<PAGE> 1
DEAR CONTRACT OWNERS:
An unprecedented combination of generally positive factors has helped the U.S.
economy enjoy a sustained period of relative stability and moderate growth in
which thousands of new jobs have been created every month, inflation remains
under control, and the investment climate -- at least until now -- has been
favorable. For example, the increased use of technology and other productivity
enhancements, as well as corporate restructuring and global competition, is
improving companies' balance sheets and helping control inflation. Meanwhile,
borrowing by corporations and governments continues to decline, while consumer
confidence is increasing, although consumer debt levels are still uncomfortably
high. While some lenders are beginning to tighten standards to address this
problem, consumer debt and personal bankruptcies continue to rise. Because of
this, plus slight declines in other indicators such as average hourly wages and
the corporate purchasing-managers index, we do not expect the rapid pace of
growth seen in the first quarter of 1997 to continue. While second-quarter
growth has slowed dramatically, we do expect the second half of the year to pick
up once again with real (inflation-adjusted) growth centering around 2 1/2%.
GLOBAL OUTLOOK
Increased liquidity has continued to support international equity markets this
year, while disinflationary forces have continued despite somewhat stronger
world economic growth. While the strength of the U.S. dollar versus the Japanese
yen earlier this year resulted in stronger performance for Japanese exporters,
the value-added tax seems to have slowed the overall Japanese economy. In
Europe, meanwhile, uncertainty over European monetary union continues, although
stocks of some European companies have benefited from restructuring and the use
of technology to increase productivity. Perhaps the brightest international
story has been the performance of the emerging markets, all of which have seen
rapidly expanding economies and higher earnings, thanks in part to significant
shifts in their economic policies.
BOND MARKETS
In the fixed-income markets, we have been encouraged by the Federal Reserve
Board's decision to not raise short-term interest rates at its July meeting. But
we cannot rule out the possibility of future monetary tightening in the second
half of the year if, as we now expect, the economy strengthens in the second
half of 1997. Therefore, our risk/reward outlook for the fixed-income markets is
neutral, and we believe that fixed-income investors should think in terms of
earning the coupon income from their investments rather than seeking possible
gains from price appreciation.
STOCK MARKETS
We have been surprised by the strength of the U.S. equity market in the first
half of 1997. Much of this is the result of continuing gains in corporate
earnings. Even as the current recovery enters its seventh year, more and more
U.S. companies have been exceeding analysts' earnings estimates. In the first
quarter of 1997, for example, two-thirds of all companies met or exceeded
analysts' expectations, a trend that could be an important indicator of the U.S.
equity market's future direction. However, while the near-term outlook for
profits is generally favorable, we believe equity valuations have risen to a
point where a cautious investment approach seems warranted.
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<PAGE> 2
Specific information on each Account's performance and our current investment
strategy are provided below and on the following pages. The performance figures
provided in the discussion do not reflect the deduction of any separate account
charges. The results would have been lower had these charges been deducted. We
appreciate your support and welcome any questions or comments you may have.
On behalf of the
Board of Managers,
/s/ John D. McNeil
John D. McNeil
Chairman
July 14, 1997
CAPITAL APPRECIATION VARIABLE ACCOUNT
For the six months ended June 30, 1997, the Account provided a total return of
15.51%, compared to a 20.60% return for the Standard & Poor's 500 Composite
Index (the S&P 500), a popular, unmanaged index of common stock total return
performance.
The Account has benefited from an increased weighting in large-capitalization
stocks with consistent earnings growth, such as Tyco International, United
Technologies, and Bristol-Myers Squibb, all of which were significant performers
in the first half of the year. Tyco, which will merge with ADT Ltd. in early
July, is a diversified manufacturing company whose complementary acquisitions,
as well as a high-quality management team, could result in high earnings growth
over the next three years, enhancing shareholder value.
In the technology sector, the Account's largest, stocks in businesses such as
computer software, semiconductors, and networking added to performance during
the period, although this weighting has been reduced slightly over the past six
months. Large technology holdings such as Oracle Systems and Computer Associates
are major beneficiaries of the deployment of client/server technology in the
corporate environment. Personal computer companies such as Microsoft, which
develops operating systems and application software, continue to report very
strong earnings growth. This sector can be volatile at times, but we believe its
high, long-term past performance results make it attractive. It is important to
emphasize that the companies in this sector are selected individually and that
the large weightings represent the number of well-positioned companies we have
identified in this area.
Other holdings in the Account such as Intel Corp., HFS, Inc., and Wisconsin
Central Transportation underperformed the S&P 500 during the first half, but we
continue to view them as attractive investments. For example, HFS, Inc., which
owns a number of hotel, rental car, and real estate franchise systems, continues
to benefit from higher hotel room rates and increased occupancy. Also, the
Account maintains a significant weighting in mid-capitalization stocks, which
significantly underperformed the S&P 500 as a group.
In selecting stocks for the Account, we look for five key characteristics: good
earnings growth, good management, the ability to benefit from positive secular
trends in the economy, a good balance sheet with positive cash-flow generation,
and reasonable valuation. We regard earnings growth as important because,
ultimately, earnings drive stock prices over the long term. Good management adds
significantly to an enterprise's value by making the right strategic and
competitive decisions over time. A good financial
2
<PAGE> 3
position and strong cash flow from operations provide a company with the ability
to take advantage of competitive opportunities as they present themselves in the
marketplace. Trying to buy stocks at a reasonable valuation is accomplished by
comparing earnings growth to a company's price-to-earnings ratio (P/E), which
helps determine whether it is reasonable relative to the market as a whole.
GOVERNMENT SECURITIES VARIABLE ACCOUNT
For the six months ended June 30, 1997, the Account provided a total return of
2.72%, compared to a 3.10% return for the Lehman Brothers Government/Mortgage
Index (the Lehman Index), an unmanaged index of U.S. Treasury,
government-agency, and mortgage-backed securities.
The portfolio is currently positioned for what we expect to be a period of
stable interest rates over the remainder of the year. The Account has an
overweighting in mortgage-backed pass-through securities and agency debentures,
is underweighted in U.S. Treasury securities, and has almost no exposure to
cash. The portfolio duration, or measure of interest-rate sensitivity, is
currently 4.1 years, versus a duration of 4.5 years for the Lehman Index.
Thirty-five percent of the portfolio is invested in U.S. Treasury issues, with
an emphasis on three-year and 10- to 30-year maturity issues. The portfolio also
contains a 21% position in agency securities. These issues are a combination of
agency debentures and Small Business Association loans.
The greatest change in the portfolio over the period has been the reduction in
holdings of mortgage-backed pass-through securities, from approximately 50% to
the current 44%. This change was made after a long period of superior
risk-adjusted returns from the mortgage sector. Current holdings focus on issues
that we believe are not sensitive to a slowdown in prepayments and that will
benefit from the continued strong momentum in the U.S. housing market.
HIGH YIELD VARIABLE ACCOUNT
For the six months ended June 30, 1997, the Account provided a total return of
6.44%, compared to a 5.82% return for the Lehman Brothers High Yield Index, an
unmanaged index of publicly issued, noninvestment-grade debt, and to a 5.66%
return for the average fund in the Lipper High Yield Fund Index as measured by
Lipper Analytical Services, Inc., an independent firm that reports mutual fund
performance. The Lipper indices are unmanaged indices of the largest qualifying
mutual funds within their respective investment objectives, adjusted for the
reinvestment of capital gains distributions and income dividends.
During the first half of 1997, the high-yield market remained one of the
best-performing fixed-income asset classes. The market's strength was due in
part to a strong economy and a subsequent low default rate, which has averaged
only 1.8% over the past 12 months. Demand for high-yield bonds has been
exceptionally strong, with net inflows into high-yield mutual funds over the
past year exceeding the levels recorded in any prior year. In addition, managers
of investment-grade accounts have been significant buyers of high-yield bonds.
Although new issuance of high-yield bonds is on track to challenge the record
level set in 1993, supply has not kept pace with demand. At the end of the
period, the yield on the Salomon Brothers High Yield Index was 9.28%, versus
6.48% for U.S. Treasury notes of comparable maturities (the principal value and
interest on
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<PAGE> 4
Treasury securities are guaranteed by the U.S. government if held to maturity).
Although the spread between these two yields has narrowed to a record low 2.80%
from 3.22% at the beginning of the year, we believe the economic environment
remains favorable for owning high-yield bonds due to the general outlook for
moderate economic growth and low inflation.
Given the tight level of yield spreads and the length of this economic
expansion, our investment strategy has focused on avoiding mistakes. We have
concentrated our holdings in the bonds of better-quality companies because we do
not think investors are adequately compensated for the risks associated with
lower-tier credits. Two sectors of note in which we are overweighted are
consumer products and general industrials. In the consumer products sector, we
are invested in such brand-name companies as Westpoint Stevens and Sealy. Our
general industrial holdings are a diversified group of niche manufacturing
companies that are typically leaders in their fields, including companies such
as International Knife, a dominant manufacturer of industrial cutting blades,
and Hayes Wheels, a global supplier of automotive wheels. We reduced our
weighting in the energy sector because we felt that the relatively low yields
currently available in that sector were not appropriate compensation for the
commodity risk associated with these investments.
MANAGED SECTORS VARIABLE ACCOUNT-C
For the six months ended June 30, 1997, the Account provided a total return of
13.68%, compared to a 20.60% return for the S&P 500. The Account continues to be
invested in five sectors, but significant changes within those sectors have
occurred over the past six months. For example, the Account's technology
weighting was modestly increased, despite a major reduction in semiconductor
holdings with the sales of Intel, National Semiconductor, and VLSI Technologies.
Also sold were the Electronic Arts and Cabletron holdings, and the Sun
Microsystem position was reduced. Proceeds from these sales funded new
technology holdings in IBM, Sony, Compaq, and Synopsys and in networking stocks
such as 3Com, Aspect Telecommunications, Cisco, and Ascend Communications.
In the health care sector, health maintenance organization (HMO) stocks
Pacificare Health Systems and Coventry Corp. were sold due to what we viewed as
deteriorating company fundamentals, while Healthsource was acquired and the
stock subsequently tendered. Proceeds from these moves funded new positions in
Aetna and CIGNA, both with growing exposure to the HMO industry, as well as an
increased weighting in United Healthcare, the leader in the industry. Positions
in drug stocks Pharmacia Upjohn and Rhone-Poulenc Rorer were replaced with
Bristol-Myers Squibb. Finally, HEALTHSOUTH was sold on higher valuation, and new
positions focusing on drug distribution -- Cardinal Health, AmeriSource,
McKesson, and Smith's Food and Drug -- were initiated.
The "other" category was concentrated to include fewer names, with one of them
being Tyco International which, through its acquisitions of both ADT and
Keystone International, each of which was already held in the portfolio, now
represents approximately 10% of the Account's assets. Sales were also made of
McDonnell Douglas, Colgate, Sears, PowerGen, and MCI Communications as their
valuations increased, and of Staples, Gymboree, and Advanta Corp. as their
fundamentals changed. Small positions were added in paper stocks such as Stone
Container and Jefferson Smurfit, tobacco stocks
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<PAGE> 5
Philip Morris and RJR Nabisco, as well as Waste Management Technologies.
In the leisure category, hotel stocks such as Hilton and ITT Corp. were added,
while positions in HFS and LaQuinta were increased. Among gaming issues, MGM
Grand, Argosy, and Showboat were sold. Energy holdings in the oil services
sector, one of the Account's best-performing areas, continue to be trimmed on
strength, but the original weighting has not changed over the past six months
because we remain confident that the group's earnings momentum will continue for
the foreseeable future.
Looking ahead, expectations of modest economic growth and subdued inflation
should continue to provide a positive backdrop for financial assets,
particularly equities. But this environment, which puts a premium on both the
visibility and growth of earnings, has not gone unnoticed by investors and is,
thus, unforgiving of disappointments. The stock market rally year to date has
broadly discounted much of the good news, resulting in most industry groups
appearing to be fairly valued and further increasing the importance of stock
selection over sector selection. In this environment, we believe the best course
for the Account is to concentrate holdings in companies that are led by strong
management teams and that have visible earnings growth and attractive relative
valuations.
MONEY MARKET VARIABLE ACCOUNT
Interest rates on short-term (90-day) securities increased moderately during the
past six months. During the same period, the Federal Reserve Board raised
short-term interest rates by 25 basis points (0.25%), from 5.25% to 5.50%. At
the present time, approximately 70% of the Account is invested in U.S.
government or government-guaranteed issues, with the balance in corporate and
bank issues. Furthermore, the average maturity of the Account on June 30, 1997,
was 47 days, versus 44 days on December 31, 1996. We continue to limit the
Account's investments to securities issued or guaranteed by the U.S. Treasury or
agencies or instrumentalities of the U.S. government, as well as to the
highest-quality corporate and bank issues, in order to provide maximum security
against credit risk.
Our market outlook over the next few months is neutral, and we expect to
maintain the average maturity in the 45-day range.
TOTAL RETURN VARIABLE ACCOUNT
For the six months ended June 30, 1997, the Account provided a total return of
11.97%, compared to returns of 20.60% for the S&P 500 and 2.74% for the Lehman
Brothers Government Corporate Bond Index (the Lehman Index), an unmanaged,
market-value-weighted index of U.S. Treasury and government-agency securities,
excluding mortgage-backed securities.
The pace of economic activity in the second quarter has slowed from the 5.9%
annual rate posted in the first quarter of 1997. However, the U.S. economy
remains firm, which should support corporate earnings growth. The rate of
unemployment remains low, ending June at 5% and, while inflation has not been a
problem in recent years, we are keeping a close eye out for any signs of an
increase.
We believe the continuing strength of the dollar should serve to dampen the U.S.
economy in the near future. Conversely, we feel that the rise in the dollar's
value over the past year should help improve the competitiveness of many foreign
corporations, which could serve to accelerate
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<PAGE> 6
foreign economies. Still, investors remain bullish on corporate America, and
stock prices have risen throughout most of the period.
Our allocations remain conservative. At the end of June, 58% of the portfolio
was invested in stocks, preferred stocks, and convertible bonds. We generally
consider a 60% stock weighting neutral and anything over 65% aggressive. We have
been maintaining this conservative equity posture for some time because, in our
view, equities are not cheap by historical standards. Specifically, the yield on
the S&P 500 is under 2%, which is close to an all-time low.
In selecting stocks for the Account, we prefer to own companies in which we
anticipate stable earnings growth. We also like to pay a price for these
securities (as measured by price-to-earnings ratios, dividend yields, and
price-to-book ratios) that is below the average for the market. We have found
these characteristics in the financial services and industrial goods and
services sectors, both of which did well during the period. Both sectors have
reported solid earnings, while consolidation activity continues to boost values
of financial services stocks.
We continue to be underweighted in the technology and the consumer nondurable
goods sectors. While we feel there are many fine companies in both of these
sectors, we do not think their valuations have been compelling in recent months.
The performance of aerospace and defense stocks has been disappointing, in part
because, after years of consolidation, the market is beginning to fear that the
industry is in for a period of slow growth. However, we still find this sector
attractive because we believe these companies can continue to produce solid
earnings over the long term. Another disappointment came in the utility sector,
in which the pace of deregulation continues to pick up, bringing uncertainty and
placing lower values on the sector.
Looking ahead, we see a modest growth rate in the U.S. economy over the next 12
months. Over the near term, however, we believe the Federal Reserve Board will
keep a close watch on wage inflation and general economic activity and may raise
interest rates again should economic indicators suggest a stronger-than-expected
economy.
Our bond portfolio represents approximately 33% of the Account, with two-thirds
in corporates and one-third in Treasuries. The duration, or interest-rate
sensitivity, of the bond portfolio has been approximately 5.4 years over the
period. Given where equity valuations are today, we feel comfortable with our
asset allocation. However, should the stock market correct, we would be looking
to buy additional stocks.
WORLD GOVERNMENTS VARIABLE ACCOUNT
For the six months ended June 30, 1997, the Account provided a total return
of -1.78%. This compares to a -1.23% return for the Salomon Brothers World
Governments Bond Index (the Salomon Index), an unmanaged index of complete
universes of government bonds with remaining maturities of at least five years.
The first six months of 1997 were quite contradictory for global fixed-income
markets in that the United States, buoyed by a strong consumer sector, and
Japan, helped by strong exports, witnessed very robust economies during the
first quarter. By the second quarter, both economies had slowed considerably.
Meanwhile, the European countries were experiencing pretty much the opposite;
namely, weaker growth at the beginning of the year followed by strength.
However, one common trend throughout the world during this period was a lack of
inflation.
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Against this background, most global bond markets rebounded significantly during
the second quarter. As measured in local currency terms by the Salomon Index,
the two best-performing markets year to date were the United Kingdom, which
advanced 6.05%, and Australia, which gained 5.85%. Most of the strength from the
United Kingdom was the result of the Labor Party's winning the national election
and immediately granting the Bank of England independence. In Australia, the
Reserve Bank became less concerned about future economic growth and more focused
on lowering inflation and dealing with higher unemployment. Accordingly, the
bank lowered interest rates. After a strong beginning of the year, the Japanese
bond market underperformed during the second quarter and ended up the worst
performer year to date, gaining just 2.11%. The portfolio has benefited by being
overweighted in the Australian sector, underweighted in Japan, and moving toward
an underweighted position in the United Kingdom after its central bank's
independence was announced.
While the Account's performance has benefited from bond selection during this
period, it was adversely impacted by its lower duration, or sensitivity to
interest rates, in most markets, as we did not anticipate such a significant
slowdown in the United States. Even though the portfolio was overweighted in the
stronger U.S. dollar for most of the period, nondollar currency positions were
largely responsible for the negative nominal returns.
Looking forward, we believe the portfolio will ultimately benefit from a
defensive bond posture. Presently, the U.S. bond market appears close to
reflecting an easing of monetary conditions that we believe will not happen. On
a relative basis, we feel the dollar-bloc countries, in particular Australia and
New Zealand, are the most attractive. In regard to Europe, the expected
interest-rate cuts in Italy and Spain occurred, and we see minimal further
narrowing of interest-rate spreads relative to Germany. Economic growth in Japan
continues at a strong pace, and we expect its central bank to tighten monetary
policy. Consequently, we continue to under-weight this sector.
INVESTMENT OBJECTIVES AND POLICIES
CAPITAL APPRECIATION VARIABLE ACCOUNT (CAVA) seeks capital appreciation by
investing in securities of all types, with a major emphasis on common stocks.
GOVERNMENT SECURITIES VARIABLE ACCOUNT (GSVA) seeks current income and
preservation of capital by investing in U.S. government and government-related
securities. Government guarantees apply to individual securities only and not to
prices and yields of shares in the managed portfolio.
HIGH YIELD VARIABLE ACCOUNT (HYVA) seeks high current income and capital
appreciation by investing primarily in fixed-income securities of U.S. and
foreign issuers that may be in the lower-rated categories or unrated and may
include equity features.
MANAGED SECTORS VARIABLE ACCOUNT (MSVA) seeks capital appreciation by varying
the weighting of its portfolio of common stocks among certain industry sectors.
Dividend income, if any, is incidental to its objective of capital appreciation.
MONEY MARKET VARIABLE ACCOUNT (MMVA) seeks maximum current income to the extent
that it is consistent with stability of principal by investing exclusively in
money market instru-
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ments maturing in less than 13 months. Investments in the Account are neither
guaranteed nor insured by the U.S. government.
TOTAL RETURN VARIABLE ACCOUNT (TRVA) seeks primarily to obtain above-average
income (compared to a portfolio entirely invested in equity securities)
consistent with prudent employment of capital; its secondary objective is to
take advantage of opportunities for growth of capital and income. Assets will be
allocated and reallocated from time to time between money market, fixed-income,
and equity securities. Generally, at least 40% and no more than 75% of its
assets will be invested in equity securities.
WORLD GOVERNMENTS VARIABLE ACCOUNT (WGVA) seeks moderate current income and
preservation and growth of capital by investing in a portfolio of U.S. and
foreign government securities.
SIX MONTH PERFORMANCE THROUGH
JUNE 30, 1997
<TABLE>
<CAPTION>
Compass 2 (U.S.) Compass 3 (U.S.)
<S> <C> <C>
Capital Appreciation
Variable Account +14.76% +14.71%
Government Securities
Variable Account +2.04% +1.99%
High Yield Variable
Account +5.76% +5.70%
Managed Sectors
Variable Account +12.99% +12.91%
Money Market Variable
Account +1.80% +1.75%
Total Return Variable
Account +11.27% +11.18%
World Governments
Variable Account -2.36% -2.44%
</TABLE>
* These performance results do not reflect any applicable contract or surrender
charges. Past performance is no guarantee of future results.
