[Compass Logo]
PROFESSIONALLY MANAGED COMBINATION
FIXED/VARIABLE ANNUITIES
FOR PERSONAL INVESTMENTS AND
QUALIFIED RETIREMENT PLANS
ANNUAL REPORT o DECEMBER 31, 1998
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
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NOT FDIC INSURED MAY LOSE VALUE
NO BANK GUARANTEE
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Issued by
Sun Life Assurance Company of Canada (U.S.),
A Wholly Owned Subsidiary of
Sun Life of Canada (U.S.) Holdings, Inc.
<PAGE>
Letter From the Chairman
Dear Contract Owners:
In 1999, MFS celebrates its 75th anniversary. The nation's first mutual fund --
our Massachusetts Investors Trust (MIT) -- was introduced to the public on
March 21, 1924. Since then, MFS Investment Management[RegTM] , the company that
grew out of that original fund, has helped guide shareholders and contract
owners through many economic and investment cycles, primarily by focusing on
the long-term opportunities created by an expanding global economy. As of
December 31, 1998, MFS manages nearly $100 billion, and the firm's 2,000 people
serve almost four million investors and their financial advisers worldwide.
One of the elements in the success of MIT did not exist before our founders
invented it in 1924. That is daily redemption. This feature, through which new
shares were created when people invested in MIT and were redeemed when people
sold, was an important change. As a result, the price of a mutual fund's shares
wasn't determined by supply and demand, but by the value of the securities
owned by the portfolio.
Another factor in our growth was the development of one of the industry's first
internal research departments in 1932. Unlike companies that rely on Wall
Street research reports, which can be used by many investors at the same time,
MIT's managers built its long-term track record by visiting companies, talking
to managers and competitors, and "kicking the tires" so they could judge the
quality and potential of each company's products and services for themselves.
Today, MFS has more than 100 full-time portfolio managers, stock analysts, and
credit analysts who track the equity and bond markets. That number includes
over 35 equity analysts who specialize in industries such as aviation, media,
technology, automobiles, and utilities.
While MIT introduced the daily redemption feature, that was not our only
invention. We also established the nation's first global bond fund, the first
high-yield municipal bond fund, and the first high-yield municipal closed-end
bond fund. MFS also was among the leaders in the mutual fund industry in
introducing variable annuity accounts.
We are proud of the record of MIT, but we are also proud of our long-standing
relationship with financial advisers. Not only do we believe investors can
benefit from the advice of these experts but, as was shown during the market
volatility of 1998, people who work with financial advisers are less likely to
abandon their carefully designed, long-term investment strategies.
Our ability to service your investment and information needs is also extremely
important to us. The Sun Life Retirement Products and Services Center handles
millions of transactions and phone calls every year. Supporting the work of
financial advisers, promptly sending out statements and confirmations, and
answering hundreds of investors' questions every day are crucial elements in
maintaining long-term relationships with our fund contract owners.
If there is a common thread running through these milestones, it is our
unswerving commitment to providing you with the best possible investment
management and contract owner service, just as we have done for the past 75
years.
As we celebrate this anniversary, it is also a time for MFS to look ahead and
build on our 75 years of innovation and experience to help meet your
1
<PAGE>
Letter From the Chairman -- continued
investment needs in the next century. We appreciate your confidence and welcome
any questions or comments you may have.
On behalf of the
Boards of Managers,
/s/ John D. McNeil
John D. McNeil
Chairman,
Boards of Managers
January 15, 1999
Management Review and Outlook
Capital Appreciation Variable Account
For the year ended December 31, 1998, the Account provided a total return of
28.79%, compared to a return of 28.58% for the Standard & Poor's 500 Composite
Index (the S&P 500), a popular, unmanaged index of common stock total return
performance.
The Account's strong performance can be attributed to some of our major
weightings performing very well, particularly technology sector holdings such
as Microsoft, Cisco, Intel, and EMC. These companies have been able to leverage
the worldwide drive toward higher productivity and lower cost structures that
are predominantly enabled by technology. This trend is apparent in industries
around the world and is a result of the current low-inflation scenario.
Companies are compensating for the inability to boost revenues through price
increases by turning to cost reduction and productivity enhancement as a means
of keeping earnings healthy. In Cisco's case, the company provides much of the
communications equipment that is the backbone of the Internet, and it has
benefited from the explosion of interest in the 'Net.
Additionally, holdings in our leisure sector such as Time Warner and Viacom
performed well, driven by their ability to fill the need for cable programming
and operations services as that medium expands. Radio broadcasters such as
Jacor, Clear Channel, and Heftel also performed well in the wake of major
consolidation in the industry. Consolidation has enabled broadcasters to offer
comprehensive packages to potential advertisers that are more compelling than
several small individual advertising buys covering one market. Additionally,
advertisers are aware that radio allows them to reach more consumers than other
electronic media thanks to the medium's high rate of out-of-home usage.
Retailers such as CVS and Rite Aid have performed well, buoyed both by
consolidation in the industry and favorable demographics that have resulted in
increased prescription volume as the population ages.
Even in a strong year, individual stocks can disappoint. Among our large
holdings that did not perform up to our expectations was Cendant, which had
difficulty due to accounting fraud in a company that it acquired. Though the
stock has rallied somewhat, it is still down for the year. Computer Associates
missed its earnings estimates earlier in the year and suffered as a result.
Gillette was working its way through a product transition from its old shaving
system to its new product. As it was clearing old inventory, the Asian economic
crisis came to a head and hurt the company's earnings as a result of reduced
demand from those nations.
With regard to the turmoil in Asian markets during the year, the portfolio
didn't have a lot
2
<PAGE>
Management Review and Outlook -- continued
of direct Asian exposure. During the market correction in September and
October, some of which was the result of weakness in the Asian economies, we
took the opportunity to add to technology holdings that still displayed solid
fundamentals and that we felt would rebound once the worst was over. Some of
these names included Compuware, DST Systems, and Oracle.
We lightened the portfolio's exposure to industrial goods and basic materials
because we felt those industries were in the process of a mini-recession of
their own and were not as resilient as technology stocks in the current
environment. We also increased our health care holdings and added some of the
major pharmaceutical stocks because, though expensive, we feel they offer
strong fundamentals and good earnings growth prospects.
We like to look at the current environment in the same way that we look at a
potential investment. This entails factors such as earnings growth, management
quality, secular economic trends, cash flow generation, and valuations. In
light of those factors, we think that gross domestic product (GDP) may grow on
the order of 2.5%, while inflation will remain low, at about 1.5%. Therefore,
we expect to see moderate growth. Many American companies that are global
leaders should continue to grow revenues and earnings as they consolidate their
leadership positions and leverage secular trends. One concern here is that
valuations in the market are fairly high as the result of significant amounts
of liquidity that were pumped into the economy from interest-rate cuts around
the world and a flight from international markets to U.S. equities. However, we
think we're closer to achieving stability in the next few months, which means
that valuations may level off as investors pay closer attention to earnings
growth. In general, we think investors should expect more moderate performance
from the stock market in the future. For our part, we will continue to focus on
companies that we believe can deliver the best earnings growth at the best
prices and generate strong cash flow.
Government Securities Variable Account
For the year ended December 31, 1998, the Account provided a total return of
8.22%, compared to a return of 8.72% for the Lehman Brothers
Government/Mortgage Index (the Lehman Index), an unmanaged index of U.S.
Treasury, government-agency, and mortgage-backed securities.
The Account's performance has, on balance, been favorably impacted by the
investment market turmoil. U.S. Treasuries proved to be the investment of
choice for investors who shifted their allocations away from potentially
riskier asset classes such as stocks, and prices of Treasuries appreciated.
Government-agency securities, however, have felt the negative effects of the
flight to quality and did not keep up with Treasuries. This caused a slight
drag on the Account's performance during the sharp rally in Treasuries in
August.
However, this does not mean other government-agency and mortgage-backed
securities are less safe, relatively speaking. They continue to enjoy, if not
explicit, at least implicit backing from the U.S. Treasury. We believe that
agency securities continue to represent very good value over the long term. In
turbulent markets, they will often be overlooked as the focus shifts to the
Treasury market. In this environment, investors are able to purchase
government-agency securities at very attractive yield spreads to Treasuries. So
it
3
<PAGE>
Management Review and Outlook -- continued
becomes a good opportunity to acquire higher-yielding, quality securities.
(Principal value and interest on Treasury securities are guaranteed by the U.S.
government if held to maturity.)
While we have somewhat decreased our exposure to mortgage-backed securities
because declining interest rates have led to quick increases in mortgage
prepayment rates, Ginnie Mae (Government National Mortgage Association)
securities have shown good value versus other types of mortgage securities.
