS................................... 485,062
==========================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT BOND PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL LONG-TERM FIXED INCOME INTEREST MATURITY MARKET
AMOUNT SECURITIES (98.1%) RATE DATE VALUE
=============================================================================
OTHER GOVERNMENT SECURITIES (2.4%)
- ----------------------------------
<S> <C> <C> <C> <C>
$ 250,000 Province of Manitoba
Debentures.................. 6.125% 1/19/04 $258,537
250,000 Province of Nova Scotia
Debentures.................. 7.250 7/27/13 278,339
200,000 Province of Ontario
Senior Global Bond.......... 6.125 6/28/00 202,578
250,000 Province of Quebec
Global Bond................. 11.000 6/15/15 277,290
-----------------------------------------------------------------
TOTAL OTHER GOVERNMENT
SECURITIES........................................... 1,016,744
=================================================================
TOTAL LONG-TERM FIXED INCOME SECURITIES
(amortized cost basis $40,294,373)................... 41,400,674
<CAPTION>
PRINCIPAL SHORT-TERM INTEREST MATURITY MARKET
AMOUNT OBLIGATIONS RATE DATE VALUE
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (2.9%) (a)
- ---------------------------------
<S> <C> <C> <C> <C>
$ 709,000 Transamerica Finance
Corporation..................... 5.000% 1/4/99 $ 708,705
500,000 Ford Motor Credit
Corporation..................... 5.610 1/14/99 498,987
TOTAL SHORT-TERM INVESTMENTS
(amortized cost basis $1,207,692)...................... 1,207,692
=====================================================================
TOTAL INVESTMENTS (101.0%)
(amortized cost basis $41,502,065)..................... 42,608,366
=====================================================================
---------------------------------------------------------------------
LIABILITIES, LESS OTHER ASSETS (-1.0%)................ (401,198)
=====================================================================
---------------------------------------------------------------------
NET ASSETS (100.0%).................................... $ 42,207,168
=====================================================================
</TABLE>
(a) The interest rate reflects the discount rate at the date of purchase.
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE PRODUCT BALANCED PORTFOLIO
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
INVESTMENT OBJECTIVE
--------------------
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 Large Company Stock, Bond and Money Market
Portfolios, respectively.
SHARES COMMON STOCKS (55.1%) MARKET VALUE
===========================================================
AEROSPACE (0.8%)
- ----------------
2,200 BFGoodrich Company ................... $ 78,925
30,128 Boeing Company ....................... 982,926
3,800 General Dynamics Corporation.......... 222,775
5,900 Lockheed Martin Corporation........... 500,025
2,100 Northrop Grumman Corporation.......... 153,563
10,200 Raytheon Company...................... 543,150
5,800 Rockwell International Corporation.... 281,662
4,800 Textron, Inc ......................... 364,500
3,600 TRW, Inc.............................. 202,275
6,800 United Technologies Corporation....... 739,500
------------------------------------------------
TOTAL AEROSPACE....................... 4,069,301
================================================
AIR TRANSPORTATION (0.3%)
- -------------------------
5,500 AMR Corporation*...................... 326,562
4,300 Delta Air Lines, Inc.................. 223,600
4,520 Federal Express Corporation*.......... 402,280
10,125 Southwest Airlines Company............ 227,180
2,600 USAir Group, Inc.*.................... 135,200
------------------------------------------------
Total Air Transportation.............. 1,314,822
================================================
APPAREL (0.1%)
- --------------
2,100 Fruit of the Loom, Inc.*.............. 29,006
1,900 Liz Claiborne, Inc.................... 59,969
8,600 Nike, Inc............................. 348,837
1,700 Reebok International, Ltd............. 25,287
1,000 Russell Corporation................... 20,313
500 Springs Industries, Inc............... 20,719
3,600 V F Corporation....................... 168,750
------------------------------------------------
TOTAL APPAREL......................... 672,881
================================================
BANKING (4.8%)
- --------------
21,790 Associates First Capital Corporation.. $923,351
8,900 BB&T Corporation...................... 358,781
35,332 Banc One Corporation.................. 1,804,140
23,000 Bank of New York Company, Inc......... 925,750
52,285 BankAmerica Corporation............... 3,143,636
8,900 BankBoston Corporation................ 346,544
2,900 Bankers Trust New York Corporation.... 247,769
25,580 Chase Manhattan Corporation........... 1,741,039
68,648 Citigroup, Inc........................ 3,398,076
4,700 Comerica, Inc......................... 320,481
3,400 Countrywide Credit Industries, Inc.... 170,637
8,100 Fifth Third Bancorp................... 577,631
29,910 First Union Corporation............... 1,818,902
17,112 Fleet Financial Group, Inc............ 764,692
7,600 Franklin Resources, Inc............... 243,200
6,340 Huntington Bancshares, Inc............ 190,596
13,800 Keycorp............................... 441,600
7,900 Mellon Bank Corporation............... 543,125
4,700 Mercantile Bancorporation, Inc........ 216,788
5,300 J.P. Morgan & Company, Inc............ 556,831
10,000 National City Corporation............. 725,000
3,400 Northern Trust Corporation............ 296,863
9,100 PNC Bank Corporation.................. 492,538
4,250 Providian Financial Corporation....... 318,750
6,700 Regions Financial Corporation......... 270,094
3,200 Republic New York Corporation......... 145,800
5,200 Summit Bancorp........................ 227,175
6,300 Suntrust Banks, Inc................... 481,950
8,050 Synovus Financial Corporation......... 196,219
21,889 U.S. Bancorp.......................... 777,060
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENT OF AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES COMMON STOCK (55.1%) MARKET VALUE
================================================================================
<S> <C>
BANKING--CONTINUED
- ------------------
4,100 Union Planters Corporation.............................. $ 185,781
6,100 Wachovia Corporation.................................... 533,369
17,917 Washington Mutual, Inc.................................. 684,205
48,860 Wells Fargo & Company................................... 1,951,346
--------------------------------------------------------------------
TOTAL BANKING........................................... 26,019,719
====================================================================
BROKERAGE (0.5%)
- ----------------
12,075 Charles Schwab Corporation.............................. 678,464
3,500 Lehman Brothers Holdings, Inc........................... 154,219
10,700 Merrill Lynch & Company, Inc............................ 714,225
17,495 Morgan Stanley, Dean Witter,
Discover and Company.................................... 1,242,145
3,400 The Bear Stearns Companies, Inc......................... 127,075
--------------------------------------------------------------------
TOTAL BROKERAGE......................................... 2,916,128
====================================================================
BUSINESS MACHINES (5.8%)
- ------------------------
10,800 3Com Corporation*....................................... 483,975
4,100 Apple Computer, Inc..................................... 167,844
1,400 Autodesk, Inc........................................... 59,762
4,900 Cabletron Systems, Inc.*................................ 41,037
2,200 Ceridian Corporation*................................... 153,587
47,725 Cisco Systems, Inc.*.................................... 4,429,477
51,300 Compaq Computers, Inc................................... 2,151,394
1,400 Data General Corporation*............................... 23,012
38,500 Dell Computer Corporation*.............................. 2,817,719
4,700 Gateway, Inc.*.......................................... 240,581
14,000 HBO & Company........................................... 401,625
3,800 Honeywell, Inc.......................................... 286,187
4,000 Ikon Office Solutions................................... 34,250
28,200 International Business Machines Corporation............. 5,209,950
75,300 Microsoft Corporation*.................................. 10,443,169
10,600 Novell, Inc.*........................................... 192,125
29,350 Oracle Systems Corporation*............................. 1,265,719
8,200 Parametric Technology Company*.......................... 134,275
8,200 Pitney-Bowes, Inc....................................... 541,713
7,400 Seagate Technology, Inc.*............................... 223,850
5,600 Silicon Graphics, Inc.*................................. 72,100
11,500 Sun Microsystems, Inc.*................................. 984,688
7,700 Unisys Corporation*..................................... 265,169
9,900 Xerox Corporation....................................... 1,168,200
--------------------------------------------------------------------
Total Business Machines................................. 1,791,408
====================================================================
BUSINESS SERVICES (1.0%)
- ------------------------
9,100 Automatic Data Processing, Inc.......................... $ 729,706
3,000 Block (H.R.), Inc....................................... 135,000
5,178 Browning-Ferris Industries, Inc......................... 147,249
16,275 Computer Associates International, Inc.................. 693,722
4,800 Computer Sciences Corporation........................... 309,300
2,400 Deluxe Corporation...................................... 87,750
5,000 Dun & Bradstreet Corporation............................ 157,813
3,900 Ecolab, Inc............................................. 141,131
13,300 First Data Corporation.................................. 421,444
5,000 General Instrument Corporation*......................... 169,688
4,200 Interpublic Group of Companies, Inc..................... 334,950
9,900 Laidlaw, Inc............................................ 99,619
2,600 Moore Corporation, Ltd.................................. 28,600
1,200 National Service Industries, Inc........................ 45,600
5,100 Omnicom Group, Inc...................................... 295,800
4,900 Paychex, Inc............................................ 252,044
1,400 Pennzoil-Quaker State Company*.......................... 20,737
800 Shared Medical Systems Corporation...................... 39,900
4,900 State Street Corporation................................ 340,856
17,330 Waste Management, Inc................................... 808,011
--------------------------------------------------------------------
Total Business Services................................. 5,258,920
====================================================================
CHEMICALS (1.1%)
- ----------------
7,000 Air Products & Chemicals, Inc........................... 280,000
34,600 E.I. Du Pont de Nemours & Company....................... 1,835,963
2,400 Eastman Chemical Company................................ 107,400
1,800 Great Lakes Chemical Corporation........................ 72,000
3,000 Hercules, Inc........................................... 82,125
12,100 Minnesota Mining and Manufacturing Company.............. 860,613
18,900 Monsanto Company........................................ 897,750
3,600 Morton International, Inc............................... 88,200
1,900 Nalco Chemical Company.................................. 58,900
5,400 PPG Industries, Inc..................................... 314,550
4,700 Praxair, Inc............................................ 165,675
5,000 Rohm & Haas Company..................................... 150,625
2,564 Sealed Air Corporation*................................. 130,924
3,000 Sigma-Aldrich Corporation............................... 88,125
6,700 The Dow Chemical Company................................ 609,281
4,000 Union Carbide Corporation............................... 170,000
2,200 W.R. Grace & Company.................................... 34,512
--------------------------------------------------------------------
TOTAL CHEMICALS......................................... 5,946,643
====================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schecule.
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMONS STOCKS (55.1%) MARKET VALUE
==============================================================================
CONSTRUCTION (0.2%)
- -------------------
1,200 Armstrong World Industries, Inc .................... $ 72,375
1,800 Centex Corporation.................................. 81,113
2,050 Crane Company ...................................... 61,884
2,300 Fluor Corporation................................... 97,894
1,200 Kaufman & Broad Home Corporation.................... 34,500
10,200 Masco Corporation................................... 293,250
1,600 Owens-Corning Fiberglass Corporation................ 56,700
1,300 Pulte Corporation................................... 36,156
5,200 Sherwin-Williams Company ........................... 152,750
2,600 Stanley Works ...................................... 72,150
---------------------------------------------------------------
TOTAL CONSTRUCTION.................................. 958,772
===============================================================
CONSUMER DURABLES (0.1%)
- ------------------------
2,700 Black & Decker Corporation ......................... 151,369
2,700 Maytag Corporation ................................. 168,075
4,900 Newell Company ..................................... 202,125
1,700 Tupperware Corporation ............................. 27,944
2,300 Whirlpool Corporation .............................. 127,362
---------------------------------------------------------------
TOTAL CONSUMER DURABLES............................. 676,875
===============================================================
CONTAINERS (0.1%)
- -----------------
900 Ball Corporation.................................... 41,175
1,600 Bemis Company, Inc. ................................ 60,700
3,700 Crown Cork & Seal Company, Inc. .................... 114,006
4,700 Owens-Illinois, Inc.*............................... 143,938
---------------------------------------------------------------
TOTAL CONTAINERS.................................... 359,819
===============================================================
COSMETICS (1.3%)
- ----------------
1,600 Alberto-Culver Company.............................. 42,700
7,900 Avon Products, Inc.................................. 349,575
3,200 Clorox Company...................................... 373,800
8,900 Colgate-Palmolive Company........................... 826,588
33,500 Gillette Company.................................... 1,618,469
3,200 International Flavors and Fragrances, Inc. ......... 141,400
40,100 Procter & Gamble Company............................ 3,661,631
---------------------------------------------------------------
TOTAL COSMETICS..................................... 7,014,163
===============================================================
CREDIT CARDS (0.1%)
- -------------------
2,000 Capital One Financial Corporation .................. $ 230,000
4,400 Equifax, Inc........................................ 150,425
22,637 MBNA Corporation.................................... 564,510
---------------------------------------------------------------
TOTAL CREDIT CARDS.................................. 944,935
===============================================================
DRUGS & MEDICINE (6.2%)
- -----------------------
45,800 Abbott Laboratories................................. 2,244,200
2,000 Allergan, Inc....................................... 129,500
2,600 Alza Corporation*................................... 135,850
39,800 American Home Products Corporation.................. 2,241,238
7,700 Amgen, Inc.......................................... 805,131
1,600 Bard (C.R.), Inc.................................... 79,200
1,700 Bausch & Lomb, Inc.................................. 102,000
8,600 Baxter International, Inc........................... 553,088
7,500 Becton, Dickinson and Company ...................... 320,156
3,400 Biomet, Inc......................................... 136,850
11,800 Boston Scientific Corporation* ..................... 316,388
30,000 Bristol-Myers Squibb Company ....................... 4,014,375
6,050 Cardinal Health Inc................................. 459,044
19,450 Columbia/HCA Healthcare Corporation................. 481,388
4,600 Guidant Corporation................................. 507,150
40,600 Johnson & Johnson................................... 3,405,325
33,200 Eli Lilly & Company................................. 2,950,650
2,100 Mallinckrodt Group, Inc............................. 64,706
14,800 Medtronic, Inc...................................... 1,098,900
36,000 Merck & Company, Inc................................ 5,316,750
39,200 Pfizer, Inc......................................... 4,917,150
15,380 Pharmacia & Upjohn, Inc............................. 870,892
44,400 Schering-Plough Corporation......................... 2,453,100
2,495 St. Jude Medical, Inc.*............................. 69,080
24,800 Warner-Lambert Company.............................. 1,864,650
---------------------------------------------------------------
TOTAL DRUGS & MEDICINE.............................. 35,536,761
===============================================================
ELECTRONICS (2.6%)
- ------------------
6,581 AMP, Inc............................................ 342,623
2,000 Adobe Systems, Inc.................................. 93,500
4,300 Advanced Micro Devices, Inc.* ...................... 124,431
11,200 Applied Materials, Inc.*............................ 478,100
1,300 EG&G, Inc. ......................................... 36,156
15,200 EMC Corporation*.................................... 1,292,000
2,400 Harris Corporation.................................. 87,900
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMONS STOCKS (55.1%) MARKET VALUE
==============================================================================
ELECTRONICS-CONTINUED
- ---------------------
31,300 Hewlett-Packard Company............................ $ 2,138,181
50,400 Intel Corporation.................................. 5,975,550
4,200 LSI Logic Corporation*............................. 67,725
6,500 Micron Technology, Inc............................. 328,656
18,100 Motorola, Inc...................................... 1,105,231
5,000 National Semiconductor Corporation*................ 67,500
1,500 Perkin Elmer Corporation........................... 146,344
2,200 Scientific-Atlanta, Inc............................ 50,188
1,350 Tektronix, Inc..................................... 40,584
5,900 Tellabs, Inc.*..................................... 404,519
11,800 Texas Instruments, Inc............................. 1,009,638
4,700 Thermo Electron Corporation*....................... 79,606
1,700 Thomas & Betts Corporation......................... 73,631
---------------------------------------------------------------
TOTAL ELECTRONICS.................................. 13,942,063
===============================================================
ENERGY & UTILITIES (1.7%)
- -------------------------
4,100 Ameren Corporation................................. 175,019
5,800 American Electric Power Company ................... 272,963
4,500 Baltimore Gas & Electric Company .................. 138,938
4,800 CINergy Corporation................................ 165,000
4,600 Carolina Power & Light Company .................... 216,488
6,400 Central & Southwest Corporation ................... 175,600
6,400 Coastal Corporation................................ 223,600
2,550 Columbia Gas System, Inc........................... 147,263
7,000 Consolidated Edison, Inc........................... 370,125
2,900 Consolidated Natural Gas Company................... 156,600
4,400 DTE Energy Company................................. 188,650
5,900 Dominion Resources, Inc............................ 275,825
10,911 Duke Energy Corporation............................ 698,986
10,600 Edison International............................... 295,475
10,000 Enron Corporation.................................. 570,625
7,400 Entergy Corporation................................ 230,325
7,100 FirstEnergy Corporation............................ 231,194
5,500 FPL Group, Inc..................................... 338,938
3,900 General Public Utilities Corporation............... 172,331
8,524 Houston Industries, Inc............................ 273,833
3,500 New Century Energies, Inc.......................... 170,625
5,600 Niagara Mohawk Power Corporation................... 90,300
1,400 Nicor, Inc......................................... 59,150
4,600 Northern States Power Company...................... 127,650
900 ONEOK, Inc......................................... 32,512
4,500 P P & L Resources, Inc............................. $ 125,437
11,500 Pacific Gas & Electric Company .................... 362,250
8,900 PacifiCorp......................................... 187,456
6,800 Peco Energy Company................................ 283,050
1,100 Peoples Energy Corporation......................... 43,862
6,900 Public Service Enterprise.......................... 276,000
7,208 Sempra Energy...................................... 182,903
3,300 Sonat, Inc......................................... 89,306
21,000 Southern Company................................... 610,312
8,570 Texas Utilities Company............................ 400,112
5,400 The AES Corporation*............................... 255,825
6,500 Unicom Corporation................................. 250,656
12,900 Williams Companies, Inc............................ 402,319
---------------------------------------------------------------
TOTAL ENERGY & UTILITIES........................... 9,267,503
===============================================================
ENERGY-RAW MATERIALS (0.4%)
- ---------------------------
9,820 Baker Hughes, Inc.................................. 173,691
5,367 Burlington Resources, Inc.......................... 192,206
700 Eastern Enterprises................................ 30,625
13,300 Halliburton Company................................ 394,012
1,700 McDermott International, Inc....................... 41,969
10,400 Occidental Petroleum Corporation................... 175,500
16,500 Schlumberger, Ltd.................................. 761,062
7,532 Union Pacific Resources Group, Inc................. 68,259
---------------------------------------------------------------
TOTAL ENERGY--RAW MATERIALS........................ 1,837,324
===============================================================
FOOD & AGRICULTURE (1.4%)
- -------------------------
17,885 Archer-Daniels-Midland Company..................... 307,398
8,600 BestFoods.......................................... 457,950
13,500 Campbell Soup Company.............................. 742,500
14,700 ConAgra, Inc....................................... 463,050
4,600 General Mills, Inc................................. 357,650
10,950 H.J. Heinz Company................................. 620,044
4,300 Hershey Foods Corporation.......................... 267,406
12,200 Kellogg Company.................................... 416,325
7,300 Pioneer Hi-Bred International, Inc................. 197,100
4,100 Quaker Oats Company................................ 243,950
9,400 Ralston Purina Corporation......................... 304,325
9,800 RJR Nabisco Holdings Corporation................... 290,938
27,500 Sara Lee Corporation............................... 775,156
3,600 Supervalu, Inc..................................... 100,800
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMONS STOCKS (55.1%) MARKET VALUE
==============================================================================
FOOD & AGRICULTURE-CONTINUED
- ----------------------------
10,100 Sysco Corporation.................................... $ 277,119
19,400 Unilever N.V......................................... 1,608,988
3,500 Wrigley (Wm) Jr. Company............................. 313,469
----------------------------------------------------------------
TOTAL FOOD & AGRICULTURE............................. 7,744,168
================================================================
FOOD & BEVERAGE (1.3%)
- ----------------------
74,400 Coca-Cola Company.................................... 4,975,500
11,800 Coca-Cola Enterprises, Inc........................... 421,850
44,300 PepsiCo, Inc......................................... 1,813,531
----------------------------------------------------------------
TOTAL FOOD & BEVERAGE................................ 7,210,881
================================================================
GOLD (0.1%)
- -----------
11,200 Barrick Gold Corporation............................. 218,400
6,900 Battle Mountain Gold Company......................... 28,462
7,200 Homestake Mining Company............................. 66,150
5,017 Newmont Mining Corporation........................... 90,620
7,500 Placer Dome, Inc..................................... 86,250
----------------------------------------------------------------
TOTAL GOLD........................................... 489,882
================================================================
HEALTH CARE (0.2%)
- ------------------
3,300 HCR Manor Health Care, Inc.*......................... 96,938
12,700 HEALTHSOUTH Corporation*............................. 196,056
5,000 Humana, Inc.*........................................ 89,062
4,900 IMS Health Inc....................................... 369,644
9,300 Tenet Healthcare Corporation*........................ 244,125
5,600 United Healthcare Corporation........................ 241,150
----------------------------------------------------------------
TOTAL HEALTH CARE.................................... 1,236,975
================================================================
INSURANCE (1.9%)
- ----------------
4,314 Aetna Life & Casualty Company........................ 339,188
24,796 Allstate Corporation................................. 957,745
7,608 American General Corporation......................... 593,424
31,725 American International Group, Inc.................... 3,065,428
5,100 Aon Corporation...................................... 282,413
4,900 Chubb Corporation.................................... 317,888
6,300 Cigna Corporation.................................... 487,069
5,000 Cincinnati Financial Corporation..................... 183,125
9,499 Conseco, Inc......................................... 290,313
7,100 ITT Hartford Group, Inc.............................. 389,612
3,200 Jefferson-Pilot Corporation.......................... 240,000
3,100 Lincoln National Corporation......................... $ 253,619
3,000 MBIA, Inc............................................ 196,687
3,300 MGIC Investment Corporation.......................... 131,381
7,750 Marsh & McLennan Companies, Inc...................... 452,891
2,200 Progressive Corporation.............................. 372,625
4,100 Provident Companies, Inc............................. 170,150
4,100 Safeco Corporation................................... 176,044
7,122 St. Paul Companies, Inc.............................. 247,489
6,600 SunAmerica, Inc...................................... 535,425
4,200 Torchmark Corporation................................ 148,312
1,900 Transamerica Corporation............................. 219,450
4,200 Unum Corporation..................................... 245,175
----------------------------------------------------------------
TOTAL INSURANCE...................................... 10,295,453
================================================================
LIQUOR (0.3%)
- -------------
1,100 Adolph Coors Company................................. 62,081
14,400 Anheuser-Busch Companies, Inc........................ 945,000
2,100 Brown-Forman Corporation............................. 158,944
11,900 Seagram Company, Ltd................................. 452,200
----------------------------------------------------------------
TOTAL LIQUOR......................................... 1,618,225
================================================================
MEDIA (1.4%)
- ------------
21,300 CBS Corporation...................................... 697,575
8,000 Clear Channel Communications, Inc.*.................. 436,000
10,900 Comcast Corporation, Class A......................... 639,694
2,800 Dow Jones & Company, Inc............................. 134,750
8,500 Gannett Company, Inc................................. 562,594
2,200 King World Productions, Inc.......................... 64,763
2,400 Knight-Ridder, Inc................................... 122,700
3,000 McGraw-Hill, Inc..................................... 305,625
1,600 Meredith Corporation................................. 60,600
5,500 New York Times Company............................... 190,781
4,100 R.R. Donnelley & Sons Company........................ 179,631
15,700 Tele-Communications, Inc.*........................... 868,406
37,100 Time Warner, Inc..................................... 2,302,519
2,400 Times Mirror Company................................. 134,400
3,600 Tribune Company...................................... 237,600
10,500 Viacom, Inc.*........................................ 777,000
----------------------------------------------------------------
TOTAL MEDIA.......................................... 7,714,638
================================================================
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES COMMON STOCK (55.1%) MARKET VALUE
================================================================================
<S> <C> <C>
MISCELLANEOUS FINANCE (1.1%)
- ----------------------------
13,700 American Express Company.............................. $1,400,825
20,500 Federal Home Loan Mortgage Corporation................ 1,320,969
31,300 Federal National Mortgage Association................. 2,316,200
1,700 Golden West Financial Corporation .................... 155,869
14,599 Household International Corporation .................. 578,485
5,000 SLM Holding Corporation............................... 240,000
-------------------------------------------------------------------
TOTAL MISCELLANEOUS FINANCE .......................... 6,012,348
===================================================================
MOTOR VEHICLES (0.8%)
- ---------------------
1,200 Cummins Engine Company, Inc. ......................... 42,600
4,979 Dana Corporation ..................................... 203,517
2,200 Eaton Corporation .................................... 155,513
1,000 Fleetwood Enterprises, Inc. .......................... 34,750
36,500 Ford Motor Company ................................... 2,142,094
19,800 General Motors Corporation ........................... 1,416,937
5,400 Genuine Parts Company ................................ 180,562
3,100 ITT Industries, Inc. ................................. 123,225
2,000 Navistar International Corporation*................... 57,000
2,300 PACCAR, Inc. ......................................... 94,587
-------------------------------------------------------------------
TOTAL MOTOR VEHICLES ................................. 4,450,785
===================================================================
NON-DURABLES & ENTERTAINMENT (0.2%)
- -----------------------------------
2,100 American Greetings Corporation, Class A............... 86,231
2,100 Harcourt General, Inc. ............................... 111,694
3,900 Hasbro, Inc. ......................................... 140,888
1,000 Jostens, Inc. ........................................ 26,187
8,625 Mattel, Inc. ......................................... 196,758
4,500 Rubbermaid, Inc. ..................................... 141,469
7,800 Service Corporation International .................... 296,887
-------------------------------------------------------------------
TOTAL NON-DURABLES & ENTERTAINMENT ................... 1,000,114
===================================================================
NON-FERROUS METALS (0.2%)
- -------------------------
6,800 Alcan Aluminum, Ltd. ................................. 184,025
5,600 Aluminum Company of America .......................... 417,550
1,100 Asarco, Inc. ......................................... 16,569
2,700 Cyprus Minerals Company .............................. 27,000
4,250 Engelhard Corporation ................................ 82,875
4,900 Freeport-McMoran Copper & Gold, Class B............... 51,144
5,000 Inco, Ltd ............................................ 52,812
1,800 Phelps Dodge Corporation.............................. $ 91,575
2,000 Reynolds Metals Company............................... 105,375
-------------------------------------------------------------------
TOTAL NON-FERROUS METALS.............................. 1,028,925
===================================================================
OIL-DOMESTIC (0.4%)
- -------------------
2,700 Amerada Hess Corporation ............................. 134,325
3,600 Anadarko Petroleum Corporation........................ 111,150
2,900 Apache Corporation ................................... 73,406
2,300 Ashland Oil, Inc ..................................... 111,263
9,700 Atlantic Richfield Company ........................... 632,925
1,500 Helmerich & Payne, Inc ............................... 29,063
1,400 Kerr-McGee Corporation ............................... 53,550
3,200 Oryx Energy Company* ................................. 43,000
1,400 PennzEnergy Company .................................. 22,838
7,700 Phillips Petroleum Compan ............................ 328,212
2,500 Rowan Companies, Inc.* ............................... 25,000
2,800 Sunoco, Inc. ......................................... 100,975
9,300 USX-Marathon Group, Inc. ............................. 280,162
7,300 Unocal Corporation ................................... 213,069
-------------------------------------------------------------------
TOTAL OIL-DOMESTIC ................................... 2,158,938
===================================================================
OIL-INTERNATIONAL (2.7%)
- ------------------------
28,800 Amoco Corporation .................................... 1,738,800
19,700 Chevron Corporation .................................. 1,633,869
73,400 Exxon Corporation .................................... 5,367,375
23,600 Mobil Corporation .................................... 2,056,150
64,700 Royal Dutch Petroleum Company ........................ 3,097,513
16,100 Texaco, Inc........................................... 851,287
-------------------------------------------------------------------
TOTAL OIL-INTERNATIONAL .............................. 14,744,994
===================================================================
OPTICAL & PHOTO ( 0.2%)
- -----------------------
7,000 Corning, Inc. ........................................ 315,000