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PORTFOLIO OF INVESTMENTS -- June 30, 1997
CAPITAL APPRECIATION VARIABLE ACCOUNT
STOCKS -- 95.0%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. STOCKS -- 92.7%
ADVERTISING -- 0.2%
Universal Outdoor Holdings,
Inc.*............................ 36,400 $ 1,269,450
------------
AEROSPACE -- 2.5%
McDonnell-Douglas Corp. ........... 100,000 $ 6,850,000
United Technologies Corp. ......... 104,300 8,656,900
------------
$ 15,506,900
------------
AIRLINES -- 0.5%
America West Holding Corp., "B"*... 97,400 $ 1,412,300
Southwest Airlines Co. ............ 71,500 1,850,063
------------
$ 3,262,363
------------
AGRICULTURAL PRODUCTS -- 1.8%
AGCO Corp. ........................ 88,500 $ 3,180,469
Case Corp. ........................ 115,800 7,975,725
------------
$ 11,156,194
------------
BANKS AND CREDIT COMPANIES -- 0.8%
Fleet/Norstar Financial Group,
Inc. ............................ 75,600 $ 4,781,700
------------
BUSINESS MACHINES -- 0.2%
Affiliated Computer Services, Inc.,
"A"*............................. 50,500 $ 1,414,000
------------
BUSINESS SERVICES -- 6.4%
AccuStaff, Inc.*................... 191,600 $ 4,538,525
ADT Ltd.*.......................... 605,200 19,971,600
Ceridian Corp.*.................... 21,600 912,600
Corestaff, Inc.*................... 105,950 2,860,650
DST Systems, Inc.*................. 145,900 4,860,294
Ikon Office Solutions, Inc. ....... 184,800 4,608,450
Sabre Group Holding, Inc.,"A"*..... 50,600 1,372,525
------------
$ 39,124,644
------------
CHEMICALS -- 0.8%
Betzdearborn, Inc. ................ 43,900 $ 2,897,400
Praxair, Inc. ..................... 38,200 2,139,200
------------
$ 5,036,600
------------
COMPUTER SOFTWARE -- PERSONAL COMPUTERS -- 5.0%
First Data Corp. .................. 160,400 $ 7,047,575
Microsoft Corp.*................... 184,000 23,253,000
------------
$ 30,300,575
------------
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. STOCKS -- continued
COMPUTER SOFTWARE -- SERVICES -- 0.3%
Sterling Commerce, Inc.*........... 44,600 $ 1,466,225
------------
COMPUTER SOFTWARE -- SYSTEMS -- 9.0%
Adobe Systems, Inc. ............... 110,400 $ 3,870,900
BMC Software, Inc.*................ 63,100 3,494,162
Cadence Design Systems, Inc.*...... 386,400 12,944,400
Computer Associates International,
Inc. ............................ 279,300 15,553,519
Micros Systems, Inc.*.............. 30,000 1,260,000
Oracle Systems Corp.*.............. 287,650 14,490,369
Synopsys, Inc.*.................... 93,700 3,443,475
------------
$ 55,056,825
------------
CONSUMER GOODS AND SERVICES -- 8.3%
Colgate-Palmolive Co. ............. 111,000 $ 7,242,750
Gillette Co. ...................... 39,700 3,761,575
Hertz Corp., "A"*.................. 91,900 3,308,400
Philip Morris Cos., Inc. .......... 404,800 17,963,000
Tyco International Ltd. ........... 264,800 18,420,150
------------
$ 50,695,875
------------
DEFENSE ELECTRONICS -- 1.7%
Loral Space & Communications
Corp.*........................... 687,700 $ 10,315,500
------------
ELECTRICAL EQUIPMENT -- 1.5%
General Electric Co. .............. 113,200 $ 7,400,450
Westinghouse Electric Corp. ....... 76,200 1,762,125
------------
$ 9,162,575
------------
ELECTRONICS -- 8.0%
AES Corp.*......................... 54,900 $ 3,884,175
Altera Corp.*...................... 114,200 5,767,100
Analog Devices, Inc.*.............. 310,100 8,237,031
Intel Corp. ....................... 133,400 18,917,788
LSI Logic Corp.*................... 61,100 1,955,200
Microchip Technology, Inc.*........ 138,200 4,111,450
Xilinx, Inc.*...................... 115,200 5,652,000
------------
$ 48,524,744
------------
ENTERTAINMENT -- 4.2%
Clear Channel Communications,
Inc.*............................ 49,500 $ 3,044,250
Jacor Communications, Inc., "A"*... 131,800 5,041,350
LIN Television Corp.*.............. 124,300 5,484,737
</TABLE>
9-CAVA
<PAGE> 10
PORTFOLIO OF INVESTMENTS -- continued
STOCKS -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. STOCKS -- continued
ENTERTAINMENT -- continued
Mirage Resorts, Inc.*.............. 259,000 $ 6,539,750
Time Warner, Inc. ................. 110,000 5,307,500
Univision Communications, Inc.,
"A"*............................. 3,300 129,113
------------
$ 25,546,700
------------
FINANCIAL INSTITUTIONS -- 4.2%
Associates First Capital Corp.,
"A".............................. 23,700 $ 1,315,350
Federal Home Loan Mortgage
Corp. ........................... 244,000 8,387,500
Financial Federal Corp.*........... 89,700 1,973,400
Finova Group, Inc. ................ 77,500 5,928,750
Franklin Resources, Inc. .......... 58,300 4,230,394
Green Tree Financial Corp. ........ 107,900 3,843,937
------------
$ 25,679,331
------------
FOOD AND BEVERAGE PRODUCTS -- 1.0%
PepsiCo, Inc. ..................... 165,200 $ 6,205,325
------------
FOREST AND PAPER PRODUCTS -- 0.1%
Champion International Corp. ...... 7,100 $ 392,275
------------
INSURANCE -- 1.9%
Amerin Corp.*...................... 37,400 $ 906,950
Chubb Corp. ....................... 68,800 4,601,000
Conseco, Inc. ..................... 75,000 2,775,000
Travelers Group, Inc. ............. 52,600 3,317,087
------------
$ 11,600,037
------------
MACHINERY -- 0.7%
Deere & Co., Inc. ................. 53,500 $ 2,935,813
Lear Corp.*........................ 26,600 1,180,375
------------
$ 4,116,188
------------
MEDICAL AND HEALTH PRODUCTS -- 2.3%
Bristol-Myers Squibb Co. .......... 59,000 $ 4,779,000
Johnson & Johnson.................. 124,400 8,008,250
Omnicare, Inc. .................... 43,600 1,367,950
------------
$ 14,155,200
------------
MEDICAL AND HEALTH TECHNOLOGY AND SERVICES -- 4.9%
Genesis Health Ventures, Inc.*..... 51,800 $ 1,748,250
Health Management Associates,
Inc.,"A"*........................ 80,200 2,285,700
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. STOCKS -- continued
MEDICAL AND HEALTH TECHNOLOGY AND
SERVICES -- continued
Healthsouth Corp.*................. 233,900 $ 5,832,881
Medtronic, Inc. ................... 21,000 1,701,000
Oxford Health Plans, Inc.*......... 89,600 6,428,800
United Healthcare Corp. ........... 230,200 11,970,400
------------
$ 29,967,031
------------
METALS AND MINERALS -- 0.4%
Minerals Technologies, Inc. ....... 63,700 $ 2,388,750
------------
OILS -- 1.1%
Hanover Compressor................. 2,800 $ 54,600
Mobil Corp. ....................... 94,600 6,610,175
------------
$ 6,664,775
------------
PHOTOGRAPHIC PRODUCTS -- 0.7%
Eastman Kodak Co. ................. 58,400 $ 4,482,200
------------
RAILROADS -- 2.7%
Burlington Northern Santa Fe
Railway Co. ...................... 28,900 $ 2,597,387
Wisconsin Central Transportation
Corp.*........................... 379,400 14,132,650
------------
$ 16,730,037
------------
RESTAURANTS AND LODGING -- 6.6%
HFS, Inc.*......................... 454,200 $ 26,343,600
Promus Hotel Corp.*................ 366,150 14,188,312
------------
$ 40,531,912
------------
STORES -- 6.6%
Ann Taylor Stores Corp.*........... 86,100 $ 1,678,950
Boise Cascade Office Products
Corp.*........................... 16,900 287,300
Corporate Express, Inc.*........... 170,750 2,465,203
CVS Corp. ......................... 125,200 6,416,500
Duty Free International, Inc. ..... 17,500 328,125
Linens 'N Things, Inc.*............ 8,300 245,887
Micro Warehouse, Inc.*............. 156,200 2,674,925
Office Depot, Inc.*................ 300,500 5,840,969
PETsMART, Inc.*.................... 463,800 5,333,700
Rite Aid Corp. .................... 164,600 8,209,425
</TABLE>
10-CAVA
<PAGE> 11
STOCKS -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. STOCKS -- continued
STORES -- continued
Sears, Roebuck & Co. .............. 68,200 $ 3,665,750
Staples, Inc.*..................... 124,700 2,899,275
------------
$ 40,046,009
------------
SUPERMARKETS -- 0.9%
Safeway Inc.*...................... 124,300 $ 5,733,338
------------
TELECOMMUNICATIONS -- 7.4%
3Com Corp.*........................ 125,100 $ 5,629,500
Ascend Communications, Inc.*....... 141,700 5,579,437
Cisco Systems, Inc.*............... 121,400 8,148,975
Glenayre Technologies, Inc.*....... 326,200 5,341,525
Lucent Technologies, Inc. ......... 30,700 2,212,319
Qwest Communications International,
Inc.*............................. 3,600 98,100
Tel-Save Holdings, Inc.*........... 79,400 1,210,850
Tel-Save Holdings, Inc.+........... 89,500 1,454,375
Teleport Communications Group,
Inc., "A"*........................ 70,800 2,416,050
Tellabs, Inc.*..................... 29,500 1,648,313
WorldCom, Inc.*.................... 366,180 11,717,760
------------
$ 45,457,204
------------
Total U.S. Stocks.......................... $566,770,482
------------
FOREIGN STOCKS -- 2.3%
CANADA -- 0.8%
Loewen Group, Inc. (Business
Services)......................... 17,800 $ 618,550
Loewen Group, Inc. (Business
Services)##....................... 67,000 2,324,737
Canadian National Railway Co.
(Railroads)....................... 50,900 2,226,875
------------
$ 5,170,162
------------
HONG KONG -- 0.1%
Peregrine Investment Holdings
(Brokerage)....................... 166,000 $ 341,771
------------
ITALY -- 0.2%
Gucci Group Designs N.V. (Apparel
and Textiles)..................... 24,300 $ 1,564,313
------------
<CAPTION>
Issuer Shares Value
<S> <C> <C>
FOREIGN STOCKS -- continued
SINGAPORE -- 0.2%
Mandarin Oriental International,
Ltd. (Restaurants and Lodgings)... 827,990 $ 1,076,387
------------
UNITED KINGDOM -- 1.0%
British Petroleum PLC, ADR
(Oils)............................ 78,000 $ 5,840,250
Central European Media Enterprises
Ltd. (Television)*................ 16,200 421,200
------------
$ 6,261,450
------------
Total Foreign Stocks....................... $ 14,414,083
------------
Total Stocks (Identified Cost,
$419,887,529).............................. $581,184,565
------------
SHORT-TERM OBLIGATIONS -- 4.7%
<CAPTION>
Principal Amount
(000 Omitted)
<S> <C> <C>
Federal Home Loan Mortgage
Corp., due 7/17/97........... $ 7,255 $ 7,237,556
Federal National Mortgage
Assn., due 7/18/97........... 4,000 3,989,781
Federal National Mortgage
Assn., due
7/01/97 - 7/24/97............ 14,610 14,569,145
General Electric Co., due
7/01/97...................... 2,800 2,800,000
------------
Total Short-Term Obligations, at Amortized
Cost......................................... $ 28,596,482
------------
Total Investments (Identified Cost,
$448,484,011)................................ $609,781,047
------------
OTHER ASSETS, LESS LIABILITIES -- 0.3% 1,700,953
------------
Net Assets -- 100.0%......................... $611,482,000
============
</TABLE>
See portfolio footnotes and notes to financial statements
11-CAVA
<PAGE> 12
PORTFOLIO OF INVESTMENTS -- June 30, 1997
GOVERNMENT SECURITIES VARIABLE ACCOUNT
BONDS -- 98.8%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. FEDERAL AGENCIES -- 35.3%
Federal Home Loan Mortgage
Corp., 8s, 2005............... $ 4,522 $ 4,583,880
Federal Home Loan Mortgage
Corp., 6.5s, 2027............. 3,275 2,687,035
Federal Housing Authority,
7.43s, 2022................... 9,177 9,172,257
Federal National Mortgage
Assn., 7s, 2027............... 3,726 3,273,462
Federal National Mortgage
Assn., 7.174s, 2020........... 678 680,979
Federal National Mortgage
Assn., 7.27s, 2005............ 3,933 4,024,327
Federal National Mortgage
Assn., 7.5s, 2000 - 2027...... 14,135 14,259,725
Federal National Mortgage
Assn., 8s, 2023 - 2027........ 7,940 2,911,571
Federal National Mortgage
Assn., 8.5s, 2007............. 273 283,045
Federal National Mortgage Assn,
9.5s, 2019.................... 2,833 860,467
Federal National Mortgage
Assn., 10s, 2018.............. 4,345 4,750,192
Financing Corp., 9.8s, 2018.... 9,000 11,598,750
Private Export Funding Corp.,
6.24s, 2002................... 3,200 3,155,712
Resolution Funding Corp.,
8.875s, 2020.................. 3,700 4,475,853
Tennessee Valley Authority, 0s,
2042.......................... 7,250 2,580,420
U.S. Department of Veterans
Affairs, 7.5s, 2009........... 3,400 3,465,875
U.S. Department of Veterans
Affairs, 7.75s, 2014.......... 3,000 3,057,180
------------
Total U.S. Federal Agencies................... $ 75,820,730
------------
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. GOVERNMENT GUARANTEED -- 63.5%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 26.2%
GNMA, 7s, 2023 - 2025.......... $ 1,608 $ 1,579,996
GNMA, 7.5s, 2008 - 2025........ 29,866 30,022,847
GNMA, 8s, 2026................. 15,424 15,780,797
GNMA, 9s, 2017................. 7,370 7,913,788
GNMA, 10s, 2016................ 8 8,641
GNMA, 11s, 2010................ 635 719,016
GNMA, 12.5s, 2015.............. 100 116,743
GNMA, 13.25s, 2014............. 2 2,892
GNMA, 14s, 2015................ 63 76,029
------------
$ 56,220,749
------------
SMALL BUSINESS ADMINISTRATION -- 5.2%
SBA, 10.35s, 1997.............. $ 188 $ 189,231
SBA, 8.2s, 2005................ 1,828 1,894,560
SBA, 8.4s, 2007................ 375 391,033
SBA, 9.95s, 2008............... 766 839,199
SBA, 8.7s, 2009................ 1,422 1,508,102
SBA, 10.05s, 2009.............. 794 872,890
SBA, 9.5s, 2010................ 5,088 5,533,249
------------
$ 11,228,264
------------
U.S. TREASURY OBLIGATIONS -- 32.1%
U.S. Treasury Notes, 5.75s,
1998.......................... $ 2,750 $ 2,741,832
U.S. Treasury Notes, 9.25s,
1998.......................... 4,190 4,339,918
U.S. Treasury Notes, 7.75s,
1999.......................... 10,000 10,348,400
U.S. Treasury Notes, 9.125s,
1999.......................... 9,110 9,592,557
U.S. Treasury Notes, 6.75s,
2000.......................... 5,700 5,774,784
U.S. Treasury Notes, 8s,
2001.......................... 6,400 6,760,000
U.S. Treasury Notes, 6.5s,
2002 - 2006................... 23,250 23,240,067
U.S. Treasury Bonds, 9.875s,
2015.......................... 4,700 6,180,500
------------
$ 68,978,058
------------
Total U.S. Government Guaranteed..............
$136,427,071
------------
Total Bonds (Identified Cost, $207,366,869)...
$212,247,801
------------
</TABLE>
12-GSVA
<PAGE> 13
BONDS -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
REPURCHASE AGREEMENT -- 0.2%
Investments in repurchase
agreements with Goldman Sachs,
in a joint trading account
($281,752,000), dated 6/30/97,
due 7/01/97, total to be
received $281,797,784,
collateralized by various U.S.
Treasury and Federal Agency
Obligations (with $280,591,000
par and valued at
$284,822,192), at Cost........ $ 375 $ 375,000
------------
Total Investments (Identified Cost,
$207,741,869)................................. $212,622,801
OTHER ASSETS, LESS LIABILITIES -- 1.0% 2,343,854
------------
Net Assets -- 100.0%.......................... $214,966,655
============
</TABLE>
See portfolio footnotes and notes to financial statements
<TABLE>
<S> <C> <C>
PORTFOLIO OF INVESTMENTS -- June 30, 1997
HIGH YIELD VARIABLE ACCOUNT
BONDS -- 92.1%
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. BONDS -- 87.8%
AEROSPACE -- 3.3%
Airplane Pass-Thru Trust,
10.875s, 2019................. $ 750 $ 862,500
BE Aerospace, Inc., 9.875s,
2006.......................... 900 947,250
CHC Helicopter Corp., 11.5s,
2002.......................... 700 728,000
K & F Industries, Inc.,
10.375s, 2004................. 1,870 1,982,200
MOOG, Inc., 10s, 2006.......... 1,200 1,248,000
------------
$ 5,767,950
------------
BUILDING -- 1.2%
Building Materials Corp. of
America, 8.625s, 2006##....... $ 200 $ 203,000
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. BONDS -- continued
BUILDING -- continued
Nortek, Inc., 9.875s, 2004..... $ 975 $ 999,375
Nortek, Inc., 9.25s, 2007##.... 950 964,250
UDC Homes, Inc., 14.5s, 2000... 3 1,465
------------
$ 2,168,090
------------
CHEMICALS -- 3.6%
Indspec Chemical Corp., 0s to
1998, 11.5s to 2003........... $ 750 $ 701,250
NL Industries, Inc., 11.75s,
2003.......................... 2,400 2,604,000
Sterling Chemicals, Inc.,
11.75s, 2006.................. 800 864,000
Sterling Chemicals, Inc.,
11.25s, 2007##................ 200 214,500
UCC Investors Holdings, Inc.,
10.5s, 2002................... 1,800 1,957,500
------------
$ 6,341,250
------------
COMPUTER SOFTWARE -- SYSTEMS -- 0.4%
Anacomp, Inc., 10.875s,
2004##........................ $ 650 $ 663,000
------------
CONSUMER GOODS AND SERVICES -- 5.0%
American Safety Razor Co.,
9.875s, 2005.................. $ 1,000 $ 1,067,500
Dominion Textile-USA, 9.25s,
2006.......................... 500 515,000
E & S Holdings Corp., 10.375s,
2006.......................... 1,900 1,976,000
Genmar Holdings, Inc., 13.5s,
2001.......................... 625 606,250
Kindercare Learning Center,
Inc., 9.5s, 2009.............. 800 778,000
Reeves Industries, Inc., 11s,
2002.......................... 500 375,000
Remington Arms, Inc., 9.5s,
2003.......................... 900 814,500
Remington Products LLC, 11s,
2006.......................... 200 176,500
Sealy Corp., 10.25s, 2003...... 1,205 1,265,250
Westpoint Stevens, Inc.,
9.375s, 2005.................. 1,175 1,227,875
------------
$ 8,801,875
------------
</TABLE>
13-HYVA
<PAGE> 14
PORTFOLIO OF INVESTMENTS -- continued
BONDS -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. BONDS -- continued
CONTAINERS -- 2.1%
Gaylord Container Corp., 9.75s,
2007##........................ $ 950 $ 947,625
Silgan Holdings, Inc., 9s,
2009##........................ 2,000 2,020,000
U.S. Can Corp., 10.125s,
2006.......................... 750 796,875
------------
$ 3,764,500
------------
CORPORATE ASSET BACKED -- 0.5%
Merrill Lynch Mortgage
Investors, Inc., 8.155s,
2023+......................... $ 1,000 $ 868,438
------------
ENTERTAINMENT -- 2.3%
AMC Entertainment, Inc., 9.5s,
2009##........................ $ 2,050 $ 2,132,000
Cinemark USA, Inc., 9.625s,
2008.......................... 1,250 1,287,500
Plitt Theatres, Inc., 10.875s,
2004.......................... 600 636,000
------------
$ 4,055,500
------------
FINANCIAL INSTITUTIONS -- 0.4%
Integon Capital, Inc., 10.75s,
2027##........................ $ 550 $ 670,313
------------
FOOD AND BEVERAGE PRODUCTS -- 3.8%
Delta Beverage Group, Inc.,
9.75s, 2003##................. $ 575 $ 592,250
Keebler Corp., 10.75s, 2006.... 1,200 1,344,000
PMI Acquisition Corp., 10.25s,
2003.......................... 1,000 1,045,000
Specialty Foods Corp., 10.25s,
2001.......................... 1,950 1,925,625
Texas Bottling Group, Inc., 9s,
2003.......................... 1,750 1,780,625
------------
$ 6,687,500
------------
FOREST AND PAPER PRODUCTS -- 4.0%
Atlantis Group, Inc., 11s,
2003.......................... $ 1,300 $ 1,332,500
Calmar, Inc., 11.5s, 2005...... 1,650 1,786,125
Florida Coast Paper Co.,
12.75s, 2003.................. 1,000 1,037,500
Pacific Lumber Co., 10.5s,
2003.......................... 1,750 1,802,500
Repap Wisconsin, Inc., 9.25s,
2002.......................... 400 404,000
Speciality Paperboard, Inc.,
9.375s, 2006.................. 600 609,750
------------
$ 6,972,375
------------
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. BONDS -- continued
INDUSTRIAL -- 4.5%
AGCO Corp., 8.5s, 2006......... $ 800 $ 818,000
Clark Schwebel, Inc., 10.5s,
2006.......................... 950 1,026,000
Exide Corp., 10s, 2005##....... 1,500 1,552,500
Harvard Industries, Inc., 12s,
2004.......................... 60 24,600
Harvard Industries, Inc.,
11.125s, 2005................. 110 44,275
Hayes Wheels International,
Inc., 11s, 2006............... 1,000 1,100,000
Hayes Wheels International,
Inc., 9.125s, 2007##.......... 900 900,000
L3 Communications Corp.,
10.375s, 2007##............... 500 531,250
Oxford Automotive, Inc.,
10.125s, 2007##............... 450 450,000
Venture Holdings Trust, 9.75s,
2004.......................... 575 563,500
Williams Scotsman, Inc.,
9.875s, 2007##................ 850 858,500
------------
$ 7,868,625
------------
INFORMATION, PAGING AND TECHNOLOGY -- 1.8%
Iron Mountain, Inc., 10.125s,
2006.......................... $ 1,450 $ 1,551,500
Pierce Leahy Corp., 11.125s,
2006.......................... 1,450 1,580,500
------------
$ 3,132,000
------------
MEDIA -- 8.6%
Allbritton Communications Co.,
9.75s, 2007................... $ 700 $ 689,500
American Radio Systems Corp.,
9s, 2006...................... 1,700 1,734,000
</TABLE>
14-HYVA
<PAGE> 15
BONDS -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. BONDS -- continued
MEDIA -- continued
Cablevision Systems Corp.,
9.25s, 2005................... $ 1,500 $ 1,545,000
Chancellor Radio Broadcasting
Corp., 8.75s, 2007##.......... 400 395,000
Charter Communications
Southeast LP, 11.25s, 2006.... 1,200 1,296,000
Comcast Corp., 9.375s, 2005.... 850 892,500
Diamond Cable Communications
Corp., 11.75s, 2005........... 1,150 796,375
Diamond Cable Communications
Corp., 0s to 2002, 10.75s to
2007##........................ 1,750 1,036,875
Falcon Holdings Group, Inc.,
11s, 2003..................... 1,059 1,064,715
Granite Broadcasting Corp.,
10.375s, 2005................. 2,000 2,020,000
Jones Intercable, Inc., 9.625s,
2002.......................... 500 523,750
Jones Intercable, Inc., 8.875s,
2007.......................... 200 204,000
Lenfest Communications, Inc.,
10.5s, 2006................... 1,200 1,302,000
Marcus Cable Operating Co., 0s
to 1999, 13.5s to 2004........ 875 761,250
Marvel Holdings, Inc., 0s,
1998**........................ 1,165 168,925
Peoples Choice TV Corp.,