Ginnie Maes have smaller loan balances and are less sensitive to prepayments
than securities such as Fannie Maes (Federal National Mortgage Association) and
Freddie Macs (Federal Home Loan Mortgage Corporation). We believe that we've
also found value in 15-year securities. Even if interest rates come down a
little, people with 15-year loans probably won't refinance into new 15-year
loans, because when they add up the extra interest costs of extending their
mortgages they will probably prefer to pay off their current mortgages. So
we're selectively buying these mortgages.
High Yield Variable Account
For the year ended December 31, 1998, the Account provided a total return of
- -0.79%, compared to a return of 1.60% for the Lehman Brothers High Yield Bond
Index, an unmanaged index of noninvestment-grade corporate debt. Over the same
period, the Lipper High Yield Bond Fund Index returned 0.17%.
The past year was a volatile one for the high-yield market. During the first
half of the year, high-yield bonds were the best-performing domestic
fixed-income asset class. However, in the third quarter, the high-yield market
posted its worst performance in eight years due to renewed concerns that
economic problems in Asia and Russia would negatively impact the domestic
economy. The second interest-rate cut by the Federal Reserve Board (the Fed) on
October 15 helped restore confidence in the high-yield market and was the
catalyst for a price recovery in the fourth quarter.
Although this recovery was modest, we think the high-yield market still offers
good long-term value. As of December 31, 1998, the yield on the Salomon
Brothers High-Yield Index was 10.3% compared to 4.6% for comparable U.S.
Treasury yields, resulting in a spread of 5.7%. The spread began 1998 at 3.5%
and has risen to its widest level since 1991 as a result of lower high-yield
bond prices and investors' flight to quality. Given our cautious outlook for
corporate earnings in 1999 and the historically high yield levels available in
the market today, we believe the high-yield market remains an attractive asset
class.
The Account's performance benefited from an overweighted position in the media
sector, particularly the bonds of cable television companies. Valuations for
these companies rose substantially based on the growing perception that their
networks are a cost-effective way to deliver Internet and telephone services to
residential consumers. The Account also benefited from being underweighted in
the energy sector, which was one of the worst-performing sectors of the
high-yield market due to the severe decline in oil prices. Performance was hurt
by our cyclical holdings, as paper and steel prices declined in response to the
Asian economic crisis.
Throughout 1998, our investment strategy became more conservative. Going
forward, we expect credit problems will increase among the
4
<PAGE>
Management Review and Outlook -- continued
riskier high-yield companies as corporate profits decline due to slower
economic growth. Therefore, we have been adding higher-quality companies to the
Account and have reduced our cyclical exposure by selling bonds of some paper,
metal, and general industrial companies. One of the major challenges facing
investors in 1999 will be determining how individual companies are impacted by
global economic events and, therefore, we believe that careful credit selection
will remain crucial to the Account's relative performance.
Managed Sectors Variable Account
For the year ended December 31, 1998, the Account provided a total return of
12.48%, compared to a return of 28.58% for the S&P 500.
The past year was a volatile one in which performance was very selective. While
the U.S. economy appeared to be in good shape -- helped by generally low
interest rates, non-existent inflation, and several easings of interest rates
by the Fed -- the rest of the world continued to be negatively affected by the
Asian contagion of slowing growth and devaluation. The uncertainty in global
markets and the prospect for a deceleration of U.S. economic growth thus
increased the appeal of liquidity, of companies with good earnings growth, and
of companies that were less subject to the vagaries of international economies.
As a result, our larger-capitalization, consistent-growth companies and those
with little exposure to foreign economies contributed to performance. In
contrast, our small- and mid-cap holdings, as well as companies that depend on
global economic expansion, detracted from results.
More specifically, our holdings in energy and health care held back
performance. Energy stocks lagged because of softness in commodity prices.
Health care services were under pressure due to regulatory concerns and pricing
pressure from health maintenance organizations (HMOs). On a brighter note, our
specialty retail holdings in the food and drug industry performed well thanks
to continued industry consolidation and strong sales trends driven by solid
pharmaceutical sales. In addition, our holdings in technology, primarily
software, helped significantly, with strong appreciation in many of the leading
companies such as Microsoft, EMC, and Cisco Systems. Tyco International, the
Account's largest holding, was also a solid contributor as a result of
better-than-expected earnings results and good acquisitions.
We believe the coming year is likely to be one of change, much as 1998 was.
There are numerous questions. Will the U.S. and global economies go into
recession or accelerate as a result of the strong support on interest rates
provided by the Fed and the world's central banks? After several years of
above-average earnings growth, will unit growth be hard for companies to
achieve? Will deflation become a problem? All things considered, we believe
strong growth will be highly valued by investors in a world in which growth is
potentially scarcer. As a result, we have repositioned the portfolio with a
focus on finding companies that we believe can deliver superior relative
earnings growth. One way we can do this is by searching out companies with
strong franchises in high growth markets. As a result, technology is a key
focus for the Account. We are invested in software, networking, electronics,
and telecommunications service companies that may benefit from the growth of
the Internet and the demand for more and faster communications. In health care,
our emphasis
5
<PAGE>
Management Review and Outlook -- continued
has shifted to companies that we believe can deliver technology-driven unit
growth -- both in devices and in the emerging pharmaceutical/
biotechnology field. Successful specialty retailers that can find strategies
that work well and build on them will also have a place in the Account in 1999.
Looking forward, we believe the fundamental outlook for rapidly growing
companies remains positive. We continue to think that we are at the beginning
of a slowdown in profit growth for many of the large-cap multinational
companies. We think this is a positive because many other growth stocks should
be able to grow faster than the broad market. Moreover, inflation and interest
rates are both low, a scenario that favors valuations of rapidly growing
companies.
Money Market Variable Account
Interest rates on short-term (90-day) securities fell approximately 40 basis
points (0.40%) during the past 12 months. The federal funds rate began the year
at 5.50% and, during the year, was lowered by 75 basis points (0.75%). Because
of this, we targeted 50 days for the Account's average maturity.
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. On December 31, 1998,
approximately 65% of the portfolio was invested in U.S. government or
government-guaranteed issues, with the balance invested in corporate and bank
issues. We expect lower short-term interest rates over the next several months.
The Account is neither insured nor guaranteed by the Federal Deposit Insurance
Corporation or any other government agency, and there can be no assurance that
it will be able to maintain a stable net asset value of $1.00 per share. It is
possible to lose money by investing in the Account.
Total Return Variable Account
For the year ended December 31, 1998, the Account provided a total return of
11.61%, compared to returns of 28.58% for the S&P 500 and 9.49% for the Lehman
Brothers Government/ Corporate Bond Index (the Lehman Index), an unmanaged,
market-value-weighted index of all debt obligations of the U.S. Treasury and
U.S. government agencies (excluding mortgage-backed securities) and
investment-grade U.S. corporate debt.
The Account benefited from the strong equity market in 1998 and was also aided
by a rise in the bond market. However, 1998 was a volatile year in both
markets. Equity returns varied widely based on "style." For example, the
unmanaged Russell 1000 Large-Capitalization Value Index increased 15.6%, while
the Russell 1000 Large-Capitalization Growth Index appreciated 38.7%. As
"value" managers, we focus more on financial services, basic industry, and
energy and utilities companies, while growth managers are more focused on
technology and health care companies. While we had many stocks appreciate
dramatically in 1998, it was the technology and health care sectors that led
the market to new heights, groups that we have historically underweighted.
On the fixed-income side, U.S. Treasuries performed much better than corporate
debt. As
6
<PAGE>
Management Review and Outlook -- continued
economic and political turmoil spread throughout the Far East and Latin America
during 1998, there was a "flight to safety" that pushed up prices on U.S.
Treasuries. At the same time, bonds issued by U.S. corporations did not keep
pace because investors feared that corporate earnings would be hampered by
these global problems. As the Account tends to hold more corporate bonds than
Treasuries, our returns on the fixed-income side, although strong, did not
match the returns of an "all-Treasuries" portfolio.
At the end of the year, the Account's allocation consisted of 58% equities
(including convertible securities), 39% bonds, and 3% cash. This allocation is
consistent with prior years and is somewhat conservative. We continue to have
difficulty finding value in the equity markets because price-to-earnings ratios
are very high and dividend yields are at historical lows. However, we do
believe the insurance and the utilities and communications sectors offer good
risk/reward ratios, and we have major allocations in those sectors.
Our goal for the coming year is to follow through with our value-oriented
style. We believe that our conservative stance offers the potential for good
returns should the equity and bond markets rise, while our balanced approach
can offer support should these markets undergo a correction.
World Governments Variable Account
For the year ended December 31, 1998, the Account provided a total return of
15.37%, compared to a return of 15.31% for the Salomon Brothers World
Government Bond Index (the Salomon Index), an unmanaged index of complete
universes of government bonds with remaining maturities of at least five years.
Almost all the activity in the global fixed-income universe during 1998
occurred in the last six months of the year. In many respects, the third
quarter was a historic one, highlighted by Russia's devaluation and domestic
debt restructuring. By late September, extreme volatility existed in many
financial markets, primarily due to the partial liquidation of a large U.S.
hedge fund and continued uncertainty in the Asian markets.