9,800 Eastman Kodak Company ................................ 705,600
1,300 Polaroid Corporation ................................. 24,294
-------------------------------------------------------------------
TOTAL OPTICAL & PHOTO ................................ 1,044,894
===================================================================
PAPER & FOREST PRODUCTS (0.5%)
- ------------------------------
1,700 Boise Cascade Corporation ............................ 52,700
2,900 Champion International Corporation.................... 117,450
6,600 Fort James Corporation ............................... 264,000
2,700 Georgia-Pacific Corporation .......................... 158,119
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES COMMON STOCK (55.1%) MARKET VALUE
================================================================================
<S> <C> <C>
PAPER & FOREST PRODUCTS-CONTINUED
- ---------------------------------
9,302 International Paper Company ......................... $ 416,846
16,380 Kimberly-Clark Corporation .......................... 892,710
3,200 Louisiana-Pacific Corporation........................ 58,600
3,100 Mead Corporation .................................... 90,869
900 Potlatch Corporation ................................ 33,187
1,700 Temple-Inland, Inc. ................................. 100,831
2,100 Union Camp Corporation .............................. 141,750
3,000 Westvaco Corporation ................................ 80,438
6,000 Weyerhaeuser Company ................................ 304,875
3,300 Willamette Industries, Inc. ......................... 110,550
------------------------------------------------------------------
TOTAL PAPER & FOREST PRODUCTS........................ 2,822,925
==================================================================
PRODUCERS (3.0%)
- ----------------
800 Aeroquip-Vickers, Inc. .............................. 23,950
16,900 Allied-Signal, Inc. ................................. 748,881
3,500 Avery Dennison Corporation .......................... 157,719
700 Briggs & Stratton Corporation........................ 34,912
2,100 Case Corporation .................................... 45,806
10,800 Caterpillar, Inc. ................................... 496,800
3,100 Cooper Industries, Inc. ............................. 147,831
7,200 Deere & Company ..................................... 238,500
6,700 Dover Corporation ................................... 245,387
13,300 Emerson Electric Company ............................ 832,081
1,000 FMC Corporation* .................................... 56,000
1,200 Foster Wheeler Corporation .......................... 15,825
99,000 General Electric Company ............................ 10,104,187
1,400 Harnischfeger Industries, Inc........................ 14,263
7,600 Illinois Tool Works, Inc. ........................... 440,800
5,000 Ingersoll-Rand Company .............................. 234,688
2,600 Johnson Controls, Inc. .............................. 153,400
2,600 KLA Instruments Corporation* ........................ 112,775
1,100 Milacron, Inc. ...................................... 21,175
1,300 Millipore Corporation ............................... 36,969
305 NACCO Industries, Inc. .............................. 28,060
3,700 Pall Corporation .................................... 93,656
3,300 Parker Hannifin Corporation ......................... 108,075
2,400 Raychem Corporation ................................. 77,550
1,800 Snap-On, Inc. ....................................... 62,663
5,100 Tenneco, Inc. ....................................... 173,719
1,800 Timken Company ...................................... 33,975
19,449 Tyco International Ltd. ............................. $ 1,467,184
2,900 W.W. Grainger, Inc. ................................. 120,712
------------------------------------------------------------------
TOTAL PRODUCERS GOODS ............................... 16,327,543
==================================================================
RAILROAD & SHIPPING (0.3%)
- --------------------------
14,092 Burlington Northern, Inc. ........................... 475,605
6,600 CSX Corporation ..................................... 273,900
11,400 Norfolk Southern Corporation ........................ 361,237
7,500 Union Pacific Corporation ........................... 337,969
------------------------------------------------------------------
TOTAL RAILROAD & SHIPPING ........................... 1,448,711
==================================================================
RESTAURANTS/FOOD SERVICE (0.4%)
- -------------------------------
4,100 Darden Restaurants, Inc. ............................ 73,800
20,400 McDonald's Corporation .............................. 1,563,150
4,630 Tricon Global Restaurants, Inc.* .................... 232,079
3,700 Wendy's International, Inc. ......................... 80,706
------------------------------------------------------------------
TOTAL RESTAURANTS/FOOD SERVICE ...................... 1,949,735
==================================================================
RETAIL STORES (3.7%)
- --------------------
7,400 Albertson's, Inc. ................................... 471,287
8,300 American Stores Company ............................. 306,581
4,600 Autozone, Inc.* ..................................... 151,512
11,800 CVS Corporation ..................................... 649,000
25,660 Cendant Corporation* ................................ 489,144
3,000 Circuit City Stores, Inc. ........................... 149,812
3,300 Consolidated Stores Corporation* .................... 66,619
6,600 Costco Companies, Inc.* ............................. 476,437
13,300 Dayton Hudson Corporation ........................... 721,525
3,200 Dillard's, Inc. ..................................... 90,800
5,575 Dollar General Corporation .......................... 131,709
6,200 Federated Department Stores, Inc.* .................. 270,087
1,100 Great Atlantic & Pacific Tea Company, Inc............ 32,587
47,200 Home Depot, Inc. .................................... 2,888,050
7,700 J.C. Penney Company, Inc. ........................... 360,938
14,800 Kmart Corporation ................................... 226,625
4,800 Kohl's Corporation .................................. 294,900
7,700 Kroger Corporation* ................................. 465,850
1,200 Long's Drug Stores, Inc. ............................ 45,000
10,600 Lowe's Companies, Inc. .............................. 542,588
7,100 May Department Stores Company ....................... 428,663
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES COMMON STOCK (55.1%) MARKET VALUE
================================================================================
<S> <C> <C>
RETAIL STORES-CONTINUED
- -----------------------
4,700 Meyer (Fred), Inc.* ................................. $ 283,175
4,500 Nordstrom, Inc. ..................................... 156,094
1,900 Pep Boys-Manny, Moe, & Jack ......................... 29,806
7,800 Rite Aid Corporation ................................ 386,588
14,700 Safeway, Inc.* ...................................... 895,781
11,600 Sears, Roebuck & Company ............................ 493,000
9,400 Staples, Inc.* ...................................... 410,663
9,700 TJX Companies, Inc. ................................. 281,300
3,000 Tandy Corporation ................................... 123,562
17,500 The Gap, Inc. ....................................... 984,375
6,870 The Limited, Inc. ................................... 200,089
7,800 Toys "R" Us, Inc.* .................................. 131,625
4,000 Venator Group, Inc.* ................................ 25,750
68,000 Wal-Mart Stores, Inc. ............................... 5,537,750
14,900 Walgreen Company .................................... 872,581
4,500 Winn-Dixie Stores, Inc. ............................. 201,938
------------------------------------------------------------------
TOTAL RETAIL STORES ................................. 20,273,791
==================================================================
STEEL (0.1%)
- ------------
5,862 Allegheny Teledyne, Inc. ............................ 119,805
3,900 Bethlehem Steel Corporation* ........................ 32,662
2,600 Nucor Corporation ................................... 112,450
2,600 USX-US Steel Group, Inc ............................. 59,800
2,700 Worthington Industries, Inc. ........................ 33,750
------------------------------------------------------------------
TOTAL STEEL ......................................... 358,467
==================================================================
TECHNOLOGY (0.3%)
- -----------------
6,600 Ascend Communications, Inc. ......................... 433,950
6,500 BMC Software, Inc.* ................................. 289,656
14,900 Electronic Data Systems Corporation.................. 748,725
7,000 Peoplesoft, Inc.* ................................... 132,563
------------------------------------------------------------------
TOTAL TECHNOLOGY .................................... 1,604,894
==================================================================
TELEPHONE (5.8%)
- ----------------
8,300 ALLTEL Corporation .................................. 496,444
54,600 AT&T Corporation .................................... 4,108,650
17,300 Airtouch Communications, Inc.* ...................... 1,247,762
33,300 Ameritech Corporation ............................... 2,110,388
2,500 Andrew Corporation* ................................. 41,250
46,880 Bell Atlantic Corporation ........................... $ 2,663,370
59,500 BellSouth Corporation ............................... 2,967,563
5,200 Frontier Corporation ................................ 176,800
29,200 GTE Corporation ..................................... 1,969,175
39,700 Lucent Technologies, Inc. ........................... 4,367,000
55,414 MCI Worldcom, Inc. .................................. 3,975,954
18,300 Mediaone Group, Inc.* ............................... 860,100
8,600 Nextel Communication, Inc.* ......................... 203,175
19,740 Northern Telecom, Ltd. .............................. 989,467
59,022 SBC Communications, Inc. ............................ 3,165,055
13,000 Sprint Corporation1, ................................ 093,625
12,450 Sprint PCS Group* ................................... 287,906
15,226 U.S. West, Inc. ..................................... 83,980
------------------------------------------------------------------
TOTAL TELEPHONE ..................................... 31,707,664
==================================================================
TIRES & RUBBER (0.1%)
- ---------------------
2,200 Cooper Tire & Rubber Company ........................ 44,963
4,000 Danaher Corporation ................................. 217,250
4,700 Goodyear Tire & Rubber Company ...................... 237,056
------------------------------------------------------------------
TOTAL TIRES & RUBBER ................................ 499,269
==================================================================
TOBACCO (0.9%)
- --------------
5,100 Fortune Brands, Inc ................................. 161,288
3,500 Loews Corporation ................................... 343,875
73,500 Phillip Morris Companies, Inc. ...................... 3,932,250
5,600 UST, Inc ............................................ 195,300
------------------------------------------------------------------
TOTAL TOBACCO ....................................... 4,632,713
==================================================================
TRAVEL & RECREATION (0.6%)
- --------------------------
2,900 Brunswick Corporation ............................... 71,775
18,000 Carnival Corporation ................................ 864,000
3,000 Harrah's Entertainment* ............................. 47,063
7,800 Hilton Hotels Corporation ........................... 149,175
7,500 Marriott International, Inc. ........................ 217,500
5,400 Mirage Resorts, Incorporated* ....................... 80,663
61,787 Walt Disney Company ................................. 1,853,610
------------------------------------------------------------------
Total Travel & Recreation ........................... 3,283,786
==================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO -- CONTINUED
SCHEDULE ON INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMON STOCK (5.51%) MARKET VALUE
=======================================================================
TRUCKING & FREIGHT (0.1%)
- ------------------------
2,100 Ryder Systems, Inc............................. $54,600
--------------------------------------------------------
TOTAL TRUCKING & FREIGHT....................... 54,600
========================================================
--------------------------------------------------------
TOTAL COMMON STOCKS
(cost basis $216,462,619).................. $300,243,355
PRINCIPAL LONG-TERM FIXED INCOME INTEREST MATURITY MARKET
AMOUNT SECURITIES (35.0%) RATE DATE VALUE
=======================================================================
U.S. GOVERNMENT OBLIGATIONS (13.3%)
- ----------------------------------
$1,500,000 U.S. Treasury Notes..... 7.750% 12/31/99 $1,545,000
1,500,000 U.S. Treasury Notes..... 7.750 1/31/00 1,547,812
1,500,000 U.S. Treasury Notes..... 7.125 2/29/00 1,540,781
1,500,000 U.S. Treasury Notes..... 5.500 3/31/00 1,515,000
1,500,000 U.S. Treasury Notes..... 6.750 4/30/00 1,539,375
1,500,000 U.S. Treasury Notes..... 8.875 5/15/00 1,582,500
1,500,000 U.S. Treasury Notes..... 5.875 6/30/00 1,526,250
1,375,000 U.S. Treasury Notes..... 5.375 7/31/00 1,390,038
1,500,000 U.S. Treasury Notes..... 6.125 7/31/00 1,532,813
1,100,000 U.S. Treasury Notes..... 6.000 8/15/00 1,122,688
1,500,000 U.S. Treasury Notes..... 6.125 9/30/00 1,537,030
1,000,000 U.S. Treasury Notes..... 5.750 10/31/00 1,019,062
1,175,000 U.S. Treasury Notes..... 8.500 11/15/00 1,254,679
1,500,000 U.S. Treasury Notes..... 5.500 12/31/00 1,524,843
2,275,000 U.S. Treasury Notes..... 5.250 1/31/01 2,303,438
1,250,000 U.S. Treasury Notes..... 6.375 3/31/01 1,295,703
1,500,000 U.S. Treasury Notes..... 8.000 5/15/01 1,611,093
750,000 U.S. Treasury Notes..... 5.625 6/30/01 784,453
1,500,000 U.S. Treasury Notes..... 7.875 8/15/01 1,616,718
1,305,000 U.S. Treasury Notes..... 7.500 11/15/01 1,402,467
500,000 U.S. Treasury Notes..... 6.125 12/31/01 520,156
1,225,000 U.S. Treasury Notes..... 6.250 1/31/02 1,278,976
1,125,000 U.S. Treasury Notes..... 6.625 4/30/02 1,190,391
1,225,000 U.S. Treasury Notes..... 7.500 5/15/02 1,329,891
1,500,000 U.S. Treasury Notes..... 6.500 5/31/02 1,583,905
1,500,000 U.S. Treasury Notes..... 5.750 11/30/02 1,555,312
1,500,000 U.S. Treasury Notes.....10.750 2/15/03 1,832,343
350,000 U.S. Treasury Notes.....10.750 5/15/03 431,922
1,500,000 U.S. Treasury Notes..... 5.750 8/15/03 1,565,625
1,200,000 U.S. Treasury Notes.....11.875 11/15/03 1,565,624
1,500,000 U.S. Treasury Notes..... 5.875 2/15/04 1,582,968
650,000 U.S. Treasury Notes..... 5.875 11/15/05 693,469
450,000 U.S. Treasury Notes..... 9.375 2/15/06 574,875
1,375,000 U.S. Treasury Notes..... 7.000 7/15/06 1,565,781
875,000 U.S. Treasury Notes..... 6.500 10/15/06 971,250
1,200,000 U.S. Treasury Notes..... 6.125 8/15/07 1,311,374
1,150,000 U.S. Treasury Notes..... 5.500 2/15/08 1,219,000
200,000 U.S. Treasury Bonds.....10.375 11/15/12 276,500
250,000 U.S. Treasury Bonds..... 9.875 11/15/15 376,484
1,500,000 U.S. Treasury Bonds..... 8.750 5/15/17 2,088,750
1,050,000 U.S. Treasury Bonds..... 8.875 2/15/19 1,496,906
1,300,000 U.S. Treasury Bonds..... 8.125 8/15/19 1,738,343
950,000 U.S. Treasury Bonds..... 8.250 2/15/20 1,319,015
400,000 U.S. Treasury Bonds..... 7.875 2/15/21 527,125
700,000 U.S. Treasury Bonds..... 8.125 8/15/21 947,406
300,000 U.S. Treasury Bonds..... 8.000 11/15/21 401,906
400,000 U.S. Treasury Bonds..... 7.250 8/15/22 498,625
250,000 U.S. Treasury Bonds..... 7.625 11/15/22 324,531
625,000 U.S. Treasury Bonds..... 7.125 2/15/23 771,094
1,500,000 U.S. Treasury Bonds..... 6.250 8/15/23 1,678,125
1,100,000 U.S. Treasury Bonds..... 7.500 11/15/24 1,426,218
1,500,000 U.S. Treasury Bonds..... 7.625 2/15/25 1,974,843
1,500,000 U.S. Treasury Bonds..... 6.875 8/15/25 1,819,688
1,500,000 U.S. Treasury Bonds..... 6.000 2/15/26 1,636,875
1,500,000 U.S. Treasury Bonds..... 6.750 8/15/26 1,797,655
1,500,000 U.S. Treasury Bonds..... 6.125 11/15/27 1,680,000
--------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS............ 72,744,694
========================================================
U.S. GOVERNMENT AGENCY OBLIGATIONS (13.7%)
- -----------------------------------------
550,000 Federal Home Loan
Bank Notes Debentures....7.260 9/06/01 579,895
500,000 Federal Home Loan
Mortgage Corporation
5-Yr. Pass Through.......5.865 6/2/03 512,560
1,000,000 Federal Home Loan
Mortgage Corporation
10-Yr. Pass Through......6.220 3/24/03 1,037,502
580,000 Federal Home Loan
Mortgage Corporation
15-Yr. Pass Through......5.990 12/1/03 599,319
113,696 Federal Home Loan
Mortgage Corporation
15-Yr. Pass Through......7.000 11/1/10 116,276
441,650 Federal Home Loan
Mortgage Corporation
15-Yr. Pass Through......6.500 11/1/12 448,853
The accompanying notes to the financial statements are an integral
part of this schedule.
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO - CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL LONG-TERM FIXED INCOME INTEREST MATURITY MARKET
AMOUNT SECURITIES (35.0%) RATE DATE VALUE
===============================================================================
<S> <C> <C> <C> <C>
U.S. Government Agency Obligations-continued
- --------------------------------------------
$ 434,529 Federal Home Loan
Mortgage Corporation
15-Yr. Pass Through...... 7.000% 12/1/12 $444,092
345,549 Federal Home Loan
Mortgage Corporation
30-Yr. Pass Through.......7.500 4/1/27 354,902
418,147 Federal Home Loan
Mortgage Corporation
30-Yr. Pass Through.......7.000 5/1/27 426,376
833,338 Federal Home Loan
Mortgage Corporation
30-Yr. Pass Through.......8.000 6/1/27 862,612
411,048 Federal Home Loan
Mortgage Corporation
30-Yr. Pass Through.......8.000 6/1/12 424,756
163,426 Federal Home Loan
Mortgage Corporation
Gold 15-Yr. Pass Through 6.500 4/1/09 166,186
444,426 Federal Home Loan
Mortgage Corporation
Gold 15-Yr. Pass Through 6.000 5/1/12 446,532
366,671 Federal Home Loan
Mortgage Corporation
Gold 15-Yr. Pass Through 7.000 8/1/12 375,100
976,314 Federal Home Loan
Mortgage Corporation
Gold 15-Yr. Pass Through 6.500 8/1/13 991,270
108,287 Federal Home Loan
Mortgage Corporation
Gold 15-Yr. Pass Through 7.500 8/1/10 111,408
157,254 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 6.500 4/1/24 158,408
75,905 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 9.000 4/1/25 80,167
170,480 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 7.000 9/1/25 174,007
213,036 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 7.500 11/1/25 218,817
1,000,000 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 6.500 12/15/28 1,007,508
197,409 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 8.000 1/1/26 204,476
207,748 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 7.000% 5/1/26 212,011
109,894 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 7.500 7/1/26 112,824
219,228 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 6.000 7/1/26 216,571
162,281 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 7.500 8/1/26 166,609
136,249 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 8.000 11/1/26 141,071
204,748 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 6.500 11/1/26 206,237
162,411 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 7.500 8/1/26 166,609
442,993 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 6.500 2/1/27 446,306
402,697 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 7.000 2/1/27 410,621
298,823 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 8.000 3/1/27 309,399
288,600 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 8.500 7/1/27 302,074
406,752 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 7.000 9/1/27 414,756
320,973 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 8.000 10/1/27 332,248
373,468 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 7.500 11/1/27 383,578
482,355 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 6.500 12/1/27 485,963
482,300 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 7.500 1/15/28 495,355
689,032 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 7.000 3/1/28 702,605
</TABLE>
The accompanying notes to the financial statements are an
integral part of this schedule
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO - CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL LONG-TERM FIXED INCOME INTEREST MATURITY MARKET
AMOUNT SECURITIES (35.0%) RATE DATE VALUE
==============================================================================
<S> <C> <C> <C> <C>
$ 991,167 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 6.000% 5/1/28 $978,984
836,113 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 7.500 5/1/28 858,746
990,507 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 6.500 6/1/28 997,945
990,001 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 7.000 10/1/28 1,009,503
999,192 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 6.500 10/15/28 1,006,695
1,000,000 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 9.000 12/15/28 1,055,106
1,000,000 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 6.500 12/30/28 1,007,508
95,475 Federal Home Loan
Mortgage Corporation
Gold 30-Yr. Pass Through 8.500 9/1/25 99,997
24,363 Federal Home Loan
Mortgage Corporation
Gold 5-Yr Balloon........ 5.500 12/1/99 24,336
76,492 Federal Home Loan
Mortgage Corporation
Gold 7-Yr. Balloon....... 7.000 7/1/02 78,205
500,000 Federal Home Loan
Mortgage Corporation
Gold REMIC Trust......... 7.750 11/7/01 534,995
250,000 Federal Home Loan
Mortgage Corporation
Medium Term Note......... 6.395 5/16/00 254,586
995,814 Federal Home Loan
Mortgage Corporation
Gold Single Family....... 7.000 7/01/28 1,015,430
1,500,000 Federal National
Mortgage Association
5-Yr. Pass Through....... 6.800 1/10/03 1,585,533
250,000 Federal National
Mortgage Association
10-Yr. Pass Through...... 6.700 11/10/05 255,597
900,000 Federal National
Mortgage Association
15-Yr. Pass Through...... 5.800 2/22/06 931,562
87,985 Federal National
Mortgage Association
15-Yr. Pass Through...... 9.000 4/1/10 93,194
154,764 Federal National
Mortgage Association
15-Yr. Pass Through...... 6.000% 2/1/11 155,288
163,575 Federal National
Mortgage Association
15-Yr. Pass Through...... 8.000 5/1/11 169,128
188,942 Federal National
Mortgage Association
15-Yr. Pass Through...... 7.000 6/1/11 193,101
142,979 Federal National
Mortgage Association
15-Yr. Pass Through...... 7.500 6/1/11 147,151
167,616 Federal National
Mortgage Association
15-Yr. Pass Through...... 6.500 7/1/11 170,025
425,133 Federal National
Mortgage Association
15-Yr. Pass Through...... 6.500 7/1/12 431,246
914,506 Federal National
Mortgage Association
15-Yr. Pass Through...... 7.000 10/1/12 934,633
955,462 Federal National
Mortgage Association
15-Yr. Pass Through...... 6.000 3/19/13 958,156
980,546 Federal National
Mortgage Association
15-Yr. Pass Through...... 6.500 6/1/13 994,645
990,931 Federal National
Mortgage Association
15-Yr. Pass Through...... 6.000 12/1/13 993,952
1,000,000 Federal National
Mortgage Association
30-Yr. Pass Through...... 7.050 11/12/02 1,063,943
117,318 Federal National
Mortgage Association
30-Yr. Pass Through...... 10.500 8/1/20 127,727
164,133 Federal National
Mortgage Association
30-Yr. Pass Through...... 7.500 10/1/24 168,637
75,006 Federal National
Mortgage Association
30-Yr. Pass Through...... 9.500 4/1/25 80,185
158,793 Federal National
Mortgage Association
30-Yr. Pass Through...... 7.500 9/1/25 163,111
118,267 Federal National
Mortgage Association
30-Yr. Pass Through...... 8.500 11/1/25 123,943
147,584 Federal National
Mortgage Association
30-Yr. Pass Through...... 8.000 1/1/26 152,843
</TABLE>
The accompanying notes to the financial statements are an
integral part of this schedule
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL LONG-TERM FIXED INCOME INTEREST MATURITY MARKET
AMOUNT SECURITIES (35.0%) RATE DATE VALUE
============================================================================================
<S> <C> <C> <C> <C>
U.S. Government Agency Obligations--continued
- ----------------------------------------------
$ 155,309 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.000% 1/1/26 $158,537
195,900 Federal National
Mortgage Association
30-Yr. Pass Through.......................6.500 2/1/26 197,199
202,679 Federal National
Mortgage Association
30-Yr. Pass Through.......................6.500 3/1/26 204,023
163,440 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.000 3/1/26 166,824
75,778 Federal National
Mortgage Association
30-Yr. Pass Through.......................8.500 5/1/26 79,389
228,579 Federal National
Mortgage Association
30-Yr. Pass Through.......................6.000 5/1/26 225,521
156,592 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.500 7/1/26 160,817
121,953 Federal National
Mortgage Association
30-Yr. Pass Through.......................8.000 8/1/26 126,276
185,425 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.500 9/1/26 190,427
274,075 Federal National
Mortgage Association
30-Yr. Pass Through.......................9.000 9/1/26 289,843
193,748 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.000 11/1/26 197,760
138,593 Federal National
Mortgage Association
30-Yr. Pass Through.......................8.000 11/1/26 143,506
131,696 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.500 12/1/26 135,250
349,422 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.000 1/1/27 356,658
140,504 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.500 2/1/27 144,295
393,931 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.000 3/1/27 402,088
$269,055 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.500% 5/1/27 $276,319
188,331 Federal National
Mortgage Association
30-Yr. Pass Through.......................8.000 7/1/27 195,026
416,035 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.000 7/1/27 424,509
447,257 Federal National
Mortgage Association
30-Yr. Pass Through.......................6.500 7/1/27 450,365
717,098 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.500 8/1/27 736,459
377,624 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.000 10/1/27 385,316
391,238 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.500 12/1/27 401,801
829,393 Federal National
Mortgage Association
30-Yr. Pass Through.......................8.000 12/1/27 858,877
808,008 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.000 2/1/28 824,466
971,444 Federal National
Mortgage Association
30-Yr. Pass Through.......................6.500 3/1/28 978,126
1,500,000 Federal National
Mortgage Association
30-Yr. Pass Through.......................5.625 4/17/28 1,478,832
977,025 Federal National
Mortgage Association
30-Yr. Pass Through.......................6.000 7/1/28 964,410
918,149 Federal National
Mortgage Association
30-Yr. Pass Through.......................6.500 7/1/28 924,465
996,518 Federal National
Mortgage Association
30-Yr. Pass Through.......................7.000 8/1/28 1,016,766
995,699 Federal National
Mortgage Association
30-Yr. Pass Through.......................6.500 10/15/28 1,002,618
971,297 Federal National
Mortgage Association
30-Yr. Pass Through.......................6.500 11/1/28 977,978
</TABLE>
THE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
SCHEDULE
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL LONG-TERM FIXED INCOME INTEREST MATURITY MARKET
AMOUNT SECURITIES (35.0%) RATE DATE VALUE
===========================================================================================
<S> <C> <C> <C> <C>
U.S. Government Agency Obligations--continued
- ---------------------------------------------
$ 174,612 Federal National
Mortgage Association
30-Yr. Pass Through...................... 7.000% 11/1/28 $178,160
818,852 Federal National
Mortgage Association
30-Yr. Pass Through...................... 7.000 12/1/288 35,491
1,000,000 Federal National
Mortgage Association
30-Yr. Pass Through...................... 6.500 12/15/28 1,006,884
180,139 Federal National
Mortgage Association
7-Yr. Balloon............................ 6.500 10/1/03 182,610
347,560 Federal National
Mortgage Association
7-Yr. Balloon............................ 6.000 12/1/03 350,319
306,286 Federal National
Mortgage Association
7-Yr. Balloon............................ 7.000 6/1/04 312,956
1,500,000 Federal National
Mortgage Association
Medium Term Note......................... 6.720 8/1/05 1,625,265
500,000 Federal National
Mortgage Association
Notes.................................... 8.250 12/18/00 529,737
600,000 Federal National
Mortgage Association
Notes.................................... 7.650 3/10/05 676,355
110,906 Government National
Mortgage Association
15-Yr. Pass Through...................... 6.500 5/15/09 113,089
202,238 Government National
Mortgage Association
15-Yr. Pass Through...................... 6.000 4/15/11 203,692
186,713 Government National
Mortgage Association
15-Yr. Pass Through...................... 6.500 6/15/11 190,236
156,547 Government National
Mortgage Association
15-Yr. Pass Through...................... 7.500 7/15/11 161,950
399,203 Government National
Mortgage Association
15-Yr. Pass Through...................... 7.000 4/15/12 410,508
47,931 Government National
Mortgage Association
30-Yr. Pass Through...................... 9.500 12/15/24 51,798
431,299 Government National
Mortgage Association
30-Yr. Pass Through...................... 9.000 3/15/25 461,373
108,048 Government National
Mortgage Association
30-Yr. Pass Through...................... 8.000 6/1/25 112,174
$137,365 Government National
Mortgage Association
30-Yr. Pass Through...................... 7.500% 8/15/25 $141,566
190,931 Government National
Mortgage Association
30-Yr. Pass Through...................... 7.000 1/15/26 195,447
422,013 Government National
Mortgage Association
30-Yr. Pass Through...................... 7.000 1/15/26 431,993
209,028 Government National
Mortgage Association
30-Yr. Pass Through...................... 6.500 3/15/26 211,081
425,527 Government National
Mortgage Association
30-Yr. Pass Through...................... 7.000 4/15/26 435,590
101,722 Government National
Mortgage Association
30-Yr. Pass Through...................... 8.000 4/15/26 105,596
192,502 Government National
Mortgage Association
30-Yr. Pass Through...................... 7.500 4/15/26 198,366
233,075 Government National
Mortgage Association
30-Yr. Pass Through...................... 6.000 5/15/26 231,010
178,853 Government National
Mortgage Association
30-Yr. Pass Through...................... 7.000 5/15/26 183,082
192,950 Government National
Mortgage Association
30-Yr. Pass Through...................... 7.500 5/15/26 198,827
865,868 Government National
Mortgage Association
30-Yr. Pass Through...................... 7.000 6/15/26 886,345
158,084 Government National
Mortgage Association
30-Yr. Pass Through...................... 8.500 6/15/26 167,893
119,553 Government National
Mortgage Association
30-Yr. Pass Through...................... 8.500 7/15/26 126,971
95,395 Government National
Mortgage Association
30-Yr. Pass Through...................... 9.000 8/15/26 101,986
538,714 Government National
Mortgage Association
30-Yr. Pass Through...................... 7.500 10/15/26 555,122
274,222 Government National
Mortgage Association
30-Yr. Pass Through...................... 8.000 11/15/26 284,664
121,248 Government National
Mortgage Association
30-Yr. Pass Through...................... 8.500 11/15/26 128,771
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO-CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL LONG-TERM FIXED INCOME INTEREST MATURITY MARKET
AMOUNT SECURITIES(35.0%) RATE DATE VALUE
<S> <C> <C> <C> <C>
==============================================================================
U.S. GOVERNMENT AGENCY OBLIGATIONS-CONTINUED
- --------------------------------------------
$ 244,165 Government National
Mortgage Association
30-Yr. Pass Through ........9.000% 12/15/26 $261,035
196,453 Government National
Mortgage Association
30-Yr. Pass Through ........7.500 1/15/27 202,543
673,088 Government National
Mortgage Association
30-Yr. Pass Through ........7.500 4/15/27 693,953
313,706 Government National
Mortgage Association
30-Yr. Pass Through ........8.000 6/20/27 324,338
308,135 Government National
Mortgage Association
30-Yr. Pass Through ........8.000 8/15/27 320,121
902,908 Government National
Mortgage Association
30-Yr. Pass Through ........7.000 10/15/27 923,720
498,392 Government National
Mortgage Association
30-Yr. Pass Through ........6.500 10/15/27 503,456
402,525 Government National
Mortgage Association
30-Yr. Pass Through ........7.500 11/15/27 415,003
306,222 Government National
Mortgage Association
30-Yr. Pass Through ........9.500 2/15/28 330,833
524,132 Government National
Mortgage Association
30-Yr. Pass Through ........8.000 3/15/28 544,499
1,005,466 Government National
Mortgage Association
30-Yr. Pass Through ........6.500 7/15/28 1,015,530
996,322 Government National
Mortgage Association
30-Yr. Pass Through ........7.000 7/15/28 1,019,366
1,009,010 Government National
Mortgage Association
30-Yr. Pass Through ........6.500 11/1/28 1,019,109
990,000 Government National
Mortgage Association
30-Yr. Pass Through ........8.000 11/15/28 1,027,698
845,000 Private Export
Funding Corporation.........8.400 7/31/01 912,696
150,000 Private Export
Funding Corporation.........6.240 5/15/02 155,031
500,000 Student Loan
Marketing Association.......6.050 9/14/00 508,355
1,500,000 Student Loan
Marketing Association.......7.300 8/1/12 1,763,531
$ 1,500,000 Tennessee Valley Authority..6.375% 6/15/05 $1,592,843
----------------------------------------------------------------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS..............................74,656,941
================================================================
ASSET-BACKED SECURITIES (0.2%)
- ------------------------------
250,000 Chemical Mastercard
Trust Series 1996-1
Class A......................5.550 9/15/03 251,415
200,000 NationsBank Credit Card
Trust Certificate........... 6.000 12/15/05 205,052
500,000 Premier Auto Trust ..........6.750 11/6/00 505,830
26,412 Western Financial
Grantor Trust................7.100 1/1/00 26,468
----------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES........................988,765
================================================================
CORPORATE OBLIGATIONS (6.6%)
- ---------------------------
200,000 Abbott Laboratories
Notes........................6.800 5/15/05 217,126
1,000,000 Allstate Corporation.........6.750 5/15/18 1,041,553
250,000 American Express Credit
Corporation Notes............6.125 11/15/01 254,291
375,000 Associates Corporation
N.A. Senior Notes............6.000 12/1/02 380,409
1,250,000 Associates Corporation N.A.
Senior Notes.................6.250 11/1/08 1,289,764
500,000 Avco Financial Services
Notes........................6.000 8/15/02 507,722
325,000 Baker Hughes, Inc.