13.125s, 2004................. 1,550 573,500
------------
$ 15,003,390
------------
MEDICAL AND HEALTH TECHNOLOGY AND SERVICES -- 2.5%
Beverly Enterprises, Inc., 9s,
2006.......................... $ 2,000 $ 2,057,500
Genesis Health Ventures, Inc.,
9.75s, 2005................... 1,000 1,035,000
Quorum Health Group, 8.75s,
2005.......................... 900 931,500
Tenet Healthcare Corp., 8s,
2005.......................... 400 401,000
------------
$ 4,425,000
------------
Principal Amount
Issuer (000 Omitted) Value
U.S. BONDS -- continued
METALS AND MINERALS -- 1.4%
Haynes International, Inc.,
11.625s, 2004................. $ 1,550 $ 1,705,000
Kaiser Aluminum & Chemical
Corp., 9.875s, 2002........... 125 128,125
Kaiser Aluminum & Chemical
Corp., 12.75s, 2003........... 500 543,125
------------
$ 2,376,250
------------
OIL SERVICES -- 3.0%
AmeriGas Partners LP, 10.125s,
2007.......................... $ 1,300 $ 1,382,875
Clark Refining & Manufacturing,
Inc., 0s, 2000................ 550 416,625
Clark USA, Inc., 10.875s,
2005.......................... 900 957,375
Falcon Drilling, Inc., 8.875s,
2003.......................... 1,300 1,316,250
Ferrell Gas LP, 10s, 2001...... 900 956,250
Giant Industries, Inc., 9.75s,
2003.......................... 300 306,000
------------
$ 5,335,375
------------
PRINTING AND PUBLISHING -- 0.8%
Day International Group, Inc.,
11.125s, 2005................. $ 750 $ 791,250
Golden Books Publishing, Inc.,
7.65s, 2002................... 600 565,500
------------
$ 1,356,750
------------
RESTAURANTS AND LODGING -- 6.5%
Casino America, Inc., 12.5s,
2003.......................... $ 800 $ 826,000
Coast Hotels & Casinos, Inc.,
13s, 2002..................... 750 836,250
Eldorado Resorts LLC, 10.5s,
2006.......................... 1,800 1,908,000
Four Seasons Hotels, Inc.,
9.125s, 2000##................ 650 689,000
Grand Casinos, Inc., 10.125s,
2003.......................... 1,850 1,924,000
Griffin Gaming & Entertainment,
Inc., 0s, 2000................ 1,000 1,030,000
Harrah's Jazz Co., 14.25s,
2001.......................... 825 317,625
</TABLE>
15-HYVA
<PAGE> 16
PORTFOLIO OF INVESTMENTS -- continued
BONDS -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. BONDS -- continued
RESTAURANTS AND LODGING -- continued
Harvey's Casinos Resorts,
10.625s, 2006................. $ 750 $ 810,000
Prime Hospitality Corp., 9.75s,
2007.......................... 100 104,500
Red Roof Inns, Inc., 9.625s,
2003.......................... 1,950 2,018,250
Sam Houston Race Park, Inc.,
11s, 2001..................... 326 139,967
Santa Fe Hotel, Inc., 11s,
2000.......................... 1,065 772,125
------------
$ 11,375,717
------------
RETAIL -- 1.1%
Finlay Fine Jewelry, 10.625s,
2003.......................... $ 650 $ 682,500
Jitney Jungle Stores of
America, Inc., 12s, 2006...... 200 222,000
Parisian, Inc., 9.875s, 2003... 1,050 1,102,500
------------
$ 2,007,000
------------
SPECIAL PRODUCTS AND SERVICES -- 8.0%
AAF-Mcquay, Inc., 8.875s,
2003.......................... $ 1,500 $ 1,503,750
Fairfield Manufacturing Corp.,
11.375s, 2001................. 300 318,000
Howmet Corp., 10s, 2003........ 1,050 1,134,000
IMO Industries, Inc., 11.75s,
2006.......................... 920 1,099,400
Interlake Corp., 12s, 2001..... 850 935,000
Interlake Corp., 12.125s,
2002.......................... 1,650 1,732,500
Interlake Revolver, "B", 8.5s,
1997##........................ 151 150,646
International Knife And Saw,
Inc., 11.375s, 2006........... 1,000 1,072,500
Polymer Group, Inc., 12.25s,
2002.......................... 834 917,400
Polymer Group, Inc., 9s,
2007##........................ 1,750 1,721,843
Synthetic Industries, Inc.,
9.25s, 2007##................. 2,000 2,030,000
Thermadyne Industries Holdings
Corp., 10.25s, 2002........... 1,289 1,353,450
------------
$ 13,968,489
------------
STEEL -- 3.8%
Alaska Steel Corp., 9.125s,
2006.......................... $ 600 $ 612,000
Carbide/Graphite Group, Inc.,
11.5s, 2003................... 200 218,500
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. BONDS -- continued
STEEL -- continued
Commonwealth Aluminum Corp.,
10.75s, 2006.................. $ 2,000 $ 2,080,000
CSN Iron SA, 9.125s, 2007##.... 675 656,437
Jorgensen (Earle M.) Co.,
10.75s, 2000.................. 900 900,000
Northwestern Steel & Wire Co.,
9.5s, 2001.................... 100 90,000
WCI Steel, Inc., 10s, 2004..... 2,000 2,075,000
------------
$ 6,631,937
------------
SUPERMARKETS -- 2.6%
Brunos, Inc., 10.5s, 2005...... $ 400 $ 403,000
Carr-Gottstein Foods Co., 12s,
2005.......................... 350 388,500
Dominick's Finer Foods Co.,
10.875s, 2005................. 250 276,250
Pathmark Stores, Inc., 9.625s,
2003.......................... 600 586,500
Ralph's Grocery Co., 10.45s,
2004.......................... 1,450 1,551,500
Shoppers Food Warehouse Corp.,
9.75s, 2004##................. 400 400,500
Star Market, Inc., 13s, 2004... 800 908,000
------------
$ 4,514,250
------------
TELECOMMUNICATIONS -- 16.3%
Brooks Fiber Properties, Inc.,
0s to 2001, 10.875s to 2006... $ 1,000 $ 680,000
Brooks Fiber Properties, Inc.,
0s to 2001, 11.875s to 2006... 1,250 812,500
Comcast Cellular Holdings,
Inc., 9.5s, 2007##............ 1,200 1,206,000
Echostar Communications Corp.,
12.875s, 2004................. 1,100 930,875
Echostar DBS Corp., 12.5s,
2002##........................ 150 148,688
Echostar Satellite Broadcasting
Corp., 0s to 2000, 13.125s to
2004.......................... 1,725 1,242,000
Esat Holdings Ltd., 12.5s,
2007##........................ 550 332,750
GlobalStar Co., 11.375s,
2004##........................ 1,075 1,077,687
</TABLE>
16-HYVA
<PAGE> 17
BONDS -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. BONDS -- continued
TELECOMMUNICATIONS -- continued
Hollinger International
Publishing, Inc., 9.25s,
2007.......................... $ 1,850 $ 1,887,000
ICG Holdings, Inc., 0s to 2001,
12.5s to 2006................. 2,650 1,775,500
Intercel, Inc., 11.125s,
2007##........................ 175 175,875
Intermedia Capital Partners IV,
LP, 11.25s, 2006.............. 1,000 1,095,000
ITC Deltacom, Inc., 11s,
2007##........................ 500 510,000
McCaw International Ltd., 13s
2007.......................... 700 339,500
Millicom International Cellular
Communications Corp., 0s to
2001, 13.5s to 2006........... 1,000 730,000
Mobile Telecommunication
Technologies Corp., 13.5s,
2002.......................... 600 642,000
Mobilemedia Communications,
Inc., Os to 1998, 10.5s to
2003.......................... 215 27,950
Nextel Communications, Inc., 0s
to 1999, 9.75s to 2004........ 1,450 1,109,250
Orion Network Systems, Inc.,
11.25s, 2007.................. 1,000 1,025,000
Orion Network Systems, Inc.,
12.5s, 2007................... 700 399,000
Outdoor Systems, Inc., 8.875s,
2007##........................ 800 778,000
Paging Network, Inc., 8.875s,
2006.......................... 975 887,250
PTC International Finance BV,
0s to 2002, 10.75s to
2007##........................ 500 303,750
Qwest Communications
International, Inc., 10.875s,
2007##........................ 1,190 1,291,150
Rogers Cablesystems, Inc.,
10.125s, 2012................. 1,750 1,855,000
Sygnet Wireless, Inc., 11.5s,
2006.......................... 1,125 1,147,500
Sprint Spectrum LP, 0s to 2001,
12.5s to 2006................. 1,750 1,277,500
Principal Amount
Issuer (000 Omitted) Value
U.S. BONDS -- continued
TELECOMMUNICATIONS -- continued
Sprint Spectrum LP, 11s,
2006.......................... $ 1,100 $ 1,218,250
Teleport Communications Group,
Inc., 0s to 2001, 11.125s to
2007.......................... 2,600 1,875,250
Telesystem International
Wireless, Inc., 0s to 2001,
13.25s to 2007##.............. 800 424,000
Western Wireless Corp., "A",
10.5s, 2007................... 1,250 1,292,187
------------
$ 28,496,412
------------
TRANSPORTATION -- 0.3%
Moran Transportation Co.,
11.75s, 2004.................. $ 500 $ 556,250
------------
Total U.S. Bonds.............................. $153,808,236
------------
FOREIGN BONDS -- 4.3%
INDONESIA -- 0.8%
APP Finance II Mauritius Ltd.,
12s, 2049 (Finance)##......... $ 575 $ 589,375
Indah Kiat Finance Mauritius
Ltd., 10s, 2007 (Forest and
Paper Products)##............. 900 894,123
------------
$ 1,483,498
------------
UNITED KINGDOM -- 3.5%
Newsquest Capital PLC, 11s,
2006 (Printing and
Publishing)................... $ 1,250 $ 1,362,500
Colt Telecom Group PLC, 0s to
2000, 12s to 2006
(Telecommunications).......... 2,700 1,734,750
Telewest PLC, 9.625s, 2006
(Telecommunications).......... 1,600 1,648,000
Central Transport Rental
Finance Corp., 9.5s, 2003
(Transportation).............. 1,332 1,291,995
------------
$ 6,037,245
------------
Total Foreign Bonds........................... $ 7,520,743
------------
Total Bonds (Identified Cost, $156,306,776)... $161,328,979
------------
</TABLE>
17-HYVA
<PAGE> 18
PORTFOLIO OF INVESTMENTS -- continued
BONDS -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
CONVERTIBLE BOND -- 0.4%
AUTOMOTIVE -- 0.4%
Exide Corp., 2.9s, 2005##
(Identified Cost, $605,000)... $ 1,000 $ 622,500
------------
STOCKS -- 0.4%
<CAPTION>
Shares
<S> <C> <C>
U.S. STOCKS -- 0.3%
APPAREL AND TEXTILES -- 0.3%
Ithaca Industries, Inc.*....... 60,000 $ 480,000
------------
BUILDING
Atlantic Gulf Communities
Corp.,+*...................... 150 $ 956
------------
CONSUMER GOODS AND SERVICES
Ranger Industries, Inc.,*...... 123,210 $ 84,769
------------
POLLUTION CONTROL
Envirosource, Inc.,+*.......... 1,666 $ 3,332
------------
RESTAURANTS AND LODGING
Sam Houston Race Park,
Inc.,*........................ 82 $ 328
------------
Total U.S. Stocks............................. $ 569,385
------------
FOREIGN STOCKS -- 0.1%
UNITED KINGDOM -- 0.1%
Central Transport Rental Group
PLC, ADR (Transportation)*.... 653,937 $ 224,791
------------
Total Stocks (Identified Cost, $4,767,537).... $ 794,176
------------
PREFERRED STOCKS -- 4.2%
CONSUMER GOODS AND SERVICES -- 0.3%
Renaissance Cosmetics, Inc.,
14s+*......................... 666 $ 586,080
------------
<CAPTION>
Issuer Shares Value
<S> <C> <C>
PREFERRED STOCK -- continued
ENTERTAINMENT -- 1.4%
Time-Warner, Inc., "K",
10.25s........................ 2,148 $ 2,386,428
------------
MEDIA -- 1.6%
Cablevision Systems Corp.,
11.125s##..................... 16,286 $ 1,636,743
Chancellor Radio Broadcasting
Corp.##*...................... 10,000 1,140,000
------------
$ 2,776,743
------------
SPECIAL PRODUCTS AND SERVICES -- 0.9%
K-III Communications Corp.,
"B"........................... 14,823 $ 1,600,891
------------
Total Preferred Stock (Identified Cost,
$6,143,491)................................... $ 7,350,142
------------
WARRANTS -- 0.2%
Crystal Oil Co., $0.075*....... 1,920,847 $ 0
Crystal Oil Co., $0.10*........ 1,683,209 0
Crystal Oil Co., $0.125*....... 2,000,087 0
Crystal Oil Co., $0.15*........ 1,963,306 0
Crystal Oil Co., $0.25*........ 1,963,306 0
Esat Holdings Ltd.*##.......... 550 11,000
ICO, Inc.*..................... 375,000 243,750
Renaissance Cosmetics, Inc.*... 600 60,000
------------
Total Warrants (Identified Cost, $249,883).... $ 314,750
------------
Total Investments (Identified Cost,
$167,649,726)................................. $170,410,547
OTHER ASSETS, LESS LIABILITIES -- 2.7% 4,787,238
------------
Net Assets -- 100.0%.......................... $175,197,785
============
</TABLE>
See portfolio footnotes and notes to financial statements
18-HYVA
<PAGE> 19
PORTFOLIO OF INVESTMENTS -- June 30, 1997
MANAGED SECTORS VARIABLE ACCOUNT
STOCKS -- 97.5%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
ENERGY -- 10.0%
Apache Corp.................... 39,500 $ 1,283,750
BJ Services Co.*............... 27,400 1,469,325
Camco International, Inc. ..... 30,000 1,642,500
Cooper Cameron Corp.*.......... 70,000 3,272,500
Occidental Petroleum Corp. .... 58,300 1,461,144
Weatherford Enterra, Inc.*..... 45,000 1,732,500
------------
$ 10,861,719
------------
LEISURE -- 21.8%
Aerial Communications, Inc.*... 72,000 $ 612,000
AirTouch Communications,
Inc.*......................... 38,000 1,040,250
Harrah's Entertainment,
Inc.*......................... 155,700 2,841,525
HFS, Inc.*..................... 35,800 2,076,400
Hilton Hotels Corp. ........... 64,000 1,700,000
Host Marriott Corp.*........... 102,800 1,831,125
ITT Corp.*..................... 22,500 1,373,906
LIN Television Corp.*.......... 26,000 1,147,250
La Quinta Inns, Inc. .......... 41,700 912,187
Promus Hotel Corp.*............ 51,400 1,991,750
Telephone & Data Systems,
Inc. ......................... 216,500 8,213,469
------------
$ 23,739,862
------------
MEDICAL AND HEALTH TECHNOLOGY AND SERVICES -- 13.5%
Aetna Inc. .................... 6,300 $ 644,963
AmeriSource Health Corp.
"A"*.......................... 18,800 937,650
Bristol-Myers Squibb Co. ...... 27,500 2,227,500
Cardinal Health, Inc. ......... 8,100 463,725
CIGNA Corp. ................... 8,000 1,420,000
Genesis Health Ventures,
Inc.*......................... 36,800 1,242,000
Mckesson Corp. ................ 9,600 744,000
Medpartners, Inc.*............. 14,200 307,075
Mid Atlantic Medical Services,
Inc.*......................... 9,500 147,844
Smith's Food and Drug Centers,
Inc., "B"*.................... 21,500 1,152,937
St. Jude Medical, Inc.*........ 38,000 1,482,000
United Healthcare Corp. ....... 76,000 3,952,000
------------
$ 14,721,694
<CAPTION>
Issuer Shares Value
<S> <C> <C>
TECHNOLOGY -- 38.0%
3Com Corp.*.................... 35,000 $ 1,575,000
ADT Ltd.*...................... 222,000 7,326,000
Analog Devices, Inc.*.......... 37,000 982,812
Ascend Communications, Inc.*... 26,800 1,055,250
Aspect Telecommunications
Corp.*........................ 46,100 1,025,725
Atmel Corp.*................... 108,000 3,024,000
Cisco Systems, Inc.*........... 11,500 771,938
Compaq Computer Corp.*......... 26,600 2,640,050
Computer Associates
International Inc. ........... 54,000 3,007,125
Digital Equipment Corp.*....... 81,500 2,888,156
International Business Machines
Corp. ........................ 20,600 1,857,862
Loral Space and Communications
Corp.*........................ 115,000 1,725,000
Lucent Technologies, Inc. ..... 5,800 417,963
Microsoft Corp.*............... 9,000 1,137,375
Oracle Systems Corp.*.......... 32,000 1,612,000
Sony Corp. .................... 17,000 1,483,102
Spectrum Holobyte, Inc.*....... 225,300 1,098,337
Sun Microsystems, Inc.*........ 52,200 1,942,819
Synopsys, Inc.*................ 46,400 1,705,200
Teradyne, Inc.*................ 8,400 329,700
Texas Instruments, Inc. ....... 18,300 1,538,344
WorldCom, Inc.*................ 66,900 2,140,800
------------
$ 41,284,558
OTHER -- 14.2%
AGCO Corp. .................... 52,000 $ 1,868,750
Equitable of Iowa Cos. ........ 39,000 2,184,000
Hanover Compressor............. 500 9,750
Jefferson Smurfit Corp.*....... 37,000 592,000
Keystone International,
Inc. ........................ 40,000 1,387,500
Office Depot, Inc.*............ 55,000 1,069,062
Philip Morris Cos., Inc. ...... 30,000 1,331,250
RJR Nabisco Holdings Corp. .... 37,500 1,237,500
Stone Container Corp. ......... 69,900 1,000,444
Tyco International Ltd. ....... 28,000 1,947,750
</TABLE>
19-MSVA
<PAGE> 20
PORTFOLIO OF INVESTMENTS -- continued
STOCKS -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
OTHER -- continued
Waste Management, Inc. ........ 31,500 $ 1,011,938
Wisconsin Central
Transportation Corp.*........ 49,500 1,843,875
------------
$ 15,483,819
------------
Total Stocks (Identified Cost,
$93,879,761)................................ $106,091,652
------------
Principal Amount
(000 Omitted)
CONVERTIBLE BOND -- 0.1% Spectrum Holobyte,
Inc., 6.5s, 2002##
(Identified Cost $120,000).... $ 120 $ 103,350
------------
SHORT-TERM OBLIGATIONS -- 1.7%
General Electric Co., due
7/01/97, at Amortized Cost.... $ 1,825 $ 1,825,000
------------
Total Investments (Identified Cost,
$95,824,761).................................. $108,020,002
OTHER ASSETS, LESS LIABILITIES -- 0.7% 742,022
------------
Net Assets -- 100.0%.......................... $108,762,024
============
</TABLE>
See portfolio footnotes and notes to financial statements
PORTFOLIO OF INVESTMENTS -- June 30, 1997
MONEY MARKET VARIABLE ACCOUNT
COMMERCIAL PAPER -- 30.5%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Abbott Laboratories, due
7/02/97....................... $ 4,000 $ 3,999,389
American Express Credit Corp.,
due 7/21/97................... 1,660 1,654,900
AT&T Co., due 8/18/97.......... 3,500 3,474,427
Bank of America, FSB, due
12/17/97..................... 3,000 2,921,697
Dow Chemical Co., due
7/10/97...................... 4,500 4,493,835
General Electric Capital Corp.,
due 7/16/97................... 3,800 3,791,244
Goldman Sachs Group LP, due
9/03/97....................... 3,800 3,762,372
Kellogg Co., due 7/18/97....... 5,000 4,987,061
Morgan (J.P.) & Co., Inc., due
7/01/97....................... 5,000 5,000,000
Pfizer, Inc., due 8/11/97...... 4,000 3,974,853
Transamerica Co., due
7/03/97...................... $ 4,300 4,298,650
------------
Total Commercial Paper, at Amortized Cost..... $ 42,358,428
------------
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 69.8%
Federal Farm Credit Bank, due
8/06/97 - 11/03/97............ $ 18,000 $ 17,806,510
Federal Home Loan Bank, due
7/17/97 - 9/12/97............. 20,700 20,560,542
Federal Home Loan Mortgage
Corp., due
7/14/97 - 8/14/97............. 14,000 13,932,142
Federal National Mortgage
Assn., due
7/09/97 - 10/10/97............ 27,960 27,769,950
Student Loan Marketing Corp.,
due 9/30/97................... 7,000 6,904,008
Tennessee Valley Authority, due
8/22/97 - 9/11/97............. 9,800 9,708,451
------------
Total U.S. Government and Agency Obligations,
at Amortized Cost......................... $ 96,681,603
------------
Total Investments, at Amortized Cost........ $139,040,031
------------
OTHER ASSETS, LESS LIABILITIES -- (0.3)% (480,655)
------------
Net Assets -- 100.0%........................ $138,559,376
============
See portfolio footnotes and notes to financial statements
PORTFOLIO OF INVESTMENTS -- June 30, 1997
TOTAL RETURN VARIABLE ACCOUNT
BONDS -- 32.7%
Principal Amount
Issuer (000 Omitted) Value
U.S. BONDS -- 29.5%
AEROSPACE -- 0.1%
Northrop Grumman Corp., 9.375s,
2024.......................... $ 225 $ 246,931
------------
AIRLINES -- 1.7%
Continental Airlines
Pass-Through Trust, 9.5s,
2013.......................... $ 147 $ 166,360
Continental Airlines
Pass-Through Trust, 10.22s,
2014.......................... 632 742,447
</TABLE>
20-MSVA
<PAGE> 21
BONDS -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
U.S. BONDS -- continued
<S> <C> <C>
AIRLINES -- continued
Continental Airlines
Pass-Through Trust, 7.461s,
2016##........................ $ 100 $ 100,816
Continental Airlines, Inc.,
9.5s, 2001.................... 625 648,437
Delta Air Lines, Inc., 8.5s,
2002.......................... 400 422,280
Delta Air Lines, Inc., 9.75s,
2021.......................... 650 779,220
Jet Equipment Trust, 9.41s,
2010##........................ 330 377,609
Jet Equipment Trust, 8.64s,
2012##........................ 241 261,566
Jet Equipment Trust, 11.44s,
2014##........................ 300 371,775
Jet Equipment Trust, 10.69s,
2015##........................ 250 301,045
Northwest Airlines, Inc., 8.7s,
2007.......................... 100 101,900
United Airlines Pass-Thru
Trust, 7.27s, 2013............ 796 783,269
------------
$ 5,056,724
------------
AUTOMOTIVE -- 0.1%
Ford Motor Co., 7.7s, 2097..... $ 380 $ 382,979
------------
BANKS AND CREDIT COMPANIES -- 1.6%
Beaver Valley II Funding Corp.,
9s, 2017...................... $ 300 $ 313,218
BT Institutional Capital Trust,
"A", 8.09s, 2026##............ 400 387,868
Capital One Bank, 6.97s,
2002.......................... 900 889,200
Capital One Financial Corp.,
7.25s, 2003................... 400 388,188
Colonial Capital II, 8.92s,
2027.......................... 235 239,101
Contifinancial Corp., 8.375s,
2003.......................... 150 154,125
First Chicago NBD Institutional
Capital, 7.95s, 2026##........ 250 244,348
Greenpoint Capital Trust I,
9.1s, 2027##.................. 200 203,420
MBNA Capital, 8.278s, 2026..... 1,200 1,161,156
Riggs National Corp., 8.5s,
2006.......................... 200 208,000
State Street Bank & Trust,
7.94s, 2026##................. 350 348,309
Washington Mutual Capital I,
8.375s, 2027.................. 300 304,821
------------
$ 4,841,754
------------
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
U.S. BONDS -- continued
<S> <C> <C>
BUILDING -- 0.1%
Owens Corning Fiberglass Corp.,
8.875s, 2002##................ $ 200 $ 215,130
Owens Corning Fiberglass Corp.,
9.9s, 2015##.................. 200 221,750
------------
$ 436,880
------------
BUSINESS MACHINES -- 0.1%
International Business Machines
Corp., 7.125s, 2096........... $ 400 $ 376,952
------------
CELLULAR TELEPHONES -- 0.1%
360 Communications Co., 7.5s,
2006.......................... $ 200 $ 199,512
360 Communications Co., 7.6s,
2009.......................... 100 100,004
------------
$ 299,516
------------
CONSUMER GOODS AND SERVICES -- 0.1%
Philip Morris Cos., Inc.,
7.75s, 2027................... $ 200 $ 196,128
------------
CORPORATE ASSET BACKED -- 3.0%
AT&T Universal Card Master
Trust, 5.881s, 2003........... $ 3,500 $ 3,500,000