As concerns over a global recession increased, bond markets were dominated by a
flight to quality. Largely due to the Fed's lowering short-term interest rates
for the first time since 1996, yields on 10-year U.S., German, and Japanese
bonds fell approximately 100 basis points (1.00%) during the third quarter. In
fact, U.S. Treasury yields fell to their lowest level in over 30 years.
After such a volatile third quarter, more stability and normalcy returned
during the fourth quarter. Helped by further interest-rate cuts by the Fed and
by most European central banks, along with approval for an increase in funding
for the International Monetary Fund, credit spreads began to contract.
Longer-term interest rates in most developed markets actually edged slightly
higher after reaching historical lows during the third quarter.
Japan, however, was the exception, as both government bond yields and the yen
were quite volatile toward the end of the year. First, the yen appreciated 17%
against the U.S. dollar due to central bank support and massive unwinding of
leveraged positions. Second, 10-year Japanese interest rates increased from
0.75% to 1.70% as concerns grew over larger budget deficits and possible new
issuance of debt.
7
<PAGE>
Management Review and Outlook -- continued
During the year, the Account performed well both in nominal terms and relative
to the Salomon Index. Although 1998 will be remembered as the worst year since
1990 for credit risk, this portfolio benefited by being invested in secure
global government bonds. All countries within the Salomon Index registered
positive returns when measured in local currency. The Account benefited by
being overweighted in the better performers, namely the United Kingdom and
non-core European countries.
In addition, underweighting the Japanese bond market for most of the year
enhanced performance. Performance was somewhat constrained during the first
half, however, by the portfolio's having a lower duration than the Salomon
Index. However, duration was lengthened by the beginning of the third quarter,
and the Account was thus well positioned for the significant rally that ensued.
In addition, a weaker U.S. dollar helped to produce higher returns, both in
absolute terms and relative to the Salomon Index.
As we begin 1999, many unresolved global issues overhang the financial markets.
Concerns still remain over the financial stability of both Brazil and Russia.
In addition, the launch of the new euro currency, as well as the impending
impeachment trial in Washington, obviously bears close scrutiny. However,
similar to 1998, we believe global growth and inflation should continue to
fall, which will be positive for most bond markets. In addition, both the Fed
and the new European central bank are ready to again provide liquidity in case
another credit crisis develops. We believe bond markets such as the United
Kingdom and Greece should continue to perform well in this environment.
---------------------
The opinions expressed in this report are those of the portfolio managers and
are only through the end of the period of the report as stated on the cover.
The managers' views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
These portfolios are actively managed, and current holdings may be different.
It is not possible to invest directly in an index.
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 a managed portfolio.
High Yield Variable Account (HYVA) seeks 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. Lower-rated securities may provide greater returns,
but they are also associated with greater-than-average risk. These risks may
increase share price volatility.
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
8
<PAGE>
Investment Objectives and Policies -- continued
appreciation. The Account may focus its investments in certain sectors, thereby
increasing its vulnerability to any single economic, political, or regulatory
development.
Money Market Variable Account (MMVA) seeks maximum current income to the extent
consistent with stability of principal by investing exclusively in money market
instruments maturing in less than 13 months.
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. Under normal market conditions, at least
25% of the Account's assets will be invested in fixed-income securities, and 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. Investments in foreign and emerging market
securities may provide superior returns but also involve greater risk than U.S.
investments. Investments in foreign and emerging market securities may be
favorably or unfavorably affected by changes in interest rates and currency
exchange rates, market conditions, and the economic and political conditions of
the countries where investments are made. These risks may increase unit price
volatility.
One-year performance through December 31, 1998
<TABLE>
<CAPTION>
Compass 2 (U.S.) Compass 3 (U.S.)
<S> <C> <C>
Capital Appreciation
Variable Account 27.14% 27.02%
Government Securities
Variable Account 6.83% 6.72%
High Yield Variable
Account (2.06)% (2.15)%
Managed Sectors Variable
Account 11.08% 10.91%
Money Market Variable
Account 3.64% 3.54%
Total Return Variable
Account 10.26% 10.10%
World Governments
Variable Account 13.95% 13.78%
</TABLE>
These performance results reflect any applicable contract or surrender charges.
Past performance is no guarantee of future results.
9
<PAGE>
Portfolio of Investments -- December 31, 1998
Capital Appreciation Variable Account
Stocks -- 95.5%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- 93.9%
Advertising -- 0.1%
Outdoor Systems, Inc.* ................................................. 31,000 $ 930,000
------------
Aerospace -- 0.4%
United Technologies Corp. .............................................. 27,000 $ 2,936,250
------------
Automotive -- 0.5%
Federal-Mogul Corp. .................................................... 63,100 $ 3,754,450
------------
Banks and Credit Companies -- 0.7%
Bank of New York, Inc. ................................................. 132,700 $ 5,341,175
------------
Broadcasting -- 0.2%
Infinity Broadcasting Corp.* ........................................... 47,400 $ 1,297,575
------------
Business Services -- 2.6%
DST Systems, Inc.* ..................................................... 132,600 $ 7,566,488
Galileo International, Inc. ............................................ 160,400 6,977,400
Modis Professional Services, Inc.* ..................................... 243,700 3,533,650
Policy Management Systems Corp.* ....................................... 28,500 1,439,250
------------
$ 19,516,788
------------
Computer Software --
Personal Computers -- 6.7%
Microsoft Corp.* ....................................................... 360,700 $ 50,024,581
------------
Computer Software -- Services -- 0.5%
EMC Corp.* ............................................................. 45,200 $ 3,842,000
------------
Computer Software -- Systems -- 12.2%
BMC Software, Inc.* .................................................... 403,700 $ 17,989,881
Cadence Design Systems, Inc.* .......................................... 590,300 17,561,425
Cambridge Technology Partners, Inc.*.................................... 59,000 1,305,375
Computer Associates
International, Inc. ................................................... 592,950 25,274,494
Compuware Corp.* ....................................................... 117,300 9,164,063
Oracle Corp.* .......................................................... 334,075 14,406,984
Synopsys, Inc.* ........................................................ 98,500 5,343,625
------------
$ 91,045,847
------------
Consumer Goods and
Services -- 9.8%
Clorox Co. ............................................................. 59,200 $ 6,915,300
Colgate-Palmolive Co. .................................................. 84,200 7,820,075
Gillette Co. ........................................................... 211,700 10,227,756
Tyco International Ltd. ................................................ 636,000 47,978,250
------------
$ 72,941,381
------------
</TABLE>
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Defense Electronics -- 0.9%
Loral Space & Communications
Corp.* ................................................................ 357,500 $ 6,367,969
------------
Electrical Equipment -- 1.3%
General Electric Co. ................................................... 93,200 $ 9,512,225
------------
Electronics -- 2.0%
Analog Devices, Inc.* .................................................. 134,200 $ 4,210,525
Intel Corp. ............................................................ 90,300 10,706,194
------------
$ 14,916,719
------------
Entertainment -- 8.9%
CBS Corp. .............................................................. 245,900 $ 8,053,225
Clear Channel Communications, Inc.*..................................... 103,868 5,660,806
Heftel Broadcasting Corp., "A"* ........................................ 88,600 4,363,550
Jacor Communications, Inc.* ............................................ 157,700 10,151,937
MediaOne Group, Inc.* .................................................. 310,400 14,588,800
Time Warner, Inc. ...................................................... 148,200 9,197,662
Univision Communications, Inc., "A"*.................................... 74,600 2,699,588
Viacom, Inc., "B"* ..................................................... 156,900 11,610,600
------------
$ 66,326,168
------------
Financial Institutions -- 7.2%
Associates First Capital Corp., "A" .................................... 302,500 $ 12,818,437
CIT Group, Inc., "A" ................................................... 122,200 3,887,488
Federal Home Loan Mortgage Corp. ....................................... 259,600 16,727,975
Federal National Mortgage Assn. ........................................ 46,000 3,404,000
Financial Federal Corp.* ............................................... 113,950 2,820,263
Finova Group, Inc. ..................................................... 163,500 8,818,781
Franklin Resources, Inc. ............................................... 41,500 1,328,000
Morgan Stanley Dean Witter & Co. ....................................... 48,800 3,464,800
------------
$ 53,269,744
------------
Financial Services -- 0.8%
SunAmerica, Inc. ....................................................... 75,450 $ 6,120,881
------------
Insurance -- 1.1%
Equitable Cos., Inc. ................................................... 33,300 $ 1,927,238
Lincoln National Corp. ................................................. 75,000 6,135,937
MONY Group, Inc.* ...................................................... 100 3,131
------------
$ 8,066,306
------------
Medical and Health Products -- 5.2%
Boston Scientific Corp.* ............................................... 188,900 $ 5,064,881
Lilly Eli & Co. ........................................................ 71,900 6,390,112