Notes........................8.000 5/15/04 361,011
500,000 BankAmerica Corporation
Notes........................6.625 8/1/07 527,514
500,000 Boeing Company Notes.........8.100 11/15/06 575,954
1,000,000 Browning-Ferris Industries,
Inc. Senior Notes............6.375 1/15/08 981,429
1,000,000 Burlington Northern
and Santa Fe Railway Company
Notes........................6.050 3/15/01 1,014,457
500,000 Cit Group Holdings,
Inc. Notes...................6.375 10/1/02 511,694
1,000,000 Cable and Wireless
Communications Notes.........6.375 3/6/03 1,002,515
250,000 Columbia Gas Systems
Notes........................7.320 11/28/10 266,175
250,000 Commercial Credit
Company Notes................6.750 5/15/00 254,455
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO-CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL LONG-TERM FIXED INCOME INTEREST MATURITY MARKET
AMOUNT SECURITIES(35.0%) RATE DATE VALUE
<S> <C> <C> <C> <C>
==============================================================================
CORPORATE OBLIGATIONS-CONTINUED
- -------------------------------
$1,000,000 Countrywide Home
Loans, Inc. Medium Term
Notes........................6.935% 7/16/07 $ 1,040,525
1,000,000 Cox Communications
Inc. Notes....................6.400 8/1/08 1,047,225
500,000 Crown Cork & Seal
Notes........................ 6.750 4/15/03 504,450
550,000 E.I. Dupont de Nemours
and Company Notes.............8.125 3/15/04 618,055
510,000 Eli Lilly & Company
Notes.........................6.570 1/1/16 537,734
650,000 Enron Corporation Notes.......7.125 5/15/07 683,837
1,000,000 Enterprise Oil Notes..........6.500 5/1/05 1,004,516
1,000,000 First Bank System Notes.......7.625 5/1/05 1,101,579
1,000,000 Ford Motor Credit
Corporation Notes.............7.750 11/15/02 1,073,290
500,000 General Electric Capital
Corporation Notes.............8.090 4/1/04 563,959
500,000 General Motors Acceptance
Corporation Notes.............9.625 12/15/01 556,153
500,000 Hertz Corporation Notes.......7.000 7/1/04 526,228
250,000 Honeywell, Inc.
Debentures....................8.625 4/15/06 296,493
250,000 Household Finance
Corporation Notes.............7.250 7/15/03 264,955
1,500,000 Household Finance
Corporation Notes.............6.400 6/17/08 1,544,173
500,000 Houston Industries, Inc.
Notes.........................9.375 6/1/01 543,811
500,000 IBM Corporation Notes.........7.500 6/15/13 581,719
250,000 J.C. Penney & Company,
Inc. Notes....................6.375 9/15/00 253,202
340,000 J.P. Morgan Notes.............6.250 12/15/05 349,370
500,000 Johnson Controls Notes........7.125 7/15/17 537,780
1,000,000 MCI Worldcom, Inc.............6.950 8/15/28 1,075,259
250,000 NorAm Energy
Corporation Notes.............7.500 8/1/00 258,031
250,000 Noranda, Inc. Notes...........8.000 6/1/03 258,639
500,000 Northern Trust
Company Notes.................6.700 9/15/05 523,711
250,000 Norwest Financial, Inc.
Senior Notes..................7.000 1/15/03 262,763
250,000 Pennzoil Company Notes.......10.125 11/15/09 282,426
$ 250,000 Pepsico, Inc. Medium
Term Notes....................5.875% 6/1/00 $ 251,846
1,000,000 Raytheon Company..............6.750 3/15/28 1,038,030
250,000 Rhone-Poulenc SA Notes........7.750 1/15/02 262,848
420,000 Service Corporation
International Notes...........6.875 10/1/07 441,114
1,000,000 Temple-Inland,
Inc. Notes....................7.250 9/15/04 1,070,801
1,400,000 Texaco Capital,
Inc. Notes....................8.500 2/15/03 1,566,158
500,000 Texas Utilities Company
First Mortgage Bond...........8.250 4/1/04 560,223
1,500,000 Thermo Electron
Corporation...................7.625 10/30/08 1,565,535
1,000,000 Tosco Corporation
First Mortgage Bonds..........9.625 3/15/02 1,090,303
1,500,000 Tyco InterNational
Group SA Notes................6.250 6/15/03 1,515,524
1,000,000 Virginia Electric & Power
Company Notes.................6.625 4/1/03 1,047,403
------------------------------------------------------------------------
TOTAL CORPORATE OBLIGATIONS................................35,885,737
========================================================================
UTILITY BONDS (0.5%)
500,000 Baltimore Gas & Electric
Company First Refunding
Mortgage Bonds............... 7.500 1/15/07 558,948
1,000,000 California Infrastructure
PG&E Bonds................... 6.480 12/26/09 1,023,140
250,000 Pacificorp First
Mortgage Bonds............... 6.750 4/1/05 264,344
1,000,000 Public Service Electric
& Gas Mortgage Bonds......... 6.375 5/1/08 1,039,385
---------------------------------------------------------------------
TOTAL UTILITY BONDS........................................ 2,885,817
=====================================================================
CANADIAN GOVERNMENT (0.6%)
500,000 British Columbia
Government Notes............7.250 9/1/36 576,210
1,000,000 Ontario Hydro...............7.450 3/31/13 1,155,529
500,000 Province of Newfoundland....8.650 10/22/22 624,645
200,000 Province of Ontario
Senior Global Bond......... 6.125 6/28/00 202,578
500,000 Province of Quebec......... 7.500 7/15/02 530,130
500,000 Province of
Saskatchewan...............8.000 7/15/04 560,569
---------------------------------------------------------------------
Total Canadian Government.................................. 3,649,661
=====================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT BALANCED PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31,1998
PRINCIPAL LONG-TERM FIXED INCOME INTEREST MATURITY MARKET
AMOUNT SECURITIES(35.0%) RATE DATE VALUE
======================================================================
CANADIAN CORPORATE SECURITIES (0.1%)
- -------------------------------------
$ 250,000 Petro-Canada Ltd.........8.600% 1/15/10 $316,625
----------------------------------------------------------
TOTAL CANADIAN CORPORATE SECURITIES................316,625
==========================================================
----------------------------------------------------------
TOTAL LONG-TERM FIXED INCOME
SECURITIES INVESTMENTS
(amortized cost basis $186,398,834)............191,128,240
PRINCIPAL SHORT-TERM INTEREST MATURITY MARKET
AMOUNT INVESTMENTS (10.2%) RATE(A) DATE VALUE
======================================================================
5,356,000 American Express
Credit Corporation.......5.850 1/4/99 5,353,389
3,000,000 Ameritech Corporation....5.600 1/14/99 2,993,933
314,000 Carolina Power & Light,
Inc......................5.200 1/25/99 312,849
3,104,000 Countrywide Home
Loans, Inc...............5.700 1/6/99 3,101,543
1,452,000 Countrywide Home
Loans, Inc...............5.150 1/11/99 1,449,923
584,000 Countrywide Home
Loans, Inc...............5.420 1/26/99 581,802
2,157,000 Countrywide Home
Loans, Inc...............5.400 1/29/99 2,147,940
2,165,000 Eaton Corporation........5.500 1/25/99 2,157,062
1,752,000 E.I. DuPont de Nemours
& Company................5.130 1/6/99 1,750,752
1,334,000 Exxon Asset
Management...............5.420 1/5/99 1,333,196
6,202,000 Ford Motor Credit
Corporation..............5.170 1/15/99 6,189,531
1,406,000 General Electric Capital
Corporation..............5.320 1/19/99 1,402,260
7,837,000 General Motors
Acceptance
Corporation..............5.330 1/12/99 7,824,236
1,317,000 General Motors
Acceptance
Corporation..............5.500 1/29/99 1,311,366
1,475,000 GTE Corporation..........5.550% 1/22/99 1,470,225
580,000 GTE Corporation..........5.380 1/26/99 577,833
375,000 GTE Corporation..........5.530 1/27/99 373,502
989,000 GTE Corporation..........5.310 2/9/99 983,311
6,000,000 GTE Corporation..........5.500 2/12/99 5,961,500
987,000 International Business
Machines Corporation.....5.300 1/11/99 985,547
4,906,000 Sears Roebuck
Acceptance
Corporation..............5.350 1/11/99 4,898,709
2,500,000 Wisconsin Energy.........5.350 1/12/99 2,495,913
PRINCIPAL SHORT-TERM INTEREST MATURITY MARKET
AMOUNT INVESTMENTS(10.2%) RATE(A) DATE VALUE
======================================================================
TOTAL SHORT-TERM INVESTMENTS
(amortized cost basis $55,656,322).............55,656,322
=========================================================
---------------------------------------------------------
TOTAL INVESTMENTS (100.3%)
(amortized cost basis $458,517,775)...........547,027,917
=========================================================
---------------------------------------------------------
LIABILITIES LESS
OTHER ASSETS (0.3%)...........................(1,691,002)
=========================================================
---------------------------------------------------------
NET ASSETS (100.0%)..........................$545,336,915
=========================================================
* Non-income producing securities
(a) The interest rate shown reflects the discount rate at the date of purchase.
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE PRODUCT LARGE COMPANY STOCK PORTFOLIO
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998.
INVESTMENT OBJECTIVE
- --------------------
The Portfoilo seeks to achieve investment results that approximate the
performance of the Standard &Poor's 500 Composite Stock Price Index by investing
primarily in common stocks included in the index.
SHARES COMMON STOCKS (99.6%) MARKET VALUE
- -----------------------------------------------------------------------
AEROSPACE (1.4%)
4,200 BFGoodrich Company ....................... $ 150,675
57,260 Boeing Company ........................... 1,868,108
7,300 General Dynamics Corporation ............. 427,962
11,300 Lockheed Martin Corporation .............. 957,675
4,000 Northrop Grumman Corporation ............. 292,500
19,300 Raytheon Company ......................... 1,027,725
11,000 Rockwell International Corporation ....... 534,188
9,100 Textron, Inc. ............................ 691,031
6,900 TRW, Inc. ................................ 387,693
13,000 United Technologies Corporation .......... 1,413,750
--------------------------------------------------------
TOTAL AEROSPACE .......................... 7,751,307
========================================================
AIR TRANSPORTATION (0.4%)
10,500 AMR Corporation* ......................... 623,437
8,200 Delta Air Lines, Inc. .................... 426,400
8,480 Federal Express Corporation* ............. 754,720
19,200 Southwest Airlines Company................ 430,800
5,000 USAir Group, Inc.* ....................... 260,000
--------------------------------------------------------
TOTAL AIR TRANSPORTATION ................. 2,495,357
========================================================
APPAREL (0.2%)
4,100 Fruit of the Loom, Inc.* ................. 56,631
3,700 Liz Claiborne, Inc. ...................... 116,781
16,400 Nike, Inc. ............................... 665,225
3,200 Reebok International, Ltd. ............... 47,600
2,000 Russell Corporation ...................... 40,625
1,000 Springs Industries, Inc. ................. 41,438
6,900 V F Corporation .......................... 323,437
--------------------------------------------------------
Total Apparel ............................ 1,291,737
========================================================
BANKING (8.7%)
41,400 Associates First Capital Corporation ..... 1,754,325
16,800 BB&T Corporation ......................... 677,250
67,153 Banc One Corporation ..................... 3,429,000
43,600 Bank of New York Company, Inc. ........... 1,754,900
99,189 BankAmerica Corporation .................. 5,963,739
16,900 BankBoston Corporation ................... 658,044
5,500 Bankers Trust New York Corporation ....... 469,906
48,512 Chase Manhattan Corporation .............. 3,301,848
130,208 Citigroup, Inc. .......................... 6,445,296
8,950 Comerica, Inc. ........................... 610,278
6,400 Countrywide Credit Industries, Inc........ 321,200
15,275 Fifth Third Bancorp ...................... 1,089,298
56,832 First Union Corporation .................. 3,456,096
32,570 Fleet Financial Group, Inc. .............. 1,455,472
14,500 Franklin Resources, Inc .................. 464,000
12,020 Huntington Bancshares, Inc. .............. 361,351
26,100 Keycorp .................................. 835,200
15,000 Mellon Bank Corporation .................. 1,031,250
9,000 Mercantile Bancorporation, Inc. .......... 415,125
10,000 J.P. Morgan & Company, Inc. .............. 1,050,625
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT LARGE COMPANY STOCK PORTFOLIO
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES COMMON STOCK (99.0%) MARKET VALUE
=======================================================================
<S> <C> <C>
BANKING-CONTINUED
- -----------------
19,000 National City Corporation................. $ 1,377,500
6,400 Northern Trust Corporation558,800
17,300 PNC Bank Corporation ..................... 936,363
8,150 Providian Financial Corporation .......... 611,250
12,700 Regions Financial Corporation ............ 511,969
6,100 Republic New York Corporation ............ 277,931
9,900 Summit Bancorp ........................... 432,506
12,000 Suntrust Banks, Inc. ..................... 918,000
15,300 Synovus Financial Corp. .................. 372,938
41,597 U.S. Bancorp ............................. 1,476,694
7,800 Union Planters Corporation................ 353,437
11,600 Wachovia Corporation ..................... 1,014,275
34,029 Washington Mutual, Inc. .................. 1,299,482
92,700 Wells Fargo & Company .................... 3,702,206
--------------------------------------------------------
TOTAL BANKING ............................ 49,387,554
========================================================
BROKERAGE (1.0%)
- ----------------
23,025 Charles Schwab Corporation1,.............. 293,717
6,600 Lehman Brothers Holding, Inc. ............ 290,813
20,400 Merrill Lynch & Company, Inc. ............ 1,361,700
33,125 Morgan Stanley, Dean Witter, Discover
and Company .............................. 2,351,875
6,400 The Bear Stearns Companies, Inc. ......... 239,200
--------------------------------------------------------
TOTAL BROKERAGE .......................... 5,537,305
========================================================
BUSINESS MACHINES (10.5%)
- -------------------------
20,600 3Com Corporation*......................... 923,138
7,700 Apple Computer, Inc. ..................... 315,219
2,600 Autodesk, Inc. ........................... 110,988
9,400 Cabletron Systems, Inc.* ................. 78,725
4,100 Ceridian Corporation* .................... 286,231
90,550 Cisco Systems, Inc.* ..................... 8,404,172
97,493 Compaq Computers, Inc. ................... 4,088,613
2,800 Data General Corporation*................. 46,025
73,000 Dell Computer Corporation*................ 5,342,688
9,000 Gateway, Inc.* ........................... 460,687
26,600 HBO & Company ............................ 763,087
7,200 Honeywell, Inc. .......................... 542,250
7,700 Ikon Office Solutions .................... 65,931
53,500 International Business Machines
Corporation............................... 9,884,125
143,000 Microsoft Corporation* ................... 19,832,313
20,100 Novell, Inc.* ............................ $ 364,312
55,725 Oracle Systems Corporation* .............. 2,403,141
15,600 Parametric Technology Company* ........... 255,450
15,600 Pitney-Bowes, Inc. ....................... 1,030,575
14,000 Seagate Technology, Inc.*................. 423,500
10,700 Silicon Graphics, Inc.* .................. 137,762
21,800 Sun Microsystems, Inc.* .................. 1,866,625
14,600 Unisys Corporation* ...................... 502,787
18,800 Xerox Corporation......................... 2,218,400
--------------------------------------------------------
TOTAL BUSINESS MACHINES .................. 60,346,744
========================================================
BUSINESS SERVICES (1.8%)
- ------------------------
17,300 Automatic Data Processing, Inc. ............ 1,387,244
5,800 Block (H.R.), Inc. ......................... 261,000
9,883 Browning-Ferris Industries, Inc. ........... 281,048
30,812 Computer Associates International, Inc... .. 1,313,362
9,100 Computer Sciences Corporation .............. 586,381
4,600 Deluxe Corporation ......................... 168,187
9,500 Dun & Bradstreet Corporation ............... 299,844
7,400 Ecolab, Inc. ............................... 267,787
25,300 First Data Corporation ..................... 801,694
9,600 General Instrument Corporation* ............ 325,800
8,000 Interpublic Group of Companies, Inc. ....... 638,000
18,900 Laidlaw, Inc. .............................. 190,181
5,000 Moore Corporation, Ltd. .................... 55,000
2,400 National Service Industries, Inc. .......... 91,200
9,700 Omnicom Group, Inc. ........................ 562,600
9,400 Paychex, Inc. .............................. 483,513
2,700 Pennzoil-Quaker State Company* ............. 39,994
1,500 Shared Medical Systems Corporation.......... 74,812
9,200 State Street Corporation ................... 639,975
32,899 Waste Management, Inc. ..................... 1,533,916
--------------------------------------------------------
TOTAL BUSINESS SERVICES .................... 10,001,538
=========================================================
CHEMICALS (2.0%)
- ----------------
13,300 Air Products & Chemicals, Inc. ............. 532,000
64,600 E.I. Du Pont de Nemours & Company .......... 3,427,838
4,500 Eastman Chemical Company ................... 201,375
3,400 Great Lakes Chemical Corporation ........... 136,000
5,700 Hercules, Inc. ............................. 156,038
23,000 Minnesota Mining and Manufacturing Company.. 1,635,875
35,900 Monsanto Company ........................... 1,705,250
</TABLE>
The accompanying notes to the financial statements are an integral
part of this schedule
<PAGE>
AAL VARIABLE PRODUCT LARGE COMPANY STOCK PORTFOLIO-CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMON STOCKS (99.6%) MARKET VALUE
======================================================================
CHEMICALS-CONTINUED
- -------------------
6,900 Morton International, Inc.....................$ 169,050
3,700 Nalco Chemical Company ....................... 114,700
10,200 PPG Industries, Inc. ......................... 594,150
9,000 Praxair, Inc. ................................ 317,250
9,500 Rohm & Haas Company .......................... 286,188
4,776 Sealed Air Corporation* ...................... 243,874
5,700 Sigma-Aldrich Corporation..................... 167,437
12,700 The Dow Chemical Company ..................... 1,154,906
7,600 Union Carbide Corporation .................... 323,000
4,200 W.R. Grace & Company ......................... 65,887
---------------------------------------------------------
TOTAL CHEMICALS .............................. 11,230,818
=========================================================
CONSTRUCTION (0.3%)
- -------------------
2,300 Armstrong World Industries, Inc. ............. 138,719
3,400 Centex Corporation ........................... 153,212
3,850 Crane Company ................................ 116,222
4,300 Fluor Corporation............................. 183,019
2,300 Kaufman & Broad Home Corporation ............. 66,125
19,400 Masco Corporation............................. 557,750
3,100 Owens-Corning Fiberglass Corporation ......... 109,856
2,400 Pulte Corporation............................. 66,750
9,800 Sherwin-Williams Company ..................... 287,875
5,000 Stanley Works ................................ 138,750
---------------------------------------------------------
TOTAL CONSTRUCTION ........................... 1,818,278
=========================================================
CONSUMER DURABLES (0.2 %)
- -------------------------
5,000 Black & Decker Corporation280,312
5,200 Maytag Corporation ........................... 323,700
9,300 Newell Company ............................... 383,625
3,300 Tupperware Corporation ....................... 54,244
4,400 Whirlpool Corporation ........................ 243,650
---------------------------------------------------------
TOTAL CONSUMER DURABLES ...................... 1,285,531
=========================================================
CONTAINERS (0.1%)
- -----------------
1,800 Ball Corporation ............................. 82,350
3,000 Bemis Company, Inc. .......................... 113,813
7,000 Crown Cork & Seal Company, Inc. .............. 215,687
8,900 Owens-Illinois, Inc.* ........................ 272,563
---------------------------------------------------------
TOTAL CONTAINERS ............................. 684,413
=========================================================
COSMETICS (2.3%)
- ----------------
3,100 Alberto-Culver Company .......................$ 82,731
15,100 Avon Products, Inc. .......................... 668,175
6,000 Clorox Company ............................... 700,875
16,800 Colgate-Palmolive Company..................... 1,560,300
63,600 Gillette Company ............................. 3,072,675
6,100 International Flavors and Fragrances, Inc..... 269,544
76,100 Procter & Gamble Company ..................... 6,948,881
---------------------------------------------------------
TOTAL COSMETICS .............................. 13,303,181
=========================================================
CREDIT CARDS (0.3%)
- -------------------
3,800 Capital One Financial Corporation ............ 437,000
8,400 Equifax, Inc. ................................ 287,175
43,068 MBNA Corporation ............................. 1,074,008
---------------------------------------------------------
TOTAL CREDIT CARDS ........................... 1,798,183
=========================================================
DRUGS & MEDICINE (11.8%)
- ------------------------
87,000 Abbott Laboratories .......................... 4,263,000
3,800 Allergan, Inc. ............................... 246,050
5,000 Alza Corporation*............................. 261,250
75,600 American Home Products Corporation............ 4,257,225
14,600 Amgen, Inc. .................................. 1,526,613
3,100 Bard (C.R.), Inc.............................. 153,450
3,200 Bausch & Lomb, Inc. .......................... 192,000
16,400 Baxter International, Inc..................... 1,054,725
14,200 Becton, Dickinson and Company ................ 606,163
6,400 Biomet, Inc. ................................. 257,600
22,500 Boston Scientific Corporation* ............... 603,281
57,000 Bristol-Myers Squibb Company ................. 7,627,313
11,550 Cardinal Health Inc. ......................... 876,356
37,000 Columbia/HCA Healthcare Corporation........... 915,750
8,700 Guidant Corporation .......................... 959,175
77,100 Johnson & Johnson............................. 6,466,763
63,100 Eli Lilly & Company .......................... 5,608,012
4,100 Mallinckrodt Group, Inc. ..................... 126,331
28,100 Medtronic, Inc. .............................. 2,086,425
68,300 Merck & Company, Inc. ........................ 10,087,056
74,400 Pfizer, Inc. ................................. 9,332,550
29,115 Pharmacia & Upjohn, Inc. ..................... 1,648,637
84,300 Schering-Plough Corporation .................. 4,657,575
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT LARGE COMPANY STOCK PORTFOLIO-CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMON STOCKS (99.6%) MARKET VALUE
======================================================================
DRUGS & MEDICINE-CONTINUED
- --------------------------
4,821 St. Jude Medical, Inc.* ................. $ 133,481
47,100 Warner-Lambert Company .................. 3,541,331
--------------------------------------------------------
TOTAL DRUGS & MEDICINE .................. 67,488,112
========================================================
ELECTRONICS (4.6%)
- -----------------
12,579 AMP, Inc. ............................... 654,894
3,800 Adobe Systems, Inc. ..................... 177,650
8,300 Advanced Micro Devices, Inc.* ........... 240,181
21,200 Applied Materials, Inc.* ................ 904,975
2,500 EG&G, Inc. .............................. 69,531
28,800 EMC Corporation* ........................ 2,448,000
4,600 Harris Corporation ...................... 168,475
59,500 Hewlett-Packard Company ................. 4,064,594
95,600 Intel Corporation........................ 11,334,575
8,000 LSI Logic Corporation* .................. 129,000
12,200 Micron Technology, Inc. ................. 616,863
34,400 Motorola, Inc. .......................... 2,100,550
9,500 National Semiconductor Corporation*...... 128,250
2,900 Perkin Elmer Corporation ................ 282,931
4,200 Scientific-Atlanta, Inc. ................ 95,813
2,650 Tektronix, Inc. ......................... 79,666
11,200 Tellabs, Inc.* .......................... 767,900
22,400 Texas Instruments, Inc. ................. 1,916,600
9,100 Thermo Electron Corporation* ............ 154,131
3,200 Thomas & Betts Corporation............... 138,600
--------------------------------------------------------
TOTAL ELECTRONICS........................ 26,473,179
========================================================
ENERGY & UTILITIES (3.1%)
- ------------------------
7,900 Ameren Corporation ...................... 337,231
11,000 American Electric Power Company ......... 517,688
8,500 Baltimore Gas & Electric Company ........ 262,438
9,100 CINergy Corporation ..................... 312,813
8,700 Carolina Power & Light Company .......... 409,444
12,100 Central & Southwest Corporation ......... 331,994
12,200 Coastal Corporation ..................... 426,238
4,750 Columbia Gas System, Inc................. 274,313
13,400 Consolidated Edison, Inc................. 708,525
5,500 Consolidated Natural Gas Company ........ 297,000
8,300 DTE Energy Company ...................... 355,862
11,200 Dominion Resources, Inc. ................ 523,600
20,808 Duke Energy Corporation ................. 1,333,013
20,200 Edison International .................... 563,075
19,000 Enron Corporation........................ 1,084,188
14,100 Energy Corporation ...................... 438,863
13,600 FirstEnergy Corporation ................. 442,850
10,400 FPL Group, Inc. ......................... 640,900
7,300 General Public Utilities Corporation .... 322,568
16,273 Houston Industries, Inc. ................ 522,770
6,500 New Century Energies, Inc................ 316,875
10,700 Niagara Mohawk Power Corporation ........ 172,537
2,700 Nicor, Inc. ............................. 114,075
8,700 Northern States Power Company ........... 241,425
1,800 ONEOK, Inc. ............................. 65,025
8,600 P P & L Resources, Inc. ................. 239,725
21,900 Pacific Gas & Electric Company .......... 689,850
17,000 PacifiCorp .............................. 358,062
12,800 Peco Energy Company ..................... 532,800
2,000 Peoples Energy Corporation............... 79,750
13,100 Public Service Enterprise................ 524,000
13,666 Sempra Energy ........................... 346,775
6,300 Sonat, Inc. ............................. 170,494
39,900 Southern Company ........................ 1,159,593
16,217 Texas Utilities Company ................. 757,131
10,300 The AES Corporation* .................... 487,963
12,400 Unicom Corporation ...................... 478,175
24,500 Williams Companies, Inc. ................ 764,093
--------------------------------------------------------
TOTAL ENERGY & UTILITIES ................ 17,603,721
========================================================
ENERGY - RAW MATERIALS (0.6%)
- ----------------------------
18,700 Baker Hughes, Inc. ...................... 330,756
10,135 Burlington Resources, Inc................ 362,960
1,300 Eastern Enterprises ..................... 56,875
25,200 Halliburton Company ..................... 746,550
3,300 McDermott International, Inc. ........... 81,469
19,800 Occidental Petroleum Corporation ........ 334,125
31,300 Schlumberger, Ltd. ...................... 1,443,712
14,372 Union Pacific Resources Group, Inc....... 130,246
--------------------------------------------------------
TOTAL ENERGY B RAW MATERIALS ............ 3,486,693
========================================================
FOOD & AGRICULTURE (2.6%)
- ------------------------
33,980 Archer-Daniels-Midland Company .......... 584,031
16,400 BestFoods ............................... 873,300
25,700 Campbell Soup Company ................... 1,413,500
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT LARGE COMPANY STOCK PORTFOLIO-CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMON STOCKS (99.6%) MARKET VALUE
====================================================================
FOOD & AGRICULTURE-CONTINUED
- ----------------------------
28,000 ConAgra, Inc. .............................$ 882,000
8,800 General Mills, Inc. ....................... 684,200
20,800 H.J. Heinz Company ........................ 1,177,800
8,200 Hershey Foods Corporation.................. 509,938
23,200 Kellogg Company ........................... 791,700
13,800 Pioneer Hi-Bred International, Inc......... 372,600
7,800 Quaker Oats Company ....................... 464,100
17,900 Ralston Purina Corporation................. 579,512
18,600 RJR Nabisco Holdings Corporation .......... 552,187
52,300 Sara Lee Corporation ...................... 1,474,206
6,900 Supervalu, Inc. ........................... 193,200
19,100 Sysco Corporation.......................... 524,056
36,700 Unilever N.V .............................. 3,043,806
6,700 Wrigley (Wm) Jr. Company .................. 600,069
------------------------------------------------------
TOTAL FOOD & AGRICULTURE .................. 14,720,205
======================================================
FOOD & BEVERAGES (2.4%)
- -----------------------
141,300 Coca-Cola Company.......................... 9,449,438
22,400 Coca-Cola Enterprises, Inc. ............... 800,800
84,100 PepsiCo, Inc. ............................. 3,442,844
------------------------------------------------------
TOTAL FOOD & BEVERAGES .................... 13,693,082
======================================================
GOLD (0.2%)
- -----------
21,300 Barrick Gold Corporation .................. 415,350
13,100 Battle Mountain Gold Company .............. 54,037
13,700 Homestake Mining Company .................. 125,869
9,548 Newmont Mining Corporation................. 172,461
14,300 Placer Dome, Inc........................... 164,450
------------------------------------------------------
TOTAL GOLD ................................ 932,167
======================================================
HEALTH CARE (0.4%)
- ------------------
6,300 HCR Manor Health Care, Inc.* .............. 185,063
24,200 HEALTHSOUTH Corporation* .................. 373,587
9,500 Humana, Inc.* ............................. 169,219
9,200 IMS Health, Inc. .......................... 694,025
17,700 Tenet Healthcare Corporation* ............. 464,625
10,700 Healthcare Corporation .................... 460,769
------------------------------------------------------
TOTAL HEALTH CARE.......................... 2,347,288
======================================================
INSURANCE (3.4%)
- ----------------
8,249 Life & Casualty Company ...................$ 648,578
46,982 Corporationllstate ........................ 1,814,680
14,462 General Corporation ....................... 1,128,036
60,225 American International Group, Inc.......... 5,819,241
9,750 Aon Corporation ........................... 539,906
9,400 Chubb Corporation ......................... 609,825
11,900 Cigna Corporation ......................... 920,019
9,600 Cincinnati Financial Corporation .......... 351,600
18,007 Conseco, Inc. ............................. 550,339
13,400 ITT Hartford Group, Inc. .................. 735,325
6,100 Jefferson-Pilot Corporation ............... 457,500
5,800 Lincoln National Corporation .............. 474,513
5,700 MBIA, Inc. ................................ 373,706
6,300 MGIC Investment Corporation ............... 250,818
14,750 Marsh & McLennan Companies, Inc. .......... 861,953
4,200 Progressive Corporation ................... 711,375
7,700 Provident Companies, Inc. ................. 319,550
7,800 Safeco Corporation ........................ 334,913
13,446 St. Paul Companies, Inc. .................. 467,248
12,450 SunAmerica, Inc. .......................... 1,010,006
8,000 Torchmark Corporation ..................... 282,500
3,600 Transamerica Corporation .................. 415,800
7,900 Unum Corporation .......................... 461,162
------------------------------------------------------
TOTAL INSURANCE............................ 19,538,593
======================================================
LIQUOR (0.5%)
- -------------
2,100 Adolph Coors Company ...................... 118,519
27,400 Anheuser-Busch Companies, Inc. ............ 1,798,125
4,000 Brown-Foreman Corporation ................. 302,750
22,600 Seagram Company, Ltd. ..................... 858,800
------------------------------------------------------
TOTAL LIQUOR .............................. 3,078,194
======================================================
MEDIA (2.6%)
- ------------
40,400 CBS Corporation ........................... 1,323,100
15,100 Clear Channel Communications, Inc.*........ 822,950
21,200 Comcast Corporation, Class A .............. 1,244,175
5,400 Dow Jones & Company, Inc. ................. 259,875
16,200 Gannett Company, Inc. ..................... 1,072,238
4,200 King World Productions, Inc. .............. 123,638
4,500 Knight Ridder, Inc. ....................... 230,062
5,700 McGraw-Hill, Inc. ......................... 580,687
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT LARGE COMPANY STOCK PORTFOLIO-CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMON STOCKS (99.6%) MARKET VALUE
======================================================================
MEDIA-CONTINUED
- ---------------
3,000 Meredith Corporation........................ $ 113,625
10,400 New York Times Company...................... 360,750
7,800 R.R. Donnelley & Sons Company............... 341,738
30,800 Tele-Communications, Inc.*.................. 1,703,625