AT&T Universal Card Master
Trust, 5.903s, 2004........... 2,000 1,997,500
BCF LLC, 7.75s, 2026##......... 198 190,380
Time Warner Pass-Through Asset
Trust, 6.1s, 2001............. 3,500 3,352,580
------------
$ 9,040,460
------------
ELECTRONICS -- 0.2%
Harman International
Industries, Inc., 7.32s,
2007.......................... $ 500 $ 500,000
------------
ENTERTAINMENT -- 1.0%
NWCG Holdings Corp., 0s,
1999.......................... $ 530 $ 465,997
Paramount Communications, Inc.,
7.5s, 2002.................... 1,500 1,502,760
Time Warner, Inc., 9.15s,
2023##........................ 1,040 1,148,670
------------
$ 3,117,427
------------
</TABLE>
21-TRVA
<PAGE> 22
PORTFOLIO OF INVESTMENTS -- continued
BONDS -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
U.S. BONDS -- continued
<S> <C> <C>
FINANCIAL INSTITUTIONS -- 2.1%
AFC Capital Trust I, 8.207s,
2027##........................ $ 575 $ 586,195
Bear Stearns Cos., Inc., 6.5s,
2000.......................... 300 299,454
First Empire Capital Trust I,
8.234s, 2027.................. 500 501,260
First Merchants Acceptance
Corp., 9.5s, 2006............. 160 128,000
Ford Motor Credit Co., 7.2s,
2007.......................... 200 201,080
HSBC Americas Capital Trust II,
8.38s, 2027#.................. 300 303,828
Humpuss Funding Corp., 7.72s,
2009##........................ 195 192,297
Lehman Brothers, Inc., 7.125s,
2003.......................... 400 399,384
Lehman Brothers, Inc., 7.375s,
2004.......................... 100 100,612
Lehman Brothers, Inc., 7.5s,
2026.......................... 1,150 1,181,797
Leucadia Capital Trust I,
8.65s, 2027##................. 310 310,552
Salomon, Inc., 7.2s, 2004...... 180 179,041
Salton Sea Funding Corp.,
7.37s, 2005................... 400 397,540
Salton Sea Funding Corp.,
7.84s, 2010................... 400 399,360
Salton Sea Funding Corp., 8.3s,
2011.......................... 200 207,048
Southern Co. Capital Trust I,
8.19s, 2037##................. 555 561,987
St. George Funding Co., 8.485s,
2049##........................ 400 409,500
United Cos. Financial Corp.,
7.7s, 2004.................... 200 197,162
------------
$ 6,556,097
------------
FOOD AND BEVERAGE PRODUCTS -- 0.3%
RJR Nabisco, Inc., 8.25s,
2004.......................... $ 200 $ 196,846
RJR Nabisco, Inc., 8.5s,
2007.......................... 300 303,375
RJR Nabisco, Inc., 8.75s,
2007.......................... 300 303,798
------------
$ 804,019
------------
FOREST AND PAPER PRODUCTS -- 0.7%
Boise Cascade Co., 9.85s,
2002.......................... $ 600 $ 669,192
Boise Cascade Co., 7.43s,
2005.......................... 250 251,105
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
U.S. BONDS -- continued
<S> <C> <C>
FOREST AND PAPER PRODUCTS -- continued
Georgia Pacific Corp., 9.875s,
2021.......................... $ 1,150 $ 1,274,165
------------
$ 2,194,462
------------
INSURANCE -- 1.7%
Conseco Finance Trust III,
8.796s, 2027.................. $ 250 $ 258,502
Equitable Life Assurance
Society, 7.7s, 2015##......... 833 828,643
Jackson National Life Insurance
Co., 8.15s, 2027##............ 275 280,778
Liberty Mutual Insurance Co.,
8.2s, 2007##.................. 875 932,059
Nationwide Mutual Life
Insurance Co., 7.5s, 2024##... 750 708,825
NGC Corp. Capital Trust,
8.316s, 2027##................ 950 982,395
Providian Capital I, 9.525s,
2027##........................ 500 519,880
Travelers Capital III, 7.75s,
2036.......................... 790 766,332
------------
$ 5,277,414
------------
MANUFACTURING -- 0.1%
Toro Co., 7.8s, 2027........... $ 150 $ 148,875
------------
MEDICAL AND HEALTH TECHNOLOGY AND SERVICES -- 0.2%
Tenet Healthcare Corp., 8s,
2005.......................... $ 575 $ 576,438
------------
OIL SERVICES -- 0.2%
Clark Oil Refining Corp.,
10.5s, 2001................... $ 200 $ 206,000
Transcontinental Gas Pipe Line,
7.25s, 2026................... 400 384,000
------------
$ 590,000
------------
OILS -- 0.6%
Chesapeake Energy Corp.,
7.875s, 2004.................. $ 550 $ 533,500
Enserch Exploration, Inc.,
7.54s, 2009##................. 350 346,563
Louisiana Land & Exploration
Co., 7.625s, 2013............. 300 302,586
</TABLE>
22-TRVA
<PAGE> 23
BONDS -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
U.S. BONDS -- continued
<S> <C> <C>
OILS -- continued
Louisiana Land & Exploration
Co., 7.65s, 2023.............. $ 200 $ 199,750
Transocean Offshore, Inc., 8s,
2027.......................... 505 521,973
------------
$ 1,904,372
------------
PRECIOUS METALS AND MINERALS -- 0.1%
Freeport McMoRan Copper & Gold,
7.5s, 2006.................... $ 139 $ 138,002
------------
RAILROADS -- 0.1%
Norfolk Southern Corp., 7.8s,
2027.......................... $ 165 $ 169,472
Norfolk Southern Corp., 7.05s,
2037.......................... 275 279,108
------------
$ 448,580
------------
REAL ESTATE INVESTMENT TRUSTS -- 0.2%
Loewen Group International,
Inc., 7.5s, 2001.............. $ 640 $ 646,400
------------
RESTAURANTS AND LODGING -- 0.5%
Circus Circus Enterprises,
Inc., 6.7s, 2096.............. $ 300 $ 290,163
Hilton Hotels Corp., 7.95s,
2007.......................... 1,070 1,096,333
------------
$ 1,386,496
------------
TELECOMMUNICATIONS -- 0.8%
Comcast Cellular Holdings,
Inc., 9.5s, 2007##............ $ 200 $ 201,000
TCI Communications Financing
III, 9.65s, 2027.............. 700 739,907
TCI Communications, Inc.,
6.463s, 2003.................. 500 497,500
Tele-Communications, Inc.,
7.38s, 2001................... 250 250,745
Tele-Communications, Inc.,
7.49s, 2003................... 800 795,064
------------
$ 2,484,216
------------
TRANSPORTATION -- 0.1%
Federal Express Corp., 7.65s,
2014.......................... $ 250 $ 254,193
------------
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
U.S. BONDS -- continued
<S> <C> <C>
U.S. FEDERAL AGENCIES -- 3.3%
Federal National Mortgage Assn.,
7s sec.sec.................... $ 4,000 $ 3,991,240
Federal National Mortgage Assn.,
8s sec.sec.................... 5,656 5,781,945
Federal Home Loan Mortgage
Corp., 9s sec.sec............. 306 324,169
------------
Total U.S. Federal Agencies................... $ 10,097,354
------------
U.S. GOVERNMENT GUARANTEED -- 4.7%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 1.8%
GNMA, 7.5s, 2026............... $ 2,015 $ 2,020,518
GNMA, 8s, 2017 - 2025.......... 2,787 2,882,486
GNMA, 8.5s, 2026............... 487 506,389
------------
$ 5,409,393
------------
U.S. TREASURY OBLIGATIONS -- 2.9%
U.S. Treasury Notes, 6.25s,
2002 - 2007................... $ 2,907 $ 2,849,901
U.S. Treasury Notes, 6.5s,
2002.......................... 1,025 1,029,161
U.S. Treasury Notes, 6.625s,
2002 - 2007................... 1,150 1,159,921
U.S. Treasury Notes, 7.25s,
2004.......................... 626 652,505
U.S. Treasury Notes, 9.25s,
1998.......................... 950 983,991
U.S. Treasury Bonds, 6.5s,
2026.......................... 1,300 1,246,778
U.S. Treasury Bonds, 6.625s,
2027.......................... 1,000 978,440
------------
$ 8,900,697
------------
Total U.S. Government Guaranteed.............. $ 14,310,090
------------
UTILITIES -- ELECTRIC -- 5.1%
Central Maine Power Co., 7.45s,
1999.......................... $ 200 $ 198,770
Cleveland Electric Illuminating
Co., 9.375s, 2017............. 775 808,240
Cleveland Electric Illuminating
Co., 9s, 2023................. 450 470,561
Comed Funding, 8.5s, 2027##.... 300 298,932
Commonwealth Edison Co., 6.4s,
2005.......................... 300 280,593
</TABLE>
23-TRVA
<PAGE> 24
PORTFOLIO OF INVESTMENTS -- continued
BONDS -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
U.S. BONDS -- continued
<S> <C> <C>
UTILITIES -- ELECTRIC -- continued
Commonwealth Edison Co.,
7.625s, 2007.................. $ 830 $ 832,108
Connecticut Light & Power Co.,
7.75s, 2002##................. 800 796,560
Edison Mission Energy Funding
Corp., 7.33s, 2008##.......... 100 99,753
El Paso Electric Co., 8.9s,
2006.......................... 125 133,016
Entergy Louisiana, Inc., 8.09s,
2017.......................... 300 300,000
First PV Funding Corp., 10.3s,
2014.......................... 260 274,185
First PV Funding Corp., 10.15s,
2016.......................... 355 374,181
Long Island Lighting Co., 7.5s,
2007.......................... 275 273,867
Long Island Lighting Co., 8.9s,
2019.......................... 1,570 1,636,364
Long Island Lighting Co., 9s,
2022.......................... 2,110 2,310,492
Long Island Lighting Co.,
9.625s, 2024.................. 250 256,250
Louisiana Power & Light Co.,
10.67s, 2017.................. 400 425,973
Midland Cogeneration Venture
Corp., 10.33s, 2002........... 444 475,431
Midland Funding Corp. II, "A",
11.75s, 2005.................. 750 872,978
Montana Power Co., 7.875s,
2026.......................... 750 742,500
Niagara Mohawk Power Corp.,
6.875s, 2001 - 2003........... 800 778,018
Niagara Mohawk Power Corp.,
8.77s, 2018................... 802 809,218
North Atlantic Energy Corp.,
9.05s, 2002................... 987 998,528
System Energy Resources, 7.38s,
2000.......................... 700 694,988
Texas & New Mexico Power Co.,
12.5s, 1999................... 300 321,711
------------
$ 15,463,217
------------
Principal Amount
Issuer (000 Omitted) Value
U.S. BONDS -- continued
UTILITIES -- GAS -- 0.6%
California Energy, Inc.,
10.25s, 2004.................. $ 600 $ 645,120
Coastal Corp., 7.42s, 2037..... 445 426,466
Oryx Energy Co., 10s, 2001..... 290 316,320
Tennessee Gas Pipeline Company,
7.625s, 2037.................. 400 395,764
------------
$ 1,783,670
------------
Total U.S. Bonds.............................. $ 89,559,646
------------
FOREIGN BONDS -- 3.2%
ARGENTINA -- 0.2%
Hidroelectrica Alicura, 8.375s,
1999
(Utilities - Electric)##...... $ 500 $ 505,000
Republic of Argentina, 9.25s,
2001.......................... 220 229,460
------------
$ 734,460
------------
CANADA -- 0.3%
Fairfax Financial Holdings
Ltd., 8.3s, 2026
(Insurance)................... $ 400 $ 415,192
Gulf Canada Resources Ltd.,
8.25s, 2017 (Oils)............ 375 384,375
------------
$ 799,567
------------
CHILE -- 0.3%
Empresa Electrica Del Norts,
7.75s, 2006
(Utilities - Electric)##...... $ 190 $ 186,580
Empresa Nacional De Electric,
7.325s, 2037
(Utilities - Electric)........ 379 380,095
Enersis S.A., 6.9s, 2006
(Utilities - Electric)........ 350 339,948
------------
$ 906,623
------------
CHINA -- 0.1%
Dao Heng Bank Ltd., 7.75s, 2007
(Bank and Credit Cos.)##...... $ 350 $ 350,941
------------
</TABLE>
24-TRVA
<PAGE> 25
BONDS -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
FOREIGN BONDS -- continued
<S> <C> <C>
COLUMBIA -- 0.6%
Financiera Energetica Nacional
Colombia, 9.375s, 2006
(Finance)##................... $ 135 $ 144,450
Oleoducto Central S.A., 9.35s,
2005 (Oil Services)##......... 300 317,625
Republic of Colombia, 7.625s,
2007.......................... 250 244,000
Republic of Colombia, 8.66s,
2016##........................ 200 212,000
Republic of Colombia, 8.7s,
2016.......................... 665 669,156
Republic of Colombia, 8.75s,
1999.......................... 250 261,468
------------
$ 1,848,699
------------
INDONESIA -- 0.3%
Indah Kiat Finance Mauthius
Ltd., 10s, 2007 (Forest and
Paper Products)## $ 270 $ 268,237
PT Polysindo Eka Perkasa, 13s,
2001 (Textiles)............... 444 503,385
------------
$ 771,622
------------
MEXICO -- 0.3%
Banco Commercial S.A., 8.25s,
2007 (Banks and Credit
Cos.)##....................... $ 280 $ 280,140
Pepsi-Gemex S.A. de C.V.,
9.75s, 2004 (Beverages)##..... 200 205,250
Petroleum GEO Services A/S,
7.5s, 2007 (Oil Services)..... 100 100,759
United Mexican States, 9.875s,
2007.......................... 300 320,250
------------
$ 906,399
------------
PANAMA -- 0.1%
Republic of Panama, 7.875s,
2002##........................ $ 195 $ 194,513
------------
QATAR -- 0.1%
Ras Laffan Liquefied Natural
Gas, 8.294s, 2014 (Utilities -
Gas)##........................ $ 325 $ 338,000
------------
RUSSIA -- 0.2%
Russian Federation, 10s,
2007##........................ $ 500 $ 498,250
------------
SOUTH KOREA -- 0.4%
Korea Development Bank, 6.75s,
2005 (Bank and Credit Cos.)... $ 850 $ 823,582
Korea Electric Power Corp., 7s,
2027 (Utilities - Electric)... 520 509,813
------------
$ 1,333,395
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
FOREIGN BONDS -- continued
<S> <C> <C>
THAILAND -- 0.3%
Industrial Finance Corp.,
7.375s, 2007 (Finance)##...... $ 400 $ 390,828
Jasmine Submarine Telecom Ltd.,
8.483s, 2011
(Telecommunications)##........ 500 509,110
Total Access Communication
Public, 8.375s, 2006
(Telecommunications)##........ 200 196,380
------------
$ 1,096,318
------------
Total Foreign Bonds........................... $ 9,778,787
------------
Total Bonds (Identified Cost, $100,842,451)... $ 99,338,433
------------
STOCKS -- 57.7%
Shares
U.S. STOCKS -- 51.4%
AEROSPACE -- 3.7%
Allied Signal, Inc. ........... 37,300 $ 3,133,200
General Dynamics Corp. ........ 20,200 1,515,000
Lockheed-Martin Corp. ......... 10,200 1,056,337
Raytheon Co. .................. 42,600 2,172,600
United Technologies Corp. ..... 39,800 3,303,400
------------
$ 11,180,537
------------
APPAREL AND TEXTILES -- 0.4%
VF Corp. ...................... 14,500 $ 1,228,875
------------
AUTOMOTIVE -- 2.0%
Dana Corp. .................... 31,500 $ 1,197,000
Ford Motor Co. ................ 49,900 1,883,725
</TABLE>
25-TRVA
<PAGE> 26
PORTFOLIO OF INVESTMENTS -- continued
STOCKS -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
U.S. STOCKS -- continued
<S> <C> <C>
AUTOMOTIVE -- continued
General Motors Corp. .......... 5,900 $ 328,556
Goodrich (B.F.) Co. ........... 63,300 2,741,681
------------
$ 6,150,962
------------
BANKS AND CREDIT COMPANIES -- 6.1%
Bank of New York, Inc. ........ 45,300 $ 1,970,550
BankBoston Corp. .............. 8,700 626,944
BB&T Corp.*.................... 32,800 1,476,000
Chase Manhattan Corp. ......... 18,160 1,762,655
Fleet/Norstar Financial Group,
Inc. ......................... 38,200 2,416,150
National City Corp. ........... 53,200 2,793,000
NationsBank Corp. ............. 36,000 2,322,000
Northern Trust Corp............ 31,500 1,523,812
Norwest Corp. ................. 37,500 2,109,375
PNC Bank Corp. ................ 37,600 1,565,100
------------
$ 18,565,586
------------
BUSINESS MACHINES -- 1.2%
Digital Equipment Corp.*....... 33,000 $ 1,169,438
International Business Machines
Corp. ........................ 27,400 2,471,137
------------
$ 3,640,575
------------
CELLULAR TELEPHONES -- 0.2%
Telephone & Data Systems,
Inc........................... 16,400 $ 622,175
------------
CHEMICALS -- 1.8%
Air Products & Chemicals,
Inc. ......................... 15,200 $ 1,235,000
Dow Chemical Co................ 9,300 810,263
du Pont (E.I.) de Nemours &
Co., Inc. .................... 28,900 1,817,087
Rohm & Haas Co. ............... 12,200 1,098,762
Witco Corp. ................... 13,800 523,538
------------
$ 5,484,650
------------
CONSUMER GOODS AND SERVICES -- 2.4%
Colgate-Palmolive Co. ......... 18,600 $ 1,213,650
Fortune Brands, Inc.*.......... 10,100 376,856
Hertz Corp., "A"*.............. 2,100 75,600
Philip Morris Cos., Inc. ...... 79,200 3,514,500
<CAPTION>
Issuer Shares Value
U.S. STOCKS -- continued
<S> <C> <C>
CONSUMER GOODS AND SERVICES -- continued
Rubbermaid, Inc. .............. 34,400 $ 1,023,400
Tyco International Ltd. ....... 15,300 1,064,306
------------
$ 7,268,312
------------
ELECTRICAL EQUIPMENT -- 1.9%
Cooper Industries, Inc. ....... 34,400 $ 1,711,400
General Electric Co. .......... 55,600 3,634,850
Honeywell, Inc. ............... 6,900 523,538
------------
$ 5,869,788
------------
FINANCIAL INSTITUTIONS -- 2.6%
American Express Co. .......... 31,100 $ 2,316,950
Edwards (A.G.), Inc. .......... 34,000 1,453,500
Federal Home Loan Mortgage
Corp. ........................ 34,400 1,182,500
Federal National Mortgage
Assn. ........................ 47,900 2,089,637
Franklin Resources, Inc. ...... 13,500 979,594
------------
$ 8,022,181
------------
FOOD AND BEVERAGE PRODUCTS -- 0.9%
Anheuser Busch Cos, Inc. ...... 6,000 $ 251,625
Dimon, Inc. ................... 15,000 397,500
General Mills, Inc. ........... 10,000 651,250
McCormick & Co., Inc. ......... 14,400 363,600
PepsiCo, Inc. ................. 31,100 1,168,194
------------
$ 2,832,169
------------
FOREST AND PAPER PRODUCTS -- 0.7%
Weyerhaeuser Co. .............. 37,900 $ 1,970,800
------------
INSURANCE -- 4.3%
Allstate Corp. ................ 16,800 $ 1,226,400
Chubb Corp. ................... 32,000 2,140,000
CIGNA Corp. ................... 17,300 3,070,750
Conseco, Inc. ................. 140 5,180
Lincoln National Corp. ........ 13,000 836,875
Nationwide Financial Services,
Inc., "A"..................... 23,000 610,938
St. Paul Cos., Inc. ........... 22,300 1,700,375
</TABLE>
26-TRVA
<PAGE> 27
STOCKS -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
U.S. STOCKS -- continued
<S> <C> <C>
INSURANCE -- continued
Torchmark Corp. ............... 28,000 $ 1,995,000
Travelers Group, Inc. ......... 23,800 1,500,887
------------
$ 13,086,405
------------
MACHINERY -- 1.0%
Deere & Co., Inc. ............. 45,100 $ 2,474,863
York International Corp. ...... 11,100 510,600
------------
$ 2,985,463
------------
MEDICAL AND HEALTH PRODUCTS -- 2.3%
American Home Products
Corp. ........................ 30,100 $ 2,302,650
Baxter International, Inc. .... 9,100 475,475
Bristol-Myers Squibb Co. ...... 48,200 3,904,200
Rhone-Poulenc Rorer, Inc. ..... 4,000 363,500
------------
$ 7,045,825
------------
MEDICAL AND HEALTH TECHNOLOGY AND SERVICES -- 0.5%
Columbia/HCA Healthcare
Corp. ........................ 6,300 $ 247,669
United Healthcare Corp. ....... 24,500 1,274,000
------------
$ 1,521,669
------------
METALS AND MINERALS -- 0.7%
Aluminum Cos. of America....... 22,700 $ 1,711,012
Phelps Dodge Corp. ............ 4,500 383,344
------------
$ 2,094,356
------------
OILS -- 4.6%
Amoco Corp..................... 12,200 $ 1,060,637
Atlantic Richfield Co. ........ 23,400 1,649,700
Chevron Corp. ................. 18,600 1,375,237
Exxon Corp. ................... 44,100 2,712,150
Mobil Corp. ................... 14,000 978,250
Occidental Petroleum Corp. .... 35,000 877,188
Sun Co., Inc. ................. 6,459 200,229
Texaco, Inc. .................. 26,700 2,903,625
Ultramar Diamond Shamrock...... 10,100 329,513
USX-Marathon Group............. 61,300 1,770,037
------------
$ 13,856,566
------------
<CAPTION>
Issuer Shares Value
U.S. STOCKS -- continued
<S> <C> <C>
PHOTOGRAPHIC PRODUCTS -- 0.7%
Eastman Kodak Co. ............. 27,700 $ 2,125,975
------------
POLLUTION CONTROL -- 1.4%
Browning Ferris Industries,
Inc. ......................... 63,700 $ 2,118,025
Waste Management, Inc. ........ 65,000 2,088,125
------------
$ 4,206,150
------------
RAILROADS -- 1.5%
Burlington Northern Santa Fe
Railway Co. .................. 16,800 $ 1,509,900
Illinois Central Corp. ........ 47,850 1,671,759
Norfolk Southern Corp. ........ 12,100 1,219,075
------------
$ 4,400,734
------------
REAL ESTATE -- 0.5%
Arden Realty, Inc. ............ 14,000 $ 364,000
Meditrust Corp. ............... 21,100 841,363
National Health Investors,
Inc. ......................... 5,500 215,875
------------
$ 1,421,238
------------
REAL ESTATE INVESTMENT TRUSTS -- 0.8%
Boston Properties, Inc.*....... 16,800 $ 462,000
Hospitality Properties Trust... 32,000 980,000
TriNet Corporate Realty Trust,
Inc. ......................... 31,100 1,028,244
------------
$ 2,470,244
------------
SPECIAL PRODUCTS AND SERVICES -- 0.1%
Stanley Works.................. 5,400 $ 216,000
------------
STORES -- 1.7%
May Department Stores Co. ..... 13,000 $ 614,250
Penney (J.C.), Inc. ........... 17,800 928,938
Rite Aid Corp. ................ 56,000 2,793,000
Sears, Roebuck & Co. .......... 17,800 956,750
------------
$ 5,292,938
------------
UTILITIES -- ELECTRIC -- 3.1%
Carolina Power & Light Co. .... 30,700 $ 1,101,363
CMS Energy Corp. .............. 20,000 705,000
DPL, Inc. ..................... 20,000 492,500
Duke Energy Corp. ............. 29,980 1,437,166
</TABLE>
27-TRVA
<PAGE> 28
PORTFOLIO OF INVESTMENTS -- continued
STOCKS -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
U.S. STOCKS -- continued
<S> <C> <C>
UTILITIES -- ELECTRIC -- continued
FPL Group, Inc................. 45,000 $ 2,072,812
GPU, Inc....................... 33,400 1,198,225
Pacificorp..................... 15,700 345,400
Pinnacle West Capital Corp..... 36,000 1,082,250
Portland General Corp.......... 12,800 508,000
Texas Utilities Co............. 14,000 482,125
------------
$ 9,424,841
------------
UTILITIES -- GAS -- 1.5%
Coastal Corp................... 39,700 $ 2,111,544
Eastern Enterprises............ 14,900 516,844
Pacific Enterprises............ 14,000 470,750
UGI Corp....................... 20,000 442,500
Williams Cos., Inc............. 22,700 993,125
------------
$ 4,534,763
------------
UTILITIES -- TELEPHONE -- 2.8%
BellSouth Corp................. 30,900 $ 1,432,987
GTE Corp....................... 60,000 2,632,500
MCI Communications Corp........ 18,800 719,688
SBC Communications, Inc. ...... 20,272 1,254,330
Sprint Corp.................... 48,600 2,557,575
------------
$ 8,597,080
------------
Total U.S. Stocks............................. $156,116,857
------------
FOREIGN STOCKS -- 6.3%
CANADA -- 0.1%
Canadian National Railway Co.