McKesson Corp. ......................................................... 59,000 4,664,688
Pfizer, Inc. ........................................................... 124,700 15,642,056
</TABLE>
10 - CAVA
<PAGE>
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Medical and Health
Products -- continued
Schering Plough Corp. .................................................. 129,700 $ 7,165,925
------------
$ 38,927,662
------------
Medical and Health Technology
and Services -- 5.0%
Cardinal Health, Inc. .................................................. 114,097 $ 8,657,110
HBO & Co. .............................................................. 172,700 4,954,331
Health Management Associates, Inc., "A"*................................ 269,300 5,823,613
HealthSouth Corp.* ..................................................... 447,100 6,902,106
Total Renal Care Holdings, Inc.* ....................................... 27,100 801,144
United Healthcare Corp. ................................................ 239,600 10,317,775
------------
$ 37,456,079
------------
Metals and Minerals -- 0.6%
Minerals Technologies, Inc. ............................................ 108,900 $ 4,458,094
------------
Oils -- 0.2%
Conoco, Inc., "A"* ..................................................... 83,700 $ 1,747,238
------------
Railroads -- 0.4%
Kansas City Southern Industries, Inc. .................................. 52,000 $ 2,557,750
------------
Restaurants and Lodging -- 4.7%
Cendant Corp.* ......................................................... 1,053,392 $ 20,080,285
McDonalds Corp. ........................................................ 79,500 6,091,687
Promus Hotel Corp.* .................................................... 266,431 8,625,704
------------
$ 34,797,676
------------
Special Products and
Services -- 0.5%
USEC, Inc. ............................................................. 270,800 $ 3,757,350
------------
Stores -- 9.3%
CompUSA, Inc.* ......................................................... 355,900 $ 4,648,944
CVS Corp. .............................................................. 494,200 27,181,000
Linens 'N Things, Inc.* ................................................ 14,300 566,637
Office Depot, Inc.* .................................................... 394,100 14,557,069
Rite Aid Corp. ......................................................... 314,400 15,582,450
TJX Cos., Inc. ......................................................... 221,300 6,417,700
------------
$ 68,953,800
------------
Supermarkets -- 2.7%
Meyer (Fred), Inc.* .................................................... 129,000 $ 7,772,250
Safeway, Inc.* ......................................................... 197,000 12,004,687
------------
$ 19,776,937
------------
</TABLE>
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Telecommunications -- 7.9%
3Com Corp.* ............................................................ 160,900 $ 7,210,332
American Tower Corp., "A"* ............................................. 51,300 1,516,556
Cisco Systems, Inc.* ................................................... 203,675 18,903,586
Global TeleSystems Group, Inc.* ........................................ 133,200 7,425,900
Intermedia Communications, Inc.* ....................................... 43,300 746,925
L-3 Communications Holding, Inc.* ...................................... 1,300 60,531
Lucent Technologies, Inc. .............................................. 49,400 5,434,000
MCI WorldCom, Inc.* .................................................... 178,780 12,827,465
Nextlink Communications, Inc., "A"* .................................... 58,200 1,651,425
Qwest Communications
International, Inc.* .................................................. 22,449 1,122,450
Tel-Save Holdings, Inc.*## ............................................. 88,700 1,485,725
------------
$ 58,384,895
------------
Utilities -- Electric -- 1.5%
AES Corp.* ............................................................. 117,100 $ 5,547,612
CalEnergy Co., Inc.* ................................................... 156,200 5,418,188
------------
$ 10,965,800
------------
Total U.S. Stocks ............................................................................ $697,993,340
------------
Foreign Stocks -- 1.6%
Bermuda -- 0.6%
Ace Ltd. (Insurance) ................................................... 114,000 $ 3,925,875
Global Crossing Ltd.
(Telecommunications)* ................................................. 6,000 270,750
------------
$ 4,196,625
------------
Brazil -- 0.2%
Tele Sudeste Celular Participacoes S.A.
(Telecommunications)* ................................................. 23,400 $ 484,087
Telesp Celular Participacoes S.A.
(Telecommunications)* ................................................. 41,400 724,500
------------
$ 1,208,587
------------
United Kingdom -- 0.8%
British Petroleum PLC,
ADR (Oils) ............................................................ 36,701 $ 3,486,595
Reuters Group PLC
(Business Services) ................................................... 168,000 1,769,715
Taylor Nelson Sofres PLC
(Market Research) ..................................................... 904,900 1,148,371
------------
$ 6,404,681
------------
Total Foreign Stocks ......................................................................... $ 11,809,893
------------
Total Stocks (Identified Cost, $489,392,640) ................................................. $709,803,233
------------
</TABLE>
11 - CAVA
<PAGE>
Portfolio of Investments -- continued
Convertible Preferred Stock -- 0.3%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Entertainment -- 0.3%
MediaOne Group, Inc., 6.25%,
(Identified Cost, $2,342,437) ......... 40,300 $ 2,679,950
------------
Short-Term Obligations -- 2.2%
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
(000 Omitted)
<S> <C> <C>
General Electric Capital Corp., due
1/04/99, at Amortized Cost ............ $16,200 $ 16,193,223
------------
Total Investments (Identified Cost, $507,928,300).......... $728,676,406
Other Assets,
Less Liabilities -- 2.0% 14,898,294
------------
Net Assets - 100.0% ....................................... $743,574,700
============
</TABLE>
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1998
Government Securities Variable Account
Bonds -- 98.6%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Federal Agencies -- 36.4%
Federal Home Loan Bank, 5.125s, 2003 $ 2,250 $ 2,249,303
Federal Home Loan Mortgage Corp.,
6.163s, 2027 .......................................................... 3,682 3,698,487
Federal Home Loan Mortgage Corp.,
6.5s, 2028 ............................................................ 9,078 9,142,881
Federal Housing Authority, 7.43s, 2022 ................................. 3,364 3,360,897
Federal National Mortgage Assn.,
6s, 2013 .............................................................. 4,128 4,138,622
Federal National Mortgage Assn.,
6.5s, 2025 - 2027 ..................................................... 9,090 9,149,630
Federal National Mortgage Assn.,
6.866s, 2011 .......................................................... 1,650 1,704,656
Federal National Mortgage Assn.,
7.27s, 2005 ........................................................... 3,876 4,097,356
Federal National Mortgage Assn.,
7.522s, 2020 .......................................................... 49 49,126
Federal National Mortgage Assn.,
8.5s, 2007 ............................................................ 142 148,069
Federal National Mortgage Assn.
10s, 2018 ............................................................. 2,686 2,913,066
Financing Corp., 9.8s, 2018 ............................................ 5,000 7,353,900
Financing Corp., 10.35s, 2018 .......................................... 1,950 3,002,083
Resolution Funding Corp., 8.875s, 2020 3,700 5,199,647
Tennessee Valley Authority, 0s to
2012, 8.25s to 2042, .................................................. 7,250 3,474,563
U.S. Department of Veterans Affairs,
7.5s, 2009 ............................................................ 3,400 3,597,608
U.S. Department of Veterans Affairs,
7.75s, 2014 ........................................................... 1,749 1,755,857
------------
$ 65,035,751
------------
U.S. Government
Guaranteed -- 62.2%
Government National Mortgage
Association -- 17.1%
GNMA, 6.5s, 2027 - 2028 ................................................ $ 3,361 $ 3,394,471
GNMA, 7s, 2008 - 2026 .................................................. 3,716 3,804,608
GNMA, 7.5s, 2008 - 2027 ................................................ 18,110 18,668,554
GNMA, 8s, 2025 - 2027 .................................................. 3,933 4,087,968
GNMA, 11s, 2010 - 2019 ................................................. 437 488,467
GNMA, 12.5s, 2015 ...................................................... 50 56,798
</TABLE>
12 - GSVA
<PAGE>
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Government National Mortgage
Association -- continued
GNMA, 14s, 2014 - 2015 ................................................... $ 34 $ 39,802
------------
$ 30,540,668
------------
Small Business
Administration -- 1.5%
SBA, 8.2s, 2005 .......................................................... $ 607 $ 635,323
SBA, 8.4s, 2007 .......................................................... 285 301,514
SBA, 8.7s, 2009 .......................................................... 1,162 1,272,299
SBA, 10.05s, 2009 ........................................................ 459 513,435
------------
$ 2,722,571
------------
U.S. Treasury Obligations -- 43.6%
U.S. Treasury Bonds, 3.625s, 2028 ........................................ $ 8,547 $ 8,290,678
U.S. Treasury Notes, 4.625s, 2000 ........................................ 7,500 7,511,700
U.S. Treasury Notes, 4.75s, 2008 ......................................... 1,500 1,511,715
U.S. Treasury Bonds, 5.25s, 2028 ......................................... 3,500 3,583,125
U.S. Treasury Notes, 5.5s, 2003 .......................................... 3,700 3,809,261
U.S. Treasury Notes, 6.5s,
2002 - 2006 ............................................................. 17,400 18,872,908
U.S. Treasury Bonds, 6.625s, 2027 ........................................ 5,925 7,008,149
U.S. Treasury Notes, 8s, 2001 ............................................ 8,000 8,591,280
U.S. Treasury Bonds, 8s, 2021 ............................................ 2,208 2,952,162
U.S. Treasury Bonds, 9.875s, 2015 ........................................ 4,700 7,069,082
U.S. Treasury Bonds, 10.375s, 2012 ....................................... 6,300 8,692,047
------------
$ 77,892,107
------------
Total U.S. Government Guaranteed .......................................................... $111,155,346
------------
Total Bonds (Identified Cost, $167,406,498) ............................................... $176,191,097
------------
Repurchase Agreement -- 0.6%
Goldman Sachs, dated 12/31/98, due
1/4/99, total to be received
$1,131,591 (secured by various U.S.