70,400 Time Warner, Inc............................ 4,369,200
4,600 Times Mirror Company........................ 257,600
6,800 Tribune Company............................. 448,800
20,000 Viacom, Inc.*............................... 1,480,000
---------------------------------------------------------
TOTAL MEDIA................................. 14,732,063
=========================================================
MISCELLANEOUS FINANCE (2.0%)
- ----------------------------
25,900 American Express Company.................... 2,648,275
59,500 Federal Home Loan Mortgage Corporation...... 4,403,000
38,900 Federal National Mortgage Association....... 2,506,619
3,300 Golden West Financial Corporation........... 302,569
27,686 Household International Corporation......... 1,097,058
9,500 SLM Holding Corporation..................... 456,000
---------------------------------------------------------
TOTAL MISCELLANEOUS FINANCE................. 11,413,521
=========================================================
MOTOR VEHICLES (1.5%)
- ---------------------
2,400 Cummins Engine Company, Inc................. 85,200
9,466 Dana Corporation............................ 386,923
4,100 Eaton Corporation........................... 289,819
2,000 Fleetwood Enterprises, Inc.................. 69,500
69,400 Ford Motor Company.......................... 4,072,912
37,500 General Motors Corporation.................. 2,683,594
10,300 Genuine Parts Company....................... 344,406
5,900 ITT Industries, Inc......................... 234,525
3,800 Navistar International Corporation*......... 108,300
4,500 PACCAR, Inc................................. 185,062
---------------------------------------------------------
TOTAL MOTOR VEHICLES........................ 8,460,241
=========================================================
NON-DURABLES & ENTERTAINMENT (0.3%)
- -----------------------------------
4,000 American Greetings Corporation, Class A.... 164,250
4,100 Harcourt General, Inc...................... 218,069
7,500 Hasbro, Inc................................ 270,938
2,000 Jostens, Inc............................... 52,375
16,450 Mattel, Inc................................ 375,266
8,600 Rubbermaid, Inc............................ $ 270,362
14,800 Service Corporation International.......... 563,325
--------------------------------------------------------
TOTAL NON-DURABLES & ENTERTAINMENT......... 1,914,585
========================================================
NON-FERROUS METALS (0.3%)
- -------------------------
13,000 Alcan Aluminum, Ltd........................ 351,813
10,500 Aluminum Company of America................ 782,906
2,200 Asarco, Inc................................ 33,137
5,200 Cyprus Minerals Company.................... 52,000
8,200 Engelhard Corporation...................... 159,900
9,400 Freeport-McMoran Copper & Gold , Class B... 98,113
9,500 Inco, Ltd.................................. 100,344
3,300 Phelps Dodge Corporation................... 167,887
3,700 Reynolds Metals Company.................... 194,944
--------------------------------------------------------
TOTAL NON-FERROUS METALS................... 1,941,044
========================================================
OIL B DOMESTIC (0.7%)
- ---------------------
5,200 Amerada Hess Corporation................... 258,700
6,900 Anadarko Petroleum Corporation............. 213,038
5,600 Apache Corporation......................... 141,750
4,400 Ashland Oil, Inc........................... 212,850
18,400 Atlantic Richfield Company................. 1,200,600
2,800 Helmerich & Payne, Inc..................... 54,250
2,700 Kerr-McGee Corporation..................... 103,275
6,000 Oryx Energy Company*....................... 80,625
2,700 PennzEnergy Company........................ 44,044
14,600 Phillips Petroleum Company................. 622,325
4,800 Rowan Companies, Inc.*..................... 48,000
5,300 Sunoco, Inc................................ 191,131
17,600 USX-Marathon Group, Inc.................... 530,200
13,800 Unocal Corporation......................... 402,787
--------------------------------------------------------
TOTAL OIL-DOMESTIC......................... 4,103,575
========================================================
OIL - INTERNATIONAL (4.9%)
- --------------------------
54,700 Amoco Corporation........................... 3,302,513
37,400 Chevron Corporation......................... 3,101,863
139,400 Exxon Corporation........................... 10,193,625
44,700 Mobil Corporation........................... 3,894,487
122,900 Royal Dutch Petroleum Company............... 5,883,837
30,600 Texaco, Inc................................. 1,617,975
---------------------------------------------------------
TOTAL OIL - INTERNATIONAL................... 27,994,300
=========================================================
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT LARGE COMPANY STOCK PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMON STOCKS (99.6%) MARKET VALUE
================================================================================
OPTICAL & PHOTO (0.3%)
- ---------------------
13,200 Corning, Inc. ................................ $ 594,000
18,600 Eastman Kodak Company ........................ 1,339,200
2,500 Polaroid Corporation ......................... 46,719
---------------------------------------------------------------
TOTAL OPTICAL & PHOTO ........................ 1,979,919
===============================================================
PAPER & FOREST PRODUCTS (0.9%)
- -----------------------------
3,200 Boise Cascade Corporation .................... 99,200
5,500 Champion International Corporation ........... 222,750
12,600 Fort James Corporation ....................... 504,000
5,000 Georgia-Pacific Corporation .................. 292,813
17,603 International Paper Company .................. 788,834
31,092 Kimberly-Clark Corporation ................... 1,694,514
6,200 Louisiana-Pacific Corporation ................ 113,538
5,800 Mead Corporation ............................. 170,013
1,600 Potlatch Corporation ......................... 59,000
3,200 Temple-Inland, Inc. .......................... 189,800
4,000 Union Camp Corporation ....................... 270,000
5,800 Westvaco Corporation ......................... 155,512
11,400 Weyerhaeuser Company ......................... 579,262
6,300 Willamette Industries, Inc. .................. 211,050
---------------------------------------------------------------
TOTAL PAPER & FOREST PRODUCTS................. 5,350,286
===============================================================
PRODUCERS GOODS (5.4%)
- ---------------------
1,600 Aeroquip-Vickers, Inc. ....................... 47,900
32,100 Allied-Signal, Inc. .......................... 1,422,431
6,700 Avery Dennison Corporation ................... 301,919
1,300 Briggs & Stratton Corporation ................ 64,838
4,100 Case Corporation ............................. 89,431
20,600 Caterpillar, Inc. ............................ 947,600
5,900 Cooper Industries, Inc. ...................... 281,356
13,600 Deere & Company .............................. 450,500
12,800 Dover Corporation ............................ 468,800
25,300 Emerson Electric Company ..................... 1,582,831
1,900 FMC Corporation* ............................. 106,400
2,300 Foster Wheeler Corporation ................... 30,331
187,900 General Electric Company ..................... 19,177,544
2,700 Harnischfeger Industries, Inc. ............... 27,506
14,300 Illinois Tool Works, Inc. .................... 829,400
9,450 Ingersoll-Rand Company ....................... 443,559
4,900 Johnson Controls, Inc. ....................... 289,100
5,000 KLA Instruments Corporation* ................. 216,875
2,200 Milacron, Inc. ............................... 42,350
2,500 Millipore Corporation ........................ 71,094
510 NACCO Industries, Inc. ....................... 46,920
7,100 Pall Corporation ............................. 179,719
6,250 Parker Hannifin Corporation .................. 204,688
4,500 Raychem Corporation .......................... 145,406
3,400 Snap-On, Inc. ................................ 118,363
9,700 Tenneco, Inc. ................................ 330,406
3,500 Timken Company ............................... 66,063
36,970 Tyco International Ltd. ...................... 2,788,924
5,400 W.W. Grainger, Inc. .......................... 224,775
---------------------------------------------------------------
TOTAL PRODUCERS GOODS ........................ 30,997,029
===============================================================
RAILROAD & SHIPPING (0.5%)
- -------------------------
26,892 Burlington Northern, Inc. .................... 907,605
12,500 CSX Corporation .............................. 518,750
21,700 Norfolk Southern Corporation ................. 687,619
14,200 Union Pacific Corporation .................... 639,887
---------------------------------------------------------------
Total Railroad & Shipping .................... 2,753,861
===============================================================
RESTAURANTS/FO OD SERVICES (0.7%)
- -------------- ------------------
7,900 Darden Restaurants, Inc. ..................... 142,200
38,800 McDonald's Corporation ....................... 2,973,050
8,720 Trican Global Restaurants, Inc.* ............. 437,090
7,100 Wendy's International, Inc. .................. 154,868
---------------------------------------------------------------
TOTAL RESTAURANTS/FOOD SERVICES .............. 3,707,208
===============================================================
RETAIL STORES (6.7%)
- -------------- -----
14,100 Albertson's, Inc. ............................ 897,994
15,700 American Stores Company ...................... 579,919
8,700 Autozone, Inc.* .............................. 286,556
22,400 CVS Corporation .............................. 1,232,000
48,860 Cendant Corporation* ......................... 931,394
5,700 Circuit City Stores, Inc. .................... 284,644
6,200 Consolidated Stores Corporation* ............. 125,163
12,400 Costco Companies, Inc.* ...................... 895,125
25,200 Dayton Hudson Corporation .................... 1,367,100
6,100 Dillard's, Inc. .............................. 173,088
10,550 Dollar General Corporation ................... 249,244
11,700 Federated Department Stores, Inc.* ........... 509,681
2,200 Great Atlantic & Pacific Tea Company, Inc. ... 65,175
89,600 Home Depot, Inc. ............................. 5,482,400
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT LARGE COMPANY STOCK PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMON STOCKS (99.6%) MARKET VALUE
===================================================================
RETAIL STORES-CONTINUED
- -----------------------
14,600 J.C. Penney Company, Inc. ............. $ 684,375
28,200 Kmart Corporation ..................... 431,812
9,100 Kohl's Corporation .................... 559,081
14,700 Kroger Corporation* ................... 889,350
2,200 Long's Drug Stores, Inc. .............. 82,500
20,200 Lowe's Companies, Inc. ................ 1,033,988
13,400 May Department Stores Company.......... 809,025
8,900 Meyer (Fred), Inc.* ................... 536,225
8,500 Nordstrom, Inc. ....................... 294,844
3,600 Pep Boys-Manny, Moe, & Jack ........... 56,475
14,800 Rite Aid Corporation .................. 733,525
27,900 Safeway, Inc. ......................... 1,700,156
22,000 Sears, Roebuck & Company .............. 935,000
17,900 Staples, Inc. ......................... 782,006
18,400 TJX Companies, Inc. ................... 533,600
5,700 Tandy Corporation ..................... 234,769
33,175 The Gap, Inc. ......................... 1,866,094
13,005 The Limited, Inc. ..................... 378,770
14,900 Toys "R" Us, Inc.* .................... 251,437
7,700 Venator Group, Inc.* .................. 49,568
129,200 Wal-Mart Stores, Inc. ................. 10,521,725
28,600 Walgreen Company ...................... 1,674,888
8,500 Winn-Dixie Stores, Inc. ............... 381,437
----------------------------------------------------
TOTAL RETAIL STORES ................... 38,500,133
====================================================
STEEL (0.1%)
- ------------
11,239 Allegheny Teledyne, Inc. .............. 229,697
7,400 Bethlehem Steel Corporation*........... 61,975
5,000 Nucor Corporation ..................... 216,250
5,000 USX-US Steel Group, Inc. .............. 115,000
5,300 Worthington Industries, Inc. .......... 66,250
----------------------------------------------------
TOTAL STEEL ........................... 689,172
====================================================
TECHNOLOGY (0.5 %)
- ------------------
12,400 Ascend Communications, Inc.* .......... 815,300
12,300 BMC Software, Inc.* ................... 548,119
28,200 Electronic Data Systems Corporation.... 1,417,050
13,300 Peoplesoft, Inc.* ..................... 251,869
----------------------------------------------------
TOTAL TECHNOLOGY ...................... 3,032,338
====================================================
TELEPHONE (10.5%)
- -----------------
15,700 ALLTEL Corporation .................... $ 939,056
103,600 AT&T Corporation ...................... 7,795,900
32,800 Airtouch Communications, Inc.* ........ 2,365,700
63,300 Ameritech Corporation ................. 4,011,638
4,875 Andrew Corporation* ................... 80,437
88,992 Bell Atlantic Corporation ............. 5,055,858
112,300 BellSouth Corporation ................. 5,600,963
9,800 Frontier Corporation .................. 333,200
55,300 GTE Corporation ....................... 3,729,294
75,446 Lucent Technologies, Inc. ............. 8,299,060
105,082 MCI Worldcom, Inc. .................... 7,539,633
34,800 Mediaone Group, Inc.* ................. 1,635,600
16,400 Nextel Communication, Inc.* ........... 387,450
37,400 Northern Telecom, Ltd. ................ 1,874,675
112,144 SBC Communications, Inc. .............. 6,013,722
24,700 Sprint Corporation .................... 2,077,887
23,750 Sprint PCS Group* ..................... 549,219
28,854 U.S. West, Inc. ....................... 1,864,690
----------------------------------------------------
TOTAL TELEPHONE ....................... 60,153,982
====================================================
TIRES & RUBBER (0.2%)
- ---------------------
4,300 Cooper Tire & Rubber Company .......... 87,881
7,700 Danaher Corporation ................... 418,206
8,900 Goodyear Tire & Rubber Company......... 448,894
----------------------------------------------------
Total Tires & Rubber .................. 954,981
====================================================
TOBACCO (1.5%)
- --------------
9,800 Fortune Brands, Inc. .................. 309,925
6,500 Loews Corporation ..................... 638,625
139,600 Phillip Morris Companies, Inc.......... 7,468,600
10,600 UST, Inc. ............................. 369,675
----------------------------------------------------
TOTAL TOBACCO ......................... 8,786,825
====================================================
TRAVEL & RECREATION (1.1%)
- --------------------------
5,500 Brunswick Corporation ................. 136,125
34,100 Carnival Corporation .................. 1,636,800
5,800 Harrah's Entertainment* ............... 90,988
14,900 Hilton Hotels Corporation ............. 284,962
14,300 Marriott International, Inc. .......... 414,700
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT LARGE COMPANY STOCK PORTFOLIO - CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMON STOCKS (99.6%) MARKET VALUE
==================================================================
TRAVEL & RECREATION-CONTINUED
- -----------------------------
10,300 Mirage Resorts, Inc.*...................$ 153,856
117,447 Walt Disney Company..................... 3,523,410
---------------------------------------------------
TOTAL TRAVEL & RECREATION............... 6,240,841
===================================================
TRUCKING & FREIGHT (0.1%)
4,100 Ryder Systems, Inc...................... 106,600
---------------------------------------------------
TOTAL TRUCKING & FREIGHT................ 106,600
===================================================
---------------------------------------------------
TOTAL COMMON STOCKS
(cost basis $399,449,476)..............$570,105,684
===================================================
PRINCIPAL SHORT-TERM INTEREST MATURITY MARKET
AMOUNT INVESTMENTS (0.3%) RATE** DATE VALUE
==================================================================
$ 337,000 Toyota Motor Credit
Corporation............. 5.79% 1/04/99 $ 336,837
1,496,000 Countrywide Home
Loans, Inc ............. 5.15% 1/04/99 1,495,358
---------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(amortized cost basis $1,832,195).........1,832,195
===================================================
---------------------------------------------------
TOTAL INVESTMENTS (99.9%)
(amortized cost basis $401,281,671).... 571,937,879
===================================================
---------------------------------------------------
OTHER ASSETS,
LESS LIABILITIES (0.1%).................... 423,107
===================================================
---------------------------------------------------
NET ASSETS (100.0%)................... $572,360,986
===================================================
* Non-income producing security
**The interest rate shown reflects the discount rate at the date of purchase.
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE PRODUCT SMALL COMPANY STOCK PORTFOLIO
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
INVESTMENT OBJECTIVE
- --------------------
The Portfolio seeks to achieve investment results that approximate the
performance of the Standard & Poor's SmallCap 600 Index by investing primarily
in common stocks included in the index.
Prior to March 1, 1998, the Portfolio's objective was to approximate the
performance of the Wilshire Small Cap Index.
<TABLE>
<CAPTION>
SHARES COMMON STOCKS (99.5%) MARKET VALUE
================================================================================
<S> <C> <C>
AEROSPACE (0.5%)
- ----------------
15,800 AAR Corporation..................................... $ 377,225
13,400 BE Aerospace, Inc.*................................. 281,400
13,600 Kaman Corporation 218,450
12,800 Trimble Navigation Limited*......................... 92,800
----------------------------------------------------------------
TOTAL AEROSPACE..................................... 969,875
================================================================
AIR TRANSPORTATION (1.2%)
- -------------------------
19,800 Air Express International Corporation............... 430,650
37,900 Comair Holdings, Inc................................ 1,279,125
16,300 Mesa Air Group, Inc.*............................... 127,344
11,700 Pittston BAX Group.................................. 130,163
13,800 SkyWest, Inc........................................ 451,087
----------------------------------------------------------------
TOTAL AIR TRANSPORTATION............................ 2,418,369
================================================================
APPAREL (2.6%)
- --------------
8,500 Ashworth, Inc.*..................................... 47,015
8,000 J. Baker, Inc....................................... 46,000
10,400 Brown Group, Inc.................................... 182,650
15,100 Cone Mills Corporation*............................. 84,938
8,600 Cyrk, Inc.*......................................... 64,500
14,200 Delta Woodside Industries, Inc...................... 85,200
6,500 Dixie Group, Inc.................................... 52,813
6,700 Galey & Lord, Inc.*................................. 57,788
19,200 Goody's Family Clothing, Inc.*...................... 192,599
14,800 Guilford Mills, Inc................................. 246,975
13,900 Gymboree Corporation*............................... 88,612
4,900 Haggar Corporation.................................. 56,044
19,400 Hartmax Corporation*................................ $ 109,125
16,500 Jan Bell Marketing, Inc.*........................... 106,219
10,900 Jo-Ann Stores, Inc.*................................ 175,762
17,200 Just For Feet, Inc.*................................ 298,850
3,100 K-Swiss, Inc........................................ 83,312
12,400 If Kellwood Corporation............................. 310,000
19,000 Men's Wearhouse, Inc.*.............................. 603,250
21,300 Nautica Enterprises, Inc.*.......................... 319,500
10,400 Oshkosh B'Gosh, Inc................................. 209,950
15,500 Phillips-Van Heusen Corporation..................... 111,406
8,200 Pillowtex Corporation............................... 219,350
9,600 St. John Knits, Inc................................. 249,600
27,000 Stride Rite Corporation............................. 236,250
13,100 The Dress Barn Corporation*......................... 198,956
6,700 Timberland Company*................................. 305,269
25,000 Wolverine World Wide, Inc........................... 331,250
----------------------------------------------------------------
TOTAL APPAREL....................................... 5,214,433
================================================================
BANKING (7.1%)
- --------------
10,000 Anchor Bancorp Wisconsin, Inc....................... 240,000
31,100 Astoria Financial Corporation....................... 1,422,824
8,900 Banknorth Group, Inc................................ 334,863
12,900 Carolina First Corporation.......................... 326,531
15,200 Centura Banks, Inc.................................. 1,130,500
13,025 Commerce Bancorp, Inc............................... 683,812
15,400 Cullen/Frost Bankers, Inc........................... 845,075
17,000 First Midwest Bancorp, Inc.......................... 647,063
</TABLE>
The accompaying notes to the financial statements are an intergal part of this
schedule.
<PAGE>
AAL Variable Product Small Company Stock Portfolio-continued
Schedule of Investments as of December 31, 1998
<TABLE>
<CAPTION>
SHARES COMMON STOCKS(99.5)% MARKET VALUE
================================================================================
BANKING-CONTINUED
- -----------------
<S> <C> <C>
17,000 FirstBank Puerto Rico.............................. $ 513,187
41,200 FirstMerit Corporation............................. 1,107,250
24,686 HUBCO, Inc......................................... 743,665
13,000 MAF Bancorp, Inc................................... 344,500
14,300 Premier Bancshares, Inc............................ 374,481
13,800 Provident Bankshares Corporation*.................. 343,275
12,600 Queens County Bancorp Inc.......................... 374,850
17,500 Rigs National Corporation - Washington............. 356,563
11,800 Silicon Valley Bancshares*......................... 200,968
23,200 St. Paul Bancorp, Inc.............................. 631,474
19,100 Susquehanna Bancshares, Inc........................ 390,952
15,450 TrustCo Bank Corporation........................... 463,500
10,700 U.S. Trust Corporation............................. 813,200
24,200 UST Corporation.................................... 570,213
24,400 United Bankshares, Inc............................. 646,600
12,800 Whitney Holding Corporation........................ 480,000
----------------------------------------------------------------
TOTAL BANKING...................................... 13,985,346
================================================================
BROKERAGE (1.0%)
- ----------------
31,300 E*TRADE Group, Inc.*............................... 1,464,252
12,100 Jeffries Group, Inc.*.............................. 600,462
----------------------------------------------------------------
TOTAL BROKERAGE.................................... 2,064,714
================================================================
BUILDING MATERIALS (0.2%)
- -------------------------
10,800 Florida Rock Industries, Inc....................... 334,800
----------------------------------------------------------------
TOTAL BUILDING MATERIALS........................... 334,800
================================================================
BUSINESS MACHINES (2.7%)
- ------------------------
7,200 Analogic Corporation............................... 270,900
13,900 Applied Magnetics Corporation*..................... 86,006
14,700 Auspex Systems, Inc.*.............................. 63,623
12,000 BancTec, Inc.*..................................... 150,750
16,150 Boole & Babbage, Inc.*............................. 475,416
4,100 Centigram Communications Corporation*.............. 40,487
8,000 Digi International, Inc.*.......................... 89,000
13,000 Exabyte Corporation*............................... 71,500
8,100 Fair, Isaac and Company, Inc....................... 374,119
25,200 Input/Output, Inc.*................................ 184,275
8,000 InterVoice, Inc.*.................................. 276,000
30,500 Komag, Inc.*....................................... 316,438
11,000 MicroAge, Inc.*.................................... $ 169,125
17,600 National Computer Systems, Inc..................... 651,200
19,500 Novellus Systems, Inc.*............................ 965,250
21,900 Picturetel Corporation*............................ 145,088
27,800 Read-Rite Corporation*............................. 410,917
9,200 Telxon Corporation................................. 127,650
13,300 Xircom, Inc.*...................................... 452,200
----------------------------------------------------------------
TOTAL BUSINESS MACHINES............................ 5,319,944
================================================================
BUSINESS SERVICE (12.1%)
- ------------------------
12,000 ABM Industries, Inc................................ 415,500
12,600 ADVO, Inc.*........................................ 332,325
24,300 American Management Systems, Inc.*................. 972,000
12,900 Analysts International Corporation................. 248,325
5,300 Angelica Corporation............................... 98,712
15,205 The BISYS Group, Inc.*............................. 784,958
19,500 Billing Concepts Corporation*...................... 214,500
21,000 Bowne & Co, Inc.................................... 375,375
11,500 CDI Corporation*................................... 232,156
18,700 Cerner Corporation*................................ 500,225
30,600 Ciber, Inc.*....................................... 854,887
11,900 Computer Task Group, Inc........................... 322,787
10,600 Dames & Moore Group................................ 136,475
39,500 DeVry, Inc.*....................................... 1,209,686
9,200 Dialogic Corporation*.............................. 180,837
12,100 Envoy Corporation*................................. 704,825
18,000 FileNet Corporation*............................... 206,437
13,100 Franklin Covey Company*............................ 219,425
11,700 G & K Services, Inc................................ 623,025
15,900 HA-LO Industries, Inc.*............................ 598,237
24,100 Harbinger Corporation*............................. 192,800
16,880 Hyperion Software Corporation*..................... 303,840
13,400 Immune Response Corporation*....................... 145,725
4,700 Insteel Industries, Inc............................ 22,912
7,100 Integrated Circuit Systems, Inc.*.................. 125,137
30,900 Integrated Health Services, Inc.*.................. 436,462
26,800 Interim Services, Inc.*............................ 626,450
17,500 John H. Harland Company............................ 276,719
4,800 Kronos, Inc.*...................................... 212,700
8,800 Lason, Inc.*....................................... 512,050
18,200 MedQuist, Inc.*.................................... 718,900
14,000 Mentor Corporation................................. 328,125
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT SMALL COMPANY STOCK PORTFOLIO-CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES COMMON STOCKS (99.5%) MARKET VALUE
================================================================================
BUSINESS SERVICES-CONTINUED
- ---------------------------
<S> <C> <C>
3,800 Nashua Corporation*................................. $ 50,587
19,300 National Data Corporation........................... 939,669
7,900 New England Business Service, Inc................... 309,087
12,200 NFO Worldwide, Inc.*................................ 140,300
15,800 Norrell Corporation................................. 233,050
12,600 Offshore Logistics, Inc.*........................... 149,625
20,800 Orbital Sciences Corporation*....................... 920,400
27,800 Paxar Corporation*.................................. 248,463
14,900 Platinum Software Corporation*...................... 190,906
12,900 Pre-Paid Legal Services, Inc.*...................... 425,700
12,800 Primark Corporation*................................ 347,200
9,750 Progress Software Corporation*...................... 329,063
10,700 Protein Design Labs, Inc.*.......................... 248,775
8,100 Rural/Metro Corporation*............................ 88,594
29,200 S3, Inc.*........................................... 214,892
10,300 SEI Investments Company............................. 1,023,563
15,900 Superior Services, Inc.*............................ 318,994
27,100 System Software Associate, Inc.*.................... 190,546
12,600 TCSI Corporation*................................... 26,381
22,600 Technology Solutions Company*....................... 242,243
16,300 Tetra Tech, Inc.*................................... 441,119
7,600 TETRA Technologies, Inc.*........................... 83,125
25,500 True North Communications, Inc...................... 685,313
24,700 Vanstar Corporation*................................ 228,475
15,000 Vantive Corporation*................................ 120,000
8,600 Volt Information Sciences, Inc.*.................... 194,038
5,600 Wall Data, Inc.*.................................... 134,400
29,200 Whittman-Hart, Inc.*................................ 806,650
22,000 World Color Press, Inc.*............................ 669,625
24,800 Xylan Corporation*.................................. 435,550
17,800 Zebra Technologies Corporation*..................... 511,750
----------------------------------------------------------------
TOTAL BUSINESS SERVICES............................. 24,080,600
================================================================
CONSUMER DURABLES (3.9%)
- ------------------------
7,300 Bassett Furniture Industries, Inc................... 176,112
27,400 Champion Enterprises, Inc.*......................... 750,075
16,300 Ethan Allen Interiors, Inc.......................... 668,300
8,500 Flow International Corporation*..................... 82,344
17,400 Griffon Corporation*................................ 184,875
10,800 Harman International Industries, Inc................ 411,750
30,400 La Z Boy Chair Company.............................. 541,500
22,300 Linens 'N Things, Inc.*............................. $ 883,637
32,650 Mohawk Industries, Inc.*............................ 1,373,341
4,200 National Presto Industries, Inc..................... 179,025
5,400 Rival Company....................................... 72,563
12,300 Royal Appliance Manufacturing Company*.............. 45,356
15,300 Shorewood Packaging Corporation*.................... 313,650
5,400 Skyline Corporation................................. 175,500
15,500 Sturm, Ruger & Company, Inc......................... 185,031
4,600 Swiss Army Brands, Inc.*............................ 44,275
8,900 Thomas Industries, Inc.............................. 174,663
7,400 Toro Company........................................ 210,900
31,700 Williams-Sonoma, Inc.*.............................. 1,277,906
----------------------------------------------------------------
TOTAL CONSUMER DURABLES ............................ 7,750,803
================================================================
CHEMICALS (1.8%)
- ----------------
12,900 W.H. Brady Company.................................. 347,494
14,000 Cambrex Corporation................................. 336,000
10,900 Chemfirst, Inc...................................... 215,275
9,000 Commonwealth Industries, Inc........................ 84,375
13,100 Geon Company........................................ 301,300
6,000 Hauser, Inc.*....................................... 26,625
12,900 Lilly Industries, Inc............................... 257,194
15,200 MacDermid, Inc...................................... 594,700
5,800 McWhorter Technologies, Inc.*....................... 132,675
13,800 OM Group, Inc....................................... 503,700
4,900 Quaker Chemical Corporation......................... 88,200
20,600 Tredegar Industries, Inc............................ 463,500
8,970 WD-40 Company....................................... 256,766
----------------------------------------------------------------
TOTAL CHEMICALS..................................... 3,607,804
================================================================
CONSTRUCTION (3.2%)
- -------------------
15,900 Apogee Enterprises, Inc............................. 178,875
21,200 Blount International, Inc........................... 528,675
6,900 Building Materials Holding Corporation*............. 83,663
29,800 D.R. Horton, Inc.................................... 685,400
8,400 Dycom Industries, Inc.*............................. 479,850
15,600 Insituform Technologies, Inc.*...................... 226,200
29,900 Interface, Inc...................................... 277,508
15,200 Justin Industries, Inc.............................. 199,500
6,100 Lawson Products, Inc................................ 140,300
11,200 Lone Star Industries, Inc........................... 412,300
30,900 Morrison Knudsen Corporation*....................... 301,275
</TABLE>
The accompanying notes to the financial statements are an integral
part of this schedule.