(Railroads)................... 5,600 $ 245,000
------------
GERMANY -- 0.4%
Henkel Kgaa (Consumer Goods and
Services)..................... 23,100 $ 1,311,296
------------
ITALY -- 0.3%
Eni S.p.A, ADR (Oils).......... 14,000 $ 796,250
------------
<CAPTION>
Issuer Shares Value
FOREIGN STOCKS -- continued
<S> <C> <C>
NETHERLANDS -- 1.2%
Akzo Nobel (Chemicals)......... 10,300 $ 1,411,822
Royal Dutch Petroleum Co., ADR
(Oils)*....................... 41,200 2,240,250
------------
$ 3,652,072
------------
SPAIN -- 0.4%
Repsol S.A., ADR (Oil
Services)..................... 28,800 $ 1,222,200
------------
SWEDEN -- 0.2%
Astra AB, "A", ADR (Medical and
Health Products).............. 1 $ 13
Volvo AB, ADR (Automotive)..... 21,000 561,750
------------
$ 561,763
------------
SWITZERLAND -- 0.7%
Novartis AG
(Pharmaceuticals)............. 1,233 $ 1,971,381
------------
UNITED KINGDOM -- 3.0%
British Petroleum PLC, ADR
(Oils)........................ 50,762 $ 3,800,805
Gallaher Group PLC, ADR
(Tobacco Products)*........... 10,100 186,219
Grand Metropolitan PLC (Food
and Beverage Products),*...... 196,200 1,886,582
SmithKline Beecham PLC, ADR
(Medical and Health
Products)..................... 36,500 $ 3,344,312
------------
$ 9,217,918
------------
Total Foreign Stocks.......................... $ 18,977,880
------------
Total Stocks (Identified Cost,
$123,668,693)............................... $175,094,737
------------
PREFERRED STOCKS -- 0.2%
UTILITIES -- ELECTRIC
Long Island Lighting Co.,
7.95s......................... 20,000 $ 522,499
------------
UTILITIES -- GAS
El Paso Tennessee Pipeline Co.,
8.25.......................... 4,000 $ 216,000
------------
Total Preferred Stock (Identified Cost,
$688,900)................................... $ 738,499
------------
CONVERTIBLE PREFERRED STOCKS
UTILITIES -- GAS
Enron Corp. (Identified Cost,
$166,158)..................... $ 6,800 $ 130,050
------------
</TABLE>
28-TRVA
<PAGE> 29
BONDS -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
SHORT-TERM OBLIGATIONS -- 9.8%
Federal Home Loan Mortgage
Corp., due 7/01/97............ $ 7,000 $ 7,000,000
Federal Home Loan Mortgage
Corp., due 7/02/97............ 1,600 1,599,759
Federal National Mortgage
Aisne., due
7/01/97 - 7/08/97............. $ 12,845 12,834,968
Federal National Mortgage
Assn., due 7/11/97............ 8,200 8,187,700
------------
Total Short-Term Obligations, at Amortized
Cost........................................ $ 29,622,427
------------
Total Investments (Identified Cost,
$254,988,629)............................... $304,924,146
------------
OTHER ASSETS, LESS LIABILITIES -- (0.4)% (1,397,937)
------------
Net Assets -- 100.0%.......................... $303,526,209
============
</TABLE>
See portfolio footnotes and notes to financial statements
PORTFOLIO OF INVESTMENTS -- June 30, 1997
WORLD GOVERNMENTS VARIABLE ACCOUNT
BONDS -- 81.3%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
FOREIGN BONDS -- 44.4%
AUSTRALIA -- 7.0%
Commonwealth of Australia, 10s,
2002.......................... AUD 865 $ 753,948
New South Wales Treasury Corp.,
8s, 2001...................... 1,355 1,085,861
------------
$ 1,839,809
------------
DENMARK -- 4.1%
Kingdom of Denmark, 6s, 1999... DKK 2,715 $ 426,011
Kingdom of Denmark, 8s, 2001... 1,384 233,780
Nykredit, 8s, 2026............. 2,658 417,747
------------
$ 1,077,538
------------
GREECE -- 3.8%
Hellenic Republic, 12.6s,
2003.......................... GRD 265,000 $ 994,847
------------
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
FOREIGN BONDS -- continued
ITALY -- 7.5%
Republic of Italy, 9.5s,
1999.......................... ITL 1,315,000 $ 810,976
Republic of Italy, 9.5s,
2001.......................... 1,275,000 827,376
Republic of Italy, 9.5s,
2006.......................... 490,000 336,958
------------
$ 1,975,310
------------
JAPAN -- 7.0%
International Bank of
Reconstruction and
Development, 4.5s, 2003....... JPY 187,000 $ 1,854,323
------------
NEW ZEALAND -- 4.9%
Government of New Zealand, 8s,
2001.......................... NZD 1,850 $ 1,309,282
------------
SPAIN -- 8.2%
Government of Spain, 6.75s,
2000.......................... ESP 55,770 $ 394,074
Government of Spain, 8.4s,
2001.......................... 57,480 431,012
Government of Spain, 10.5s,
2003.......................... 53,690 451,760
Government of Spain, 7.35s,
2007.......................... 122,840 891,426
------------
$ 2,168,272
------------
SWEDEN -- 1.9%
Kingdom of Sweden, 11s, 1999... SEK 2,300 $ 325,260
Kingdom of Sweden, 10.25s,
2000.......................... 1,300 190,562
------------
$ 515,822
------------
Total Foreign Bonds........................... $ 11,735,203
------------
U.S. BONDS -- 37.0%
U.S. FEDERAL AGENCIES -- 21.7%
Federal Home Loan Mortgage
Corp., 7.5s, 2011............. $ 5,643 $ 5,727,647
------------
U.S. TREASURY OBLIGATIONS -- 15.3%
U.S. Treasury Notes, 6.625s,
2002.......................... $ 4,000 $ 4,036,880
------------
Total U.S. Bonds.............................. $ 9,764,527
------------
Total Bonds (Identified Cost, $21,559,859).... $ 21,499,730
------------
SHORT-TERM OBLIGATIONS -- 14.3%
Federal National Mortgage
Assn., due 7/01/97 - 7/08/97,
at Amortized Cost............. $ 3,795 $ 3,792,011
------------
</TABLE>
29-WGVA
<PAGE> 30
PORTFOLIO OF INVESTMENTS -- continued
BONDS -- continued
CALL OPTION PURCHASED
<TABLE>
<CAPTION>
Principal Amount
of Contracts
Issuer/Expiration Month/Price (000 Omitted)
<S> <C> <C>
DEUTSCHE MARK/BRITISH POUNDS
July/2.7 (Premiums Paid,
$15,543)...................... 2,524 $ 0
------------
Total Investments (Identified Cost,
$25,367,413).................................. $ 25,291,741
------------
OTHER ASSETS, LESS LIABILITIES -- 4.3% $ 1,139,372
------------
Net Assets -- 100%............................ $ 26,431,113
============
See portfolio footnotes and notes to financial statements
</TABLE>
PORTFOLIO FOOTNOTES:
* Non-income producing security.
** Non-income producing security - in default.
# Payment-in-kind security.
## SEC Rule 144A restriction.
+ Restricted security.
sec.sec. When-issued security. At June 30, 1997, the Account had sufficient
cash and/or securities at least equal to the value of the when-issued
security.
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the U.S. dollar. A list of abbreviations is shown below.
<TABLE>
<S> <C> <C> <C> <C> <C>
AUD = Australian Dollars GBP = British Pounds
CAD = Canadian Dollars GRO = Greek Drachma
CHF = Swiss Francs ITL = Italian Lire
DEM = Deutsche Marks JPY = Japanese Yen
DKK = Danish Kroner NZD = New Zealand Dollars
ECU = Euro Currency Unit NLG = Dutch Guilders
ESP = Spanish Pesetas SEK = Swedish Kronor
</TABLE>
30-WGVA
<PAGE> 31
STATEMENTS OF ASSETS AND LIABILITIES -- June 30, 1997
(000 Omitted)
<TABLE>
<CAPTION>
Capital Government High Managed Money Total World
Appreciation Securities Yield Sectors Market Return Governments
Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account
------------ ---------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments --
Identified cost........................ $448,484 $207,742 $167,650 $ 95,825 $139,040 $254,988 $25,367
Unrealized appreciation
(depreciation)....................... 161,297 4,881 2,761 12,195 -- 49,936 (75)
-------- -------- -------- -------- -------- -------- -------
Total value.......................... $609,781 $212,623 $170,411 $108,020 $139,040 $304,924 $25,292
Cash..................................... 22 1 -- 4 207 14 3
Net receivable for forward foreign
currency exchange contracts to sell
(Note 7)................................ -- -- -- -- -- -- 173
Receivable for daily variation margin on
open futures contracts.................. -- 70 -- -- -- -- --
Receivable for investments sold.......... 4,456 4,808 23,740 2,581 -- 7,509 1,102
Receivable for units sold................ 117 13 20 42 22 34 2
Interest and dividends receivable........ 505 2,173 3,358 43 -- 2,096 399
Receivable from sponsor.................. -- -- 61 -- -- 323 --
Other assets............................. 5 2 2 1 13 3 1
-------- -------- -------- -------- -------- -------- -------
Total assets......................... $614,886 $219,690 $197,592 $110,691 $139,282 $314,903 $26,972
-------- -------- -------- -------- -------- -------- -------
LIABILITIES:
Cash overdraft........................... $ -- $ -- $ 19,257 $ -- $ -- $ -- $ --
Payable for investments purchased........ 2,304 4,396 2,912 1,739 -- 11,094 --
Payable for units surrendered............ 397 226 176 92 543 217 34
Net payable for forward foreign currency
exchange contracts to purchase (Note
7)...................................... -- -- -- -- -- -- 201
Net Payable for foreign currency exchange
contracts closed or subject to master
netting agreements...................... -- -- -- -- -- -- 157
Payable to affiliates --
Investment adviser..................... 36 10 12 7 4 18 2
Administrative fee..................... 1 1 1 1 1 1 1
Sponsor................................ 594 49 -- 63 136 -- 120
Accrued expenses and other liabilities... 72 41 36 27 39 47 26
-------- -------- -------- -------- -------- -------- -------
Total liabilities.................... $ 3,404 $ 4,723 $ 22,394 $ 1,929 $ 723 $ 11,377 $ 541
-------- -------- -------- -------- -------- -------- -------
Net assets......................... $611,482 $214,967 $175,198 $108,762 $138,559 $303,526 $26,431
======== ======== ======== ======== ======== ======== =======
</TABLE>
See notes to financial statements
31
<PAGE> 32
STATEMENTS OF ASSETS AND LIABILITIES -- continued
(000 Omitted except for unit values)
<TABLE>
<CAPTION>
Capital Government High Managed Money Total World
Appreciation Securities Yield Sectors Market Return Governments
Unit Variable Variable Variable Variable Variable Variable Variable
Units Value Account Account Account Account Account Account Account
----- --------- ------------ ---------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net assets applicable to contract owners:
Capital Appreciation
Variable Account --
Compass 2...................... 8,481 $ 52.1157 $442,007
Compass 3...................... 3,332 34.6195 115,350
Compass 3 - Level 2............ 3,394 14.2508 48,373
Government Securities
Variable Account --
Compass 2...................... 6,632 $ 26.1951 $173,737
Compass 3...................... 1,355 18.4344 24,976
Compass 3 - Level 2............ 1,264 10.6760 13,495
High Yield
Variable Account --
Compass 2...................... 4,593 $ 30.7386 $141,162
Compass 3...................... 946 22.7538 21,512
Compass 3 - Level 2............ 810 12.0435 9,757
Managed Sectors
Variable Account --
Compass 2...................... 726 $ 41.3443 $ 30,035
Compass 3...................... 1,320 41.0545 54,201
Compass 3 - Level 2............ 1,850 13.1579 24,342
Money Market
Variable Account --
Compass 2...................... 4,919 $ 17.4182 $85,639
Compass 3...................... 1,785 14.3743 25,634
Compass 3 - Level 2............ 2,438 10.6559 25,980
Total Return
Variable Account --
Compass 2...................... 4,173 $ 27.8661 $116,290
Compass 3...................... 4,494 27.4773 123,471
Compass 3 - Level 2............ 4,616 13.1377 60,656
World Governments
Variable Account --
Compass 2...................... 478 $ 18.2370 $ 8,722
Compass 3...................... 603 17.9817 10,844
Compass 3 - Level 2............ 650 10.4309 6,781
-------- -------- -------- -------- -------- -------- -------
Net assets applicable to owners of deferred
contracts....................................... $605,730 $212,208 $172,431 $108,578 $137,253 $300,417 $26,347
Reserve for variable annuities --
Compass 2 Contracts............................. $ 5,251 $ 2,462 $ 2,753 $ 140 $ 1,302 $ 2,681 $ 71
Compass 3 Contracts............................. 198 77 14 44 2 190 1
Compass 3 - Level 2 Contracts................... 303 220 -- -- 2 238 12
-------- -------- -------- -------- -------- -------- -------
Net assets.................................. $611,482 $214,967 $175,198 $108,762 $138,559 $303,526 $26,431
======== ======== ======== ======== ======== ======== =======
</TABLE>
See notes to financial statements
32
<PAGE> 33
STATEMENTS OF OPERATIONS -- Six Months Ended June 30, 1997
(000 Omitted)
<TABLE>
<CAPTION>
Capital Government High Managed Money Total World
Appreciation Securities Yield Sectors Market Return Governments
Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account
------------ ---------- -------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME (EXPENSE):
Income --
Interest.......................................... $ 183 $ 8,209 $ 8,995 $ 77 $3,600 $ 4,424 $ 927
Dividends......................................... 1,605 -- 158 193 -- 2,170 --
Foreign taxes withheld............................ (16) -- -- (1) -- (5) --
-------- -------- ------- ------- ------ ------- -------
Total investment income....................... $ 1,772 $ 8,209 $ 9,153 $ 269 $3,600 $ 6,589 $ 927
-------- -------- ------- ------- ------ ------- -------
Expenses --
Mortality and expense risk charges................ $ 3,594 $ 1,389 $ 1,177 $ 624 $ 836 $ 1,778 $ 175
Management fees................................... 2,017 600 696 375 328 1,078 106
Administrative fee................................ 29 11 9 5 7 15 1
Custodian fee..................................... 114 50 41 25 26 65 17
Distribution expense charges...................... 80 20 20 39 19 91 9
Auditing fee...................................... 17 21 25 16 14 18 16
Legal fees........................................ 1 1 1 1 -- 1 1
Boards of Managers fees and expenses.............. 7 7 7 7 -- 7 --
Printing.......................................... 12 5 4 3 5 6 2
Miscellaneous..................................... 17 7 -- 4 5 6 7
-------- -------- ------- ------- ------ ------- -------
Total expenses................................ $ 5,888 $ 2,111 $ 1,980 $1,099 $1,240 $ 3,065 $ 334
Fees paid indirectly.............................. (4) (3) (7) (1) (6) (4) (1)
-------- -------- ------- ------- ------ ------- -------
Net expenses.................................. 5,884 2,108 1,973 1,098 1,234 3,061 333
-------- -------- ------- ------- ------ ------- -------
Net investment income (expense)........... $ (4,112) $ 6,101 $ 7,180 $ (829) $2,366 $ 3,528 $ 594
======== ======== ======= ======= ====== ======= =======
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS:
Realized gains (losses)(identified cost basis) --
Investment transactions......................... $ 58,749 $ 378 $ 3,558 $9,723 $ -- $17,700 $ (707)
Written option transactions..................... -- -- -- -- -- -- (231)
Futures Contracts............................... -- (81) -- -- -- -- --
Foreign currency transactions................... (17) -- -- (5) -- (1) (8)
-------- -------- ------- ------- ------ ------- -------
Net realized gains (losses) on investments and
foreign currency transactions............... $ 58,732 $ 297 $ 3,558 $9,718 $ -- $17,699 $ (946)
-------- -------- ------- ------- ------ ------- -------
Change in unrealized appreciation
(depreciation) --
Investments..................................... $ 24,410 $ (1,839) $ 478 $3,557 $ -- $ 9,932 $ (789)
Written options................................. -- -- -- -- -- -- 286
Translation of assets and liabilities in foreign
currencies.................................... -- (68) -- 1 -- (1) 64
-------- -------- ------- ------- ------ ------- -------
Net unrealized gains (losses) on
investments................................. $ 24,410 $ (1,907) $ 478 $3,558 $ -- $ 9,931 $ (439)
-------- -------- ------- ------- ------ ------- -------
Net realized and unrealized gains (losses)
on investments............................ $ 83,142 $ (1,610) $ 4,036 $13,276 $ -- $27,630 $(1,385)
-------- -------- ------- ------- ------ ------- -------
Increase (decrease) in net assets from
operations.............................. $ 79,030 $ 4,491 $11,216 $12,447 $2,366 $31,158 $ (791)
======== ======== ======= ======= ====== ======= =======
</TABLE>
See notes to financial statements
33
<PAGE> 34
STATEMENTS OF CHANGES IN NET ASSETS
(000 Omitted)
<TABLE>
<CAPTION>
Capital Appreciation Government Securities High Yield
Variable Account Variable Account Variable Account
------------------------------- ------------------------------- -------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended Six Months Ended Year Ended
June 30, December 31, June 30, December 31, June 30, December 31,
1997 1996 1997 1996 1997 1996
---------------- ------------ ---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income
(expense).............. $ (4,112) $ (7,493) $ 6,101 $ 13,687 $ 7,180 $ 14,327
Net realized gains
(losses) on investments
and foreign currency
transactions............ 58,732 73,931 297 (151) 3,558 2,950
Net unrealized gains
(losses) on investments
and foreign currency
transactions............ 24,410 32,377 (1,907) (12,741) 478 3,209
-------- -------- -------- -------- -------- --------
Increase in net assets
from operations....... $ 79,030 $ 98,815 $ 4,491 $ 795 $ 11,216 $ 20,486
-------- -------- -------- -------- -------- --------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments
received............... $ 11,504 $ 21,404 $ 2,683 $ 6,200 $ 2,089 $ 4,765
Net transfers between
variable and fixed
accumulation accounts... (3,597) 554 795 3,800 (26,348) (2,435)
Withdrawals, surrenders,
annuitizations, and
contract charges........ (32,477) (62,268) (21,191) (39,464) (10,063) (25,541)
-------- -------- -------- -------- -------- --------
Net accumulation
activity............. $(24,570) $(40,310) $(17,713) $(29,464) $(34,322) $(23,211)
-------- -------- -------- -------- -------- --------
Annuitization activity:
Annuitizations........... $ 124 $ 585 $ 70 $ 317 $ 103 $ 118
Annuity payments and
contract charges....... (404) (811) (236) (480) (260) (475)
Net transfers among
accounts for annuity
reserves................ 1 18 -- (51) -- 13
Adjustments to annuity
reserves............... (74) (135) 74 (69) (1) 6
-------- -------- -------- -------- -------- --------
Net annuitization
activity............. $ (353) $ (343) $ (92) $ (283) $ (158) $ (338)
-------- -------- -------- -------- -------- --------
Decrease in net assets
from participant
transactions............ $(24,923) $(40,653) $(17,805) $(29,747) $(34,480) $(23,549)
-------- -------- -------- -------- -------- --------
Total increase
(decrease) in net
assets............... $ 54,107 $ 58,162 $(13,314) $(28,952) $(23,264) $ (3,063)
NET ASSETS:
At beginning of period..... 557,375 499,213 228,281 257,233 198,462 201,525
-------- -------- -------- -------- -------- --------
At end of period........... $611,482 $557,375 $214,967 $228,281 $175,198 $198,462
======== ======== ======== ======== ======== ========
</TABLE>
See notes to financial statements
34
<PAGE> 35
STATEMENTS OF CHANGES IN NET ASSETS -- continued
(000 Omitted)
<TABLE>
<CAPTION>
Managed Sectors Money Market
Variable Account Variable Account
-------------------------------------- --------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, 1997 December 31, 1996 June 30, 1997 December 31, 1996
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income (expense)....... $ (829) $(1,218) $ 2,366 $ 5,126
Net realized gains on investments and
foreign currency transactions......... 9,718 13,675 -- --
Net unrealized gains on investments
and foreign currency transactions..... 3,558 1,100 -- --
-------- ------- -------- ---------
Increase in net assets from
operations.......................... $ 12,447 $13,557 $ 2,366 $ 5,126
-------- ------- -------- ---------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received............ $ 4,281 $ 8,975 $ 2,048 $ 5,979
Net transfers between variable and
fixed accumulation accounts......... 1,622 3,625 23,650 (14,269)
Withdrawals, surrenders,
annuitizations, and contract
charges............................. (6,858) (11,912) (16,501) (37,717)
-------- ------- -------- ---------
Net accumulation activity........... $ (955) $ 688 $ 9,197 $ (46,007)
-------- ------- -------- ---------
Annuitization activity:
Annuitizations........................ $ 24 $ 72 $ 68 $ 300
Annuity payments and contract
charges............................. (19) (27) (120) (279)
Net transfers among accounts for
annuity reserves.................... -- 65 -- --
Adjustments to annuity reserves....... (17) (19) 140 (208)
-------- ------- -------- ---------
Net annuitization activity.......... $ (12) $ 91 $ 88 $ (187)
-------- ------- -------- ---------
Increase (decrease) in net assets from
participant transactions............ $ (967) $ 779 $ 9,285 $ (46,194)
-------- ------- -------- ---------
Total increase (decrease) in net
assets............................ $ 11,480 $14,336 $ 11,651 $ (41,068)
NET ASSETS:
At beginning of period.................. 97,282 82,946 126,908 167,976
-------- ------- -------- ---------
At end of period........................ $108,762 $97,282 $138,559 $ 126,908
======== ======= ======== =========
</TABLE>
See notes to financial statements
35
<PAGE> 36
STATEMENTS OF CHANGES IN NET ASSETS -- continued
(000 Omitted)
<TABLE>
<CAPTION>
Total Return World Governments
Variable Account Variable Account
--------------------------------- ---------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, December 31, June 30, December 31,
1997 1996 1997 1996
---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income........................... $ 3,528 $ 7,110 $ 594 $ 1,527
Net realized gains (losses) on investments and
foreign currency transactions................. 17,699 27,960 (946) (265)
Net unrealized gains (losses) on investments and
foreign currency transactions................. 9,931 (2,944) (439) (339)
-------- -------- -------- --------
Increase (decrease) in net assets from
operations.................................. $ 31,158 $ 32,126 $ (791) $ 923
-------- -------- -------- --------
PARTICIPANT TRANSACTIONS:
Accumulation activity:
Purchase payments received...................... $ 8,234 $ 16,989 $ 809 $ 1,917
Net transfers between variable and fixed
accumulation accounts......................... 2,372 7,233 (1,453) (3,193)
Withdrawals, surrenders, annuitizations, and
contract charges.............................. (23,364) (36,762) (3,735) (4,588)
-------- -------- -------- --------
Net accumulation activity..................... $(12,758) $(12,540) $ (4,379) $ (5,864)
-------- -------- -------- --------
Annuitization activity:
Annuitizations.................................. $ 65 $ 250 $ 6 $ --
Annuity payments and contract charges........... (246) (436) (17) (52)
Net transfers among accounts for annuity
reserves...................................... (4) 1 (3)
Adjustments to annuity reserves................. 59 12 (74) (35)
-------- -------- -------- --------
Net annuitization activity.................... $ (122) $ (178) $ (84) $ (90)
-------- -------- -------- --------
Decrease in net assets from participant
transactions.................................. $(12,880) $(12,718) $ (4,463) $ (5,954)
-------- -------- -------- --------
Total increase (decrease) in net assets....... $ 18,278 $ 19,408 $ (5,254) $ (5,031)
NET ASSETS:
At beginning of period............................ 285,248 265,840 31,685 36,716
-------- -------- -------- --------
At end of period.................................. $303,526 $285,248 $ 26,431 $ 31,685
======== ======== ======== ========
</TABLE>
See notes to financial statements
36
<PAGE> 37
PER UNIT AND OTHER DATA
<TABLE>
<CAPTION>
Capital Appreciation Variable Account
-----------------------------------------------------------------------------
Compass 2
-----------------------------------------------------------------------------
Six Months Ended Year Ended December 31,
June 30, ---------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER UNIT DATA:*
Net asset value -- beginning of period...... $45.4107 $ 37.7151 $28.0107 $32.9053 $29.2712 $26.6401
-------- --------- -------- -------- -------- --------
Investment income........................... $ 0.1499 $ 0.2861 $ 0.3624 $ 0.4277 $ 0.3914 $ 0.2670
Expenses.................................... 0.4944 0.8695 0.6989 0.6325 0.6436 0.5467
-------- --------- -------- -------- -------- --------
Net investment loss....................... $(0.3445) $ (0.5834) $(0.3365) $(0.2048) $(0.2522) $(0.2797)
Net realized and unrealized gains (losses)
on investments and foreign currency
transactions................................ 7.0495 8.2790 10.0409 (4.6898) 3.8863 2.9108
-------- --------- -------- -------- -------- --------
Net increase (decrease) in unit value....... $ 6.7050 $ 7.6956 $ 9.7044 $(4.8946) $ 3.6341 $ 2.6311
-------- --------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period............ $52.1157 $ 45.4107 $37.7151 $28.0107 $32.9053 $29.2712
======== ========= ======== ======== ======== ========
RATIOS (TO AVERAGE NET ASSETS):
Expenses+# #................................ 0.77%++ 0.78% 0.80% 0.79% 0.78% 0.80%
Net investment loss......................... (1.44)%++ (1.41)% (1.02)% (0.69)% (0.83)% (1.08)%
PORTFOLIO TURNOVER............................ 30% 66% 96% 95% 56% 34%
AVERAGE COMMISSION RATE# # #.................. $ 0.0378 $ 0.0371 -- -- -- --
NUMBER OF UNITS OUTSTANDING AT END OF PERIOD
(000 OMITTED)............................... 8,481 9,004 10,014 11,310 13,833 14,914
</TABLE>
<TABLE>
<CAPTION>
Capital Appreciation Variable Account
---------------------------------------------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------- Compass 3
Year Ended ------------------------------------------------------------------
Six Months Ended December Period Ended Six Months Ended Year Ended December 31,
June 30, 31, December 31, June 30, ------------------------------------------------
1997 1996 1995# 1997 1996 1995 1994 1993 1992
---------------- ----------- ------------ ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER UNIT DATA:*
Net asset
value -- beginning
of period...... $ 12.4143 $ 10.3053 $10.0000 $ 30.1803 $25.0907 $18.6531 $21.9341 $19.5311 $17.7928
---------- --------- -------- ---------- -------- -------- -------- -------- --------
Investment
income......... $ 0.0429 $ 0.0790 $ 0.0196 $ 0.0975 $ 0.1893 $ 0.2402 $ 0.2870 $ 0.2617 $ 0.1919
Expenses......... 0.1345 0.2370 0.0517 0.3394 0.6053 0.4847 0.4421 0.4498 0.4131
---------- --------- -------- ---------- -------- -------- -------- -------- --------
Net investment
loss......... $ (0.0916) $ (0.1580) $(0.0321) $ (0.2419) $(0.4160) $(0.2445) $(0.1551) $(0.1881) $(0.2212)
Net realized and
unrealized gains
(losses) on
investments and
foreign currency
transactions..... 1.9281 2.2670 0.3374 4.6811 5.5056 6.6821 (3.1259) 2.5911 1.9595
---------- --------- -------- ---------- -------- -------- -------- -------- --------
Net increase
(decrease) in
unit value..... $ 1.8365 $ 2.1090 $ 0.3053 $ 4.4392 $ 5.0896 $ 6.4376 $(3.2810) $ 2.4030 $ 1.7383
---------- --------- -------- ---------- -------- -------- -------- -------- --------
Unit value:
Net asset
value -- end of
period......... $ 14.2508 $ 12.4143 $10.3053 $ 34.6195 $30.1803 $25.0907 $18.6531 $21.9341 $19.5311
========== ========= ======== ========== ======== ======== ======== ======== ========
RATIOS (TO AVERAGE
NET ASSETS):
Expenses+# #..... 0.77%++ 0.78% 0.80% 0.77%++ 0.78% 0.80% 0.79% 0.78% 0.80%
Net investment
loss........... (1.44)%++ (1.41)% (1.02)% (1.44)%++ (1.41)% (1.02)% (0.69)% (0.83)% (1.08)%
PORTFOLIO
TURNOVER......... 30% 66% 96% 30% 66% 96% 95% 56% 34%
AVERAGE COMMISSION
RATE# # #........ $ 0.0378 $ 0.0371 -- $ 0.0378 $ 0.0371 -- -- -- --
NUMBER OF UNITS
OUTSTANDING AT
END OF
PERIOD (000
OMITTED)......... 3,394 2,494 955 3,332 3,721 4,272 4,686 4,899 4,401
* Per unit data are based on the average number of units outstanding during each year.