Treasury and Federal Agency
obligations in a jointly traded
account) at cost ........................................................ $ 1,131 $ 1,131,000
------------
Total Investments (Identified Cost, $168,537,498) ......................................... $177,322,097
Other Assets,
Less Liabilities -- 0.8% .................................................................. 1,390,794
------------
Net Assets - 100.0% ....................................................................... $178,712,891
============
</TABLE>
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1998
High Yield Variable Account
Bonds -- 92.2%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- 81.0%
Aerospace -- 4.5%
Airplane Pass-Through Trust,
10.875s, 2019+ ........................................................ $ 750 $ 797,580
Argo Tech Corp., 8.625s, 2007## ........................................ 300 283,500
BE Aerospace, Inc., 8s, 2008 ........................................... 1,075 1,053,500
K & F Industries, Inc., 9.25s, 2007 .................................... 1,400 1,414,000
L-3 Communications Corp.,
10.375s, 2007 ......................................................... 500 548,750
L-3 Communications Corp., 8.5s, 2008 ................................... 525 546,000
MOOG, Inc., 10s, 2006 .................................................. 1,420 1,455,500
Stellex Industries, Inc., 9.5s, 2007 ................................... 225 194,062
United Defense Industries, Inc.,
8.75s, 2007 ........................................................... 330 332,475
------------
$ 6,625,367
------------
Building -- 2.7%
AAF-McQuay, Inc., 8.875s, 2003 ......................................... $1,325 $ 1,286,906
American Standard, Inc.,
7.375s, 2008 .......................................................... 750 750,000
Nortek, Inc., 9.25s, 2007 .............................................. 1,000 1,035,000
UDC Homes, Inc., 0s, 2000 .............................................. 3 1,465
Williams Scotsman, Inc., 9.875s, 2007 .................................. 850 867,000
------------
$ 3,940,371
------------
Business Services -- 2.1%
Anacomp, Inc., 10.875s, 2004 ........................................... $ 500 $ 515,000
Convergent Communications, Inc.,
13s, 2008 ............................................................. 775 372,000
Iron Mountain, Inc., 10.125s, 2006 ..................................... 500 542,500
Iron Mountain, Inc., 8.75s, 2009 ....................................... 700 721,000
Pierce Leahy Corp., 11.125s, 2006 ...................................... 423 463,185
Pierce Leahy Corp., 9.125s, 2007 ....................................... 500 522,500
------------
$ 3,136,185
------------
Chemicals -- 1.1%
NL Industries, Inc., 11.75s, 2003 ...................................... $1,000 $ 1,060,000
Sterling Chemicals, Inc., 11.25s, 2007 ................................. 750 622,500
------------
$ 1,682,500
------------
</TABLE>
13 - HYVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Consumer Goods and Services -- 3.9%
American Safety Razor Co.,
9.875s, 2005 .......................................................... $1,000 $ 1,030,000
General Binding Corp., 9.375s, 2008 .................................... 1,075 1,081,719
Kindercare Learning Centers, Inc.,
9.5s, 2009 ............................................................ 850 845,750
Polymer Group, Inc., 8.75s, 2008 ....................................... 750 733,125
Remington Products Co. LLC,
11s, 2006 ............................................................. 800 590,000
Revlon Consumer Products Corp.,
8.125s, 2006 .......................................................... 750 716,250
Revlon Consumer Products Corp.,
8.625s, 2008 .......................................................... 350 318,500
Samsonite Corp., 10.75s, 2008 .......................................... 525 451,500
------------
$ 5,766,844
------------
Container, Forest and
Paper Products -- 6.8%
Applied Extrusion Technologies, Inc.,
11.5s, 2002 ........................................................... $ 325 $ 336,375
Atlantis Plastics, Inc., 11s, 2003 ..................................... 300 298,500
Ball Corp., 8.25s, 2008## .............................................. 500 523,750
Buckeye Cellulose Corp., 9.25s, 2008 ................................... 1,000 1,035,000
Florida Coast Paper Co. LLC,
12.75s, 2003** ........................................................ 800 408,000
Gaylord Container Corp., 9.75s, 2007 ................................... 1,370 1,178,200
Gaylord Container Corp., 9.875s, 2008 95 68,875
Graham Packaging/GPC Capital Co.,
8.75s, 2008 ........................................................... 650 656,500
Silgan Holdings, Inc., 9s, 2009 ........................................ 800 810,000
Speciality Paperboard, Inc.,
9.375s, 2006 .......................................................... 1,400 1,414,000
Synthetic Industries, Inc., 9.25s, 2007 1,125 1,158,750
U.S. Can Corp., 10.125s, 2006 .......................................... 950 978,500
U.S. Timberlands, 9.625s, 2007 ......................................... 1,160 1,174,500
------------
$ 10,040,950
------------
Corporate Asset Backed -- 0.6%
Merrill Lynch Mortgage Investors, Inc.,
8.333s, 2022+ ......................................................... $1,000 $ 945,469
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Energy -- 3.0%
AEI Resources, Inc./AEI Holdings, Inc.,
10.5s, 2005## ......................................................... $ 250 $ 249,375
Cheasapeake Energy Corp.,
9.625s, 2005 .......................................................... 1,350 1,039,500
Clark Refining & Marketing, Inc.,
8.625s, 2008 .......................................................... 450 443,813
Continental Resources, Inc.,
10.25s, 2009 .......................................................... 925 767,750
HS Resources, Inc., 9.25s, 2006 ........................................ 1,000 920,000
P&L Coal Holdings Corp.,
8.875s, 2008 .......................................................... 350 357,000
P&L Coal Holdings Corp.,
9.625s, 2008 .......................................................... 375 380,625
Petsec Energy, Inc., 9.5s, 2007 ........................................ 500 260,000
Wiser Oil Co., 9.5s, 2007 .............................................. 100 62,000
------------
$ 4,480,063
------------
Entertainment -- 1.6%
AMC Entertainment, Inc., 9.5s, 2009 .................................... $ 500 $ 510,000
Cinemark USA, Inc., 9.625s, 2008 ....................................... 1,000 1,047,500
Hollywood Theaters, Inc.,
10.625s, 2007 ......................................................... 375 261,563
Regal Cinemas, Inc., 9.5s, 2008## ...................................... 575 593,687
------------
$ 2,412,750
------------
Food and Beverage Products -- 1.7%
Friendly Ice Cream Corp., 10.5s, 2007 $ 660 $ 668,250
Specialty Foods Corp., 10.25s, 2001 .................................... 1,950 1,794,000
------------
$ 2,462,250
------------
Gaming and Hotels -- 4.9%
Casino America, Inc., 12.5s, 2003 ...................................... $ 800 $ 884,000
Circus Circus Enterprises, Inc.,
6.45s, 2006 ........................................................... 260 233,657
Coast Hotels & Casinos, Inc.,
13s, 2002 ............................................................. 750 843,750
Eldorado Resorts LLC, 10.5s, 2006 ...................................... 1,800 1,908,000
Lady Luck Gaming Corp.,
11.875s, 2001 ......................................................... 1,400 1,414,000
Prime Hospitality Corp., 9.75s, 2007 ................................... 385 386,925
Santa Fe Hotel, Inc., 11s, 2000 ........................................ 1,065 1,011,750
Station Casinos, Inc., 8.875s, 2008## .................................. 475 477,375
------------
$ 7,159,457
------------
</TABLE>
14 - HYVA
<PAGE>
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Industrial -- 6.9%
Day International Group, Inc.,
11.125s, 2005 ......................................................... $950 $ 1,002,250
Envirosource, Inc., 9.75s, 2003 ........................................ 650 583,375
Furon Co., 8.125s, 2008 ................................................ 800 792,000
Grove Worldwide LLC/Capital, Inc.,
9.25s, 2008 ........................................................... 250 225,000
Hayes Wheels International, Inc.,
9.125s, 2007 .......................................................... 250 261,250
IMO Industries, Inc., 11.75s, 2006 ..................................... 920 929,200
Interlake Corp., 12s, 2001 ............................................. 1,200 1,278,000
International Knife & Saw, Inc.,
11.375s, 2006 ......................................................... 300 307,875
Johnstown America Industries,
11.75s, 2005 .......................................................... 575 605,187