<PAGE>
AAL VARIABLE PRODUCT SMALL COMPANY STOCK PORTFOLIO --CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31,1998
<TABLE>
<CAPTION>
SHARES COMMON STOCKS (99.5%) MARKET VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION-CONTINUED
- ----------------------
26,300 Oakwood Homes Corporation........................... $ 399,431
6,700 Republic Group, Inc. ............................... 134,419
8,400 Ryland Group, Inc. ................................. 242,550
9,600 Service Experts, Inc.* ............................. 280,800
7,700 Southern Energy Homes, Inc.* ....................... 47,162
17,100 Standard-Pacific Corporation ....................... 241,538
7,300 Stone & Webster, Inc. .............................. 242,725
12,200 Texas Industries, Inc. ............................. 328,637
9,200 TJ International, Inc. ............................. 236,325
21,100 Toll Brothers, Inc.* ............................... 476,069
7,800 U.S. Home Corporation* ............................. 259,350
-----------------------------------------------------------------
TOTAL CONSTRUCTION ................................. 6,402,552
-----------------------------------------------------------------
CONSUMER PRODUCTS (0.1%)
- ------------------------
10,200 Libbey, Inc. ....................................... 295,163
----------------------------------------------------------------
TOTAL CONSUMER PRODUCTS ............................ 295,163
----------------------------------------------------------------
COSMETICS (0.1%)
- ----------------
5,700 Chemed Corporation ................................. 190,950
7,900 USA Detergents, Inc.* .............................. 57,275
-----------------------------------------------------------------
TOTAL COSMETICS .................................... 248,225
-----------------------------------------------------------------
DRUGS & MEDICINE (9.2%)
- ----------------------
11,500 ADAC Laboratories, Inc.* ........................... 229,640
22,500 Advanced Tissue Sciences, Inc.* .................... 58,358
18,300 Alliance Pharmaceutical Corporation* ............... 60,046
14,300 Alpharma, Inc. ..................................... 504,969
18,600 American Oncology Resources, Inc.*.................. 270,862
17,500 Ballard Medical Products ........................... 425,469
12,900 Barr Laboratories, Inc.* ........................... 619,200
12,600 Bindley Western Industries, Inc. ................... 620,550
27,500 Bio-Technology General Corporation*................. 190,781
6,400 Biomatrix, Inc.* ................................... 372,800
16,500 Cephalon, Inc.* .................................... 148,500
5,700 CompDent Corporation* .............................. 59,137
8,600 Cooper Companies, Inc.* ............................ 177,912
13,900 COR Therapeutics, Inc.* ............................ 184,175
33,400 Coventry Health Care Inc.*.......................... 294,337
7,300 Curative Health Services, Inc.* .................... 244,550
11,600 Cygnus, Inc.* ...................................... 56,550
7,700 Diagnostic Products Corporation .................... 239,663
14,100 Enzo Biochem, Inc.* ................................ 145,406
7,700 Hologic, Inc.* ..................................... 93,363
22,000 Idexx Laboratories, Inc.*........................... 591,936
15,200 Incyte Pharmaceuticals, Inc.* ...................... 568,100
16,900 Invacare Corporation ............................... 405,600
16,400 Jones Pharma, Inc. ................................. 598,600
21,700 Liposome Company, Inc.* ............................ 334,994
18,200 Magellan Health Services, Inc.* .................... 152,425
15,200 MedImmune, Inc.* ................................... 1,511,449
10,700 Molecular Biosystems, Inc.* ........................ 31,431
10,600 Nature's Sunshine Products, Inc. ................... 161,650
38,700 NBTY, Inc.* ........................................ 275,737
11,300 NCS HealthCare, Inc.* .............................. 268,375
18,100 North American Vaccine, Inc.* ...................... 160,638
12,400 Noven Pharmaceuticals, Inc.* ....................... 67,425
17,000 Organogenesis, Inc.* ............................... 191,250
27,200 Orthodontic Centers of America, Inc.* .............. 528,700
18,300 Owens & Minor, Inc. Holding Company................. 288,225
14,200 PAREXEL International Corporation*.................. 355,000
19,050 Patterson Dental Company*........................... 828,675
8,700 Pediatrix Medical Group, Inc.* ..................... 521,456
7,100 Pharmaceutical Marketing Services, Inc.* ........... 102,063
13,400 Pharmaceutical Product Development, Inc.* .......... 402,838
44,600 PhyCor, Inc.* ...................................... 303,838
17,500 Regeneron Pharmaceuticals, Inc.* ................... 129,063
22,750 Renal Care Group, Inc.* ............................ 655,484
18,700 Respironics, Inc.* ................................. 374,583
17,600 Roberts Pharmaceutical Corporation*................. 382,800
18,200 SEQUUS Pharmaceuticals, Inc.* ...................... 368,550
15,900 Sierra Health Services, Inc.* ...................... 334,894
13,900 Sola International, Inc.*........................... 239,775
5,400 Spacelabs Medical, Inc.* ........................... 124,200
18,000 Summit Technology, Inc.* ........................... 78,750
12,800 Sunrise Medical, Inc.* ............................. 159,200
5,800 Syncor International Corporation* .................. 158,050
12,200 TheraTech, Inc.* ................................... 198,250
14,000 U.S. Bioscience, Inc.* ............................. 100,625
18,700 Universal Services, Inc.*........................... 970,063
14,600 Vertex Pharmaceuticals, Inc.* ...................... 434,350
-----------------------------------------------------------------
TOTAL DRUGS & MEDICINE............................... 18,355,310
-----------------------------------------------------------------
</TABLE>
The accompaning notes to the financial statements are an intgral part of this
schedule
<PAGE>
AAL VARIABLE PRODUCT SMALL COMPANY STOCK PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENT AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES COMMON STOCKS (99.5%) MARKET VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C>
ELECTRONICS (8.9%)
- ------------------
42,400 Acxiom Corporation* .............................. $ 1,314,400
15,800 Allen Group, Inc.* ............................... 105,662
6,200 Alliant Techsystems, Inc.*........................ 511,112
25,500 Anixter International, Inc.* ..................... 517,969
14,400 Avid Technology, Inc.* ........................... 336,600
14,900 Belden, Inc. ..................................... 315,694
5,300 Bell Industries, Inc.* ........................... 60,287
6,700 Benchmark Electronics, Inc.* ..................... 245,388
15,500 BMC Industries, Inc. ............................. 96,875
20,950 Burr-Brown Corporation* .......................... 491,016
5,500 C-COR Electronics, Inc.* ......................... 75,625
21,500 C-Cube Microsystems, Inc.*........................ 583,187
7,800 CTS Corporation .................................. 339,300
17,200 Cable Design Technologies Corporation* ........... 318,200
9,300 California Microwave, Inc.* ...................... 87,188
18,500 Checkpoint Systems, Inc.*......................... 228,938
7,100 Circon Corporation* .............................. 106,500
13,600 Coherent, Inc.* .................................. 169,150
28,100 CommScope, Inc.* ................................. 472,431
8,500 CustomTracks Corporation*......................... 90,844
16,000 Dallas Semiconductor Corporation ................. 652,000
35,000 Digital Microwave Corporation* ................... 239,530
12,900 Dionex Corporation* .............................. 472,463
6,600 Electro Scientific Industries, Inc.* ............. 299,063
11,300 Electroglas, Inc.* ............................... 132,775
12,600 Etec Systems, Inc.* .............................. 504,000
21,000 General Semiconductor, Inc.* ..................... 171,938
40,960 Gentex Corporation* .............................. 819,200
13,100 Gerber Scientific, Inc. .......................... 311,944
7,700 Hadco Corporation* ............................... 269,500
6,050 Harmon Industries, Inc. .......................... 139,528
11,300 Hutchinson Technology, Inc.* ..................... 402,562
8,500 Innovex, Inc. .................................... 116,609
7,138 Intermagnetics General Corporation*............... 43,720
28,900 International Rectifier Corporation* ............. 281,775
8,200 Itron, Inc.* ..................................... 58,937
22,400 Kemet Corporation* ............................... 252,000
15,700 Kent Electronics Corporation* .................... 200,175
13,400 Kulicke and Soffa Industries, Inc.*............... 237,850
22,600 Macromedia, Inc.*................................. 761,337
9,300 Marshall Industries, Inc.*........................ 227,850
20,300 Methode Electronics, Inc.......................... 317,188
11,500 Micrel, Inc.* .................................... $ 632,500
24,800 P-COM, Inc.* ..................................... 98,811
6,000 Park Electrochemical Corporation ................. 171,750
14,000 Photronics, Inc.*................................. 335,562
15,200 Pioneer-Standard Electronics, Inc................. 142,500
8,500 Plexus Corporation* .............................. 287,937
11,600 ReSound Corporation* ............................. 43,500
9,200 SpeedFam International, Inc.* .................... 157,550
9,000 Standard Microsystems Corporation*................ 70,312
9,100 SymmetriCom, Inc.* ............................... 60,856
9,400 Technitrol, Inc. ................................. 299,625
4,500 Three-Five Systems, Inc.*......................... 61,594
18,000 Unitrode Corporation* ............................ 315,000
14,700 Valence Technology, Inc.*......................... 106,575
24,100 Vicor Corporation* ............................... 216,900
8,900 VISX, Inc.* ...................................... 778,194
7,100 Vital Signs, Inc.................................. 124,250
26,500 VLSI Technology, Inc.* ........................... 289,844
4,700 Watkins-Johnson Company .......................... 95,762
10,152 Zilog, Inc.* ..................................... 25,278
-----------------------------------------------------------------
TOTAL ELECTRONICS................................. 17,692,610
-----------------------------------------------------------------
ENERGY & UTILITIES (4.7%)
- -------------------------
4,400 Aquarion Company ............................... 180,400
17,300 Atmos Energy Corporation ....................... 557,925
4,200 Bangor Hydro-Electric Company* ................. 53,812
6,300 Cascade Natural Gas Corporation ................ 114,187
9,700 Central Hudson Gas & Electric Company .......... 434,075
6,300 Central Vermont Public Service Corporation ..... 65,363
7,800 Cilcorp, Inc. .................................. 477,263
12,300 Commonwealth Energy Systems .................... 498,150
6,000 Connecticut Energy Corporation ................. 183,000
5,300 Consumers Water Company ........................ 166,619
11,500 Eastern Utilities Associates ................... 324,875
16,800 Energen Corporation ............................ 327,600
12,700 Global Industrial Technologies, Inc.* .......... 135,731
3,000 Green Mountain Power Corporation ............... 31,500
10,300 New Jersey Resources Corporation ............... 406,850
14,200 Northwest Natural Gas Company .................. 367,425
7,900 Orange & Rockland Utilities, Inc. .............. 450,300
5,800 Pennsylvania Enterprises, Inc. ................. 147,900
15,500 Philadelphia Suburban Corporation .............. 458,219
</TABLE>
The accompaning notes to the financial statements are an integral part of this
schedule
<PAGE>
AAL VARIABLE PRODUCT SMALL COMPANY STOCK PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES COMMON STOCKS(99.5)% MARKET VALUE
================================================================================
<S> <C> <C>
ENERGY & UTILITIES-CONTINUED
- ----------------------------
17,400 Piedmont Natural Gas Company, Inc..................... $628,575
11,400 Public Service Company of North Carolina ............. 296,400
17,500 Sierra Pacific Resources Corporation ................. 665,000
5,000 Southern California Water Company .................... 136,250
17,200 Southwest Gas Corporation............................. 462,250
7,700 TNP Enterprises, Inc. ................................ 292,119
8,300 United Illuminating Company .......................... 427,450
21,000 United Water Resources, Inc. ......................... 502,687
21,300 WICOR, Inc. .......................................... 464,606
------------------------------------------------------------------
TOTAL ENERGY & UTILITIES ............................. 9,256,531
==================================================================
ENERGY-RAW MATERIALS (0.8%)
- ---------------------------
16,100 AMCOL International Corporation ...................... 158,988
14,300 Cabot Oil & Gas Corporation .......................... 214,500
18,600 Devon Energy Corporation ............................. 570,787
16,700 KCS Energy, Inc. ..................................... 51,144
12,200 Kirby Corporation* ................................... 243,238
9,700 Plains Resources, Inc.* .............................. 136,406
13,000 Seitel, Inc.* ........................................ 161,687
14,300 Southwestern Energy Company .......................... 107,250
5,100 Wiser Oil Company..................................... 10,200
-----------------------------------------------------------------
TOTAL ENERGY-RAW MATERIALS ........................... 1,654,200
==================================================================
FOOD & AGRICULTURE (3.4%)
- -------------------------
37,300 Chiquita Brands International, Inc.................... 356,681
4,900 Coca-Cola Bottling Company Consolidated .............. 281,750
20,500 Corn Products International, Inc. .................... 622,687
21,700 Delta & Pine Land Company............................. 802,900
25,400 DIMON, Inc. .......................................... 188,913
24,500 Earthgrains Company .................................. 757,969
21,900 Fleming Companies, Inc. .............................. 227,213
5,000 J & J Snack Foods Corporation* ....................... 111,875
17,300 Landry's Seafood Restaurants, Inc.*................... 129,750
7,750 Lindsay Manufacturing Company ........................ 114,797
15,400 Mississippi Chemical Corporation ..................... 215,600
6,500 Nash-Finch Company ................................... 92,625
18,700 Ralcorp Holdings, Inc.* .............................. 341,275
27,200 Richfood Holdings, Inc. .............................. 564,400
10,800 Scotts Company* ...................................... 415,125
21,400 Smithfield Foods, Inc.* .............................. $ 724,925
15,100 Whole Foods Market, Inc.*............................. 730,462
-----------------------------------------------------------------
TOTAL FOOD & AGRICULTURE ............................. 6,678,947
=================================================================
GOLD (0.2%)
- -----------
17,700 Getchell Gold Corporation*............................ 482,325
22,200 Glamis Gold, Ltd.* ................................... 41,625
-----------------------------------------------------------------
TOTAL GOLD ........................................... 523,950
=================================================================
HEALTH CARE (0.2%)
- ------------------
9,000 Datascope Corporation* ............................... 207,000
40,500 Mariner Post Acute Network* .......................... 184,781
-----------------------------------------------------------------
TOTAL HEALTH CARE..................................... 391,781
=================================================================
INSURANCE (4.5%)
- ----------------
24,600 American Bankers Insurance Group, Inc. ............... 1,190,025
18,200 Capital Re Corporation ............................... 365,137
11,609 Delphi Financial Group, Inc.* ........................ 608,747
21,500 Enhance Financial Services Group, Inc. ............... 645,000
6,300 Executive Risk, Inc. ................................. 346,106
32,400 First American Financial Corporation ................. 1,040,850
39,700 Fremont General Corporation .......................... 982,575
21,370 Frontier Insurance Group, Inc. ....................... 275,139
10,000 Arthur J. Gallagher & Company ........................ 441,250
20,100 Genesis Health Ventures, Inc.* ....................... 175,875
7,000 Hilb, Rogal and Hamilton Company ..................... 139,125
6,300 Insurance Auto Auctions, Inc.* ....................... 74,812
22,100 Mutual Risk Management Ltd. .......................... 864,663
10,400 NAC Re Corporation ................................... 488,150
15,800 Orion Capital Corporation............................. 629,038
16,600 Selective Insurance Group, Inc. ...................... 334,075
6,900 Trenwick Group, Inc. ................................. 225,112
9,800 Zenith National Insurance Corporation ................ 226,625
----------------------------------------------------------------
TOTAL INSURANCE ...................................... 9,052,304
================================================================
LIQUOR (0.3%)
- -------------
10,700 Canandaigua Brands, Inc.*............................. 618,594
----------------------------------------------------------------
TOTAL LIQUOR ......................................... 618,594
================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT SMALL COMPANY STOCK PORTFOLIO---CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMON STOCKS (99.5%) MARKET VALUE
================================================================================
MANUFACTURING (0.1%)
....................
9,300 Gardner Denver, Inc.* .......................... $ 137,175
----------------------------------------------------------------
TOTAL MANUFACTURING ............................ 137,175
================================================================
MEDIA (2.5%)
............
6,500 Carmike Cinemas, Inc.* ......................... 132,031
7,500 Consolidated Graphics, Inc.* ................... 506,719
19,200 Express Scripts, Inc.* ......................... 1,288,800
4,500 GC Companies, Inc.* ............................ 187,313
9,200 Merrill Corporation ............................ 177,675
9,400 Metro Networks, Inc.* .......................... 400,675
8,700 Thomas Nelson, Inc. ............................ 117,450
12,500 Network Equipment Technologies, Inc.* .......... 128,906
10,500 Oak Industries, Inc.* .......................... 367,500
22,100 Valassis Communications, Inc.* ................. 1,140,912
16,400 Westwood One, Inc.* ............................ 500,200
----------------------------------------------------------------
TOTAL MEDIA .................................... 4,948,181
================================================================
METALS-DIVERSIFIED (0.1%)
.........................
11,800 RTI International, Inc.* ....................... 165,200
----------------------------------------------------------------
TOTAL METALS-DIVERSIFIED ....................... 165,200
================================================================
MISCELLANEOUS FINANCE (3.4%)
............................
34,900 Americredit Corporation* ....................... 482,056
25,300 Amresco, Inc.* ................................. 221,375
14,400 Cash America International, Inc. ............... 218,700
13,000 CMAC Investment Corporation .................... 597,188
33,400 Commercial Federal Corporation ................. 774,463
7,200 Dain Rauscher Corporation....................... 212,400
15,865 Downey Financial Corporation ................... 403,566
20,300 Eaton Vance Corporation ........................ 423,762
15,620 Fidelity National Financial, Inc. .............. 476,410
10,800 Jack Henry & Associates, Inc. .................. 537,300
5,700 JSB Financial, Inc. ............................ 309,938
31,600 Legg Mason, Inc. ............................... 997,375
10,500 M.D.C. Holdings, Inc. .......................... 224,437
4,100 Penford Corporation ............................ 65,600
14,600 Pioneer Group, Inc. ............................ 288,350
27,650 Raymond James Financial, Inc. .................. 584,106
----------------------------------------------------------------
TOTAL MISCELLANEOUS FINANCE .................... 6,817,026
================================================================
SHARES COMMON STOCKS (99.5%) MARKET VALUE
================================================================================
MOTOR VEHICLES (1.9%)
.....................
16,100 Arctic Cat, Inc. .............................. $ 164,019
20,900 Breed Technologies, Inc.*...................... 171,119
9,300 Discount Auto Parts, Inc.*..................... 204,019
6,200 Johnston Industries, Inc.*..................... 19,375
10,500 Myers Industries, Inc. ........................ 300,562
12,300 O'Reilly Automotive, Inc.*..................... 581,175
14,700 Polaris Industries, Inc. ...................... 576,056
10,500 Simpson Industries, Inc. ...................... 101,719
13,300 A.O. Smith Corporation ........................ 326,681
7,000 Spartan Motors, Inc. .......................... 40,250
7,500 Standard Motor Products, Inc. ................. 181,875
9,700 Standard Products Corporation ................. 197,638
12,100 TBC Corporation* .............................. 86,212
7,000 Thor Industries, Inc. ......................... 178,500
12,200 Titan International, Inc....................... 115,900
13,300 Winnebago Industries, Inc...................... 201,163
11,000 Wynn's International, Inc...................... 243,375
---------------------------------------------------------------
TOTAL MOTOR VEHICLES .......................... 3,689,638
===============================================================
NON-DURABLES & ENTERTAINMENT (3.6%)
...................................
9,500 A.T. Cross Company ............................ 51,063
17,300 Applebee's International, Inc. ................ 356,812
6,900 Au Bon Pain Company, Inc.*..................... 46,575
10,500 CEC Entertainment, Inc.* ...................... 291,375
5,600 CPI Corporation ............................... 148,400
10,700 Catalina Marketing Corporation* ............... 731,613
29,370 Cke Restaurants, Inc. ......................... 864,579
15,125 Consolidated Products, Inc.* .................. 311,953
22,400 Foodmaker, Inc.* .............................. 494,200
9,400 Gibson Greetings, Inc.* ....................... 111,625
6,800 Huffy Corporation.............................. 112,200
5,700 IHOP Corporation*.............................. 227,644
9,900 Lechters, Inc.* ............................... 24,440
13,100 Luby's Cafeterias, Inc. ....................... 202,231
17,400 Marcus Corporation ............................ 282,750
21,951 Midway Games, Inc.* ........................... 241,461
13,500 Regis Corporation.............................. 540,000
18,600 Ruby Tuesday, Inc. ............................ 395,250
12,500 Russ Berrie & Company ......................... 293,750
23,800 Ryan's Family Steak Houses, Inc.* ............. 294,525
27,500 Shoneys, Inc.* ................................ 36,094
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT SMALL COMPANY STOCK PORTFOLIO---CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMON STOCKS (99.5%) MARKET VALUE
==========================================================================
NON-DURABLES & ENTERTAINMENT-CONTINUED
- --------------------------------------
10,950 Sonic Corporation* ................................... $ 272,381
8,200 Taco Cabana, Inc.* ................................... 63,550
13,000 TCBY Enterprises, Inc. ............................... 91,000
11,550 The Cheesecake Factory, Inc.* ........................ 342,529
17,600 Triarc Companies, Inc.* .............................. 281,600
----------------------------------------------------------------
TOTAL NON-DURABLES & ENTERTAINMENT ................... 7,109,600
================================================================
NON-FERROUS METALS (1.0%)
- ------------------------
9,200 Busch Wellman, Inc. .................................. 160,425
7,900 Castle (A.M.) & Company .............................. 118,500
12,600 Coeur D Alene Mines Corporation* ..................... 58,275
8,600 Commercial Metals Company............................. 238,650
31,500 Helca Mining Company* ................................ 114,187
9,800 IMCO Recycling, Inc. ................................. 151,288
20,300 Mueller Industries, Inc.*............................. 412,344
11,600 Stillwater Mining Company*............................ 475,600
7,900 Wolverine Tube, Inc.* ................................ 165,900
----------------------------------------------------------------
TOTAL NON-FERROUS METALS ............................. 1,895,169
================================================================
DOMESTIC OIL (1.5%)
- ------------------
18,100 Barrett Resources Corporation* ....................... 434,400
17,000 Benton Oil & Gas Company*............................. 51,000
25,700 Cross Timbers Oil Company............................. 192,750
10,900 HS Resources, Inc.* .................................. 82,431
20,700 Newfield Exploration Company* ........................ 432,113
22,900 Pogo Producing Corporation............................ 297,700
12,100 Pool Energy Services Company* ........................ 130,831
28,600 Pride International, Inc.*............................ 201,988
11,700 Remington Oil & Gas Corporation* ..................... 37,294
58,600 Santa Fe Energy Resources, Inc.* ..................... 432,175
19,300 Snyder Oil Corporation ............................... 256,931
6,300 St. Mary Land & Exploration Company................... 116,550
25,900 Tuboscope, Inc.* ..................................... 210,438
29,500 Vintage Petroleum, Inc. .............................. 254,437
----------------------------------------------------------------
TOTAL DOMESTIC OIL ................................... 3,131,038
================================================================
PAPER & FOREST PRODUCTS (0.6%)
- -----------------------------
21,000 Buckeye Technologies, Inc.* .......................... 313,688
14,400 Caraustar Industries, Inc............................. 411,300
8,900 Lydall, Inc.* ........................................ 105,688
7,700 Pope & Talbot, Inc. .................................. 64,487
11,700 Universal Forest Products, Inc. ...................... 234,731
----------------------------------------------------------------
TOTAL PAPER & FOREST PRODUCTS ........................ 1,129,894
================================================================
PRODUCERS GOODS (6.9%)
- ---------------------
12,700 Applied Industrial Technologies, Inc. ................ 176,212
21,995 Applied Power, Inc. .................................. 830,311
20,600 AptarGroup, Inc. ..................................... 578,088
5,500 Astec Industries, Inc.* .............................. 305,937
21,300 Baldor Electric Company .............................. 431,325
11,500 Barnes Group, Inc. ................................... 337,813
4,400 Butler Manufacturing Company ......................... 98,450
14,100 Clarcor, Inc. ........................................ 282,000
23,400 Cognex Corporation* .................................. 468,000
9,800 Daniel Industries, Inc. .............................. 118,825
22,200 Fedders Corporation .................................. 129,037
11,300 Graco, Inc. .......................................... 333,350
12,800 Helix Technology Corporation ......................... 166,400
13,300 Hughes Supply, Inc. .................................. 389,025
9,300 Ionics, Inc.* ........................................ 278,419
25,200 JLG Industries, Inc. ................................. 393,750
10,400 Juno Lighting, Inc. .................................. 243,100
9,700 Kuhlman Corporation .................................. 367,387
13,600 Lattice Semiconductor Corporation*.................... 624,324
6,900 LSB Industries, Inc. ................................. 22,856
10,000 Manitowoc Company, Inc. .............................. 443,750
8,900 Material Sciences Corporation* ....................... 75,650
13,200 Oceaneering International, Inc.* ..................... 198,000
8,100 Quanex Corporation ................................... 182,756
12,000 Regal-Beloit Corporation ............................. 276,000
6,200 Robbins & Myers, Inc. ................................ 137,175
18,000 Roper Industries, Inc. ............................... 366,750
28,100 Sanmina Corporation* ................................. 1,756,250
10,600 Scott Technologies, Inc.*............................. 175,231
7,400 SPS Technologies, Inc.* .............................. 419,025
7,500 Standex International Corporation .................... 196,875
12,100 Ultratech Stepper, Inc.* ............................. 193,600
15,100 Valmont Industries, Inc. ............................. 209,513
41,800 Vitesse Seiconductor Corporation* .................... 1,907,125
5,000 Walbro Corporation* .................................. 31,875
14,150 Watsco, Inc. ......................................... 237,013
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT SMALL COMPANY STOCK PORTFOLIO--CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMON STOCKS(99.5%) MARKET VALUE
================================================================================
PRODUCERS GOODS-CONTINUED
- -------------------------
6,300 Whittaker Corporation* ...................... $ 106,313
11,900 X-Rite, Inc. ................................ 92,225
---------------------------------------------------------------
TOTAL PRODUCERS GOODS ....................... 13,579,735
===============================================================
RAILROAD & SHIPPING (0.1%)
- -------------------------
16,200 Halter Marine Group, Inc.*................... 78,975
5,300 RailTex, Inc.* .............................. 59,956
---------------------------------------------------------------
TOTAL RAILROAD & SHIPPING ................... 138,931
===============================================================
REAL PROPERTY (0.1%)
- -------------------
14,800 Hollywood Park, Inc.* ....................... 123,025
---------------------------------------------------------------
TOTAL REAL PROPERTY ......................... 123,025
===============================================================
RETAIL STORES (2.9%)
- -------------------
14,700 AnnTaylor Stores Corporation* ............... 579,731
13,000 Authentic Fitness Corporation ............... 237,250
10,000 Books-A-Million, Inc.* ...................... 130,000
30,000 Casey's General Stores, Inc. ................ 390,936
15,900 Cato Corporation ............................ 156,515
4,200 DAMARK International, Inc.* ................. 34,125
16,700 Eagle Hardware & Garden, Inc.* .............. 542,750
14,000 Footstar, Inc.* ............................. 350,000
7,100 Gottschalks, Inc.* .......................... 54,137
12,000 Hancock Fabrics, Inc. ....................... 100,500
9,300 Insight Enterprises, Inc.*................... 473,138
5,300 Lillian Vernon Corporation................... 87,450
17,000 Michaels Stores, Inc.* ...................... 307,593
12,100 Pacific Sunwear of California, Inc.* ........ 198,138
56,200 Pier 1 Imports, Inc. ........................ 544,438
14,900 ShopKo Stores, Inc.* ........................ 495,425
26,100 Stein Mart, Inc.*............................ 181,883
21,800 The Bombay Company, Inc.*.................... 121,262
20,800 Zale Corporation*............................ 670,800
---------------------------------------------------------------
TOTAL RETAIL STORES ......................... 5,656,071
===============================================================
STEEL (0.4%)
- -----------
5,200 Amcast Industrial Corporation ............... 99,450
17,100 Birmingham Steel Corporation ................ 71,606
14,700 Intermet Corporation ........................ 192,019
10,700 Reliance Steel & Aluminum Company ........... 295,588
6,700 Steel Technologies, Inc. .................... 45,225
10,800 WHX Corporation* ............................ 108,675
---------------------------------------------------------------
TOTAL STEEL ................................. 812,563
===============================================================
TECHNOLOGY (1.1%)
- ----------------
14,700 HNC Software, Inc.* ......................... 594,431
9,200 MICROS Systems, Inc.* ....................... 302,450
10,000 Mercury Interactive Corporation* ............ 632,500
18,600 National Instruments Corporation* ........... 634,725
---------------------------------------------------------------
TOTAL TECHNOLOGY ............................ 2,164,106
===============================================================
TELEPHONE (0.9%)
- ---------------
28,800 Aspect Telecommunications Corporation* ...... 496,800
29,700 Brightpoint, Inc.* .......................... 408,375
28,200 General Communication, Inc.* ................ 114,563
15,300 Inter-Tel, Inc. ............................. 357,637
28,000 Tel-Save Holdings, Inc.* .................... 469,000
---------------------------------------------------------------
TOTAL TELEPHONE.............................. 846,375
===============================================================
TIRES & RUBBER (0.4%)
- --------------------
9,000 O'Sullivan Corporation ...................... 88,875
31,100 Safeskin Corporation*........................ 750,288
---------------------------------------------------------------
TOTAL TIRES & RUBBER ........................ 9,163
===============================================================
TOBACCO (0.1%)
- -------------
9,200 Schweitzer-Mauduit International, Inc........ 142,025
---------------------------------------------------------------
TOTAL TOBACCO ............................... 142,025
===============================================================
TRAVEL & RECREATION (1.2%)
- -------------------------
7,200 Anchor Gaming* .............................. 900
25,500 Aztar Corporation* .......................... 094
16,800 Central Parking Corporation ................. 544,950
14,800 Family Golf Centers, Inc.*................... 292,300
24,100 Grand Casinos, Inc.* ........................ 194,306
9,500 K2, Inc...................................... 97,969
18,400 Players International, Inc.* ................ 113,850
16,300 Primadonna Resorts, Inc.*.................... 143,644
30,100 Prime Hospitality Corporation* .............. 317,931
18,300 Sports Authority, Inc.* ..................... 96,075
---------------------------------------------------------------
TOTAL TRAVEL & RECREATION.................... L2,336,019
===============================================================
The accompanying notes are to the financial statements are an integral part of
this schedule.