+ Excluding mortality and expense risk charges and distribution expense charges.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through December 31, 1995.
# # For years ending on or after December 31, 1995, expenses are calculated without reduction for fees paid indirectly.
# # # Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
</TABLE>
See notes to financial statements
37
<PAGE> 38
PER UNIT AND OTHER DATA -- continued
<TABLE>
<CAPTION>
Government Securities Variable Account
----------------------------------------------------------------------------
Compass 2
----------------------------------------------------------------------------
Six Months Ended Year Ended December 31,
June 30, --------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER UNIT DATA:*
Net asset value -- beginning of period...... $ 25.6724 $25.5791 $22.0031 $22.7120 $21.1172 $19.9842
---------- -------- -------- -------- -------- --------
Investment income........................... $ 0.9729 $ 1.9022 $ 1.7836 $ 1.5648 $ 1.5732 $ 1.4340
Expenses.................................... 0.2485 0.4873 0.4564 0.4229 0.4238 0.3672
---------- -------- -------- -------- -------- --------
Net investment income..................... $ 0.7244 $ 1.4149 $ 1.3272 $ 1.1419 $ 1.1494 $ 1.0668
Net realized and unrealized gains (losses)
on investments and foreign currency
transactions............................... (0.2017) (1.3216) 2.2488 (1.8508) 0.4454 0.0662
---------- -------- -------- -------- -------- --------
Net increase (decrease) in unit value....... $ 0.5227 $ 0.0933 $ 3.5760 $(0.7089) $ 1.5948 $ 1.1330
---------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period............ $ 26.1951 $25.6724 $25.5791 $22.0031 $22.7120 $21.1172
========== ======== ======== ======== ======== ========
RATIOS (TO AVERAGE NET ASSETS):
Expenses + # #.............................. 0.64%++ 0.62% 0.63% 0.61% 0.61% 0.62%
Net investment income....................... 5.52%++ 5.53% 5.51% 5.09% 5.11% 5.51%
PORTFOLIO TURNOVER............................ 117% 39% 80% 41% 81% 175%
NUMBER OF UNITS OUTSTANDING AT END OF PERIOD
(000 OMITTED)............................... 6,632 7,255 8,361 11,308 12,679 15,059
</TABLE>
<TABLE>
<CAPTION>
Government Securities Variable Account
---------------------------------------------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------- Compass 3
Year Ended ------------------------------------------------------------------
Six Months Ended December Period Ended Six Months Ended Year Ended December 31,
June 30, 31, December 31, June 30, ------------------------------------------------
1997 1996 1995# 1997 1996 1995 1994 1993 1992
---------------- ----------- ------------ ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER UNIT DATA:*
Net asset
value -- beginning
of period...... $ 10.4604 $ 10.4172 $10.0000 $ 18.0755 $18.0278 $15.5227 $16.0387 $14.9267 $14.1396
---------- --------- -------- ---------- -------- -------- -------- -------- --------
Investment
income......... $ 0.6851 $ 0.7931 $ 0.1868 $ 0.7012 $ 1.3222 $ 1.2529 $ 1.1028 $ 1.1064 $ 1.0851
Expenses......... 0.1709 0.1966 0.0478 0.1895 0.3586 0.3385 0.3146 0.3154 0.2950
---------- --------- -------- ---------- -------- -------- -------- -------- --------
Net investment
income....... $ 0.5142 $ 0.5965 $ 0.1390 $ 0.5117 $ 0.9636 $ 0.9144 $ 0.7882 $ 0.7910 $ 0.7901
Net realized and
unrealized gains
(losses) on
investments and
foreign currency
transactions.... (0.2986) (0.5533) 0.2782 (0.1528) (0.9159) 1.5907 (1.3042) 0.3210 (0.0030)
---------- --------- -------- ---------- -------- -------- -------- -------- --------
Net increase
(decrease) in
unit value..... $ 0.2156 $ 0.0432 $ 0.4172 $ 0.3589 $ 0.0477 $ 2.5051 $(0.5160) $ 1.1120 $ 0.7871
---------- --------- -------- ---------- -------- -------- -------- -------- --------
Unit value:
Net asset
value -- end of
period......... $ 10.6760 $ 10.4604 $10.4172 $ 18.4344 $18.0755 $18.0278 $15.5227 $16.0387 $14.9267
========== ========= ======== ========== ======== ======== ======== ======== ========
RATIOS (TO AVERAGE
NET ASSETS):
Expenses+##...... 0.64%++ 0.62% 0.63% 0.64%++ 0.62% 0.63% 0.61% 0.61% 0.62%
Net investment
income......... 5.52%++ 5.53% 5.51% 5.52%++ 5.53% 5.51% 5.09% 5.11% 5.51%
PORTFOLIO
TURNOVER......... 117% 39% 80% 117% 39% 80% 41% 81% 175%
NUMBER OF UNITS
OUTSTANDING AT
END OF PERIOD
(000 OMITTED).... 1,264 1,079 608 1,355 1,549 1,888 2,922 2,697 2,722
* Per unit data are based on the average number of units outstanding during each year.
+ Excluding mortality and expense risk charges and distribution expense charges.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through December 31, 1995.
# # For years ending on or after December 31, 1995, expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
38
<PAGE> 39
PER UNIT AND OTHER DATA -- continued
<TABLE>
<CAPTION>
High Yield Variable Account
----------------------------------------------------------------------------
Compass 2
----------------------------------------------------------------------------
Six Months Ended Year Ended December 31,
June 30, --------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER UNIT DATA:*
Net asset value -- beginning of period...... $29.0656 $26.1493 $22.6776 $23.3591 $19.7156 $17.3208
-------- -------- -------- -------- -------- --------
Investment income........................... $ 1.4813 $ 2.7199 $ 2.5137 $ 2.2324 $ 2.0867 $ 2.0657
Expenses.................................... 0.3168 0.6035 0.5356 0.5062 0.4797 0.4061
-------- -------- -------- -------- -------- --------
Net investment income..................... $ 1.1645 $ 2.1164 $ 1.9781 $ 1.7262 $ 1.6070 $ 1.6596
Net realized and unrealized gains (losses)
on investments and foreign currency
transactions............................... 0.5085 0.7999 1.4936 (2.4077) 2.0365 0.7352
-------- -------- -------- -------- -------- --------
Net increase (decrease) in unit value....... $ 1.6730 $ 2.9163 $ 3.4717 $(0.6815) $ 3.6435 $ 2.3948
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period............ $30.7386 $29.0656 $26.1493 $22.6776 $23.3591 $19.7156
======== ======== ======== ======== ======== ========
RATIOS (TO AVERAGE NET ASSETS):
Expenses + # #.............................. 0.84%++ 0.88% 0.88% 0.91% 0.86% 0.93%
Net investment income....................... 7.62%++ 7.59% 7.91% 7.41% 6.97% 9.03%
PORTFOLIO TURNOVER............................ 67% 108% 88% 77% 67% 61%
NUMBER OF UNITS OUTSTANDING AT END OF PERIOD
(000 OMITTED)............................... 4,593 4,956 5,649 6,433 7,564 8,218
</TABLE>
<TABLE>
<CAPTION>
High Yield Variable Account
---------------------------------------------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------- Compass 3
Year Ended ------------------------------------------------------------------
Six Months Ended December Period Ended Six Months Ended Year Ended December 31,
June 30, 31, December 31, June 30, ------------------------------------------------
1997 1996 1995# 1997 1996 1995 1994 1993 1992
---------------- ----------- ------------ ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER UNIT DATA:*
Net asset
value -- beginning
of period...... $11.3852 $ 10.2377 $10.0000 $21.5259 $19.3854 $16.8283 $17.3543 $14.6589 $12.8923
-------- --------- -------- -------- -------- -------- -------- -------- --------
Investment
income......... $ 0.5443 $ 0.9246 $ 0.3803 $ 1.0842 $ 1.9450 $ 1.8912 $ 1.5336 $ 1.5179 $ 1.5969
Expenses......... 0.1153 0.2033 0.0765 0.2463 0.4432 0.4253 0.3711 0.3671 0.3340
-------- --------- -------- -------- -------- -------- -------- -------- --------
Net investment
income....... $ 0.4290 $ 0.7213 $ 0.3038 $ 0.8379 $ 1.5018 $ 1.4659 $ 1.1625 $ 1.1508 $ 1.2629
Net realized and
unrealized gains
(losses) on
investments and
foreign currency
transactions.... 0.2293 0.4262 (0.0661) 0.3900 0.6387 1.0912 (1.6885) 1.5446 0.5037
-------- --------- -------- -------- -------- -------- -------- -------- --------
Net increase
(decrease) in
unit value..... $ 0.6583 $ 1.1475 $ 0.2377 $ 1.2279 $ 2.1405 $ 2.5571 $(0.5260) $ 2.6954 $ 1.7666
-------- --------- -------- -------- -------- -------- -------- -------- --------
Unit value:
Net asset
value -- end of
period......... $12.0435 $ 11.3852 $10.2377 $22.7538 $21.5259 $19.3854 $16.8283 $17.3543 $14.6589
======== ========= ======== ======== ======== ======== ======== ======== ========
RATIOS (TO AVERAGE
NET ASSETS):
Expenses + # #... 0.84%++ 0.88% 0.88% 0.84%++ 0.88% 0.88% 0.91% 0.86% 0.93%
Net investment
income......... 7.62%++ 7.59% 7.91% 7.62%++ 7.59% 7.91% 7.41% 6.97% 9.03%
PORTFOLIO
TURNOVER......... 67% 108% 88% 67% 108% 88% 77% 67% 61%
NUMBER OF UNITS
OUTSTANDING AT
END OF PERIOD
(000 OMITTED).... 810 1,819 1,368 946 1,438 1,913 2,506 2,577 2,345
* Per unit data are based on the average number of units outstanding during each year.
+ Excluding mortality and expense risk charges and distribution expense charges.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through December 31, 1995.
# # For years ending on or after December 31, 1995, expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
39
<PAGE> 40
PER UNIT AND OTHER DATA -- continued
<TABLE>
<CAPTION>
Managed Sectors Variable Account
----------------------------------------------------------------------------
Compass 2
----------------------------------------------------------------------------
Six Months Ended Year Ended December 31,
June 30, --------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER UNIT DATA:*
Net asset value -- beginning of period...... $36.5900 $31.3870 $23.9044 $24.7295 $23.8070 $22.6652
-------- -------- -------- -------- -------- --------
Investment income........................... $ 0.1019 $ 0.2838 $ 0.3277 $ 0.3066 $ 0.1822 $ 0.1121
Expenses.................................... 0.4000 0.7089 0.6066 0.5155 0.4994 0.4782
-------- -------- -------- -------- -------- --------
Net investment loss....................... $(0.2981) $(0.4251) $(0.2789) $(0.2089) $(0.3172) $(0.3661)
Net realized and unrealized gains (losses)
on investments and foreign currency
transactions............................... 5.0524 5.6281 7.7615 (0.6162) 1.2397 1.5079
-------- -------- -------- -------- -------- --------
Net increase (decrease) in unit value....... $ 4.7543 $ 5.2030 $ 7.4826 $(0.8251) $ 0.9225 $ 1.1418
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period............ $41.3443 $36.5900 $31.3870 $23.9044 $24.7295 $23.8070
======== ======== ======== ======== ======== ========
RATIOS (TO AVERAGE NET ASSETS):
Expenses+# #................................ 0.85%++ 0.85% 0.87% 0.90% 0.91% 0.92%
Net investment loss......................... (1.64)%++ (1.36)% (1.07)% (0.97)% (1.49)% (1.75)%
PORTFOLIO TURNOVER............................ 58% 64% 115% 111% 122% 34%
AVERAGE COMMISSION RATE# # #.................. $ 0.0564 $ 0.0459 -- -- -- --
NUMBER OF UNITS OUTSTANDING AT END OF PERIOD
(000 OMITTED)................................ 726 729 788 800 878 1,041
</TABLE>
<TABLE>
<CAPTION>
Managed Sectors Variable Account
---------------------------------------------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------- Compass 3
Year Ended ------------------------------------------------------------------
Six Months Ended December Period Ended Six Months Ended Year Ended December 31,
June 30, 31, December 31, June 30, ------------------------------------------------
1997 1996 1995# 1997 1996 1995 1994 1993 1992
---------------- ----------- ------------ ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER UNIT DATA:*
Net asset
value -- beginning
of period...... $11.6449 $ 9.9892 $10.0000 $36.3604 $31.2371 $23.8258 $24.6849 $23.8007 $22.6927
-------- --------- -------- -------- -------- -------- -------- -------- --------
Investment
income......... $ 0.0337 $ 0.0873 $ 0.0231 $ 0.0987 $ 0.2830 $ 0.3259 $ 0.3031 $ 0.1817 $ 0.1156
Expenses......... 0.1312 0.2287 0.0539 0.4186 0.7511 0.6452 0.5452 0.5313 0.5325
-------- --------- -------- -------- -------- -------- -------- -------- --------
Net investment
loss.......... $(0.0975) $ (0.1414) $(0.0308) $(0.3199) $(0.4681) $(0.3193) $(0.2421) $(0.3496) $(0.4169)
Net realized and
unrealized gains
(losses) on
investments and
foreign currency
transactions.... 1.6105 1.7971 0.0200 5.0140 5.5914 7.7306 (0.6170) 1.2338 1.5249
-------- --------- -------- -------- -------- -------- -------- -------- --------
Net increase
(decrease) in
unit value..... $ 1.5130 $ 1.6557 $(0.0108) $ 4.6941 $ 5.1233 $ 7.4113 $(0.8591) $ 0.8842 $ 1.1080
-------- --------- -------- -------- -------- -------- -------- -------- --------
Unit value:
Net asset
value -- end of
period......... $13.1579 $ 11.6449 $ 9.9892 $41.0545 $36.3604 $31.2371 $23.8258 $24.6849 $23.8007
======== ========= ======== ======== ======== ======== ======== ======== ========
RATIOS (TO AVERAGE
NET ASSETS):
Expenses+# #..... 0.85%++ 0.85% 0.87% 0.85%++ 0.85% 0.87% 0.90% 0.91% 0.92%
Net investment
loss........... (1.64)%++ (1.36)% (1.07)% (1.64)%++ (1.36)% (1.07)% (0.97)% (1.49)% (1.75)%
PORTFOLIO
TURNOVER......... 58% 64% 115% 58% 64% 115% 111% 122% 34%
AVERAGE COMMISSION
RATE# # #........ $ 0.0564 $ 0.0459 -- $ 0.0564 $ 0.0459 -- -- -- --
NUMBER OF UNITS
OUTSTANDING AT
END OF PERIOD
(000 OMITTED).... 1,850 1,204 418 1,320 1,552 1,729 1,810 1,819 1,728
* Per unit data are based on the average number of units outstanding during each year.
+ Excluding mortality and expense risk charges and distribution expense charges.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through December 31, 1995.
# # For years ending on or after December 31, 1995, expenses are calculated without reduction for fees paid indirectly.
# # # Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
</TABLE>
See notes to financial statements
40
<PAGE> 41
PER UNIT AND OTHER DATA -- continued
<TABLE>
<CAPTION>
Money Market Variable Account
----------------------------------------------------------------------------
Compass 2
----------------------------------------------------------------------------
Six Months Ended Year Ended December 31,
June 30, --------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER UNIT DATA:*
Net asset value -- beginning of period...... $17.1109 $16.5213 $15.8699 $15.5003 $15.2976 $14.9945
-------- -------- -------- -------- -------- --------
Investment income........................... $ 0.4672 $ 0.9058 $ 0.9560 $ 0.6615 $ 0.4864 $ 0.5772
Expenses.................................... 0.1599 0.3162 0.3046 0.2919 0.2837 0.2741
-------- -------- -------- -------- -------- --------
Net investment income..................... $ 0.3073 $ 0.5896 $ 0.6514 $ 0.3696 $ 0.2027 $ 0.3031
-------- -------- -------- -------- -------- --------
Net increase in unit value.................. $ 0.3073 $ 0.5896 $ 0.6514 $ 0.3696 $ 0.2027 $ 0.3031
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period............ $17.4182 $17.1109 $16.5213 $15.8699 $15.5003 $15.2976
======== ======== ======== ======== ======== ========
RATIOS (TO AVERAGE NET ASSETS):
Expenses+# #................................ 0.58%++ 0.58% 0.58% 0.58% 0.36% 0.59%
Net investment income....................... 3.56%++ 3.49% 4.00% 2.37% 1.30% 2.03%
NUMBER OF UNITS OUTSTANDING AT END OF PERIOD
(000 OMITTED)............................... 4,919 5,208 6,501 6,851 6,418 8,026
</TABLE>
<TABLE>
<CAPTION>
Money Market Variable Account
---------------------------------------------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------- Compass 3
Year Ended ------------------------------------------------------------------
Six Months Ended December Period Ended Six Months Ended Year Ended December 31,
June 30, 31, December 31, June 30, ------------------------------------------------
1997 1996 1995# 1997 1996 1995 1994 1993 1992
---------------- ----------- ------------ ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER UNIT DATA:*
Net asset
value -- beginning
of period...... $10.4654 $ 10.0997 $10.0000 $14.1277 $13.6545 $13.1291 $12.8359 $12.6806 $12.4415
-------- --------- -------- -------- -------- -------- -------- -------- --------
Investment
income......... $ 0.2915 $ 0.5993 $ 0.1358 $ 0.3829 $ 0.7437 $ 0.7885 $ 0.5688 $ 0.4065 $ 0.4888
Expenses......... 0.1010 0.2336 0.0361 0.1363 0.2705 0.2631 0.2756 0.2512 0.2497
-------- --------- -------- -------- -------- -------- -------- -------- --------
Net investment
income......... $ 0.1905 $ 0.3657 $ 0.0997 $ 0.2466 $ 0.4732 $ 0.5254 $ 0.2932 $ 0.1553 $ 0.2391
-------- --------- -------- -------- -------- -------- -------- -------- --------
Net increase in
unit value..... $ 0.1905 $ 0.3657 $ 0.0997 $ 0.2466 $ 0.4732 $ 0.5254 $ 0.2932 $ 0.1553 $ 0.2391
-------- --------- -------- -------- -------- -------- -------- -------- --------
Unit value:
Net asset
value -- end of
period.......... $10.6559 $ 10.4654 $10.0997 $14.3743 $14.1277 $13.6545 $13.1291 $12.8359 $12.6806
======== ========= ======== ======== ======== ======== ======== ======== ========
RATIOS (TO AVERAGE
NET ASSETS):
Expenses+# #..... 0.58%++ 0.58% 0.58% 0.58%++ 0.58% 0.58% 0.58% 0.36% 0.59%
Net investment
income......... 3.56%++ 3.49% 4.00% 3.56%++ 3.49% 4.00% 2.37% 1.30% 2.03%
NUMBER OF UNITS
OUTSTANDING AT
END OF PERIOD
(000 OMITTED).... 2,438 897 561 1,785 1,930 3,929 4,599 3,823 3,704
* Per unit data are based on the average number of units outstanding during each year.
+ Excluding mortality and expense risk charges and distribution expense charges.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through December 31, 1995.
# # For years ending on or after December 31, 1995, expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
41
<PAGE> 42
PER UNIT AND OTHER DATA -- continued
<TABLE>
<CAPTION>
Total Return Variable Account
----------------------------------------------------------------------------
Compass 2
----------------------------------------------------------------------------
Six Months Ended Year Ended December 31,
June 30, --------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER UNIT DATA:*
Net asset value -- beginning of period...... $25.0444 $22.2577 $17.4729 $18.0043 $15.9891 $14.6451
-------- -------- -------- -------- -------- --------
Investment income........................... $ 0.6814 $ 1.1203 $ 1.0394 $ 0.8583 $ 0.8513 $ 0.9191
Expenses.................................... 0.2859 0.4844 0.4118 0.3704 0.3616 0.3303
-------- -------- -------- -------- -------- --------
Net investment income..................... $ 0.3955 $ 0.6359 $ 0.6276 $ 0.4879 $ 0.4897 $ 0.5888
Net realized and unrealized gains (losses)
on investments and foreign currency
transactions............................... 2.4262 2.1508 4.1572 (1.0193) 1.5255 0.7552
-------- -------- -------- -------- -------- --------
Net increase (decrease) in unit value....... $ 2.8217 $ 2.7867 $ 4.7848 $(0.5314) $ 2.0152 $ 1.3440
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period............ $27.8661 $25.0444 $22.2577 $17.4729 $18.0043 $15.9891
======== ======== ======== ======== ======== ========
RATIOS (TO AVERAGE NET ASSETS):
Expenses+# #................................ 0.82%++ 0.82% 0.83% 0.82% 0.76% 0.86%
Net investment income....................... 2.42%++ 2.59% 2.99% 2.60% 2.43% 3.63%
PORTFOLIO TURNOVER............................ 66% 140% 105% 63% 89% 94%
AVERAGE COMMISSION RATE# # #.................. $ 0.0579 $ 0.0538 -- -- -- --
NUMBER OF UNITS OUTSTANDING AT END OF PERIOD
(000 OMITTED)................................ 4,173 4,414 4,801 5,410 5,889 5,732
</TABLE>
<TABLE>
<CAPTION>
Total Return Variable Account
---------------------------------------------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------- Compass 3
Year Ended ------------------------------------------------------------------
Six Months Ended December Period Ended Six Months Ended Year Ended December 31,
June 30, 31, December 31, June 30, ------------------------------------------------
1997 1996 1995# 1997 1996 1995 1994 1993 1992
---------------- ----------- ------------ ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER UNIT DATA:*
Net asset
value -- beginning
of period...... $11.8074 $ 10.4938 $10.0000 $24.7133 $21.9966 $17.2937 $17.8462 $15.8723 $14.5600
-------- --------- -------- -------- -------- -------- -------- -------- --------
Investment
income.......... $ 0.2661 $ 0.5280 $ 0.1247 $ 0.5304 $ 1.0817 $ 1.0122 $ 0.8371 $ 0.8304 $ 0.9284
Expenses......... 0.1256 0.2317 0.0525 0.2717 0.5068 0.4358 0.3904 0.3829 0.3607
-------- --------- -------- -------- -------- -------- -------- -------- --------
Net investment
income....... $ 0.1405 $ 0.2963 $ 0.0722 $ 0.2587 $ 0.5749 $ 0.5764 $ 0.4467 $ 0.4475 $ 0.5677
Net realized and
unrealized gains
(losses) on
investments and
foreign currency
transactions.... 1.1898 1.0173 0.4216 2.5053 2.1418 4.1265 (0.9992) 1.5264 0.7446
-------- --------- -------- -------- -------- -------- -------- -------- --------
Net increase
(decrease) in
unit value...... $ 1.3303 $ 1.3136 $ 0.4938 $ 2.7640 $ 2.7167 $ 4.7029 $(0.5525) $ 1.9739 $ 1.3123
-------- --------- -------- -------- -------- -------- -------- -------- --------
Unit value:
Net asset
value -- end of
period.......... $13.1377 $ 11.8074 $10.4938 $27.4773 $24.7133 $21.9966 $17.2937 $17.8462 $15.8723
======== ========= ======== ======== ======== ======== ======== ======== ========
RATIOS (TO AVERAGE
NET ASSETS):
Expenses+# #..... 0.82%++ 0.82% 0.83% 0.82%++ 0.82% 0.83% 0.82% 0.76% 0.86%
Net investment
income.......... 2.42%++ 2.59% 2.99% 2.42%++ 2.59% 2.99% 2.60% 2.43% 3.63%
PORTFOLIO
TURNOVER......... 66% 140% 105% 66% 140% 105% 63% 89% 94%
AVERAGE COMMISSION
RATE# # #........ $ 0.0579 $ 0.0538 -- $ 0.0579 $ 0.0538 -- -- -- --
NUMBER OF UNITS
OUTSTANDING AT
END OF PERIOD
(000 OMITTED).... 4,616 3,717 1,637 4,494 5,177 6,322 7,349 7,013 5,721
* Per unit data are based on the average number of units outstanding during each year.