Newcor, Inc., 9.875s, 2008 ............................................. 1,100 1,023,000
Numatics, Inc., 9.625s, 2008 ........................................... 170 160,225
Oxford Automotive, Inc.,
10.125s, 2007 ......................................................... 425 437,750
Simonds Industries, Inc.,
10.25s, 2008 .......................................................... 975 994,500
Talon Automotive Group, Inc.,
9.625s, 2008 .......................................................... 50 48,000
Thermadyne Holdings Corp.,
0s to 2003, 12.5s to 2008 ............................................. 1,650 726,000
Thermadyne Manufacturing/Capital
Corp., 9.875s, 2008 ................................................... 800 742,000
------------
$ 10,115,612
------------
Media -- 13.1%
Acme Television LLC, 0s to 2000,
10.875s to 2004 ....................................................... $ 950 $ 758,812
Adelphia Communications Corp.,
8.375s, 2008## ........................................................ 1,275 1,319,625
Big Flower Press Holdings, Inc.,
8.625s, 2008## ........................................................ 925 925,000
Chancellor Media Corp., 8.75s, 2007 .................................... 800 820,000
Chancellor Media Corp., 8s, 2008## ..................................... 25 25,500
Charter Communications Southeast LP,
11.25s, 2006 .......................................................... 1,200 1,344,000
Classic Cable, Inc., 9.875s, 2008## .................................... 275 287,375
Classic Cable, Inc., 0s to 2003,
13.25s to 2009 ........................................................ 450 276,750
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Media -- continued
CSC Holdings, Inc., 9.25s, 2005 ........................................ $ 250 $ 268,750
CSC Holdings, Inc., 8.125s, 2009 ....................................... 100 107,155
Cumulus Media, Inc., 10.375s, 2008 ..................................... 400 424,000
EchoStar Satellite Broadcasting Corp.,
0s to 2000, 13.125s to 2004 ........................................... 225 224,438
Fox/Liberty Networks LLC, Inc.,
8.875s, 2007 .......................................................... 875 892,500
FrontierVision Holding LP,
0s to 2001, 11.87s to 2007 ............................................ 500 417,500
Frontiervision Operating Partnership LP,
11s, 2006 ............................................................. 375 414,844
Golden Books Publishing, Inc.,
7.65s, 2002** ......................................................... 750 235,980
Granite Broadcasting Corp.,
10.375s, 2005 ......................................................... 450 453,375
Granite Broadcasting Corp.,
8.875s, 2008 .......................................................... 885 840,750
Hollinger International Publishing, Inc.,
9.25s, 2007 ........................................................... 1,085 1,139,250
Intermedia Capital Partners IV, LP,
11.25s, 2006 .......................................................... 950 1,068,750
Lenfest Communications, Inc.,
8.25s, 2008 ........................................................... 1,050 1,105,125
Liberty Group Operating, Inc.,
9.375s, 2008 .......................................................... 755 726,688
LIN Holdings Corp.,
0s to 2003, 10s to 2008 ............................................... 200 138,000
LIN Televison Corp., 8.375s, 2008 ...................................... 750 742,500
Marvel Holdings, Inc., 0s, 1998** ...................................... 1,165 0
NTL, Inc., 0s to 2003,
9.75s to 2008## ....................................................... 1,350 821,812
NTL, Inc., 0s to 2003,
12.375s to 2008## ..................................................... 1,575 960,750
Outdoor Systems, Inc., 8.875s, 2007 .................................... 800 854,000
Telemundo Holdings, Inc., 0s to 2003,
11.5s to 2008## ....................................................... 1,125 646,875
United International Holdings, Inc.,
0s to 2003, 10.75s to 2008 ............................................ 1,075 569,750
World Color Press, Inc.,
8.375s, 2008## ........................................................ 575 577,875
------------
$ 19,387,729
------------
</TABLE>
15 - HYVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Medical and Health Technology
and Services -- 2.4%
Alaris Medical, Inc., 0s to 2003,
11.125s to 2008## ..................................................... $850 $ 463,250
Beverly Enterprises, Inc., 9s, 2006 .................................... 650 663,000
Oxford Health Plans, Inc.,
11s, 2005## ........................................................... 350 337,750
Prime Medical Services, Inc.,
8.75s, 2008 ........................................................... 1,300 1,222,000
Tenet Healthcare Corp.,
8.125s, 2008## ........................................................ 850 871,250
------------
$ 3,557,250
------------
Metals and Minerals -- 2.3%
Acme Metals, Inc., 10.875s, 2007** ..................................... $ 375 $ 30,000
Alaska Steel Holdings Corp.,
9.125s, 2006 .......................................................... 615 644,213
Commonwealth Aluminum Corp.,
10.75s, 2006 .......................................................... 450 432,000
Doe Run Resources Corp., 11.25s,
2005 .................................................................. 700 560,000
Jorgensen (Earle M.) Co., 9.5s, 2005 ................................... 650 619,125
Kaiser Aluminum & Chemical Corp.,
9.875s, 2002 .......................................................... 700 693,000
Metal Management, Inc., 10s, 2008 ...................................... 700 420,000
------------
$ 3,398,338
------------
Retail -- 3.4%
Affinity Group Holding, Inc.,
11s, 2007 ............................................................. $ 500 $ 516,250
Cole National Group, Inc.,
8.625s, 2007 .......................................................... 875 857,500
Finlay Enterprises, Inc., 9s, 2008 ..................................... 250 215,000
Finlay Fine Jewelry Corp.,
8.375s, 2008 .......................................................... 850 748,000
J.Crew Operating Corp.,
10.375s, 2007 ......................................................... 600 510,000
Musicland Group, Inc., 9s, 2003 ........................................ 500 477,500
Musicland Group, Inc., 9.875s, 2008 .................................... 550 539,000
Southland Corp., 5s, 2003 .............................................. 1,275 1,122,000
------------
$ 4,985,250
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Supermarkets -- 1.5%
Jitney-Jungle Stores of America, Inc.,
12s, 2006 ............................................................. $ 700 $ 777,000
Pathmark Stores, Inc., 11.625s, 2002 ................................... 850 811,750
Pathmark Stores, Inc., 9.625s, 2003 .................................... 300 291,000
Penn Traffic Co., 8.625s, 2003** ....................................... 550 264,000
------------
$ 2,143,750
------------
Telecommunications -- 17.5%
Allegiance Telecommunications, Inc.,
0s to 2003, 11.75s to 2008 ............................................ $ 800 $ 376,000
Allegiance Telecommunications, Inc.,
12.875s, 2008 ......................................................... 575 563,500
American Cellular Corp., 10.5s,
2008## ................................................................ 700 679,000
AMSC Acquisition Co., Inc.,
12.25s, 2008 .......................................................... 925 559,625
Centennial Cellular Operating Co.,
10.75s, 2008## ........................................................ 600 603,000
DTI Holdings, Inc., 0s to 2003, 12,5s
to 2008 ............................................................... 1,450 369,750
Exodus Communications, Inc.,
11.25s, 2008 .......................................................... 1,325 1,331,625
Flag Ltd., 8.25s, 2008 ................................................. 200 196,000
GCI, Inc., 9.75s, 2007 ................................................. 1,550 1,534,500
Global Crossings Holdings Ltd.,
9.625s, 2008 .......................................................... 775 813,750
ICG Holdings, Inc., 0s to 2001, 12.55s
to 2006 ............................................................... 875 630,000
Intermedia Communications, Inc., 0s
to 2002, 11.25s to 2007 ............................................... 1,200 816,000
Intermedia Communications, Inc.,
8.875s, 2007 .......................................................... 100 96,500
ITC Deltacom, Inc., 9.75s, 2008## ...................................... 1,675 1,733,625
Level 3 Communications, Inc.,
9.125s, 2008 .......................................................... 1,225 1,214,281
Metromedia Fiber Network, Inc.,
10s, 2008## ........................................................... 825 849,750