<PAGE>
AAL VARIABLE PRODUCT SMALL COMPANY STOCK PORTFOLIO---CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
SHARES COMMON STOCKS (99.5%) MARKET VALUE
================================================================================
TRUCKING & FREIGHT (2.0%)
- -------------------------
17,800 American Freightways Corporation*................... $ 205,255
11,300 Arkansas Best Corporation*.......................... 66,034
14,100 Expeditors International of Washington, Inc......... 592,200
20,500 Fritz Companies, Inc.*.............................. 221,656
9,700 Frozen Food Express Industries, Inc................. 76,387
17,100 Heartland Express, Inc.*............................ 299,250
6,300 Landstar System, Inc.*.............................. 256,725
7,000 M.S. Carriers, Inc.*................................ 230,562
33,850 Rollins Truck Leasing Corporation................... 499,288
15,100 USFreightways Corporation........................... 439,788
13,200 Wabash National Corporation......................... 268,125
26,975 Werner Enterprises, Inc............................. 477,120
14,900 Yellow Corporation*................................. 284,963
-------------------------------------------------------------------
TOTAL TRUCKING & FREIGHT............................ 3,917,353
===================================================================
-------------------------------------------------------------------
TOTAL COMMON STOCKS
(cost basis $211.658,350)........................... $197,495,142
===================================================================
PRINCIPAL SHORT-TERM INTEREST MATURITY MARKET
AMOUNT INVESTMENTS (0.4%) RATE (A) DATE VALUE
================================================================================
$820,000 Transamerica Finance
Corporation............5.000%.........1/4/99........ $ 819,658
-------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(amortized cost basis $819,658)..................... 819,658
===================================================================
-------------------------------------------------------------------
TOTAL INVESTMENTS (99.9%)
(amortized cost basis ($212.478,008)................ 198,314,800
===================================================================
-------------------------------------------------------------------
OTHER ASSET
LESS LIABILITIES (0.1%)............................. 5,764
===================================================================
-------------------------------------------------------------------
Net Assets (100.0%)................................. $198,320,564
===================================================================
*Non-income producing security
(a) The interest rate shown reflects the discount rate at the date of purchase.
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE PRODUCT INTERNATIONAL STOCK PORTFOLIO
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
INVESTMENT OBJECTIVE:
---------------------
The portfolio seeks long-term capital growth by investing primarily
in a diversified portfolio of foreign stocks.
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCKS (96.1%) INDUSTRY VALUE
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
AUSTRALIA ( 1.3%)
- -----------------
21,600 Australia & New Zealand
Banking Group Limited...... Banking $141,492
17,529 Coca-Cola Amatil Ltd....... Food & Beverage 65,368
----------------------------------------------------------
TOTAL AUSTRALIA............ 206,860
==========================================================
BELGIUM (1.5%)
- --------------
2,911 KBC Bancassurance*......... Banking 230,489
----------------------------------------------------------
TOTAL BELGIUM.............. 230,489
==========================================================
CANADA (1.4%)
- -------------
5,700 BCE, Inc................... Telephone 214,692
----------------------------------------------------------
TOTAL CANADA............... 214,692
==========================================================
FRANCE (12.6%)
- --------------
1,515 Group Danone............... Food & Beverage 433,942
4,213 Renault SA................. Automotive 189,306
2,030 Schneider SA............... Machinery 123,195
2,289 Suez Lyonnaise des Eaux.... Construction 470,421
1,856 Thomson CSF................ Electronics 79,742
2,743 Valeo SA................... Automotive 216,258
1,776 Vivendi.................... Utility 461,010
----------------------------------------------------------
TOTAL FRANCE............... 1,973,874
==========================================================
GERMANY (3.3%)
- --------------
2,040 DaimlerChrysler AG......... Automotive 202,714
2,730 Mannesmann AG.............. Machinery 315,946
----------------------------------------------------------
TOTAL GERMANY.............. 518,660
==========================================================
GREECE (0.4%)
- -------------
2,050 Hellenic Telecommunication
Organization SA*........... Telephone $54,537
----------------------------------------------------------
TOTAL GREECE............... 54,537
==========================================================
HONG KONG (1.9%)
- ----------------
24,000 Cheung Kong Holdings
Limited*................... Holding Company 172,712
18,000 Hutchinson Whampoa
Limited ................... Holding Company 127,211
----------------------------------------------------------
TOTAL HONG KONG............ 299,923
==========================================================
INDIA (0.7%)
- ------------
2,460 Gedeon Richter............. Drugs & Medicine 104,838
----------------------------------------------------------
TOTAL INDIA....................................... 104,838
==========================================================
ITALY (10.4%)
- -------------
100,699 Banca Di Roma*............. Banking 170,998
46,980 Banca Nazionale del Lavoro* Banking 140,892
4,130 Banca Popolare di Bergamo
Credito Varesino SpA....... Banking 100,439
27,600 Mediaset SpA............... Media 224,296
57,158 Olivetti SpA.*............. Consumer Products 199,321
54,300 Telecom Italia SpA......... Telephone 464,330
53,200 Unicredito Italiano........ Banking 316,027
----------------------------------------------------------
TOTAL ITALY................ 1,616,303
==========================================================
JAPAN (14.7%)
- -------------
12,000 Denso Corporation.......... Motor Vehicles 222,347
3,000 Ito-Yokado Company, Ltd.... Retail 210,113
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT INTERNATIONAL STOCK PORTFOLIO - CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCKS (96.1%) INDUSTRY VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
JAPAN-CONTINUED
- ---------------
15,000 Matsushita Electric Industrial
Company, Ltd...................... Media $265,832
3,000 Murata Manufacturing Co., Ltd..... Electronics 124,738
32 Nippon Telegraph & Telephone...... Telephone 247,383
12 NTT Mobile Communication
Network, Inc.*.................... Telephone 494,696
8,000 Nomura Securities Company......... Banking 69,860
2,000 Rohm Company, Ltd................. Electronics 182,452
53,000 Sakura Bank, Ltd.................. Banking 121,697
230 Schoholh Fund & Co., Ltd.*........ Finance 74,222
5,000 Takeda Chemical Industries........ Healthcare 192,825
1,200 Takefuji Corporation.............. Finance 87,769
-------------------------------------------------------------------
TOTAL JAPAN....................... 2,293,934
===================================================================
MEXICO (1.3%)
- -------------
2,712 Grupo Televisa SA*................ Entertainment 66,953
2,783 Telefonos de Mexico SA ADR........ Telephone 135,497
-------------------------------------------------------------------
TOTAL MEXICO...................... 202,450
===================================================================
NETHERLANDS (9.3%)
- ------------------
5,785 Gucci Group....................... Retail 281,296
2,431 Laurus N.V.*...................... Retail 61,400
2,930 Royal Dutch Petroleum
Company........................... International Oil 145,977
9,115 Royal Kpn N.V..................... Telephone 456,551
10,970 Verenigde Nederlands
Uitgeversbedrijven
Verenigd Bezit.................... Publishing/Printing 413,852
3,473 Vendex N.V........................ Retail 84,387
-------------------------------------------------------------------
TOTAL NETHERLANDS................. 1,443,463
===================================================================
NEW ZEALAND (1.4%)
- ------------------
17,468 Telecom Corporation of
New Zealand....................... Telephone 76,128
68,112 Telecom Corporation of
New Zealand (Partially Paid)...... Telephone 149,321
-------------------------------------------------------------------
TOTAL NEW ZEALAND................. 225,449
===================================================================
PHILIPPINES (0.3%)
- ------------------
5,760 Metropolitan Bank & Trust
Company........................... Banking 41,461
-------------------------------------------------------------------
TOTAL PHILIPPINES................. 41,461
===================================================================
PORTUGAL ( 1.4%)
- ----------------
4,688 Portugal Telecom*................. Telephone $214,950
-------------------------------------------------------------------
TOTAL PORTUGAL.................... 214,950
===================================================================
SINGAPORE ( 0.2%)
- -----------------
4,000 Development Bank of
Singapore, Ltd.................... Banking 36,121
-------------------------------------------------------------------
TOTAL SINGAPORE .................. 36,121
===================================================================
SPAIN (5.2%)
- ------------
16,624 Argentaria SA..................... Banking 431,171
8,424 Telefonica SA Rights*............. Telephone 7,491
8,424 Telefonica de Espana.............. Telephone 375,150
-------------------------------------------------------------------
TOTAL SPAIN....................... 813,812
===================================================================
SWEDEN ( 1.6%)
- --------------
2,080 Hennes & Mauritz AB............... Retail 169,880
7,770 Skandinaviska Enskil da Banken.... Banking 81,961
-------------------------------------------------------------------
TOTAL SWEDEN...................... 251,841
===================================================================
SWITZERLAND ( 6.2%)
- -------------------
128 Nestle SA......................... Consumer Products 278,646
190 Novartis.......................... Healthcare Products 373,498
26 Roche Holding AG.................. Drugs & Medicine 317,262
-------------------------------------------------------------------
TOTAL SWITZERLAND................. 969,406
===================================================================
UNITED KINGDOM (21.0%)
- ----------------------
10,957 Allied Zurich plc*................ Finance 163,990
15,957 B.A.T. Industries plc............. Holding Company 141,648
60,900 British Aerospace................. Manufacturing 517,295
26,604 British Sky Broadcasting plc*..... Technology 203,957
29,527 Diageo plc........................ Consumer Products 331,872
14,500 Glaxo Wellcome plc................ Drugs 497,246
15,592 Imperial Chemical Industries plc.. Chemicals 134,646
81,200 LucasVarity plc................... Manufacturing 267,514
9,065 Railtrack Group plc............... Holding Company 237,108
51,023 Somerfield plc.................... Retail 341,285
26,800 Vodafone Group plc................ Telephone 434,330
-------------------------------------------------------------------
TOTAL UNITED KINGDOM.............. 3,270,891
===================================================================
-------------------------------------------------------------------
TOTAL COMMON STOCKS
(cost basis $13,350,112).......... 14,983,954
===================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCT INTERNATIONAL STOCK PORTFOLIO - CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL SHORT-TERM INTEREST MATURITY MARKET
AMOUNT INVESTMENT (3.8%) RATE DATE VALUE
==================================================================================
<S> <C> <C> <C> <C>
$ 600,000 R.R. Donnelley & Sons
Company ............................... 5.100% 1/4/99 $599,745
-------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(amortized cost $599,745).............. 599,745
===================================================================
-------------------------------------------------------------------
TOTAL INVESTMENTS (99.9%)
(amortized cost basis $13,949,857)..... 15,583,699
===================================================================
-------------------------------------------------------------------
OTHER ASSETS, LESS
LIABILITIES (0.1%)..................... 10,952
===================================================================
-------------------------------------------------------------------
NET ASSETS (100.0%).................... $15,594,651
===================================================================
</TABLE>
* Non-income producing security
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE PRODUCT HIGH YIELD BOND PORTFOLIO
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
INVESTMENT OBJECTIVE:
---------------------
The Portfolio seeks high current income and secondarily capital growth
by investing primarily in a diversified portfolio of high risk, high
yield bonds commonly referred to as junk bonds.
<TABLE>
<CAPTION>
PRINCIPAL LONG-TERM INTEREST MATURITY MARKET
AMOUNT OBLIGATIONS (96.3%) RATE DATE VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
BEVERAGES & FOOD (3.9%)
- -----------------------
$ 500,000 Envirodyne Industries,
Inc............................. 10.250% 12/1/01 $ 400,000
250,000 Fresh Foods, Inc................ 10.750 6/1/06 235,000
500,000 Speciality Foods
Corporation..................... 10.250 8/15/01 455,000
----------------------------------------------------------------
TOTAL FOOD & BEVERAGES.......... 1,090,000
================================================================
BUILDING MATERIALS (0.8%)
- -------------------------
250,000 Penhall Acquisition
Corporation*.................... 12.000 8/1/06 235,000
----------------------------------------------------------------
TOTAL BUILDING MATERIALS........ 235,000
================================================================
CHEMICALS (2.1%)
- ----------------
250,000 LaRoche Industries, Inc......... 9.500 9/15/07 200,000
500,000 PCI Chemicals
Canada, Inc..................... 9.250 10/15/07 385,000
----------------------------------------------------------------
TOTAL CHEMICALS................. 585,000
================================================================
CONSTRUCTION (4.4%)
- -------------------
500,000 American Standard, Inc......... 7.625 2/15/10 500,000
250,000 ISG Resources, Inc............. 10.000 4/15/08 250,000
500,000 Omega Cabinets, Ltd............ 10.500 6/15/07 490,000
---------------------------------------------------------------
TOTAL CONSTRUCTION............. 1,240,000
===============================================================
CONSUMER PRODUCTS (4.9%)
- ------------------------
250,000 Doskocil Manufacturing
Company, Inc................... 10.125 9/15/07 235,000
$ 500,000 Revlon Consumer
Products Corporation........... 8.625% 2/1/08 $ 455,000
250,000 Salton/Maxim
Housewares, Inc.*.............. 10.750 12/15/05 251,562
500,000 Samsonite Corporation.......... 10.750 6/15/08 420,000
---------------------------------------------------------------
TOTAL CONSUMER PRODUCTS........ 1,361,562
===============================================================
ENERGY-RAW MATERIALS (7.5%)
- ---------------------------
500,000 Abraxas Petro
Corporation.................... 11.500 11/1/04 377,500
500,000 Clark Refining &
Marketing Corporation.......... 8.375 11/15/07 470,000
250,000 Crown Central
Petroleum Corporation.......... 10.875 2/1/05 240,000
250,000 KCS Energy, Inc................ 11.000 1/15/03 230,000
250,000 Northern Offshore
ASA*........................... 10.000 5/15/05 130,000
250,000 Pen Holdings, Inc.............. 9.875 6/15/08 250,000
250,000 Statia Terminals
International N.V.............. 11.750 11/15/03 250,000
500,000 Transamerican Energy
Corporation.................... 11.500 6/15/02 160,000
---------------------------------------------------------------
TOTAL ENERGY-RAW MATERIALS..... 2,107,500
===============================================================
FINANCIAL (1.4%)
- ----------------
500,000 Imperial Credit
Industries, Inc................ 9.875 1/15/07 385,000
---------------------------------------------------------------
TOTAL FINANCIAL................ 385,000
===============================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
THE AAL VARIABLE PRODUCT HIGH YIELD BOND PORTFOLIO -- CONTINUED
SCHEDULE OR INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL LONG-TERM INTEREST MATURITY MARKET
AMOUNT OBLIGATIONS (96.3%) RATE DATE VALUE
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOOD RETAILERS (3.4%)
- ---------------------
$ 500,000 DiGiorgio Corporation......10.000% 6/15/07 $475,000
500,000 Fleming Companies,
Inc........................10.500 12/1/04 472,500
-------------------------------------------------------
TOTAL FOOD RETAILERS....... 947,500
-------------------------------------------------------
FOREST PRODUCTS & PAPER (4.0%)
- ------------------------------
250,000 Four M Corporation.........12.000 6/1/06 185,000
250,000 Gaylord Container
Corporation................ 9.375 6/15/07 215,000
350,000 Millar Western Forest
Products, Ltd.............. 9.875 5/15/08 262,500
500,000 Sweetheart Cup
Company, Inc............... 9.625 9/1/00 450,000
-------------------------------------------------------
TOTAL FOREST PRODUCTS & PAPER 1,112,500
-------------------------------------------------------
HEALTH CARE (5.0%)
- ------------------
500,000 ICN Pharmaceuticals,
Inc........................ 9.250 8/15/05 512,500
500,000 Paragon Health
Network, Inc............... 9.500 11/1/07 385,000
500,000 Tenet Healthcare
Corporation*............... 8.125 12/1/08 512,500
-------------------------------------------------------
TOTAL HEALTH CARE.......... 1,410,000
-------------------------------------------------------
LEISURE (8.2%)
- --------------
250,000 Booth Creek Ski
Holdings, Inc..............12.500 3/15/07 247,500
500,000 Grand Casinos, Inc.........10.125 12/1/03 545,000
250,000 HMH Properties, Inc........ 7.875 8/1/05 243,750
250,000 Harrahs Operating
Company.................... 7.875 12/15/05 252,769
250,000 Livent, Inc................ 9.375 10/15/04 100,000
250,000 Regal Cinemas, Inc......... 9.500 6/1/08 260,000
500,000 Riviera Holding
Corporation................10.000 8/15/04 425,000
238,703 United Artists Theatre
Circuit, Inc............... 9.300 7/1/15 223,333
-------------------------------------------------------
TOTAL LEISURE.............. 2,297,352
-------------------------------------------------------
MEDIA (0.9%)
- ------------
250,000 Premier Graphics, Inc.*....11.500 12/1/05 248,750
-------------------------------------------------------
TOTAL MEDIA................ 248,750
-------------------------------------------------------
MEDIA-BROADCASTING (3.8%)
- -------------------------
$ 250,000 Allbritton
Communications, Inc........ 9.750% 11/30/07 $265,000
250,000 Chancelor Media
Corporation*............... 8.000 11/1/08 255,625
500,000 Spanish Broadcasting
Systems, Inc...............11.000 3/15/04 530,000
-------------------------------------------------------
TOTAL MEDIA-BROADCASTING... 1,050,625
-------------------------------------------------------
MEDIA-CABLE (5.7%)
- ------------------
500,000 CSC Holdings, Inc.......... 7.875 2/15/18 518,300
500,000 Century Communications
Corporation................ 8.750 10/1/07 550,000
500,000 James Cable
Partners, L.P..............10.750 8/15/04 520,000
-------------------------------------------------------
TOTAL MEDIA-CABLE.......... 1,588,300
-------------------------------------------------------
METALS-DIVERSIFIED (3.8%)
- -------------------------
500,000 Algoma Steel
Corporation................12.375 7/15/05 380,000
500,000 Bayou Steel
Corporation................ 9.500 5/15/08 470,000
250,000 Sheffield Steel
Corporation................11.500 12/1/05 212,500
-------------------------------------------------------
TOTAL METALS-DIVERSIFIED... 1,062,500
-------------------------------------------------------
MANUFACTURING-AUTO (2.6%)
- -------------------------
250,000 Talon Automotive
Group, Inc................. 9.625 5/1/08 237,500
500,000 Trident Automotive
Group, Inc.................10.000 12/15/05 495,000
-------------------------------------------------------
TOTAL MANUFACTURING-AUTO... 732,500
-------------------------------------------------------
MISCELLANEOUS MANUFACTURING (11.7%)
- -----------------------------------
250,000 Applied Extrusion
Technologies, Inc..........11.500 4/1/02 260,625
500,000 Day International
Group, Inc.................11.125 6/1/05 527,500
250,000 Derlan Manufacturing
Corporation................10.000 1/15/07 200,000
250,000 High Voltage Engineering
Corporation................10.500 8/15/04 236,250
250,000 IMPAQ Group, Inc...........10.125 3/15/08 251,250
250,000 Indesco International,
Inc........................ 9.750 4/15/08 235,000
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
THE AAL VARIABLE PRODUCT HIGH YIELD BOND PORTFOLIO-CONTINUED
SCHEDULE OF INVESTMENTS AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL LONG-TERM INTEREST MATURITY MARKET
AMOUNT OBLIGATIONS (96.3%) RATE DATE VALUE
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISCELLANEOUS MANUFACTURING-CONTINUED
- -------------------------------------
$ 385,000 Interlake Corporation..... 12.125% 3/1/02 $ 392,700
250,000 Key Components
Corporation............... 10.500 6/1/08 235,000
350,000 Morris Materials
Handling Corporation...... 9.500 4/1/08 259,000
500,000 Paragon Corporate
Holdings.................. 9.625 4/1/08 423,750
250,000 WR Carpenter North
America, Inc.............. 10.625 6/15/07 253,125
---------------------------------------------------------
TOTAL MISCELLANEOUS MANUFACTURING............. 3,274,200
---------------------------------------------------------
POLLUTION CONTROL (0.8%)
- ------------------------
250,000 Envirosource, Inc......... 9.750 6/15/03 225,000
---------------------------------------------------------
TOTAL POLLUTION CONTROL....................... 225,000
---------------------------------------------------------
RESTAURANTS/FOOD SERVICES (3.5%)
- --------------------------------
250,000 Ameriserv Food
Distribution, Inc......... 8.875 10/15/06 231,250
250,000 American Restaurant
Group, Inc................ 11.500 2/15/03 217,500
500,000 Tricon Global
Restaurants, Inc.......... 7.650 5/15/08 522,673
---------------------------------------------------------
TOTAL RESTAURANTS/FOOD SERVICES............... 971,423
---------------------------------------------------------
RETAIL STORES (1.9%)
- --------------------
500,000 The Pantry, Inc........... 10.250 10/15/07 523,750
---------------------------------------------------------
TOTAL RETAIL STORES........................... 523,750
---------------------------------------------------------
TECHNOLOGY (1.7%)
- -----------------
500,000 Viasystems, Inc........... 9.750 6/1/07 467,500
---------------------------------------------------------
TOTAL TECHNOLOGY.............................. 467,500
---------------------------------------------------------
TELECOMMUNICATIONS (5.9%)
- -------------------------
250,000 Call-Net Enterprises,
Inc....................... 8.000 8/15/08 241,250
500,000 Comcast Cellular
Holdings, Inc............. 9.500 5/1/07 530,000
250,000 Globalstar, L.P........... 11.375 2/15/04 188,750
500,000 Iridium Capital
Corporation............... 11.250 7/15/05 430,000
250,000 Metrocall, Inc.*.......... 11.000 9/15/08 251,250
---------------------------------------------------------
TOTAL TELECOMMUNICATIONS...................... 1,641,250
---------------------------------------------------------
TEXTILE (2.2%)
- --------------
$ 250,000 Anvil Knitwear, Inc...... 10.875% 3/15/07 $162,500
250,000 NTEX, Incorporated....... 11.500 6/1/06 235,000
250,000 WorldTex, Inc............ 9.625 12/15/07 222,500
---------------------------------------------------------
TOTAL TEXTILE................................ 620,000
---------------------------------------------------------
TRANSPORTATION (2.7%)
- ---------------------
500,000 Allied Holdings, Inc..... 8.625 10/1/07 507,500
250,000 Petro Stopping
Center, L.P.............. 10.500 2/1/07 261,250
---------------------------------------------------------
TOTAL TRANSPORTATION......................... 768,750
---------------------------------------------------------
UTILITIES (3.5%)
- ----------------
250,000 CalEnergy Co., Inc....... 7.230 9/15/05 260,839
500,000 Energy Corporation
of America............... 9.500 5/15/07 462,500
250,000 Niagara Mohawk Power
Corporation.............. 7.625 10/1/05 261,645
---------------------------------------------------------
TOTAL UTILITIES.............................. 984,984
---------------------------------------------------------
---------------------------------------------------------
TOTAL LONG-TERM FIXED INCOME OBLIGATIONS
(amortized cost basis $29,414,167)...........$26,930,946
---------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL SHORT-TERM INTEREST MATURITY MARKET
AMOUNT OBLIGATIONS (1.4%) RATE DATE VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 385,000 Federal Home
Loan Mortgage
Corporation.............. 4.500% 1/4/99 $384,856
-----------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(amortized cost basis $384,856)............... 384,856
-----------------------------------------------------------
-----------------------------------------------------------
TOTAL INVESTMENTS (97.7%)
(amortized cost basis $29,799,023)............ 27,315,802
-----------------------------------------------------------
-----------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES (2.3%)......... 649,652
-----------------------------------------------------------
-----------------------------------------------------------
NET ASSETS (100.0%)........................... $27,965,454
-----------------------------------------------------------
</TABLE>
*144A security
(a) The interest rate shown reflects the discount rate at the date of purchase.
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE PRODUCT SERIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
MONEY
MARKET BOND BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
=======================================================================================================================
<S> <C> <C> <C>
ASSETS
- ------
Investments, at cost.................................................. $33,004,010 $41,502,065 $458,517,775
- -----------------------------------------------------------------------------------------------------------------------
Investments, at value................................................. $33,004,010 $42,608,366 $547,027,917
Cash.................................................................. 330 550 346
Dividends and interest receivable..................................... -- 509,556 2,817,267
Receivable for investments sold....................................... -- -- --
Receivable for fund shares sold....................................... 733,507 15,874 195,963
Receivable for forward contracts...................................... -- -- --
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS.......................................................... $33,737,847 $43,134,346 $550,041,493
=======================================================================================================================
LIABILITIES
- -----------
Payable for investments purchased..................................... $ -- $ 887,049 $ 4,086,101
Payable for forward contracts......................................... -- -- --
Income distributions payable.......................................... 4,523 -- --
Payable for fund shares reacquired.................................... 153,784 27,940 473,184
Investment advisory fee payable....................................... 8,678 12,189 145,293
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES..................................................... 166,985 927,178 4,704,578
=======================================================================================================================
NET ASSETS:
- ----------
Capital stock - par value ($0.001/share)............................. 33,571 4,075 34,158
Capital stock - additional paid-in capital............................ 33,537,291 41,188,250 452,385,599
Undistributed net investment income................................... -- 1,946 33,176
Undistributed net realized gain (loss)................................ -- (93,404) 4,373,840
Net unrealized appreciation (depreciation) on investments............. -- 1,106,301 88,510,142
Net unrealized depreciation on foreign currency contracts............. -- -- --
Net unrealized appreciation on currency related transactions.......... -- -- --
- -----------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS...................................................... 33,570,862 42,207,168 545,336,915
=======================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND NET ASSETS...................................... $33,737,847 $43,134,346 $550,041,493
=======================================================================================================================
CAPITAL SHARES OUTSTANDING (2 BILLION SHARES AUTHORIZED).............. 33,570,862 4,074,947 34,157,278
NET ASSET VALUE PER SHARE............................................. $ 1.00 $ 10.36 $ 15.97
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Large Small International
Company Company Stock High Yield
Stock Portfolio Stock Portfolio Portfolio Bond Portfolio
================================================================================
<S> <C> <C> <C>
$401,281,671 $212,478,008 $13,949,857 $29,799,023
- --------------------------------------------------------------------------------
$571,937,879 $198,314,800 $15,583,699 $27,315,802
969 708 19,508 283
601,400 117,291 25,258 645,684
-- -- 22,084 --
335,793 60,077 25,684 17,391
-- -- 1,222,527 --
- --------------------------------------------------------------------------------
$ 572,876,041 $198,492,876 $16,898,760 $27,979,160
================================================================================
$ -- $ -- $ 1,589 $ --
-- -- 1,290,396 --
-- -- -- --
364,443 117,250 1,921 4,331
150,612 55,062 10,203 9,375
- --------------------------------------------------------------------------------
515,055 172,312 1,304,109 13,706
================================================================================
24,989 16,000 1,411 3,125
400,357,567 212,183,023 14,362,370 30,672,417
16,915 4,335 132,764 2,030
1,305,307 280,414 (468,877) (228,897)
170,656,208 (14,163,208) 1,633,842 (2,483,221)
-- -- (67,869) --
-- -- 1,010 --
- --------------------------------------------------------------------------------
572,360,986 198,320,564 15,594,651 27,965,454
================================================================================
- --------------------------------------------------------------------------------
$ 572,876,041 $198,492,876 $16,898,760 $27,979,160
================================================================================
24,988,657 15,999,584 1,411,474 3,124,985
$ 22.90 $ 12.40 $ 11.05 $ 8.95
</TABLE>
The accompanying notes to be financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE PRODUCT SERIES FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998, EXCEPT AS NOTED
<TABLE>
<CAPTION>
MONEY
MARKET BOND BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -----------------
<S> <C> <C> <C>
Dividends.................................................. $ -- $ -- $ 3,468,329
Interest................................................... $1,608,646 $2,112,782 $12,333,554
Foreign dividend withholding............................... -- -- --
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 1,608,646 2,112,782 15,801,883
==========================================================================================================================
EXPENSES
- --------
Adviser fees............................................... 101,533 111,756 1,403,423
Sub-Adviser fees........................................... -- -- --
Professional fees.......................................... 11,209 15,399 28,067
Custody fees............................................... 7,180 8,701 83,430
Registration fees.......................................... 50 50 50
Printing and postage expense............................... 5,528 6,089 81,214
Pricing of investments..................................... 852 10,090 26,371
Director fees.............................................. 509 560 7,471
Director and officer insurance fees........................ 544 599 7,989
Fidelity bond insurance fees............................... 207 228 3,047
- --------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES BEFORE REIMBURSEMENT 127,612 153,472 1,641,062
==========================================================================================================================
Less expenses reimbursed by Adviser (Note 3)............... (26,079) (41,716) (237,639)
- --------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 101,533 111,756 1,403,423
==========================================================================================================================
NET INVESTMENT INCOME 1,507,113 2,001,026 14,398,460
==========================================================================================================================
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
- -----------------------------------------------------
Net realized gains (losses) on investments................. -- (50,207) 12,604,950
Net realized losses on foreign currency transactions....... -- -- --
Change in net unrealized appreciation/depreciation
on investments............................................. -- 641,462 48,279,299
Change in net unrealized appreciation/depreciation
on foreign currency transactions........................ -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS.. -- 591,255 60,884,249
===========================================================================================================================
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.............................................. $1,507,113 $2,592,281 $75,282,709
===========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD OF MARCH 2, 1998
TO DECEMBER 31, 1998
--------------------------------
Large Small International
Company Company Stock High Yield
Stock Portfolio Stock Portfolio Portfolio Bond Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -----------------
<S> <C> <C> <C> <C>
Dividends.................................................. $ 6,547,067 $ 1,486,730 $208,845 $ --
Interest................................................... $ 246,344 $ 135,675 $ 35,321 $ 1,994,800
Foreign dividend withholding............................... -- -- (24,686) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Income $ 6,793,411 $ 1,622,405 $ 219,480 $ 1,994,800
====================================================================================================================================
EXPENSES
- --------
Adviser fees............................................... 1,454,419 628,572 27,844 29,965
Sub-Adviser fees........................................... -- -- 57,830 49,941
Professional fees.......................................... 28,O85 20,084 16,454 14,738
Custody fees............................................... 78,320 73,187 25,359 4,115
Registration fees.......................................... 50 50 50 50
Printing and postage expense............................... 84,467 34,241 2,044 3,827
Pricing of investments..................................... 9,849 8,994 8,863 4,320
Director fees.............................................. 7,770 3,150 188 352
Director and officer insurance fees........................ 8,309 3,368 201 376
Fidelity bond insurance fees............................... 3,169 1,285 77 144
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES BEFORE REIMBURSEMENT 1,674,438 772,931 138,910 107,828
====================================================================================================================================
Less expenses reimbursed by Adviser (Note 3)............... (220,019) (144,359) (53,236) (27,922)
- ------------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 1,454,419 628,572 85,674 79,906
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 5,338,992 993,833 133,806 1,914,894
====================================================================================================================================
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
- -----------------------------------------------------
Net realized gains (losses) on investments................. 1,543,018 31,291,369 (382,552) (228,897)
Net realized losses on foreign currency transactions....... -- -- (86,325) --
Change in net unrealized appreciation/depreciation
investments............................................. 103,777,073 (33,956,589) 909,869 (2,483,221)
Change in net unrealized appreciation/depreciation
on foreign currency transactions........................ -- -- 657,114 --
- ------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS 105,320,091 (2,665,220) 1,098,106 (2,712,118)
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $110,659,083 $(1,671,387) $1,231,912 $ (797,224)
====================================================================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE PRODUCT SERIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET BOND
PORTFOLIO PORTFOLIO
---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/98 12/3197 12/31/98
- ------------------------------------------------------------------------------------------ ----------------------------
OPERATIONS
- ----------
<S> <C> <C> <C> <C>
Net investment income.................................. $ 1,122,333 $ 1,507,113 $ 1,380,310 $ 2,001,026
Net realized gains (losses) on investments............. - - (29,923) (50,207)
Net realized gains (losses) on currency transactions... - - - -
Change in net unrealized appreciation/depreciation
on investments........................................ - - 603,559 641,462
Change in net unrealized appreciation/depreciation
on currency transactions.............................. - - - -
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,122,333 1,507,113 1,953,946 2,592,281
=========================================================================================================================
DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------
From net investment income............................. (1,122,333) (1,507,113) (1,379,645) (2,000,563)
From net realized gains................................ - - - -
- -------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1,122,333) (1,507,113) (1,379,645) (2,000,563)
==========================================================================================================================
FUND SHARE TRANSACTIONS
- -----------------------
Net proceeds from shares sold.......................... 159,245,610 191,480,061 10,281,056 22,670,325
Reinvested distributions............................... 1,100,286 1,506,393 1,058,145 1,895,857
Cost of shares redeemed................................ (152,010,636) (184,875,885) (2,870,211) (9,660,392)
- -------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 8,335,260 8,110,569 8,468,990 14,905,790
=========================================================================================================================
TOTAL INCREASE IN NET ASSETS 8,335,260 8,110,569 9,043,291 15,497,508
=========================================================================================================================
NET ASSETS BEGINNING OF YEAR 17,125,033 25,460,293 17,666,369 26,709,660
=========================================================================================================================
Net Assets End of Year $ 25,460,293 $ 33,570,862 $26,709,660 $42,207,168
=========================================================================================================================
Accumulated Undistributed Net Investment Income $ - $ - $ 1,483 $ 1,946
=========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCED LARGE COMPANY SMALL COMPANY INTERNATIONAL HIGH YIELD
PORTFOLIO STOCK PORTFOLIO STOCK PORTFOLIO STOCK PORTFOLIO BOND PORTFOLIO
- ----------------------------- ------------------------------ ------------------------ ---------------- ----------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
12/31/97 12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/98(a) 12/31/98(a)
============================= ============================== ======================== ================ ================
<S> <C> <C> <C> <C> <C> <C> <C>
$ 7,513,161 $14,398,460 $3,216,560 5,383,992 $ 884,984 $993,833 133,806 $ 1,914,894
137,873 12,604,956 434,187 1,543,018 7,349,423 31,291,369 (382,552) (228,897)
- - - - - - (86,325) -
30,989,614 48,279,299 52,537,005 103,777,073 14,034,350 (33,956,589) 909,869 (2,483,221)
- - - - - - 657,114 -
- ------------------------------------------------------------------------------------------------------------------------------
$ 38,640,612 75,282,709 56,187,752 110,659,083 $ 22,268,757 (1,671,387) 1,231,912 (797,224)
==============================================================================================================================
(7,513,493) (14,369,203) (3,209,032) (5,336,089) (878,381) (999,834) (1,042) (1,912,864)
(101,264) (8,256,035) (327,630) (346,756) (6,934,221) (31,505,205) - -
- ------------------------------------------------------------------------------------------------------------------------------
(7,614,757) (22,625,238) (3,536,662) (5,682,845) (7,812,602) (32,505,039) (1,042) (1,912,864)
==============================================================================================================================
167,791,417 185,868,086 160,771,504 165,392,423 71,181,154 58,516,806 14,856,874 31,385,553
7,505,192 22,625,238 3,512,734 5,682,845 7,800,139 32,505,039 302 438,864
(26,338,793) (22,315,220) (18,548,828) (22,165,710) (10,719,186) (11,452,507) (493,395) (1,148,875)
- ------------------------------------------------------------------------------------------------------------------------------
148,957,816 186,178,104 145,735,410 148,909,558 68,262,107 79,569,338 14,363,781 30,675,542
==============================================================================================================================
179,983,671 238,835,575 198,386,500 253,885,796 82,718,262 45,392,912 15,594,651 27,965,454
==============================================================================================================================
126,517,669 306,501,340 120,088,690 318,475,190 70,209,390 152,927,652 - -
==============================================================================================================================
$306,501,340 $545,336,915 $318,475,190 $572,360,986 $152,927,652 $198,320,564 $ 15,594,651 $27,965,454
==============================================================================================================================
$ 3,919 $ 33,176 $ 14,012 $ 16,915 $10,336 $ 4,335 $ 132,764 $2,030
==============================================================================================================================
</TABLE>
(a) Since inception March 2, 1998.