+ Excluding mortality and expense risk charges and distribution expense charges.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through December 31, 1995.
# # For years ending on or after December 31, 1995, expenses are calculated without reduction for fees paid indirectly.
# # # Average commission rate is calculated for funds with fiscal years beginning on or after September 1, 1995.
</TABLE>
See notes to financial statements
42
<PAGE> 43
PER UNIT AND OTHER DATA -- continued
<TABLE>
<CAPTION>
World Governments Variable Account
----------------------------------------------------------------------------
Compass 2
----------------------------------------------------------------------------
Six Months Ended Year Ended December 31,
June 30, --------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER UNIT DATA:*
Net asset value -- beginning of period...... $18.6786 $18.1095 $15.8337 $16.9056 $14.4420 $14.5806
-------- -------- -------- -------- -------- --------
Investment income........................... $ 0.5934 $ 1.2469 $ 1.3112 $ 1.0805 $ 1.1460 $ 1.2892
Expenses.................................... 0.2074 0.4084 0.3863 0.3565 0.3704 0.3624
-------- -------- -------- -------- -------- --------
Net investment income..................... $ 0.3860 $ 0.8385 $ 0.9249 $ 0.7240 $ 0.7756 $ 0.9268
Net realized and unrealized gains (losses)
on investments and foreign currency
transactions............................... (0.8276) (0.2694) 1.3509 (1.7959) 1.6880 (1.0654)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in unit value....... $(0.4416) $ 0.5691 $ 2.2758 $(1.0719) $ 2.4636 $(0.1386)
-------- -------- -------- -------- -------- --------
Unit value:
Net asset value -- end of period............ $18.2370 $18.6786 $18.1095 $15.8337 $16.9056 $14.4420
======== ======== ======== ======== ======== ========
RATIOS (TO AVERAGE NET ASSETS):
Expenses+# #................................ 1.04%++ 1.00% 1.00% 1.00% 0.94% 1.15%
Net investment income....................... 4.14%++ 4.54% 5.25% 4.45% 4.12% 6.03%
PORTFOLIO TURNOVER............................ 189% 397% 330% 256% 202% 133%
NUMBER OF UNITS OUTSTANDING AT END OF PERIOD
(000 OMITTED)................................ 478 588 824 983 1,092 949
</TABLE>
<TABLE>
<CAPTION>
World Governments Variable Account
---------------------------------------------------------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------- Compass 3
Year Ended ------------------------------------------------------------------
Six Months Ended December Period Ended Six Months Ended Year Ended December 31,
June 30, 31, December 31, June 30, ------------------------------------------------
1997 1996 1995# 1997 1996 1995 1994 1993 1992
---------------- ----------- ------------ ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER UNIT DATA:*
Net asset
value -- beginning
of period...... $10.6836 $ 10.3582 $10.0000 $18.4308 $17.8962 $15.6705 $16.7563 $14.3365 $14.4961
-------- --------- -------- -------- -------- -------- -------- -------- --------
Investment
income......... $ 0.3472 $ 0.7308 $ 0.1819 $ 0.5769 $ 1.2367 $ 1.3045 $ 1.0666 $ 1.1293 $ 1.2979
Expenses......... 0.1210 0.2391 0.0554 0.2152 0.4322 0.4086 0.3760 0.3890 0.3876
-------- --------- -------- -------- -------- -------- -------- -------- --------
Net investment
income....... $ 0.2262 $ 0.4917 $ 0.1265 $ 0.3617 $ 0.8045 $ 0.8959 $ 0.6906 $ 0.7403 $ 0.9103
Net realized and
unrealized gains
(losses) on
investments and
foreign currency
transactions.... (0.4789) (0.1663) 0.2317 (0.8108) (0.2699) 1.3298 (1.7764) 1.6795 (1.0699)
-------- --------- -------- -------- -------- -------- -------- -------- --------
Net increase
(decrease) in
unit value..... $(0.2527) $ 0.3254 $ 0.3582 $(0.4491) $ 0.5346 $ 2.2257 $(1.0858) $ 2.4198 $(0.1596)
-------- --------- -------- -------- -------- -------- -------- -------- --------
Unit value:
Net asset
value -- end of
period......... $10.4309 $ 10.6836 $10.3582 $17.9817 $18.4308 $17.8962 $15.6705 $16.7563 $14.3365
======== ========= ======== ======== ======== ======== ======== ======== ========
RATIOS (TO AVERAGE
NET ASSETS):
Expenses+# #..... 1.04%++ 1.00% 1.00% 1.04%++ 1.00% 1.00% 1.00% 0.94% 1.15%
Net investment
income......... 4.14%++ 4.54% 5.25% 4.14%++ 4.54% 5.25% 4.45% 4.12% 6.03%
PORTFOLIO
TURNOVER......... 189% 397% 330% 189% 397% 330% 256% 202% 133%
NUMBER OF UNITS
OUTSTANDING AT
END OF PERIOD
(000 OMITTED).... 650 563 316 603 789 1,021 1,321 1,363 1,176
* Per unit data are based on the average number of units outstanding during each year.
+ Excluding mortality and expense risk charges and distribution expense charges.
++ Annualized.
# For the period from May 1, 1995, (commencement of Level 2 Units) through December 31, 1995.
# # For years ending on or after December 31, 1995, expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
43
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
Capital Appreciation Variable Account, Government Securities Variable Account,
High Yield Variable Account, Managed Sectors Variable Account, Money Market
Variable Account, Total Return Variable Account, and World Governments Variable
Account are separate accounts established by Sun Life Assurance Company of
Canada (U.S.), the Sponsor, in connection with the issuance of Compass 2 and
Compass 3 combination fixed/variable annuity contracts. Capital Appreciation
Variable Account, Government Securities Variable Account, Money Market Variable
Account, and Total Return Variable Account operate as open-end, diversified
management investment companies and High Yield Variable Account, Managed Sectors
Variable Account, and World Governments Variable Account operate as open-end,
non-diversified management investment companies as those terms are defined in
the Investment Company Act of 1940, as amended.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Investments in foreign
securities are vulnerable to the effects of changes in the relative values of
the local currency and the U.S. dollar and to the effects of changes in each
country's legal, political, and economic environment.
INVESTMENT VALUATIONS
Equity securities listed on securities exchanges or reported through the NASDAQ
system are reported at market value using last sale prices. Unlisted equity
securities or listed equity securities for which last sale prices are not
available are reported at market value using last quoted bid prices. Debt
securities (other than short-term obligations which mature in 60 days or less),
including listed issues and forward contracts, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics,
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value. Non-U.S.
dollar denominated short-term obligations are valued at amortized cost as
calculated in the foreign currency and translated into U.S. dollars at the
closing daily exchange rate. Futures contracts, options, and options on futures
contracts listed on commodities exchanges are valued at closing settlement
prices. Over-the-counter options on securities are valued by brokers.
Over-the-counter currency options are valued through the use of a pricing model
which takes into account foreign currency exchange spot and forward rates,
implied volatility, and short-term repurchase rates. Securities for which there
are no such quotations or
44
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS -- continued
valuations are valued at fair value as determined in good faith by or at the
direction of the Boards of Managers.
REPURCHASE AGREEMENTS
Certain Variable Accounts may enter into repurchase agreements with institutions
that the Variable Account's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. Such Variable Accounts require
that the securities purchased in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the Account to obtain those
securities in the event of a default under the repurchase agreement. The
investment adviser monitors, on a daily basis, the value of the securities
transferred to ensure that the value, including accrued interest, of the
securities under each repurchase agreement is greater than the amount owed to
the Variable Account under each such repurchase agreement. Such Variable
Accounts, along with other affiliated entities of Massachusetts Financial
Services Company (MFS), may utilize a joint trading account for the purpose of
entering into one or more repurchase agreements.
FOREIGN CURRENCY TRANSLATION
Investment valuations, other assets, and liabilities initially expressed in
foreign currencies are
converted each business day into U.S. dollars based upon current exchange rates.
Purchases and sales of foreign investments, income, and expenses are converted
into U.S. dollars based upon currency exchange rates prevailing on the
respective dates of such transactions. Gains and losses attributable to foreign
currency exchange rates on sales of securities are recorded for financial
statement purposes as net realized gains and losses on investments. Gains and
losses attributable to foreign exchange rate movements on income and expenses
are recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and losses
on investments that results from fluctuations in foreign currency exchange rates
is not separately disclosed.
FUTURES CONTRACTS
Certain Variable Accounts may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at a
fixed price on a future date. In entering such contracts, the Variable Account
is required to deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or received by
the Variable Account each day, depending on the daily fluctuations in the value
of the underlying security, and are recorded for financial statement purposes as
unrealized gains or losses by the Variable Account. The Variable Account's
investment in futures contracts is designed to hedge against anticipated future
changes in interest or exchange rates or securities prices. Investments in
interest rate futures for purposes other than hedging may be made to modify the
duration of the portfolio without incurring the additional transaction costs
involved in buying and selling the underlying securities. Investments in
currency futures for purposes other than hedging may be made to change the
Variable Account's
45
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS -- continued
relative position in one or more currencies without buying and selling portfolio
assets. Investments in equity index contracts, or contracts on related options,
for purposes other than hedging may be made when the Variable Account has cash
on hand and wishes to participate in anticipated market appreciation while the
cash is being invested. Should interest or exchange rates or securities prices
move unexpectedly, the Variable Account may not achieve the anticipated benefits
of the futures contracts and may realize a loss.
WRITTEN OPTIONS
Certain Variable Accounts may also write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is subsequently
adjusted to the current value of the options contract. When a written option
expires, the Account realizes a gain equal to the amount of the premium
received. When a written call option is exercised or closed, the premium
received is offset against the proceeds to determine the realized gain or loss.
When a written put option is exercised, the premium reduces the cost basis of
the security purchased by the Account. The Account, as writer of an option, may
have no control over whether the underlying securities may be sold (call) or
purchased (put) and, as a result, bears the market risk of an unfavorable change
in the price of the securities underlying the written option. In general,
written call options may serve as a partial hedge against decreases in the value
in the underlying securities to the extent of the premium received. Written
options may also be used as part of an income producing strategy reflecting the
view of the Account's management on the direction of interest rates.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Certain Variable Accounts may enter into forward foreign currency exchange
contracts for the purchase or sale of a specific foreign currency at a fixed
price on a future date. Risks may arise upon entering into these contracts from
the potential inability of counterparties to meet the terms of their contracts
and from unanticipated movements in the value of a foreign currency relative to
the U.S. dollar. Certain Variable Accounts will enter into forward contracts for
hedging purposes as well as for non-hedging purposes. For hedging purposes,
certain Variable Accounts may enter into contracts to deliver or receive foreign
currency they will receive from or require for their normal investment
activities. They may also use contracts in a manner intended to protect foreign
currency-denominated securities from declines in value due to unfavorable
exchange rate movements. For non-hedging purposes, certain Variable Accounts may
enter into contracts with the intent of changing the relative exposure of the
Accounts' portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded for financial statement purposes as unrealized until the
contract settlement date. On contract settlement date, the gains or losses are
recorded as realized gains or losses on foreign currency transactions.
46
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS -- continued
FEDERAL INCOME TAXES
The Variable Accounts are funding vehicles for individual variable annuities.
The operations of the Variable Accounts are part of the operations of Sun Life
Assurance Company of Canada (U.S.), the Sponsor, and are not taxed separately;
the Variable Accounts are not taxed as regulated investment companies. The
Sponsor qualifies for the federal income tax treatment granted to life insurance
companies under Subchapter L of the Internal Revenue Code. Accordingly, no
provision for federal income or excise tax is necessary.
INVESTMENT TRANSACTIONS AND INCOME
Investment transactions are recorded on the trade date. Interest income is
recorded on the accrual basis. All premiums and original issue discounts are
amortized or accreted for financial statement and tax reporting purposes as
required by federal income tax regulations. Dividends received in cash are
recorded on the ex-dividend date. Dividend and interest payments received in
additional securities are recorded on the ex-dividend or ex-interest date in an
amount equal to the value of the security on such date.
Certain of the Variable Accounts use the effective interest method for reporting
interest income on payment-in-kind (PIK) bonds. Legal fees and other related
expenses incurred to preserve and protect the value of a security owned are
added to the cost of the security; other legal fees are expensed. Capital
infusions, which are generally non-recurring, incurred to protect or enhance the
value of high-yield debt securities, are reported as additions to the cost basis
of the security. Costs that are incurred to negotiate the terms or conditions of
capital infusions or that are expected to result in a plan of reorganization are
reported as realized losses. Ongoing costs incurred to protect or enhance an
investment, or costs incurred to pursue other claims or legal actions, are
expensed.
FEES PAID INDIRECTLY
The Variable Accounts' custody fees are calculated as a percentage of average
daily net assets. The fees are reduced according to an arrangement which
measures the value of cash deposited with the custodian by the Variable
Accounts. This amount is shown as a reduction of expenses on the Statement of
Operations.
(3) CONTRACT CHARGES
The Sponsor makes a deduction from the Variable Accounts at the end of each
valuation period, during both the accumulation period and after annuity payments
begin, for assuming the mortality and expense risks under the contracts. The
rate of the deduction may be changed annually but in no event may it exceed
1.25% of the average net assets of each Variable Account attributable to Compass
3 contracts, or, with respect to Compass 2 contracts, 1.30% of the assets of
Capital Appreciation Variable Account, Government Securities Variable Account,
High Yield Variable Account, and Money
47
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS -- continued
Market Variable Account, or 1.25% of the assets of Managed Sectors Variable
Account, Total Return Variable Account, and World Governments Variable Account
attributable to such contracts.
For assuming the distribution expense risk under Compass 3 contracts, the
Sponsor makes a deduction from the Variable Accounts at the end of each
valuation period for the first seven contract years at an effective annual rate
of 0.15% of the net assets of the Variable Accounts attributable to such
contracts. Contracts are transferred from Compass 3 to Compass 3--Level 2 in the
month following the seventh contract anniversary. No deduction is made after the
seventh contract anniversary. No deduction is made with respect to assets
attributable to Compass 2 contracts.
Each year, on the contract anniversary, a contract maintenance charge of $25
with respect to Compass 2 contracts and $30 with respect to Compass 3 contracts
is deducted from each contract's accumulation account and paid to the Sponsor to
cover administrative expenses relating to the contract. After the annuity
commencement date, the annual contract maintenance charge is deducted pro rata
from each annuity payment made during the year.
The Sponsor does not deduct a sales charge from purchase payments. However, a
withdrawal charge (contingent deferred sales charge) may be deducted to cover
certain expenses relating to the sale of the contract. In no event shall the
aggregate withdrawal charges (including the distribution expense charge
described above applicable to Compass 3 contracts) exceed 5% of the purchase
payments made under a Compass 2 contract or 9% of the purchase payments made
under a Compass 3 contract.
(4) ANNUITY RESERVES
Annuity reserves for contracts with annuity commencement dates prior to February
1, 1987, have been calculated using the 1971 Individual Annuitant Mortality
Table. Annuity reserves for contracts with annuity commencement dates on or
after February 1, 1987, are calculated using the 1983 Individual Annuitant
Mortality Table. Annuity reserves for contracts in payment period are calculated
using an assumed interest rate of 4%. Required adjustments are accomplished by
transfers to or from the Sponsor.
(5) MANAGEMENT AGREEMENTS
The Management Agreements provide that the Variable Accounts will pay the
Investment Adviser, Massachusetts Financial Services Company (MFS), a
wholly-owned subsidiary of the Sponsor, a fee computed daily and paid monthly at
an effective annual rate based on a percentage of each Variable Account's
average daily net assets as follows:
<TABLE>
<CAPTION>
Annual Rate of Management Fee Annual Rate of Management Fee
Based on Average Based on Average
Daily Net Assets Daily Net Assets
Not Exceeding $300 Million in Excess of $300 Million
------------------------------ ------------------------------
<S> <C> <C>
Capital Appreciation Variable Account.................... 0.75% 0.675%
Government Securities Variable Account................... 0.55% 0.495%
High Yield Variable Account.............................. 0.75% 0.675%
Managed Sectors Variable Account......................... 0.75% 0.675%
Money Market Variable Account............................ 0.50% 0.500%
Total Return Variable Account............................ 0.75% 0.675%
World Governments Variable Account....................... 0.75% 0.675%
</TABLE>
48
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS -- continued
The agreements also provide that the Investment Adviser will pay certain
Variable Account expenses in excess of 1.25% of the average daily net assets of
each Variable Account for any calendar year. The Variable Accounts pay no
compensation directly to their officers or members of the Boards of Managers who
are affiliated with the Investment Adviser or the Sponsor.
Effective March 1, 1997, each Variable Account has an administrative services
agreement with MFS to provide the Variable Account with certain financial,
legal, and other administrative services. As a partial reimbursement for the
cost of providing these services, each Variable Account pays MFS an
administrative fee up to 0.015% per annum of the Variable Account's average
daily net assets, provided that the administrative fee is not assessed on
Variable Account's assets that exceed $3 billion.
(6) PORTFOLIO SECURITIES
For the six months ended June 30, 1997, purchases and sales of investments,
other than U.S. government securities, purchased option transactions, and
short-term obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Capital Appreciation Variable Account.................................................. $169,938,684 $223,433,757
High Yield Variable Account............................................................ 120,728,142 144,719,181
Managed Sectors Variable Account....................................................... 57,570,111 61,151,474
Money Market Variable Account*......................................................... 213,760,181 223,221,686
Total Return Variable Account.......................................................... 105,049,242 114,847,492
World Governments Variable Account..................................................... 30,923,287 41,966,912
</TABLE>
For the six months ended June 30, 1997, purchases and sales of U.S. government
securities, other than purchased option transactions and short-term obligations,
were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
Government Securities Variable Account................................................. $243,615,321 $238,127,003
Money Market Variable Account*......................................................... 956,327,601 942,980,310
Total Return Variable Account.......................................................... 68,596,715 76,672,940
World Governments Variable Account..................................................... 19,710,491 16,579,941
</TABLE>
* Purchases and sales of investments for Money Market Variable Account consist
solely of short-term obligations.
(7) HIGH-YIELD SECURITIES AND FINANCIAL INSTRUMENTS
Although the High Yield Variable Account has a diversified portfolio, its
portfolio is invested in high-yield securities rated below investment grade or
which are unrated. Investments in high-yield securities involve greater degrees
of credit and market risk than investments in higher-rated securities and tend
to be more sensitive to economic conditions.
Certain Variable Accounts trade financial instruments with off-balance sheet
risk in the normal course of their investing activities in order to manage
exposure to market risks such as interest rates and foreign currency exchange
rates. These financial instruments include written options, futures contracts,
49
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS -- continued
and forward foreign currency exchange contracts. The notional or contractual
amounts of these instruments represent the investment the Variable Accounts have
in particular classes of financial instruments and do not necessarily represent
the amounts potentially subject to risk. The measurement of the risks associated
with these instruments is meaningful only when all related and offsetting
transactions are considered. A summary of obligations under these financial
instruments at June 30, 1997, is as follows:
WRITTEN OPTION TRANSACTIONS
World Governments Variable Account
<TABLE>
<CAPTION>
1997 Calls 1997 Puts
------------------------------ -------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
----------------- -------- ----------------- ---------
<S> <C> <C> <C> <C>
Outstanding, beginning of period --
Deutsche Marks/British Pounds........................ 4,165 $15,959 8,724 $135,374
Swiss Francs/Deutsche Marks.......................... 2,933 8,902 6,412 79,193
Options written --
Australian Dollars................................... 735 4,963 -- --
Deutsche Marks....................................... -- -- 5,142 8,620
Italian Lire......................................... 2,502,023 10,226 2,655,805 10,457
Japanese Yen......................................... 939,196 95,438 -- --
Options terminated in closing transactions --
Australian Dollars................................... (735) (4,963) -- --
Deutsche Marks....................................... -- -- (5,142) (8,620)
Deutsche Marks/British Pounds........................ -- -- (8,724) (135,374)
Italian Lire......................................... (2,502,023) (10,226) (2,655,805) (10,457)
Japanese Yen......................................... (939,196) (95,438) -- --
Swiss Francs/Deutsche Marks.......................... -- -- (6,412) (79,193)
Options expired --
Deutsche Marks/British Pounds........................ (4,165) (15,959) -- --
Swiss Francs/Deutsche Marks.......................... (2,933) (8,902) -- --
---------- ------- ---------- --------
Outstanding, end of period............................. 0 $ 0 0 $ 0
========== ======= ========== ========
</TABLE>
FUTURES CONTRACTS
<TABLE>
<CAPTION>
Unrealized
Account Description Expiration Contracts Position Depreciation
- --------------------------------------- -------------------- --------------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Government Securities Variable Account U.S. Treasury Bonds September 1997 80 Short $ (129)
</TABLE>
At June 30, 1997, the Government Securities Variable Account had sufficient cash
and/or securities to cover any commitments under these contracts.
50
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS -- continued
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
Contracts to
Account Transaction Settlement Date Deliver/Receive In Exchange for
- ----------------------------------- ------------ ----------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
World Governments Variable Account Sales 8/26/97 AUD 1,031,133 $ 800,082
9/30/97 CAD 786,911 574,387
8/26/97 - 9/30/97 DEM 10,646,130 6,268,919
8/26/97 - 1/07/98 ESP 214,271,636 1,478,820
-----------
$ 9,122,208
===========
Purchases
1/07/98 CAD 2,074,117 $ 1,521,111
1/07/98 CHF 2,044,683 1,448,594
9/30/97 - 1/07/98 DEM 11,439,181 6,726,536
8/26/97 ECU 263,000 302,187
1/07/98 GBP 820,081 1,358,636
8/26/97 JPY 18,844,953 153,313
8/26/97 NLG 5,544,873 2,925,498
-----------
$14,435,875
===========
<CAPTION>
Net Unrealized
Contracts at Appreciation
Account Value (Depreciation)
- ----------------------------------- ------------ --------------
<S> <C> <C>
World Governments Variable Account $ 779,198 $ 20,884
573,257 1,130
6,137,136 131,783
1,459,372 19,448
------------ ----------
$ 8,948,963 $ 173,245
============ ==========
$ 1,518,949 $ (2,162)
1,432,789 (15,805)
6,627,341 (99,195)
296,906 (5,281)
1,356,372 (2,264)
165,873 12,560
2,836,269 (89,229)
------------ ----------
$ 14,234,499 $ (201,376)
============ ==========
</TABLE>
At June 30, 1997, forward foreign currency exchange contract purchases and sales
under master netting arrangements for the World Governments Variable amounted to
a net payable of $112,536 with Bankers Trust, $45,272 with Deutsche Bank,
$206,937 with C.S. First Boston, and a net receivable of $38,579 with Chase
Manhattan, $119,164 with Merrill Lynch, and $9,313 with Swiss Bank Corporation
International. Closed forward foreign currency exchange contracts excluded above
for the World Governments Variable amounted to a net receivable of $40,665 with
Goldman Sachs at June 30, 1997.
At June 30, 1997, the World Governments Variable Account had sufficient cash
and/or securities to cover any commitments under these contracts.
See page 30 for an explanation of abbreviations used to indicate amounts shown
in currencies other than the U.S. dollar.
51
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS -- continued
(8) RESTRICTED SECURITIES
Certain of the Variable Accounts may invest in securities which are subject to
legal or contractual restrictions on resale. At June 30, 1997, Capital
Appreciation Variable Account and High Yield Variable Account owned the
following restricted securities (consisting of 0.2% and 0.8% of the Account's
net assets, respectively) which may not be publicly sold without registration
under the Securities Act of 1933. The Variable Accounts do not have the right to
demand that such securities be registered. The value of these securities is
determined by valuations supplied by a pricing service or brokers or, if not
available, in good faith by or at the direction of the Boards of Managers.