MJD Communications, Inc.,
9.5s, 2008 ............................................................ 625 620,313
Nextel Communications, Inc., 0s to
2002, 9.75s to 2008 ................................................... 1,435 863,350
</TABLE>
16 - HYVA
<PAGE>
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Telecommunications -- continued
Nextel International, Inc., 0s to 2003,
12.125s to 2008 .......................... $1,500 $ 671,250
Nextlink Communications, Inc.,
9.625s, 2007 ............................. 875 844,375
Nextlink Communications, Inc.,
10.75s, 2008## ........................... 450 454,500
Northeast Optic Network, 12.75s, 2008 ..... 550 539,000
Pagemart Wireless, Inc., 0s to 2003,
11.25s to 2008 ........................... 1,075 516,000
Pathnet, Inc., 12.25s, 2008 ............... 155 108,500
Pinnacle Holdings, Inc., 0s to 2003,
10s to 2008 .............................. 1,350 810,000
Psinet, Inc., 10s, 2005 ................... 350 343,000
Psinet, Inc., 11.5s, 2008## ............... 450 470,250
Qwest Communications International,
Inc., 7.25s, 2008## ...................... 250 256,875
Qwest Communications International,
Inc., 7.5s, 2008## ....................... 700 727,125
RCN Corp., 0s to 2002, 11.25s to
2007 ..................................... 225 130,500
Rural Cellular Corp., 9.625s, 2008 ........ 450 451,125
Spectrasite Holdings, Inc., 0s to 2003,
12s to 2008## ............................ 1,400 714,000
Time Warner Telecommunications LLC,
9.75s, 2008 .............................. 1,150 1,201,750
Triton PCS, Inc., 0s to 2003, 11s to
2008 ..................................... 1,725 776,250
Verio, Inc., 10.375s, 2005 ................ 400 390,000
Verio, Inc., 11.25s, 2008## ............... 400 404,000
Viatel, Inc., 0s to 2003, 12.5s to 2008 275 154,000
Viatel, Inc., 11.25s, 2008 ................ 775 751,750
Western Wireless Corp., 10.5s, 2007 ....... 1,250 1,306,250
------------
$ 25,871,069
------------
Transportation -- 0.4%
Moran Transportation Co.,
11.75s, 2004 ............................. $500 $ 540,625
-----------
Utilities -- Electric -- 0.6%
Esi Tractebel Acquisition Corp.,
7.99s, 2011 .............................. $350 $ 347,813
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Utilities -- Electric -- continued
International Utility Structures,
10.75s, 2008 .......................... $ 625 $ 585,937
------------
$ 933,750
------------
Total U.S. Bonds ........................................ $119,585,579
------------
Foreign Bonds -- 11.2%
Belgium -- 0.2%
Hermes Europe Railtel BV, 10.375s,
2009 (Telecommunications)## ........... $ 225 $ 227,812
------------
Bulgaria -- 0.4%
Bulgaria National Republic,
6.688s, 2011 .......................... $ 800 $ 536,000
------------
Canada -- 3.0%
Metronet Communications Corp., 0s to
2002, 10.75s to 2007
(Telecommunications) .................. $1,000 $ 660,000
Metronet Communications Corp., 12s,
2007 (Telecommunications) ............. 600 666,000
PCI Chemicals Canada, Inc., 9.25s,
2007 (Chemicals) ...................... 1,125 877,500
Repap New Brunswick, Inc., 9s, 2004
(Containers, Forest & Paper
Products) ............................. 850 765,000
Rogers Cablesystems, Inc.,
10.125s, 2012 (Telecommunications) 750 828,750
Telesystem International Wireless, Inc.,
0s to 2002, 10.5s to 2007
(Telecommunications) .................. 530 198,087
Telesystem International Wireless, Inc.,
0s to 2002, 13.25s to 2007
(Telecommunications) .................. 1,200 510,000
------------
$ 4,505,337
------------
Greece -- 0.2%
Fage Dairy Industries SA, 9s, 2007
(Food and Beverage Products) .......... $ 375 $ 316,875
------------
Luxembourg -- 0.6%
Millicom International Cellular
Communications Corp., 0s to 2001,
13.5s to 2006 (Telecommunications) $1,225 $ 857,500
------------
</TABLE>
17 - HYVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Mexico -- 0.4%
Satelites Mexicanos SA De CV,
10.125s, 2004 (Telecommunications) $ 700 $ 558,250
------------
Netherlands -- 0.7%
Versatel Telecom B.V., 13.25s, 2008
(Telecommunications) ...................... $1,100 $ 1,089,000
------------
Poland -- 0.2%
PTC International Finance B.V., Os to
2002, 10.75s to 2007 (Financial
Services) ................................. $ 500 $ 339,375
------------
Thailand -- 0.3%
Jasmine Submarine Telecom Ltd.,
8.483s, 2011 (Industrial)## ............... $ 516 $ 427,985
------------
United Kingdom -- 5.2%
Colt Telecommunications Group PLC,
0s to 2001, 12s to 2006
(Telecommunications) ...................... $3,000 $ 2,505,000
Dialog Corporation PLC, 11s, 2007
(Telecommunications) ...................... 800 794,000
Dolphin Telecom PLC, 0s to 2003,
11.5s to 2008
(Telecommunications)## .................... 1,500 435,000
Esat Holdings Ltd., 0s to 2002, 12.5s
to 2007 (Telecommunications) .............. 550 363,000
Esat Telecom Group PLC, 0s to 2002,
12.5s to 2007 (Telecommunications) 800 528,000
Esat Telecom Group PLC, 11.875s,
2008 (Telecommunications)## ............... 825 833,250
Esprit Telecom Group PLC, 11.5s,
2007 (Telecommunications)## ............... 300 306,000
Espirit Telecom Group PLC, 10.875s,
2008 (Telecommunications) ................. 850 854,250
Telewest PLC, 9.625s, 2006 (Media) ......... 825 841,500
Telewest PLC, 11.25s, 2008 (Media)## 250 278,125
------------
$ 7,738,125
------------
Total Foreign Bonds ......................................... $ 16,596,259
------------
Total Bonds (Identified Cost, $143,262,855) ................. $136,181,838
------------
</TABLE>
Stocks
<TABLE>
<CAPTION>
Issuer Shares Value
U.S. Stocks
<S> <C> <C>
Building
Atlantic Gulf Communities Corp.,+* ....................................... 150 $ 112
------------
Consumer Goods and Services
Ranger Industries, Inc.* ................................................. 123,210 $ 35,731
------------
Total U.S. Stocks (Identified Cost, $2,949,528) ...................................... $ 35,843
------------
Convertible Preferred Stocks -- 0.4%
Telecommunications
ICG Funding LLC, 6.75%* .................................................. 10,750 $ 560,344
Viatel, Inc.# ............................................................ 537 32,220
------------
Total Convertible Preferred Stocks
(Identified Cost, $662,893) ........................................................ $ 592,564
------------
Preferred Stocks -- 3.4%
Consumer Goods and Services -- 1.0%
CSC Holdings, Inc., 11.125% .............................................. 13,617 $ 1,501,274
Renaissance Cosmetics, Inc., 14% ......................................... 974 0
------------
$ 1,501,274
------------
Energy -- 0.3%
Clark USA, Inc. .......................................................... 558 $ 446,400
------------
Media -- 0.8%
Primedia, Inc., 8.625%# .................................................. 11,500 $ 1,115,512
------------
Telecommunications -- 1.3%
Crown Castle International Corp.##* ...................................... 300 $ 300,750
E Spire Communications, Inc. ............................................. 104 50,960
Global Crossing Holdings Ltd.#, ## ....................................... 5,750 554,875
Nextel Communications, Inc., 13s* ........................................ 115 109,250
Rural Cellular Corp. ..................................................... 978 899,760
------------
$ 1,915,595
------------
Total Preferred Stocks (Identified Cost, $5,350,765) $ 4,978,781
------------
Warrants -- 1.0%
Allegiance Telecommunications, Inc.
(Telecommunications)* ................................................... 1,150 $ 2,012
American Mobile Satellite Corp.
(Telecommunications)*## ................................................. 925 3,589
Colt Telecommunications Group PLC
(Telecommunications)*## ................................................. 2,700 1,153,305
Convergent Communications, Inc.
(Telecommunications)* ................................................... 3,100 31
Crystal Oil Co., $0.075 (Energy)*......................................... 1,920,847 0
Crystal Oil Co., $0.10 (Energy)*.......................................... 1,683,209 0
</TABLE>
18 - HYVA
<PAGE>
Warrants -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Crystal Oil Co., $0.125 (Energy)*......... 2,000,087 $ 0
Crystal Oil Co., $0.15 (Energy)*.......... 1,963,306 0
Crystal Oil Co., $0.25 (Energy)*.......... 1,963,306 0
DTI Holdings, Inc.
(Telecommunications)* ................... 7,250 363
Envirosource, Inc. (Industrial)* ......... 238 1,220
Esat Holdings Ltd.
(Telecommunications)*## ................. 550 36,575
ICO, Inc. (Energy)* ...................... 375,000 228,750
Knology Holdings, Inc.
(Telecommunications)*## ................. 500 1,002
Loral Orion Network Systems, Inc.,
Expire 1/15/07
(Telecommunications)* ................... 1,000 8,000
Loral Orion Network Systems, Inc.,
Expire 1/15/07
(Telecommunications)* ................... 1,100 19,800
McCaw International Ltd.