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCTS ANNUALREPORT
AAL VARIABLE PRODUCT SERIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
(A) ORGANIZATION
- ----------------
The AAL Variable Product Series Fund, Inc. (the "Fund") is a corporation
organized under the laws of the State of Maryland and registered under the
Investment Company Act of 1940, as amended, as an open-ended diversified
management company. The Fund is a 'series" fund consisting of seven separate
investment portfolios (known as the Money Market, Bond, Balanced, Large Company
Stock, Small Company Stock, International Stock and High Yield Bond Portfolios,
collectively the "Portfolios"). The International Stock Portfolio and High Yield
Bond Portfolio commenced operations March 2, 1998. Shares of the Fund are
currently sold only to the AAL Variable Annuity Account I and the AAL Variable
Life Account I (the "Variable Accounts") to fund benefits under certificates of
membership related to the flexible premium deferred variable annuity issued by
Aid Association for Lutherans ("AAL").
On February 13, 1998, the shareholders of The Small Company Stock Portfolio
changed its tracking index to the S&P SmallCap 600 Index.
(B) SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------
VALUATION OF INVESTMENTS Securities traded on national securities exchanges and
NASDAQ are valued at the last reported sales price. Fixed income securities 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 the Investment Adviser under the supervision of the Board of
Directors.
FOREIGN CURRENCY TRANSLATION The books and records of the Portfolios are
maintained in U.S. dollars. The market values of securities and other assets and
liabilities that are not traded in United States currency are recorded in the
financial statements after translation to U.S. dollars at the time net asset
value is calculated. However, for federal income tax purposes the portfolio does
treat as ordinary income the effect of changes in foreign exchange arising from
actual foreign currency transactions and the effect of changes in foreign
exchange rates from the fluctuations arising from trade date and settlement date
differences.
Net realized and unrealized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of forward foreign
currency exchange contracts, disposition of foreign currencies, and the
difference between the amount of net investment income accrued and the U.S.
dollar amount actually received. That portion of both realized and unrealized
gains and losses on investments that result from fluctuations in foreign
currency exchange rates is not separately disclosed.
FOREIGN CURRENCY CONTRACTS In connection with purchases and sales of securities
denominated in foreign currencies, the International Stock Portfolio may enter
into forward currency contracts. Additionally, The International Stock Portfolio
may enter into such contracts to hedge certain other foreign currency
denominated investments. These contracts are recorded at market values, and the
related realized and unrealized foreign exchange gains and losses are included
in the statement of operations. In the event that counter parties fail to settle
these forward contracts, the International Stock Portfolio could be exposed to
foreign currency fluctuations.
FEDERAL INCOME TAXES No provision for federal income taxes has been made since
the Fund has elected to be taxed as a regulated investment company under the
Internal Revenue Code and intends to distribute to shareholders as dividends,
substantially all the net investment income and net realized capital gains, if
any, of the Fund. As of December 31, 1998, the Bond Portfolio has capital loss
carryforwards of $2,188 expiring in 2003; $7,782 expiring in 2004; $22,408
expiring in 2005 and $61,026 expiring in 2006. The High Yield Bond and
International Stock Portfolios have loss carryforwards of $228,897 and $468,877,
respectively, expiring in 2006. It is management's intention to make no
distribution of any future realized capital gains related to these Portfolios
until the federal income tax capital loss carryforwards are exhausted.
DISTRIBUTIONS TO SHAREHOLDERS All of the Portfolios intend to distribute all
their net investment income and net realized capital gains, if any, as
dividends. The Bond, Balanced, Large Company Stock, Small Company Stock and High
Yield Bond Portfolios expect to declare and pay 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. The International Stock Portfolio expects to declare and
pay income and net realized capital gains, if any, annually. Dividends to
shareholders are recorded on the ex-dividend date.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
EXPENSES The Funds are charged for those expenses that are directly attributed
to each Portfolio, such as advisory, custodian, and shareholder service fees.
Expenses that are not directly attributable to a Portfolio are typically
allocated among the Funds' Portfolios in proportion to their respective net
assets, number of shareholder accounts or other reasonable basis.
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.
<PAGE>
Realized gains and losses from investment transactions are determined on a
specific cost identification basis.
(C) INVESTMENT ADVISORY FEES AND TRANSACTIONS WITH RELATED PARTIES
- ------------------------------------------------------------------
The Fund has entered into an Investment Advisory Agreement with AAL relating to
the management of the Portfolios and pays an investment advisory fee as
compensation for its services to the Fund. The fee is a daily charge equal to an
annual rate of 0.35% of the average daily net assets up to $250,000,000 and
0.30% of the average daily net assets in excess of that amount for the Money
Market, Bond, Balanced, Large and Small Company Stock Portfolios; 0.80% of the
average daily assets for the International Stock Portfolio; and 0.40% of the
average daily assets for the High Yield Bond Portfolio.
The Fund has also entered into an Investment Sub-Advisory Agreement with AAL
Capital Management Corporation "CMC"), an affiliate of AAL, for the High Yield
Bond Portfolio. The sub-advisory fee, which is paid by AAL, is equal to an
annual fee of .25% of average daily net assets. Additionally, AAL has entered
into a Sub-Advisory Agreement with Oechsle International Advisors, LLC. (Sub-
Adviser) for the International Stock Portfolio. The sub-advisory fee, which is
paid by AAL, is equal to an annual fee of 0.54% of assets under management for
the first $20 million, 0.45% of assets under management for the next $30 million
and 0.36% for assets under management over $50 million. In addition, AAL has
agreed to either pay on behalf of the Fund or reimburse the Fund for
substantially all of its operating expenses, other than the aforementioned
investment advisory fees, brokerage commissions, and certain extraordinary items
such as litigation expenses or income tax liabilities. AAL may withdraw this
reimbursement agreement on 30 days written notice to the Fund.
The Investment Advisory Agreement anticipates that AAL will provide certain
administrative and accounting services to the Fund, or that AAL will arrange for
such services to be provided by a third party. AAL has entered into an
Administrative Services Agreement with CMC, 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. This agreement terminated on December 31, 1998.
Certain officers and directors of the Fund are also officers of AAL and CMC. For
the year ended December 31, 1998, directors of the Fund not affiliated with AAL
or CMC received director fees in the aggregate amount of $20,000. No
remuneration has been paid by the Fund to officers or directors affiliated with
AAL or CMC. At December 31, 1998, all of the shares of each Portfolio are owned
by AAL and The AAL Variable Accounts.
(D) LINE OF CREDIT
- ------------------
The Fund has an available line of credit of $5,000,000 and a standby line of
credit of $15,000,000. However, each Portfolio's borrowings, by investment
restriction, cannot exceed 10% of the total net assets and must be only from a
bank as a temporary measure for extraordinary or emergency purposes. The Fund
pays a facility fee related to the line of credit of 0.05% per annum of the
average amount of available line of credit, such fee to be paid quarterly in
arrears on the last day of each and every March, June, September and December.
Borrowings under this agreement bear interest prior to maturity either at a
floating rate per annum, which approximates the then current prime commercial
rate with changes in the interest rate by virtue of a change in such prime
commercial rate, or, at the Fund's request, if the bank so agrees, at a short-
term fixed rate of interest.
(E) CAPITAL SHARE TRANSACTIONS
- ------------------------------
Transactions in Fund shares for the year and periods ended December 31, 1997 and
1998, were as follows:
MONEY MARKET PORTFOLIO
----------------------------
YEAR ENDED YEAR ENDED
12/31/97 12/31/98
- -------------------------------------------------------------------------
Shares sold 159,245,610 191,480,061
Reinvested distributions 1,100,286 1,506,393
Shares redeemed (152,010,636) (184,875,885)
- -------------------------------------------------------------------------
Net Increase 8,335,260 8,110,569
=========================================================================
BOND PORTFOLIO
---------------------------
YEAR ENDED YEAR ENDED
12/31/97 12/31/98
- -------------------------------------------------------------------------
Shares sold 1,030,031 2,199,861
Reinvested distributions 106,366 184,608
Shares redeemed (288,321) (941,937)
- -------------------------------------------------------------------------
Net Increase 848,076 1,442,532
=========================================================================
BALANCED PORTFOLIO
---------------------------
YEAR ENDED YEAR ENDED
12/31/97 12/31/98
- -------------------------------------------------------------------------
Shares sold 12,757,483 12,360,090
Reinvested distributions 563,775 1,465,150
Shares redeemed (2,089,461) (1,482,283)
- -------------------------------------------------------------------------
Net Increase 11,231,797 12,342,957
=========================================================================
LARGE COMPANY STOCK PORTFOLIO
-----------------------------
YEAR ENDED YEAR ENDED
12/31/97 12/31/98
- -------------------------------------------------------------------------
Shares sold 9,946,832 8,178,403
Reinvested distributions 209,770 274,516
Shares redeemed (1,203,965) (1,098,049)
- -------------------------------------------------------------------------
Net Increase 8,952,637 7,354,870
=========================================================================
<PAGE>
<TABLE>
<CAPTION>
SMALL COMPANY STOCK PORTFOLIO
-----------------------------
YEAR ENDED YEAR ENDED
12/31/97 12/31/98
====================================================================================================================
<S> <C> <C>
Shares sold 4,949,038 3,841,755
Reinvested distributions 529,743 2,680,258
Shares redeemed (804,537) (797,140)
- --------------------------------------------------------------------------------------------------------------------
Net Increase 4,674,244 5,724,873
====================================================================================================================
INTERNATIONAL STOCK PORTFOLIO
-----------------------------
PERIOD 3/2/98 TO
12/31/98
====================================================================================================================
Shares sold 1,459,457
Reinvested distributions 27
Shares redeemed (48,010)
- --------------------------------------------------------------------------------------------------------------------
Net Increase 1,411,474
====================================================================================================================
HIGH YIELD BOND PORTFOLIO
-------------------------
PERIOD 3/2/98 TO
12/31/98
====================================================================================================================
Shares sold 3,199,146
Reinvested distributions 47,812
Shares redeemed (121,973)
- --------------------------------------------------------------------------------------------------------------------
Net Increase 3,124,985
====================================================================================================================
</TABLE>
(F) INVESTMENT TRANSACTIONS
- ---------------------------
For the year ended December 31, 1998, the cost of investment securities
purchased and the proceeds from investment securities sold (not including short-
term investments and U.S. Government Obligations) were as follows:
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
====================================================================================================================
<S> <C> <C>
Bond $ 13,227,023 $ 2,423,232
Balanced 179,178,277 48,846,337
Large Company Stock 154,244,498 6,783,592
Small Company Stock 232,195,639 182,787,512
International Stock 17,459,597 3,726,933
High Yield Bond 35,242,298 5,609,200
====================================================================================================================
</TABLE>
For the year ended December 31, 1998, the Portfolios purchased and sold the
following in U.S. Government Obligations
<TABLE>
<CAPTION>
PORTFOLIO PURCHASES SALES
====================================================================================================================
<S> <C> <C>
Bond $ 7,191,805 $ 3,280,845
Balanced 56,059,698 31,437,364
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The gross and net unrealized appreciation and depreciation on investments at
December 31, 1998, were as follows:
<TABLE>
<CAPTION>
12/31/98
------------------------------------
NET UNREALIZED
APPRECIATION
PORTFOLIO APPRECIATION (DEPRECIATION) (DEPRECIATION)
====================================================================================================================
<S> <C> <C> <C>
Bond $ 1,233,637 $ (127,336) $ 1,106,301
Balanced 94,535,519 (6,025,377) 88,510,142
Large Company Stock 182,944,173 (12,287,965) 170,656,208
Small Company Stock 23,965,085 (38,128,293) (14,163,208)
International Stock 2,287,045 (721,072) 1,565,973
High Yield Bond 266,287 (2,749,508) (2,483,221)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998, the cost of investment for federal income tax purposes
was the same as book except for the Balanced, Large Company Stock, Small Company
Stock and International Stock Portfolios which are $458,893,362; $401,284,877;
$212,711,768; and $13,971,880, respectively. Any differences between book and
federal income tax basis are due to wash sale losses.
<PAGE>
(G) FORWARD CURRENCY CONTRACTS
- ------------------------------
As of December 31, 1998, the International Stock Portfolio had entered into
forward currency contracts, as summarized below, resulting in net unrealized
depreciation of $67,869.
<TABLE>
<CAPTION>
SETTLEMENT DATE CURRENCY TO U.S. VALUE CURRENCY TO BE U.S. VALUE AT
THROUGH BE DELIVERED 12/31/98 RECEIVED 12/31/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
01/04/99 24 German Deutsche Mark $ 15 8 U.S. Dollar $ 8
01/04/99 (234) U.S. Dollar (233) (140) British Pound (234)
01/05/99 (1,354) U.S. Dollar (1,344) (808) British Pound (1,354)
01/29/99 110,420 French Franc 19,767 19,619 U.S. Dollar 19,619
02/26/99 126,000,000 Japanese Yen 1,124,172 1,055,542 U.S. Dollar 1,055,542
03/04/99 280,000 New Zealand Dollar 148,019 148,946 U.S. Dollar 148,946
----------- -------------
$1,290,396 $1,222,527
----------- -------------
</TABLE>
(H) SPECIAL SHAREHOLDER MEETING-UNAUDITED
- -----------------------------------------
A special meeting of shareholders of the AAL Variable Product Small Company
Stock Portfolio of the AAL Variable Product Series Fund, Inc. was held February
13, 1998, at which time a proposal to change the Portfolio's fundamental
investment objective was approved.
<TABLE>
<CAPTION>
%
VOTES OF VOTES TOTAL
FOR FOR VOTES
-----------------------------------------------------------------------
<S> <C> <C> <C>
Actual Votes Received from Contract Owners.............. 4,074,401.795 97.447% 4,181,132.818
Echo Vote of Unvoted Units.............................. 4,949,959.584 97.447% 5,079,626.288
Unit Summary............................................ 9,204,361.379 97.447% 9,260,759.106
Echo Vote of Fund Shares................................ 9,163,183.377 97.447% 9,403,214.616
</TABLE>
A special meeting of shareholders of the AAL Variable Product International
Stock Portfolio of the AAL Variable Product Series Fund, Inc. was held August
14, 1998, at which time a new sub-advisory agreement by and among the Fund, Aid
Association for Lutherans and Oechsle International Advisors, LLC was approved.
<TABLE>
<CAPTION>
%
VOTES OF VOTES TOTAL
FOR FOR VOTES
-----------------------------------------------------------------------
<S> <C> <C> <C>
Actual Votes Received from Contract Owners.............. 103,793.575 89.9% 115,448.255
Echo Vote of Unvoted Units.............................. 77,795.100 89.9% 86,530.327
Unit Summary............................................ 181,588.763 89.9% 201,978.492
Echo Vote of Fund Shares................................ 180,900.759 89.9% 201,213.235
</TABLE>
<PAGE>
A special meeting of shareholders of the AAL Variable Product Series Fund, Inc.
was held October 30, 1998, to vote on two separate issues: (1) election of the
Board of Directors and (2) ratification of Ernst & Young LLP as independent
accountants for the fiscal year ending December 31, 1998. Following are the
results for each issue:
<TABLE>
<CAPTION>
(1) DIRECTOR VOTES % OF SHARES VOTED
==========================================================================================
<S> <C> <C>
Ronald G. Anderson
Affirmative..................... 36,995,976.513 98.84%
Withhold........................ 434,857.325 1.16%
------------------------------------------------------------------------------------------
Richard L. Gady
Affirmative..................... 37,001,327.140 98.85%
Withhold........................ 429,506.648 1.15%
------------------------------------------------------------------------------------------
Lawrence M. Woods
Affirmative..................... 37,004,675.012 98.86%
Withhold........................ 426,158.776 1.14%
------------------------------------------------------------------------------------------
F. Gregory Campbell
Affirmative..................... 36,992,690.078 98.83%
Withhold........................ 438,143.710 1.17%
------------------------------------------------------------------------------------------
John O. Gilbert
Affirmative..................... 37,023,177.083 98.91%
Withhold........................ 407,656.705 1.09%
------------------------------------------------------------------------------------------
Steven A. Weber
Affirmative..................... 36,992,559.312 98.83%
Withhold........................ 438,274.476 1.17%
------------------------------------------------------------------------------------------
Edward W. Smeds
Affirmative..................... 36,965,926.332 98.76%
Withhold........................ 464,907.456 1.24%
------------------------------------------------------------------------------------------
(2) RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT ACCOUNTANTS.
==========================================================================================
Affirmative..................... 36,742,099.078 98.16%
Against......................... 99,017.801 0.26%
Abstain......................... 589,716.909 1.58%
------------------------------------------------------------------------------------------
</TABLE>
Notes to Financial Statements
<PAGE>
This Page Intentionally Left Blank
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL Variable Product Series Fund, Inc.
Financial Highlights
The following table presents per share information for each Portfolio of the AAL
Variable Product Series Fund, Inc. for the period presented, which should be
read in conjunction with the financial statements and the related notes.
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
----------------------------------------------------
YEAR YEAR YEAR
PERIOD ENDED ENDED ENDED ENDED
12/31/95 (A) 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C>
==============================================================================================================================
NET ASSET VALUE: BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
==============================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income.................................... 0.03 0.05 0.05 0.05
Net realized and unrealized gains (losses)
on investments.......................................... - - - -
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.03 0.05 0.05 0.05
==============================================================================================================================
LESS DISTRIBUTIONS
- ------------------
From investment income................................... (0.03) (0.05) (0.05) (0.05)
From realized gains...................................... - - - -
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS...................................... (0.03) (0.05) (0.05) (0.05)
==============================================================================================================================
Net increase (decrease) in net asset value............... - - - -
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE: END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
==============================================================================================================================
Total return (c)......................................... 3.02% 5.23% 5.33% 5.31%
Net assets, end of period
(in thousands).......................................... $ 7,045 $17,125 $25,460 $33,571
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Ratio of expenses to average net assets (d) (e).......... 0.35% 0.35% 0.35% 0.35%
Ratio of net investment income to average
net assets (d) (e)..................................... 5.71% 5.10% 5.24% 5.20%
Portfolio turnover rate.................................. N/A N/A N/A N/A
==============================================================================================================================
</TABLE>
(a) From commencement of operations on June 14, 1995.
(b) Since inception on March 2, 1998.
(c) Total return does not reflect expenses that apply at the Variable Account
level. Inclusion of these expenses would reduce the total return for the
periods shown. The Portfolios are reported as period-to-date cumulative
total returns.
(d) Calculated on an annualized basis.
(e) Without reimbursements the above ratios, on an annualized basis, would have
been:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Ratio of expenses to average net assets.................. 1.40% 0.65% 0.46% 0.44%
Ratio of net investment income to average net assets..... 4.66% 4.80% 5.13% 5.11%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BOND PORTFOLIO BALANCED PORTFOLIO
----------------------------------- ---------------------------------------
PERIOD YEAR YEAR PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
12/31/95 12/31/96 12/31/97 12/31/98 12/31/95 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C> <C> <C> <C> <C>
====================================================================================================================================
NET ASSET VALUE: BEGINNING OF PERIOD $ 10.00 $ 10.23 $ 9.90 $ 10.15 $ 10.00 $ 10.92 $ 11.96 $ 14.05
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income.............................. 0.34 0.63 0.64 0.64 0.22 0.41 0.46 0.50
Net realized and unrealized gains (losses)
on investments.................................... 0.23 (0.33) 0.25 0.21 0.92 1.05 2.09 2.17
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.57 0.30 0.89 0.85 1.14 1.46 2.55 2.67
====================================================================================================================================
LESS DISTRIBUTIONS
- ------------------
From investment income............................. (0.34) (0.63) ( 0.64) (0.64) (0.21) (0.41) (0.46) (0.50)
From realized gains................................ - - - - (0.01) (0.01) - (0.25)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.34) (0.63) (0.64) (0.64) (0.22) (0.42) (0.46) (0.75)
====================================================================================================================================
Net increase (decrease) in net asset value......... 0.23 (0.33) 0.25 0.21 0.92 1.04 2.09 1.92
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE: END OF PERIOD $ 10.23 $ 9.90 $ 10.15 $ 10.36 $ 10.92 $ 11.96 $ 14.05 $ 15.97
====================================================================================================================================
Total return (c)................................... 5.805 3.10% 9.73% 8.59% 11.46% 13.65% 21.71% 19.27%
Net assets, end of period (in thousands)........... $ 9,363 $ 17,666 $26,710 $42,207 $28,759 $ 126,518 $306,501 $545,337
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Ratio of expenses to average net assets (d) (e).... 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.35% 0.33%
Ratio of net investment income to average.......... 6.54% 6.51% 6.55% 6.26% 4.07% 3.89% 3.62% 3.38%
net assets (d) (e)
Portfolio turnover rate............................ 6.51% 11.65% 18.41% 18.29% 2.29% 5.43% 6.86% 21.39%
====================================================================================================================================
Ratio of expenses to average net assets............ 1.25% 0.68% 0.52% 0.48% 1.15% 0.60% 0.43% 0.39%
Ratio of net investment income to average net assets. 5.64% 6.18% 6.38% 6.13% 3.27% 3.65% 3.53% 3.32%
</TABLE>
<PAGE>
AAL VARIABLE PRODUCT SERIES FUND, INC.
FINANCIAL HIGHLIGHTS - CONTINUED
The following table presents per share information for each Portfolio
of the AAL Variale Product Series Fund, Inc. for the period presented
and should be read in conjuction with the financial statements and
related notes.
<TABLE>
<CAPTION>
LARGE COMPANY STOCK PORTFOLIO
------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/95 12/31/96 12/31/97 12/31/98
====================================================================================================================================
<S> <C> <C> <C> <C>
NET ASSET VALUE:BEGINING OF PERIOD $ 10.00 $ 11.51 $ 13.83 $ 18.06
====================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income................................... 0.11 0.23 0.23 0.24
Net realized and unrealized gains (losses) on
investments........................................... 1.52 2.34 4.25 4.85
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS........................ 1.63 2.57 4.48 5.09
====================================================================================================================================
LESS DISTRIBUTIONS
- ------------------
From investment income.................................. (0.11) (0.23) (0.23) (0.24)
From realized gains..................................... (0.01) (0.02) (0.02) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS..................................... (0.12) (0.25) (0.25) (0.25)
====================================================================================================================================
Net increase(decrease) in net asset value............... 1.51 2.32 4.23 4.48
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE: END OF PREIOD.......................... $ 11.51 $ 13.83 $ 18.06 $ 22.90
====================================================================================================================================
Total return (c)........................................ 16.39% 22.47% 32.59% 28.36%
Net assets, end of period (in thousands)................ $23,138 $120,089 $318,475 $572,361
RATIOS AND SUPPLEMENTAL DATA
- -----------------------------
Ratio of expenses to average net expenses (d)(e)........ 0.35% 0.35% 0.35% 0.35%
Ratio of net investment income to average
net assets (d)(e)..................................... 2.27% 1.97% 1.48% 1.20%
Portfolio turnover rate................................. 0.47% 1.77% 1.00% 1.49%
====================================================================================================================================
</TABLE>
(a) From commencement of operations on June 14, 1995.
(b) Since inception on March 2, 1998.
(c) Total return does not reflect expenses that apply at the Variable Account
level. Inclusion of these expenses would reduce the total return for the
periods shown. The Portfolios are reported as period-to-date cumulative
total returns.
(d) Calculated on an annualized basis.
(e) Without reimbursements the above ratios, on an annualized basis, would have
been:
Ratio of expenses to average net assets... 1.26% 0.63% 0.43% 0.38%
Ratio of net investment income to
average net assets...................... 1.37% 1.69% 1.39% 1.15%
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL
STOCK HIGH YIELD
SMALL COMPANY STOCK PORTFOLIO PORTFOLIO BOND PORTFOLIO
----------------------------------- ----------------- --------------
Period Year Year Year Period Year
Ended Ended Ended Ended Ended Ended
12/31/95 12/31/96 12/31/97 12/31/98 12/31/95 12/31/96
<S> <C> <C> <C> <C> <C> <C>
==================================================================================================================================
NET ASSET VALUE: BEGINNING OF PERIOD $10,00 $10,99 $12.54 $ 14.88 $ 10.00 $ 10.00
==================================================================================================================================
INCOME FROM INVESTMENT OPERATIONS
Net investment income........................... 0.08 0.12 0.11 0.08 0.09 0.74
Net realized and unrealized gains (losses)
on investments................................. 0.99 1.86 3.05 (0.13) 0.96 (1.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations................ 1.07 1.98 3.16 (0.05) 1.05 (0.31)
====================================================================================================================================
LESS DISTRIBUTIONS
From investment income.......................... (0.07) (0.12) (0.11) (0.08) - (0.74)
From realized gains............................. (0.01) (0.31) (0.71) (2.35) - -
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS............................. (0.08) (0.43) (0.82) (2.43) 0.00 (0.74)
===================================================================================================================================
Net increase (decrease) in net asset value..... (0.99) 1.55 2.3 (2.48) 1.05 (1.05)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE: END OF PERIOD................. $ 10.99 $12.54 $ 14.88 $ 12.40 $ 11.05 $ 8.95
===================================================================================================================================
Total return (c)................................ 10.70% 18.19% 25.37% 10.14% 10.41% (3.25%)
Net assets, end of period (in thousands)........ $15,666 $70,209 $152,298 $198,321 $15,595 $27,965
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------
Ratio of expenses to average net assets (d) (e). 0.35% 0.35% 0.80% 0.35% 0.80% 0.40%
Ratio of net investment income to average net
assets (d) (e)................................. 1.43% 1.14% 0.81% 0.55% 1.25% 9.54%
Portfolio turnover rate......................... 2.85% 20.14% 29.65% 103.70% 32.66% 25.43%
===================================================================================================================================
Ratio of expenses to average net assets......... 1.37% 0.75% 0.45% 0.43% 1.30% 0.54%
Ratio of net investment income to average
net assets..................................... 0.41% 0.74% 0.71% 0.47% 0.75% 9.40%
</TABLE>
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE PRODUCT SERIES FUND, INC.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
The AAL Variable Product Series Fund, Inc.
We have audited the accompanying statements of assets and liabilities of The
AAL Variable Product Series Fund, Inc. (the "Fund") (comprised of the Money
Market Portfolio, Bond Portfolio, Balanced Portfolio, Large Company Stock
Portfolio, Small Company Stock Portfolio, International Stock Portfolio and High
Yield Bond Portfolio), including the schedules of investments, as of December
31, 1998, and the related statements of operations, statements of changes in net
assets and financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodian.