<TABLE>
<CAPTION>
Date of Share/Par
Account Description Acquisition Amount Cost
- -------------------------------------- --------------------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Capital Appreciation Variable Account Tele-Save Holdings, Inc. 3/10/97 89,500 $1,476,750
High Yield Variable Account Atlantic Gulf Communities Corp. 9/25/95 150 --
Envirosource, Inc. 5/15/94 1,666 7,288
Merrill Mortgage Investors, Inc., 8.155s,
2023 6/22/94 1,000,000 693,125
Renaissance Cosmetics, Inc. 8/15/96 666 61,224
----------
$ 761,637
==========
<CAPTION>
Account Value
- -------------------------------------- ----------
<S> <C>
Capital Appreciation Variable Account $1,454,375
High Yield Variable Account 956
3,332
868,438
586,080
----------
$1,458,806
==========
</TABLE>
52
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS -- continued
(9) PARTICIPANT TRANSACTIONS
The changes in net assets from changes in numbers of outstanding units were as
follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 (000 Omitted)
------------------------------------------------------------------------------------------------------
Transfers Between Withdrawals,
Variable Accounts Surrenders,
Purchase and Fixed Annuitizations, Net Net Net
Payments Accumulation and Contract Accumulation Annuitization Increase
Received Account Charges Activity Activity (Decrease)
--------------- ----------------- ----------------- ----------------- ------------- ----------
Units Dollars Units Dollars Units Dollars Units Dollars Dollars Dollars
----- ------- ------ -------- ------ -------- ------ -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Appreciation
Variable Account
Compass 2 Contracts.... 73 $ 3,498 (115) $ (4,854) (481) $(23,025) (523) $(24,381) $(311) $(24,692)
Compass 3 Contracts.... 237 7,433 (462) (14,052) (165) (5,224) (390) (11,843) (177) (12,020)
Compass 3 Level 2
Contracts............ 44 573 1,179 15,309 (321) (4,228) 902 11,654 135 11,789
------- -------- -------- -------- --------
$11,504 $ (3,597) $(32,477) $(24,570) $(353) $(24,923)
======= ======== ======== ======== ========
Government Securities
Variable Account
Compass 2 Contracts.... 49 $ 1,249 16 $ 335 (687) $(17,707) (622) $(16,123) $(157) $(16,280)
Compass 3 Contracts.... 72 1,299 (174) (3,163) (92) (1,662) (194) (3,526) (7) (3,533)
Compass 3 Level 2
Contracts............ 13 135 346 3,623 (174) (1,822) 185 1,936 72 2,008
------- -------- -------- -------- --------
$ 2,683 $ 795 $(21,191) $(17,713) $ (92) $(17,805)
======= ======== ======== ======== ========
High Yield Variable
Account
Compass 2 Contracts.... 33 $ 964 (133) $ (3,965) (263) $ (7,836) (363) $(10,837) $(156) $(10,993)
Compass 3 Contracts.... 45 998 (493) (11,175) (44) (982) (492) (11,159) (2) (11,161)
Compass 3 Level 2
Contracts............ 11 127 (913) (11,208) (107) (1,245) (1,009) (12,326) -- (12,326)
------- -------- -------- -------- --------
$ 2,089 $(26,348) $(10,063) $(34,322) $(158) $(34,480)
======= ======== ======== ======== ========
Managed Sectors Variable
Account
Compass 2 Contracts.... 11 $ 444 36 $ 1,412 (49) $ (1,894) (2) $ (38) $ (8) $ (46)
Compass 3 Contracts.... 93 3,508 (252) (9,407) (72) (2,706) (231) (8,605) (4) (8,609)
Compass 3 Level 2
Contracts............ 27 329 804 9,617 (185) (2,258) 646 7,688 -- 7,688
------- -------- -------- -------- --------
$ 4,281 $ 1,622 $ (6,858) $ (955) $ (12) $ (967)
======= ======== ======== ======== ========
Money Market Variable
Account
Compass 2 Contracts.... 37 $ 632 198 $ 3,407 (524) $ (9,057) (289) $ (5,018) $ 90 $ (4,928)
Compass 3 Contracts.... 95 1,345 14 190 (255) (3,623) (146) (2,088) (1) (2,089)
Compass 3 Level 2
Contracts............ 7 71 1,896 20,053 (362) (3,821) 1,541 16,303 (1) 16,302
------- -------- -------- -------- --------
$ 2,048 $ 23,650 $(16,501) $ 9,197 $ 88 $ 9,285
======= ======== ======== ======== ========
Total Return Variable
Account
Compass 2 Contracts.... 37 $ 972 92 $ 2,416 (369) $ (9,634) (240) $ (6,246) $(116) $ (6,362)
Compass 3 Contracts.... 254 6,523 (709) (18,162) (227) (5,831) (682) (17,470) (159) (17,629)
Compass 3 Level 2
Contracts............ 61 739 1,479 18,118 (640) (7,899) 900 10,958 153 11,111
------- -------- -------- -------- --------
$ 8,234 $ 2,372 $(23,364) $(12,758) $(122) $(12,880)
======= ======== ======== ======== ========
World Governments
Variable Account
Compass 2 Contracts.... 6 $ 111 (41) $ (754) (73) $ (1,327) (108) $ (1,970) $ -- $ (1,970)
Compass 3 Contracts.... 35 629 (179) (3,192) (42) (756) (186) (3,319) (12) (3,331)
Compass 3 Level 2
Contracts............ 7 69 240 2,493 (160) (1,652) 67 910 (72) 838
------- -------- -------- -------- --------
$ 809 $ (1,453) $ (3,735) $ (4,379) $ (84) $ (4,463)
======= ======== ======== ======== ========
</TABLE>
53
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS -- continued
PARTICIPANT TRANSACTIONS -- continued
<TABLE>
<CAPTION>
Year Ended December 31, 1996 (000 Omitted)
------------------------------------------------------------------------------------------------------
Transfers Between Withdrawals,
Variable Accounts Surrenders,
Purchase and Fixed Annuitizations, Net Net Net
Payments Accumulation and Contract Accumulation Annuitization Increase
Received Account Charges Activity Activity (Decrease)
--------------- ----------------- ----------------- ----------------- ------------- ----------
Units Dollars Units Dollars Units Dollars Units Dollars Dollars Dollars
----- ------- ------ -------- ------ -------- ------ -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Appreciation
Variable Account
Compass 2 Contracts.... 180 $ 7,455 (91) $ (4,061) (1,099) $(45,738) (1,010) $(42,344) $(349) $(42,693)
Compass 3 Contracts.... 481 13,270 (614) (17,433) (417) (11,545) (550) (15,708) (130) (15,838)
Compass 3 Level 2
Contracts............ 57 679 1,914 22,048 (434) (4,985) 1,537 17,742 136 17,878
------- -------- -------- -------- ----- --------
$21,404 $ 554 $(62,268) $(40,310) $(343) $(40,653)
======= ======== ======== ======== ===== ========
Government Securities
Variable Account
Compass 2 Contracts.... 111 $ 2,777 88 $ 1,771 (1,305) $(32,747) (1,106) $(28,199) $(190) $(28,389)
Compass 3 Contracts.... 180 3,175 (275) (4,893) (243) (4,305) (338) (6,023) (233) (6,256)
Compass 3 Level 2
Contracts............ 24 248 682 6,922 (235) (2,412) 471 4,758 140 4,898
------- -------- -------- -------- ----- --------
$ 6,200 $ 3,800 $(39,464) $(29,464) $(283) $(29,747)
======= ======== ======== ======== ===== ========
High Yield Variable
Account
Compass 2 Contracts.... 84 $ 2,279 (68) $ (1,706) (709) $(19,329) (693) $(18,756) $(335) $(19,091)
Compass 3 Contracts.... 109 2,297 (387) (7,810) (197) (3,971) (475) (9,484) (3) (9,486)
Compass 3 Level 2
Contracts............ 17 189 640 7,081 (206) (2,241) 451 5,029 -- 5,028
------- -------- -------- -------- ----- --------
$ 4,765 $ (2,435) $(25,541) $(23,211) $(338) $(23,549)
======= ======== ======== ======== ===== ========
Managed Sectors Variable
Account
Compass 2 Contracts.... 27 $ 890 11 $ 569 (95) $ (3,210) (57) $ (1,751) $ 51 $ (1,700)
Compass 3 Contracts.... 232 7,729 (209) (7,143) (200) (6,697) (177) (6,111) 40 (6,071)
Compass 3 Level 2
Contracts............ 33 356 940 10,199 (188) (2,005) 785 8,550 -- 8,550
------- -------- -------- -------- ----- --------
$ 8,975 $ 3,625 $(11,912) $ 688 $ 91 $ 779
======= ======== ======== ======== ===== ========
Money Market Variable
Account
Compass 2 Contracts.... 89 $ 1,495 (32) $ (491) (1,350) $(22,684) (1,293) $(21,680) $(175) $(21,855)
Compass 3 Contracts.... 318 4,398 (1,688) (23,340) (629) (8,732) (1,999) (27,674) (14) (27,688)
Compas 3 Level 2
Contracts............ 8 86 940 9,562 (612) (6,301) 336 3,347 2 3,349
------- -------- -------- -------- ----- --------
$ 5,979 $(14,269) $(37,717) $(46,007) $(187) $(46,194)
======= ======== ======== ======== ===== ========
Total Return Variable
Account
Compass 2 Contracts.... 96 $ 2,226 145 $ 3,421 (628) $(14,638) (387) $ (8,991) $(241) $ (9,232)
Compass 3 Contracts.... 598 13,715 (1,048) (24,348) (695) (15,953) (1,145) (26,586) (2) (26,588)
Compas 3 Level 2
Contracts............ 93 1,048 2,544 28,160 (557) (6,171) 2,080 23,037 65 23,102
------- -------- -------- -------- ----- --------
$16,989 $ 7,233 $(36,762) $(12,540) $(178) $(12,718)
======= ======== ======== ======== ===== ========
World Governments
Variable Account
Compass 2 Contracts.... 14 $ 246 (144) $ (2,559) (107) $ (1,946) (237) $ (4,259) $ (9) $ (4,268)
Compass 3 Contracts.... 87 1,556 (220) (3,961) (96) (1,762) (229) (4,167) (161) (4,328)
Compass 3 Level 2
Contracts............ 11 115 319 3,327 (86) (880) 244 2,562 80 2,642
------- -------- -------- -------- ----- --------
$ 1,917 $ (3,193) $ (4,588) $ (5,864) $ (90) $ (5,954)
======= ======== ======== ======== ===== ========
</TABLE>
54
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS -- continued
(10) DETAILED STATEMENTS OF OPERATIONS -- Six Months Ended June 30, 1997 (000
Omitted)
<TABLE>
<CAPTION>
Capital Appreciation Variable Account
------------------------------------------------------------------------------------------------------
Compass 2 Compass 3 Compass 3 - Level 2
---------------------------- ---------------------------- ----------------------------
Accumulation Annuitization Accumulation Annuitization Accumulation Annuitization Total
------------ ------------- ------------ ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Interest............... $ 133 $ 2 $ 34 $ -- $ 14 $ -- $ 183
Dividends.............. 1,157 15 301 1 114 1 1,589
-------- ----- -------- ----- ------ ----- -------
Total investment
income............. $ 1,290 $ 17 $ 335 $ 1 $ 128 $ 1 $ 1,772
Expenses................. 4,286 21 1,171 1 404 1 5,884
-------- ----- -------- ----- ------ ----- -------
Net investment loss.... $ (2,996) $ (4) $ (836) $ -- $ (276) $ -- $(4,112)
-------- ----- -------- ----- ------ ----- -------
Realized and unrealized
gains on investments:
Net realized gains..... $ 42,766 $ 553 $ 11,154 $ 35 $4,204 $ 20 $58,732
Net unrealized gains... 17,761 236 4,548 14 1,842 9 24,410
-------- ----- -------- ----- ------ ----- -------
Net realized and
unrealized gains on
investments............. $ 60,527 $ 789 $ 15,702 $ 49 $6,046 $ 29 $83,142
-------- ----- -------- ----- ------ ----- -------
Increase in net assets
from operations........ $ 57,531 $ 785 $ 14,866 $ 49 $5,770 $ 29 $79,030
======== ===== ======== ===== ====== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Government Securities Variable Account
------------------------------------------------------------------------------------------------------
Compass 2 Compass 3 Compass 3 - Level 2
---------------------------- ---------------------------- ----------------------------
Accumulation Annuitization Accumulation Annuitization Accumulation Annuitization Total
------------ ------------- ------------ ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Interest............... $ 6,648 $ 95 $ 982 $ 4 $ 475 $ 5 $ 8,209
-------- ----- -------- ----- ------ ----- -------
Total investment
income............. $ 6,648 $ 95 $ 982 $ 4 $ 475 $ 5 $ 8,209
Expenses................. 1,713 9 265 1 119 1 2,108
-------- ----- -------- ----- ------ ----- -------
Net investment
income............... $ 4,935 $ 86 $ 717 $ 3 $ 356 $ 4 $ 6,101
Realized and unrealized
gains (losses) on
investments:
Net realized gains..... $ 242 $ 3 $ 35 $ 1 $ 16 $ -- $ 297
Net unrealized
losses............... (1,544) (22) (242) (1) (97) (1) (1,907)
-------- ----- -------- ----- ------ ----- -------
Net realized and
unrealized losses on
investments............. $ (1,302) $ (19) $ (207) $ -- $ (81) $ (1) $(1,610)
-------- ----- -------- ----- ------ ----- -------
Increase in net assets
from operations........ $ 3,633 $ 67 $ 510 $ 3 $ 275 $ 3 $ 4,491
======== ===== ======== ===== ====== ===== =======
</TABLE>
55
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS -- continued
DETAILED STATEMENTS OF OPERATIONS -- continued
<TABLE>
<CAPTION>
High Yield Variable Account
------------------------------------------------------------------------------------------------------
Compass 2 Compass 3 Compass 3 - Level 2
---------------------------- ---------------------------- ----------------------------
Accumulation Annuitization Accumulation Annuitization Accumulation Annuitization Total
------------ ------------- ------------ ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Interest............... $ 6,759 $ 126 $ 1,262 $ 1 $ 847 $ -- $ 8,995
Dividends.............. 127 2 19 -- 10 -- 158
-------- ----- -------- ----- ------ ----- -------
Total investment
income............. $ 6,886 $ 128 $ 1,281 $ 1 $ 857 $ -- $ 9,153
Expenses................. 1,489 11 291 -- 182 -- 1,973
-------- ----- -------- ----- ------ ----- -------
Net investment
income............... $ 5,397 $ 117 $ 990 $ 1 $ 675 $ -- $ 7,180
-------- ----- -------- ----- ------ ----- -------
Realized and unrealized
gains on investments:
Net realized gains..... $ 2,750 $ 51 $ 490 $ -- $ 267 $ -- $ 3,558
Net unrealized gains
(losses)............. (200) (2) 253 -- 427 -- 478
-------- ----- -------- ----- ------ ----- -------
Net realized and
unrealized gains on
investments............. $ 2,550 $ 49 $ 743 $ -- $ 694 $ -- $ 4,036
-------- ----- -------- ----- ------ ----- -------
Increase in net assets
from operations........ $ 7,947 $ 166 $ 1,733 $ 1 $1,369 $ -- $11,216
======== ===== ======== ===== ====== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Managed Sectors Variable Account
------------------------------------------------------------------------------------------------------
Compass 2 Compass 3 Compass 3 - Level 2
---------------------------- ---------------------------- ----------------------------
Accumulation Annuitization Accumulation Annuitization Accumulation Annuitization Total
------------ ------------- ------------ ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Interest............... $ 21 $ -- $ 40 $ -- $ 16 $ -- $ 77
Dividends.............. 53 -- 101 -- 38 -- 192
-------- ----- -------- ----- ------ ----- -------
Total investment
income............. $ 74 $ -- $ 141 $ -- $ 54 $ -- $ 269
Expenses................. 293 1 595 -- 209 -- 1,098
-------- ----- -------- ----- ------ ----- -------
Net investment loss.... $ (219) $ (1) $ (454) $ -- $ (155) $ -- $ (829)
-------- ----- -------- ----- ------ ----- -------
Realized and unrealized
gains on investments:
Net realized gains
(losses)............. $ 9,701 $ -- $ 137 $ -- $ (120) $ -- $ 9,718
Net unrealized gains
(losses)............. 3,631 24 (3,012) 5 2,910 -- 3,558
-------- ----- -------- ----- ------ ----- -------
Net realized and
unrealized gains
(losses) on
investments............. $ 13,332 $ 24 $ (2,875) $ 5 $2,790 $ -- $13,276
-------- ----- -------- ----- ------ ----- -------
Increase (decrease) in
net assets from
operations............. $ 13,113 $ 23 $ (3,329) $ 5 $2,635 $ -- $12,447
======== ===== ======== ===== ====== ===== =======
</TABLE>
56
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS -- continued
DETAILED STATEMENTS OF OPERATIONS -- continued
<TABLE>
<CAPTION>
Money Market Variable Account
------------------------------------------------------------------------------------------------------
Compass 2 Compass 3 Compass 3 - Level 2
---------------------------- ---------------------------- ----------------------------
Accumulation Annuitization Accumulation Annuitization Accumulation Annuitization Total
------------ ------------- ------------ ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Interest............... $ 2,391 $ 38 $ 737 $ -- $ 434 $ -- $ 3,600
-------- ----- -------- ----- ------ ----- -------
Total investment
income............. $ 2,391 $ 38 $ 737 $ -- $ 434 $ -- $ 3,600
Expenses................. 819 3 267 -- 145 -- 1,234
-------- ----- -------- ----- ------ ----- -------
Net investment
income............... $ 1,572 $ 35 $ 470 $ -- $ 289 $ -- $ 2,366
-------- ----- -------- ----- ------ ----- -------
Realized and unrealized
gains (losses) on
investments............. $(11,154) $(140) $ 11,294 $ -- $ -- $ -- $ --
-------- ----- -------- ----- ------ ----- -------
Increase (decrease) in
net assets from
operations.............. $ (9,582) $(105) $ 11,764 $ -- $ 289 $ -- $ 2,366
======== ===== ======== ===== ====== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Total Return Variable Account
------------------------------------------------------------------------------------------------------
Compass 2 Compass 3 Compass 3 - Level 2
---------------------------- ---------------------------- ----------------------------
Accumulation Annuitization Accumulation Annuitization Accumulation Annuitization Total
------------ ------------- ------------ ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Interest............... $ 1,938 $ 37 $ 1,695 $ 3 $ 749 $ 2 $ 4,424
Dividends.............. 916 17 854 2 375 1 2,165
-------- ----- -------- ----- ------ ----- -------
Total investment
income............. $ 2,854 $ 54 $ 2,549 $ 5 $1,124 $ 3 $ 6,589
Expenses................. 1,211 10 1,307 1 531 1 3,061
-------- ----- -------- ----- ------ ----- -------
Net investment
income............... $ 1,643 $ 44 $ 1,242 $ 4 $ 593 $ 2 $ 3,528
-------- ----- -------- ----- ------ ----- -------
Realized and unrealized
gains on investments:
Net realized gains..... $ 7,888 $ 149 $ 6,707 $ 14 $2,934 $ 7 $17,699
Net unrealized gains... 2,475 60 5,097 15 2,279 5 9,931
-------- ----- -------- ----- ------ ----- -------
Net realized and
unrealized gains on
investments............. $ 10,363 $ 209 $ 11,804 $ 29 $5,213 $ 12 $27,630
-------- ----- -------- ----- ------ ----- -------
Increase in net assets
from operations........ $ 12,006 $ 253 $ 13,046 $ 33 $5,806 $ 14 $31,158
======== ===== ======== ===== ====== ===== =======
</TABLE>
57
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS -- continued
DETAILED STATEMENTS OF OPERATIONS -- continued
<TABLE>
<CAPTION>
World Governments Variable Account
------------------------------------------------------------------------------------------------------
Compass 2 Compass 3 Compass 3 - Level 2
---------------------------- ---------------------------- ----------------------------
Accumulation Annuitization Accumulation Annuitization Accumulation Annuitization Total
------------ ------------- ------------ ------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Interest............... $ 311 $ 2 $ 395 $ 2 $ 214 $ 3 $ 927
------ --- ------ ----- ------ --- -------
Total investment
income............. 311 2 395 2 214 3 927
Expenses................. 109 -- 148 -- 75 1 333
------ --- ------ ----- ------ --- -------
Net investment
income............... $ 202 $ 2 $ 247 $ 2 $ 139 $ 2 $ 594
------ --- ------ ----- ------ --- -------
Realized and unrealized
losses on investments:
Net realized losses.... $ (318) $(2) $ (399) $ (1) $ (224) $(2) $ (946)
Net unrealized
losses............... (150) (1) (223) (1) (63) (1) (439)
------ --- ------ ----- ------ --- -------
Net realized and
unrealized losses on
investments............. $ (468) $(3) $ (622) $ (2) $ (287) $(3) $(1,385)
------ --- ------ ----- ------ --- -------
Decrease in net assets
from operations........ $ (266) $(1) $ (375) $ -- $ (148) $(1) $ (791)
====== === ====== ===== ====== === =======
</TABLE>
58
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
To the Participants in and the Board of Managers of Capital Appreciation
Variable Account, Government Securities Variable Account, High Yield Variable
Account, Managed Sectors Variable Account, Money Market Variable Account,
Total Return Variable Account and World Governments Variable Account and the
Board of Directors of Sun Life Assurance Company of Canada (U.S.):
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Capital Appreciation Variable Account,
Government Securities Variable Account, High Yield Variable Account, Managed
Sectors Variable Account, Money Market Variable Account, Total Return Variable
Account and World Governments Variable Account (the "Variable Accounts") as of
June 30, 1997, the related statements of operations for the six months then
ended, the statements of changes in net assets for the six months ended June 30,
1997 and the year ended December 31, 1996 and the per unit and other data for
the six months ended June 30, 1997, and each of the years in the five-year
period ended December 31, 1996. These financial statements and the per unit and
other data are the responsibility of the Variable Accounts' 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 and the per unit and
other data 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 at June 30,
1997 by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing 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, such financial statements and per unit and other data present
fairly, in all material respects, the financial position of the Variable
Accounts at June 30, 1997, the results of their operations, the changes in their
net assets, and their per unit and other data for each of the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 8, 1997
------------------------------------------------
This Compass annual report is prepared for the general information of contract
owners. It is authorized for distribution to prospective purchasers only when
preceded by an effective prospectus.
59
<PAGE> 60
MEMBERS OF BOARDS OF MANAGERS
AND OFFICERS
JOHN D. McNEIL*, Chairman and Member
Chairman, Sun Life Assurance Company of Canada,
Toronto, Ontario, Canada
SAMUEL ADAMS, Member
Partner, Warner & Stackpole,
Boston, Massachusetts
J. KERMIT BIRCHFIELD, Member
Chairman, Displaytech, Inc.,
Gloucester, Massachusetts
JAMES R. BORDEWICK, JR.*, Assistant Secretary and Assistant Clerk
STEPHEN E. CAVAN*, Secretary and Clerk
WILLIAM R. GUTOW
Vice Chairman, Capitol Entertainment Management Company,
Dallas, Texas
DAVID D. HORN*, Member
Senior Vice President and General Manager,
Sun Life Assurance Company of Canada,
Wellesley Hills, Massachusetts
GARTH MARSTON, Member
Former Chairman, The Provident Institution for Savings,
Boston, Massachusetts
DERWYN F. PHILLIPS, Member
Former Vice Chairman, The Gillette Company,
Boston, Massachusetts
SUN LIFE ASSURANCE COMPANY
OF CANADA (U.S.)
ANNUITY SERVICE MAILING ADDRESS
c/o Sun Life Annuity Service Center
P.O. Box 1024, Boston, MA 02103-9986
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116-3741
DISTRIBUTOR
Clarendon Insurance Agency, Inc.
500 Boylston Street, Boston, MA 02116-3741
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110-2875
AUDITORS
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110-1616
*Affiliated with the Investment Adviser
- -------------------------------------------------------
ACCOUNT INFORMATION
For account information, please call toll free:
1-800-752-7218 anytime from a touch-tone
telephone.
To speak with a customer service representative,
please call toll free: 1-800-752-7215 any
business day from 8 a.m. to 6 p.m. Eastern time.
- -------------------------------------------------------
CO-3 8/97 63M
[Compass Logo]
PROFESSIONALLY MANAGED COMBINATION
FIXED/VARIABLE ANNUITIES
FOR PERSONAL INVESTMENTS AND
QUALIFIED RETIREMENT PLANS
SEMIANNUAL REPORT - JUNE 30, 1997
Capital Appreciation Variable Account
Government Securities Variable Account
High Yield Variable Account
Managed Sectors Variable Account
Money Market Variable Account
Total Return Variable Account
World Governments Variable Account
Issued by
Sun Life Assurance Company of Canada (U.S.),
A Wholly Owned Subsidiary of
Sun Life Assurance Company of Canada