As to securities relating to uncompleted transactions, we performed other audit
procedures. 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 respective portfolios comprising The AAL Variable Product Series Fund,
Inc. as of December 31, 1998, and the results of its operations, the changes in
its net assets and the financial highlights for each of the periods indicated
therein, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
January 27, 1999
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE ANNUITY ACCOUNT I
STATEMENT OF NET ASSETS
AS OF DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Investments, in AAL Variable Product Series Fund, Inc.:
Money Market Subaccount:
Money Market Portfolio, 33,225,986 shares at net asset value of $1.00 per share (cost $33,225,986)............. $ 33,230,461
Bond Subaccount:
Bond Portfolio, 4,072,442 shares at net asset value of $10.36 per share (cost $41,289,943)..................... 42,181,532
Balanced Subaccount:
Balanced Portfolio, 34,119,399 shares at net asset value of $15.97 per share (cost $455,023,372)............... 544,728,825
Large Company Stock Subaccount:
Large Company Stock Portfolio, 24,894,238 shares at net asset value of $22.90 per share (cost $402,793,962).... 570,197,756
Small Company Stock Subaccount:
Small Company Stock Portfolio, 15,959,906 shares at net asset value of $12.39 per share (cost $213,327,098).... 197,822,567
International Stock Subaccount:
International Stock Portfolio, 401,245 at net asset value of $11.05 per share (cost $4,264,613)................ 4,430,887
High Yield Bond Subaccount:
High Yield Bond Portfolio, 1,117,262 shares at net asset value of $8.95 per share (cost $10,576,803)........... 9,998,212
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,160,501,777) $1,402,590,240
===================================================================================================================================
LIABILITIES --
- -----------
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets $1,402,590,240
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
UNIT EXTENDED
UNITS VALUE VALUE
========================================================================================================
<S> <C> <C> <C>
Net Assets are represented by:
Money Market Subaccount......................... 28,880,399 1.15 $ 33,230,461
Bond Subaccount................................. 3,397,426 12.42 42,181,532
Balanced Subaccount............................. 31,007,716 17.57 544,728,825
Large Company Stock Subaccount.................. 24,637,221 23.14 570,197,756
Small Company Stock Subaccount.................. 12,646,465 15.64 197,822,567
International Stock Subaccount.................. 405,358 10.93 4,430,887
High Yield Bond Subaccount...................... 1,044,323 9.58 9,998,212
- --------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $1,402,590,240
========================================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE ANNUITY ACCOUNT I
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MONEY
MARKET BOND
COMBINED SUBACCOUNT SUBACCOUNT
================================================================================================================================
<S> <C> <C> <C>
INVESTMENT INCOME
- -----------------
Dividends ......................................................... $ 24,528,466 $ 1,501,845 $ 1,895,504
Capital gain distributions ........................................ 40,020,449 -- --
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 64,548,915 1,501,845 1,895,504
================================================================================================================================
Expenses-mortality and expense risk charges ....................... 14,194,765 363,505 378,623
- --------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 50,354,150 1,138,340 1,516,881
================================================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------
Net realized gain (loss) from investment transactions ............. 1,515,394 -- 23,071
Change in unrealized appreciation/depreciation of investments ..... 121,795,866 -- 530,394
- --------------------------------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS 123,311,260 -- 553,465
- --------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 173,665,410 $ 1,138,340 $ 2,070,346
================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION> LARGE SMALL HIGH
COMPANY COMPANY INTERNATIONAL YIELD
BALANCED STOCK STOCK STOCK BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
================================================================================================================================
<S> <C> <C> <C> <C>
$ 14,364,866 $ 5,329,416 $ 999,073 $ 295 $ 437,467
8,246,931 345,453 31,428,065 -- --
- --------------------------------------------------------------------------------------------------------------------------------
22,611,797 5,674,869 32,427,138 295 437,467
================================================================================================================================
5,392,900 5,667,444 2,314,809 25,261 52,223
- --------------------------------------------------------------------------------------------------------------------------------
17,218,897 7,425 30,112,329 (24,966) 385,244
================================================================================================================================
410,315 781,967 323,308 5,756 (29,023)
52,220,247 103,931,509 (34,473,969) 166,275 (578,590)
- -------------------------------------------------------------------------------------------------------------------------------
52,630,562 104,713,476 (34,150,661) 172,031 (607,613)
- -------------------------------------------------------------------------------------------------------------------------------
$ 69,849,459 $104,720,901 $ (4,038,332) $ 147,065 $ (222,369)
===============================================================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE ANNUITY ACCOUNT I
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
MONEY
MARKET BOND
COMBINED SUBACCOUNT SUBACCOUNT
====================================================================================================================================
<S> <C> <C> <C>
NET ASSETS AT JANUARY 1, 1997 $ 313,072,015 $ 15,127,096 $ 12,715,943
====================================================================================================================================
INCREASE (DECREASE) IN NET ASSETS
- ---------------------------------
Net investment income .......................................... 13,783,610 836,458 854,722
Net realized gain (loss) from investment transactions .......... 60,921 -- (9,732)
Change in unrealized appreciation of investments ............... 97,567,574 -- 461,285
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 111,412,105 836,458 1,306,275
====================================================================================================================================
CAPITAL SHARE TRANSACTIONS
- --------------------------
Transfers of net premiums ..................................... 418,962,388 158,275,206 5,588,348
Transfers of death benefits .................................... (3,458,133) (79,044) (265,091)
Transfers of surrenders ........................................ (11,336,055) (699,487) (499,880)
Transfers between subaccounts .................................. (3,657,074) (147,996,133) 2,790,890
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
CAPITAL SHARE TRANSACTIONS 400,511,126 9,500,542 7,614,267
====================================================================================================================================
TOTAL INCREASE ................................................. 511,923,231 10,337,000 8,920,542
====================================================================================================================================
NET ASSETS AT DECEMBER 31, 1997 824,995,246 25,464,096 21,636,485
====================================================================================================================================
INCREASE (DECREASE) IN NET ASSETS
- ---------------------------------
Net investment income (loss) ................................... 50,354,150 1,138,340 1,516,881
Net realized gain (loss) from investment transactions .......... 1,515,394 -- 23,071
Change in unrealized appreciation(depreciation) of investments.. 121,795,866 -- 530,394
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS 173,665,410 1,138,340 2,070,346
====================================================================================================================================
CAPITAL SHARE TRANSACTIONS
- --------------------------
Transfers of net premiums ...................................... 446,760,777 187,658,462 9,671,632
Transfers of death benefits .................................... (7,628,131) (433,928) (717,906)
Transfers of surrenders ........................................ (28,535,620) (1,403,987) (1,120,954)
Transfers between subaccounts .................................. (6,667,442) (179,192,522) 10,641,929
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL SHARE TRANSACTIONS 403,929,584 6,628,025 18,474,701
====================================================================================================================================
TOTAL INCREASE ................................................. 577,594,994 7,766,365 20,545,047
====================================================================================================================================
NET ASSETS AT DECEMBER 31, 1998 $1,402,590,240 $ 33,230,461 $ 42,181,532
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LARGE SMALL HIGH
COMPANY COMPANY INTERNATIONAL YIELD
BALANCED STOCK STOCK STOCK BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSETS AT JANUARY 1, 1997 $ 111,574,219 $109,713,467 $ 63,941,290 $ -- $ --
====================================================================================================================================
INCREASE (DECREASE) IN NET ASSETS
- ---------------------------------
Net investment income ........................................ 4,923,350 763,478 6,405,602 -- --
Net realized gain (loss) from investment transactions ........ 43,784 -- 26,869 -- --
Change in unrealized appreciation of investments ............. 30,694,969 52,011,575 14,399,745 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 35,662,103 52,775,053 20,832,216 -- --
====================================================================================================================================
CAPITAL SHARE TRANSACTIONS
- --------------------------
Transfers of net premiums ................................... 109,666,841 100,328,693 45,103,300 -- --
Transfers of death benefits .................................. (1,821,655) (780,984) (511,359) -- --
Transfers of surrenders ...................................... (5,125,578) (3,272,494) (1,738,616) -- --
Transfers between subaccounts ................................ 56,542,618 59,710,922 25,294,629 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
CAPITAL SHARE TRANSACTIONS 159,262,226 155,986,137 68,147,954 -- --
====================================================================================================================================
TOTAL INCREASE ............................................... 194,924,329 208,761,190 88,980,170 -- --
====================================================================================================================================
NET ASSETS AT DECEMBER 31, 1997 306,498,548 318,474,657 152,921,460 -- --
====================================================================================================================================
INCREASE (DECREASE) IN NET ASSETS
- ---------------------------------
Net investment income (loss) ................................. 17,218,897 7,425 30,112,329 (24,966) 385,244
Net realized gain (loss) from investment transactions ........ 410,315 781,967 323,308 5,756 (29,023)
Change in unrealized appreciation(depreciation) of investments 52,220,247 103,931,509 (34,473,969) 166,275 (578,590)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS 69,849,459 104,720,901 (4,038,332) 147,065 (222,369)
====================================================================================================================================
CAPITAL SHARE TRANSACTIONS
- --------------------------
Transfers of net premiums ...................................... 109,087,355 96,013,937 36,097,357 2,316,310 5,915,724
Transfers of death benefits .................................... (3,041,335) (2,616,157) (679,754) (3,264) (135,787)
Transfers of surrenders ........................................ (11,852,374) (9,700,141) (4,204,730) (67,246) (186,188)
Transfers between subaccounts .................................. 74,187,172 63,304,559 17,726,566 2,038,022 4,626,832
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
CAPITAL SHARE TRANSACTIONS 168,380,818 147,002,198 48,939,439 4,283,822 10,220,581
====================================================================================================================================
TOTAL INCREASE ............................................... 238,230,277 251,723,099 44,901,107 4,430,887 9,998,212
====================================================================================================================================
NET ASSETS AT DECEMBER 31, 1998 $ 544,728,825 $570,197,756 $197,822,567 $4,430,887 $9,998,212
====================================================================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
statement.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE ANNUITY ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
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 had five separate subaccounts at December 31, 1997 and seven
separate subaccounts at December 31, 1998, each of which invests solely, as
directed by certificate owners, in a different portfolio of AAL Variable Product
Series Fund, Inc. (the Fund), an open-end, diversified management investment
company sponsored by AAL. Certificate owners also may direct investments to a
guaranteed interest subaccount held in the general account of AAL.
Investments in shares of the Fund are stated at market value, which is the
closing net asset value per share as determined by the Fund. The first-in,
first-out basis has been used in determining the net realized gain or loss from
investment transactions and unrealized appreciation or depreciation of
investments. Dividends and capital gain distributions paid to the Account are
automatically reinvested in shares of the Fund on the payment date.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
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 risks assumed by AAL are compensated for by a charge
equivalent to an annual rate of approximately 1.25% of the average daily net
asset value of the Account. A certificate maintenance charge of $25 per
certificate year is deducted to reimburse AAL for administrative expenses
related to the contract. This fee is waived if the sum of premiums received by
AAL less the sum of any withdrawals and withdrawal charges from the certificate
is $5,000 or more at the time the deduction would be made. In addition, a
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. The certificate
owner may make two transfers from one or more subaccounts to other subaccounts
or the fixed account in each certificate year, but thereafter, each transfer is
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 gains on
investments. Accordingly, no charge for income taxes is currently being made to
the Account. If such taxes are incurred by AAL in the future, a charge to the
Account may be assessed.
NOTE 4. INVESTMENT TRANSACTIONS
- -------------------------------
The aggregate cost of investment securities purchased and proceeds from
investment securities sold by subaccount are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------
PURCHASES SALES
=======================================================================================
<S> <C> <C>
Money Market Subaccount.......................... $ 58,441,701 $ 50,676,008
Bond Subaccount.................................. 21,910,913 1,919,329
Balanced Subaccount.............................. 186,914,944 1,315,229
Large Company Stock Subaccount................... 148,687,401 1,677,778
Small Company Stock Subaccount................... 80,794,911 1,743,142
International Stock Subaccount................... 4,521,028 262,171
High Yield Bond Subaccount....................... 11,283,057 677,232
- ---------------------------------------------------------------------------------------
Combined......................................... $512,553,955 $ 58,270,889
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------
<S> <C> <C>
Money Market Subaccount.......................... $ 52,006,464 $ 41,671,205
Bond Subaccount.................................. 9,912,197 1,443,207
Balanced Subaccount.............................. 164,350,968 165,393
Large Company Stock
Subaccount....................................... 156,749,615 -
Small Company Stock Subaccount................... 74,629,170 75,616
- --------------------------------------------------------------------------------------
Combined......................................... $457,648,414 $ 43,355,421
======================================================================================
</TABLE>
<PAGE>
NOTE 5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
- -------------------------------------------------
Transactions in units of each subaccount were as follows:
<TABLE>
<CAPTION>
UNITS SOLD UNITS REDEEMED NET INCREASE
------------------------ ------------------------- -------------------------
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
------------------------ ------------------------- -------------------------
YEAR ENDED DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Money Market Subaccount.......................... 166,630,005 $187,658,462 160,769,420 $181,030,437 5,860,585 $ 6,628,025
Bond Subaccount.................................. 1,682,099 20,313,561 153,730 1,838,860 1,528,369 18,474,701
Balanced Subaccount.............................. 11,388,627 183,274,527 925,222 14,893,709 10,463,405 168,380,818
Large Company Stock Subaccount................... 7,797,598 159,318,496 606,251 12,316,298 7,191,347 147,002,198
Small Company Stock Subaccount................... 3,304,007 53,823,923 317,688 4,884,484 2,986,319 48,939,439
International Stock Subaccount................... 412,234 4,354,332 6,877 70,510 405,357 4,283,822
High Yield Bond Subaccount....................... 1,078,107 10,542,556 33,784 321,975 1,044,323 10,220,581
- ----------------------------------------------------------------------------- ------------------------- -------------------------
Combined......................................... 192,292,677 $619,285,857 162,812,972 $215,356,273 29,479,705 $403,929,584
============================================================================= ========================= =========================
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
Money Market Subaccount.......................... 145,819,570 $158,275,206 137,026,017 $148,774,664 8,793,553 $ 9,500,542
Bond Subaccount.................................. 752,545 8,379,238 69,453 764,971 683,092 7,614,267
Balanced Subaccount.............................. 12,055,929 166,209,458 504,518 6,947,232 11,551,411 159,262,226
Large Company Stock Subaccount................... 9,824,842 160,039,615 247,500 4,053,478 9,577,342 155,986,137
Small Company Stock Subaccount................... 4,812,850 70,397,928 156,237 2,249,974 4,656,613 68,147,954
- ----------------------------------------------------------------------------- ------------------------- -------------------------
Combined......................................... 173,265,736 $563,301,445 138,003,725 $162,790,319 35,262,011 $400,511,126
============================================================================= ========================= =========================
</TABLE>
<PAGE>
NOTE 6. NET ASSETS
- ------------------
The Account has an unlimited number of accumulation units authorized with no par
value. Net assets as of December 31, 1998, consisted of:
<TABLE>
<CAPTION> MONEY
MARKET
COMBINED SUBACCOUNT
--------------- ------------
<S> <C> <C>
Paid-in capital............... $ 1,089,971,003 $ 30,796,252
Accumulated undistributed
net investment income
(loss)........................ $ 68,941,110 $ 2,434,209
Accumulated undistributed
net realized gain from
investment transactions...... $ 1,594,137 -
Net unrealized appreciation
(depreciation) of
investments................... $ 242,083,990 $ -
--------------- ------------
NET ASSETS.................... $ 1,402,590,240 $ 33,230,461
=============== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LARGE SMALL HIGH
COMPANY COMPANY INTERNATIONAL YIELD
BOND BALANCED STOCK STOCK STOCK BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
-------------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Paid-in capital............... $ 38,381,909 $430,661,389 $400,682,836 $174,944,214 $ 4,283,822 $10,220,581
Accumulated undistributed
net investment income
(loss)........................ 2,896,208 23,907,38 1,313,990 38,028,687 (24,966) 385,244
Accumulated undistributed
net realized gain from
investment transactions...... 11,826 454,245 797,136 354,197 5,756 (29,023)
Net unrealized appreciation
(depreciation) of
investments................... 891,589 89,705,453 167,403,794 (15,504,531) 166,275 (578,590)
-------------- ----------- ------------- ------------ ----------- -----------
NET ASSETS.................... $ 42,181,532 $544,728,825 $570,197,756 $197,822,567 $ 4,430,887 $ 9,998,212
============== ============ ============= ============ =========== ===========
</TABLE>
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE ANNUITY ACCOUNT I
REPORT OF INDEPENDENT AUDITORS
AS OF DECEMBER 31, 1998
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, Small Company Stock, International Stock, and High Yield
Bond Subaccounts) as of December 31, 1998, and the related statements of
operations for the year then ended and changes in net assets for each of the two
years in the period then ended. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, 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,
1998, and the results of their operations for the year then ended, and changes
in their net assets for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
January 27, 1999
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE LIFE ACCOUNT I
STATEMENT OF NET ASSETS
AS OF DECEMBER 31, 1998
<TABLE>
ASSETS
- ------
<S> <C>
Money Market Subaccount:
Money Market Portfolio, 344,876 shares at net asset value of $1.00 per share (cost $344,876).............. $ 344,923
Bond Subaccount:
Bond Portfolio, 2,505 shares at net asset value of $10.36 per share (cost $26,117)........................ 25,942
Balanced Subaccount:
Balanced Portfolio, 37,878 shares at net asset value of $15.97 per share (cost $577,403).................. 604,729
Large Company Stock Subaccount:
Large Company Stock Portfolio, 94,418 shares at net asset value of $22.90 per share (cost $1,899,896)..... 2,162,697
Small Company Stock Subaccount:
Small Company Stock Portfolio, 39,678 shares at net asset value of $12.39 per share (cost $514,386)....... 491,803
International Stock Subaccount:
International Stock Portfolio, 10,230 shares at net asset value of $11.05 per share (cost $104,806)....... 112,960
High Yield Bond Subaccount:
High Yield Bond Portfolio, 7,723 shares at net asset value of $8.95 per share (cost $69,380).............. 69,110
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $3,536,864) 3,812,164
============================================================================================================================
LIABILITIES................................................................................................... --
- -----------
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS.................................................................................................... $3,812,164
- ----------
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
UNIT EXTENDED
UNITS VALUE VALUE
============================================================================================================================
<S> <C> <C> <C>
Net Assets are represented by:
Money Market Subaccount...................................................... 333,936 1.03 $ 344,923
Bond Subaccount.............................................................. 2,443 10.62 25,942
Balanced Subaccount.......................................................... 55,272 10.94 604,729
Large Company Stock Subaccount............................................... 193,053 11.20 2,162,697
Small Company Stock Subaccount............................................... 54,240 9.07 491,803
International Stock Subaccount............................................... 11,016 10.25 112,960
High Yield Bond Subaccount................................................... 7,244 9.54 69,110
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $3,812,164
============================================================================================================================
</TABLE>
The acompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE LIFE ACCOUNT I
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 15, 1998 (1) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
MONEY
MARKET BOND
COMBINED SUBACCOUNT SUBACCOUNT
===========================================================================================================
INVESTMENT INCOME
- -----------------
<S> <C> <C> <C>
Dividends................................................ $ 18,797 $ 5,267 $ 353
Capital gain distributions............................... 87,547 - -
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME.................................. 106,344 5,267 353
===========================================================================================================
Expenses-mortality and expense risk charges.............. 6,517 1,174 34
- -----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS)............................. 99,827 4,093 319
===========================================================================================================
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------
Net realized gain (loss) from investment transactions.... (4,662) - 4
Change in unrealized appreciation (depreciation) of
investments............................................. 275,254 - (175)
- -----------------------------------------------------------------------------------------------------------
NET GAIN (LOSS) ON INVESTMENTS........................... 270,592 - (171)
===========================================================================================================
- -----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 370,419 $ 4,093 $ 148
===========================================================================================================
</TABLE>
(1) Commencement of operations
<PAGE>
<TABLE>
<CAPTION>
LARGE SMALL HIGH
COMPANY COMPANY INTERNATIONAL YIELD
BALANCED STOCK STOCK STOCK BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 4,337 $ 6,674 $ 761 $ 8 $ 1,397
9,104 1,303 77,140 -
- -----------------------------------------------------------------
13,441 7,977 77,901 8 1,397
=================================================================
840 3,392 802 184 91
- -----------------------------------------------------------------
12,601 4,585 77,099 (176) 1,306
=================================================================
(987) (41) (3,185) (123) (330)
27,325 262,802 (22,581) 8,154 (271)
- -----------------------------------------------------------------
26,338 262,761 (25,766) 8,031 (601)
=================================================================
- -----------------------------------------------------------------
$ 38,939 $ 267,346 $ 51,333 $ 7,855 $ 705
=================================================================
</TABLE>
The accompanying notes to the financial statements are on integral par of this
schedule.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE LIFE ACCOUNT I
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 15, 1998 (1) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
MONEY
MARKET BOND
COMBINED SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
- ----------------------
Net investment income (loss)............................ 99,827 4,093 319
Net realized gain (loss) from investment transactions... (4,662) - 4
Change in unrealized appreciation (depreciation) of
investments............................................ 275,254 - (175)
- ----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 370,419 4,093 148
==========================================================================================================
POLICY RELATED TRANSACTIONS
- ---------------------------
Transfers of net premiums............................... 3,640,935 1,888,524 5,477
Transfers of surrenders and terminations................ (1,720) (5) -
Policy loan transfers................................... (2,000) - -
Cost of insurance and administrative charges............ (187,962) (39,198) (701)
Transfers between subaccounts........................... (7,508) (1,508,491) 21,018
- ----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM POLICY
RELATED TRANSACTIONS 3,441,745 340,830 25,794
==========================================================================================================
TOTAL INCREASE 3,812,164 344,923 25,942
==========================================================================================================
NET ASSETS AT DECEMBER 31, 1998 $3,812,164 $ 344,923 $ 25,942
==========================================================================================================
</TABLE>
(1) Commencement of operations.
<PAGE>
<TABLE>
<CAPTION>
LARGE SMALL HIGH
COMPANY COMPANY INTERNATIONAL YIELD
BALANCED STOCK STOCK STOCK BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12,601 4,585 77,099 (176) 1,306
(987) (41) (3,185) (123) (330)
27,325 262,802 (22,581) 8,154 (271)
- ---------------------------------------------------------------------------------------
38,939 267,346 51,333 7,855 705
=======================================================================================
297,821 1,046,253 290,822 77,057 34,981
- (808) (662) (60) (185)
(2,000) - - - -
(26,503) (79,926) (32,944) (6,043) (2,647)
296,472 929,832 183,254 34,151 36,256
- ---------------------------------------------------------------------------------------
565,790 1,895,351 440,470 105,105 68,405
=======================================================================================
604,729 2,162,697 491,803 112,960 69,110
=======================================================================================
604,729 $2,162,697 $491,803 $112,960 $69,110
=======================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of this
schedule.
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------
The AAL Variable Life 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 variable universal life insurance certificates. The
Account commenced operations on May 15, 1998.
The Account has seven separate subaccounts, each of which invests solely, as
directed by certificate owners, in a different portfolio of AAL Variable Product
Series Fund, Inc. (the Fund), an open-end, diversified management investment
company sponsored by AAL. Certificate owners also may direct investments to a
guaranteed interest subaccount held in the general account of AAL.
Investments in shares of the Fund are stated at market value, which is the
closing net asset value per share as determined by the Fund. The first-in,
first-out basis has been used in determining the net realized gain or loss from
investment transactions and unrealized appreciation or depreciation of
investments. Dividends and capital gain distributions paid to the Account are
automatically reinvested in shares of the Fund on the payment date.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
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 risks assumed by AAL are compensated for by a charge
equivalent to an annual rate of approximately 0.75% of the total subaccount cash
value during the first 15 years dropping to approximately 0.25% thereafter. A
per policy monthly administration charge of $4 and a cost of insurance charge,
which varies by risk class, sex, amount at risk, and age, is deducted as
compensation for administrative and insurance expenses, respectively. A sales
charge of 3.0% is deducted from each participant payment to cover sales and
other expenses and to provide support for AAL's fraternal activities. In
addition, a surrender charge is imposed in the event the certificate is
surrendered or the specified amount is reduced. The initial surrender charge is
based on an amount per thousand of specified coverage for which the certificate
is issued. The amount per thousand varies by risk class, sex, and issue age. The
cash value is reduced by the surrender charge. The charge decreases over the
first 10 certificate years to zero in the 11th certificate year.
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 gains on
investments. Accordingly, no charge for income taxes is currently being made to
the Account. If such taxes are incurred by AAL in the future, a charge to the
Account may be assessed.
NOTE 4. INVESTMENT TRANSACTIONS
- -------------------------------
The aggregate cost of investment securities purchased and proceeds from
investment securities sold by subaccount are as follows:
<TABLE>
<CAPTION>
PERIOD MAY 15, 1998 TO DECEMBER 31, 1998
----------------------------------------
PURCHASES SALES
- -----------------------------------------------------------------------
<S> <C> <C>
Money Market Subaccount.......... $1,259,772 $914,896
Bond Subaccount.................. 26,411 298
Balanced Subaccount.............. 641,271 62,882
Large Company Stock Subaccount... 1,902,143 2,206
Small Company Stock Subaccount... 530,246 2,675
International Stock Subaccount... 105,905 976
High Yield Bond Subaccount....... 74,579 4,869
- -----------------------------------------------------------------------
Combined......................... $4,540,327 $998,802
=======================================================================
</TABLE>
<PAGE>
NOTE 5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
- -------------------------------------------------
Transactions in units of each subaccount were as follows:
<TABLE>
<CAPTION>
UNITS SOLD UNITS REDEEMED NET INCREASE
======================= ======================= =======================
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
======================= ======================= =======================
<S> <C> <C> <C>
PERIOD MAY 15, 1998 TO
DECEMBER 31, 1998
Money Market Subaccount............... 1,848,895 $1,888,524 1,514,959 $1,547,694 333,936 $ 340,830
Bond Subaccount....................... 2,512 26,495 69 701 2,443 25,794
Balanced Subaccount................... 58,110 594,293 2,838 28,503 55,272 565,790
Large Company Stock Subaccount........ 201,345 1,976,085 8,292 80,734 193,053 1,895,351
Small Company Stock Subaccount........ 58,402 474,076 4,162 33,606 54,240 440,470
International Stock Subaccount........ 11,681 111,208 665 6,103 11,016 105,105
High Yield Bond Subaccount............ 7,555 71,237 311 2,832 7,244 68,405
- --------------------------------------------------------------------------------------------------------------------
Combined.............................. 2,188,500 $5,141,918 1,531,296 $1,700,173 657,204 $3,441,745
====================================================================================================================
</TABLE>
<PAGE>
NOTE 6. NET ASSETS
- ------------------
The Account has an unlimited number of accumulation units authorized with no par
value. Net assets as of December 31, 1998, consisted of:
<TABLE>
<CAPTION>
MONEY
MARKET
COMBINED SUBACCOUNT
===================================================================================================================
<S> <C> <C>
Paid-in capital......................................................................... $3,629,707 $380,028
Accumulated undistributed net investment income (loss).................................. (88,135) (35,105)
Accumulated undistributed net realized gain (loss) from investment transactions......... (4,662) --
Net unrealized appreciation (depreciation) of investments............................... 275,254 --
---------- ---------
Net assets.............................................................................. $3,812,164 $344,923
========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LARGE SMALL HIGH
COMPANY COMPANY INTERNATIONAL YIELD
BOND BALANCED STOCK STOCK STOCK BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
=================================================================================================
<S> <C> <C> <C> <C> <C>
$26,495 $592,292 $1,975,277 $473,415 $111,148 $71,052
(382) (13,901) (75,341) 44,154 (6,219) (1,341)
4 (987) (41) (3,185) (123) (330)
(175) 27,325 262,802 (22,581) 8,154 (271)
------- -------- ---------- -------- -------- -------
$25,942 $604,729 $2,162,697 $491,803 $112,960 $69,110
======= ======== ========== ======== ======== =======
</TABLE>
<PAGE>
AAL VARIABLE PRODUCTS ANNUAL REPORT
AAL VARIABLE LIFE ACCOUNT I
REPORT OF INDEPENDENT AUDITORS
AS OF DECEMBER 31, 1998
The Board of Directors and Certificate Owners
Aid Association for Lutherans
We have audited the accompanying statement of net assets of the AAL Variable
Life Account I (comprising, respectively, the Money Market, Bond, Balanced,
Large Company Stock, Small Company Stock, International Stock, and High Yield
Bond Subaccounts) as of December 31, 1998, and the related statements of
operations and changes in net assets for the period from May 15, 1998 (date
operations commenced) to December 31, 1998. These financial statements are the
responsibility of the Account's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the transfer agent. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting the AAL Variable Life Account I at December 31, 1998,
and the results of their operations and changes in their net assets for the
period then ended, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Milwaukee, Wisconsin
January 27, 1999
REPORT OF INDEPENDENT AUDITORS
<PAGE>
<TABLE>
<S> <C>
BOARD OF DIRECTORS John O. Gilbert - Chairman of the Board
Ronald G. Anderson
F. Gregory Campbell
Richard L. Gady
Edward W. Smeds
Steven A. Weber
Lawrence M. Woods
OFFICERS Steven A. Weber - President
Daniel L. Shinnick - Vice President
Carl J. Rudolph - Treasurer
James H. Abitz - Assistant Treasurer
Kathleen A. Brost - Secretary
Woodrow E. Eno - Assistant Secretary
Robert G. Same - Assistant Secretary
INVESTMENT ADVISER & TRANSFER AGENT Aid Association for Lutherans
4321 North Ballard Road . Appleton, WI 54919-0001
SUB-ADVISER (INTERNATIONAL STOCK PORTFOLIO) Oechsle International Advisors, LLC
One International Place . Boston, MA 02110
SUB-ADVISER (HIGH YIELD BOND PORTFOLIO) AAL Capital Management Corporation
& DISTRIBUTOR 222 West College Avenue . Appleton, WI 54919-0007
CUSTODIAN Citibank, N. A.
111 Wall Street . New York, NY 10043
LEGAL COUNSEL Quarles & Brady
411 East Wisconsin Avenue . Milwaukee, WI 53202
INDEPENDENT AUDITORS Ernst & Young LLP
111 East Kilbourn Avenue . Milwaukee, WI 53202
</TABLE>
This report is submitted for the information of the certificate owners of the
AAL Variable Annuity Account I and the AAL Variable Life 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, the
AALVariable Life Account I and the AAL Variable Product Series Fund, Inc.
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