(Telecommunications)*## ................. 700 875
Metronet Communications Corp.
(Telecommunications)*## ................. 600 18,000
Pathnet, Inc.
(Telecommunications)*## ................. 155 1,550
Renaissance Cosmetics, Inc.*
(Consumer Goods and Services)* .......... 788 0
Versatel Telecom B.V.
(Telecommunications)* ................... 1,100 11,000
------------
Total Warrants (Identified Cost, $891,017) .......... $ 1,486,072
------------
<CAPTION>
Commercial Paper -- 1.4%
Principal Amount
(000 Omitted)
<S> <C> <C>
General Electric Capital Corp., due
1/04/99, at amortized cost ......... $2,000 $ 1,999,163
------------
Total Investments (Identified Cost, $155,116,221)..... $145,274,261
Other Assets, Less Liabilities -- 1.6% ................ 2,435,075
------------
Net Assets -- 100.0% ................................. $147,709,336
============
</TABLE>
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1998
Managed Sectors Variable Account
Stocks -- 97.2%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Financial Institutions -- 0.9%
Associates First Capital Corp., "A" ...................................... 6,800 $ 288,150
Schwab (Charles) Corp. ................................................... 13,800 775,387
------------
$ 1,063,537
------------
Leisure -- 17.3%
Ascend Communications, Inc.* ............................................. 22,200 $ 1,459,650
CBS Corp. ................................................................ 7,600 248,900
Century Telephone Enterprises, Inc. ...................................... 18,600 1,255,500
Colt Telecom Group (United Kingdom) 24,700 372,871
Comcast Corp. ............................................................ 20,600 1,208,962
Gemstar International Group Ltd.* ........................................ 2,150 123,088
Infinity Broadcasting Corp.* ............................................. 5,200 142,350
Jacor Communications, Inc.* .............................................. 24,000 1,545,000
MCI WorldCom, Inc.* ...................................................... 104,700 7,512,225
MediaOne Group, Inc.* .................................................... 6,100 286,700
Nokia Corp., ADR (Finland) ............................................... 11,700 1,409,119
Qwest Communications International,
Inc.* ................................................................... 26,600 1,330,000
Sprint Corp. ............................................................. 21,600 1,817,100
Time Warner, Inc. ........................................................ 47,400 2,941,762
------------
$ 21,653,227
------------
Medical and Health Technology
and Services -- 13.2%
Amgen, Inc.* ............................................................. 9,200 $ 961,975
Bausch & Lomb, Inc. ...................................................... 6,300 378,000
Bergen Brunswig Corp. .................................................... 7,600 265,050
Biogen, Inc.* ............................................................ 6,200 514,600
Biomet, Inc. ............................................................. 6,000 241,500
Cardinal Health, Inc. .................................................... 17,250 1,308,844
CVS Corp. ................................................................ 42,100 2,315,500
Guidant Corp. ............................................................ 17,200 1,896,300
HealthSouth Corp.* ....................................................... 30,200 466,213
Idec Pharmaceuticals Corp.* .............................................. 3,700 173,900
McKesson Corp. ........................................................... 6,900 545,531
Medtronic, Inc. .......................................................... 24,300 1,804,275
Pfizer, Inc. ............................................................. 6,300 790,256
Rite Aid Corp. ........................................................... 42,200 2,091,537
Schering Plough Corp. .................................................... 14,000 773,500
Sepracor, Inc.* .......................................................... 18,700 1,647,938
United Healthcare Corp. .................................................. 2,700 116,269
Warner-Lambert Co. ....................................................... 3,500 263,156
------------
$ 16,554,344
------------
</TABLE>
19 - MSVA
<PAGE>
Portfolio of Investments -- continued
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Technology -- 44.4%
3Com Corp.* ............................................................ 30,900 $ 1,384,706
Alltel Corp. ........................................................... 12,300 735,694
Altera Corp.* .......................................................... 12,400 754,850
Analog Devices, Inc.* .................................................. 26,400 828,300
ARM Holdings PLC (United Kingdom) ...................................... 14,800 319,172
BMC Software, Inc.* .................................................... 35,800 1,595,338
Cisco Systems, Inc.* ................................................... 92,600 8,594,437
Compaq Computer Corp. .................................................. 11,200 469,700
Computer Associates
International, Inc. ................................................... 55,200 2,352,900
Computer Sciences Corp. ................................................ 4,200 270,638
Compuware Corp.* ....................................................... 79,700 6,226,563
EMC Corp.* ............................................................. 27,950 2,375,750
Equant N.V.* ........................................................... 4,700 318,719
Global Crossing Ltd. (Bermuda)* ........................................ 5,700 257,213
Global TeleSystems Group, Inc.* ........................................ 37,400 2,085,050
Intel Corp. ............................................................ 20,400 2,418,675
International Business Machines Corp. 5,825 1,076,169
Lattice Semiconductor Corp.* ........................................... 2,300 105,584
Lexmark International Group, Inc.* ..................................... 3,800 381,900
Linear Technology Corp. ................................................ 4,300 385,119
Lucent Technologies, Inc. .............................................. 24,850 2,733,500
Micro Warehouse, Inc.* ................................................. 10,000 338,125
Microsoft Corp.* ....................................................... 55,900 7,752,631
Network Associates, Inc.* .............................................. 14,500 960,625
Oracle Corp.* .......................................................... 151,700 6,542,062
Sun Microsystems, Inc.* ................................................ 15,800 1,352,875
TeleCommunications, Inc.* .............................................. 20,500 944,281
Tellabs, Inc.* ......................................................... 7,700 527,931
Vodafone Group PLC
(United Kingdom)* ..................................................... 31,500 511,057
Xerox Corp. ............................................................ 2,100 247,800
Xilinx, Inc.* .......................................................... 11,500 748,938
------------
$ 55,596,302
------------
Other -- 21.4%
Albertsons, Inc. ....................................................... 3,700 $ 235,644
Anheuser Busch Cos., Inc. .............................................. 12,400 813,750
FDX Corp.* ............................................................. 12,400 1,103,600
Galileo International, Inc. ............................................ 6,900 300,150
Gulfstream Aerospace Corp.* ............................................ 4,600 244,950
Home Depot, Inc. ....................................................... 15,600 954,525
Meyer (Fred), Inc.* .................................................... 51,000 3,072,750
</TABLE>
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Other -- continued
Office Depot, Inc.* .................................................... 70,300 $ 2,596,706
Philip Morris Cos., Inc. ............................................... 18,000 963,000
Safeway, Inc.* ......................................................... 22,700 1,383,281
Staples, Inc.* ......................................................... 51,200 2,236,800
Tyco International Ltd. ................................................ 144,000 10,863,000
Wal-Mart Stores, Inc. .................................................. 25,800 2,101,088
------------
$ 26,869,244
------------
Total Stocks (Identified Cost, $96,446,759) ................................................ $121,736,654
------------
</TABLE>
Short-Term Obligations -- 3.2%
<TABLE>
<CAPTION>
Principal Amount
(000 Omitted)
<S> <C> <C>
Federal Home Loan Mortgage Corp.,
due 1/04/99 ...................................... $ 420 $ 419,842
Ford Motor Credit Corp., due 1/04/99 .............. 3,620 3,618,486
------------
Total Short-Term Obligations, at Amortized Cost .................... $ 4,038,328
------------
Total Investments (Identified Cost, $100,485,087) .................. $125,774,982
Other Assets,
Less Liabilities -- (0.4%) ......................................... (557,436)
------------
Net Assets -- 100.0% ............................................... $125,217,546
============
</TABLE>
See portfolio footnotes and notes to financial statements
20 - MSVA
<PAGE>
Portfolio of Investments -- December 31, 1998
Money Market Variable Account
Commercial Paper -- 35.1%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
American General Corp., due 3/05/99 .................................... $ 3,000 $ 2,973,382
BankAmerica Corp., due 1/20/99 ......................................... 3,500 3,490,247
Bellsouth Telecomm, Inc.,
due 2/04/99 ........................................................... 3,000 2,985,352
Consolidated Natural Gas Co.,
due 1/28/99 ........................................................... 3,000 2,988,457
Emerson Electric Co., due 2/11/99 ...................................... 3,000 2,982,746
General Electric Capital Corp.,
due 3/12/99 ........................................................... 3,000 2,970,542
General Reinsurance Corp.,
due 2/05/99 ........................................................... 3,000 2,985,066
Goldman Sachs Group LP,
due 3/08/99 ........................................................... 4,000 3,962,600
Heinz (H.J.) Co., due 2/08/99 .......................................... 4,000 3,978,467
Lucent Technologies, Inc.,
due 2/12/99 ........................................................... 4,000 3,976,293
Merrill Lynch & Co., Inc., due 4/09/99.................................. 3,000 2,959,330
Metropolitan Life Funding, Inc.,
due 1/26/99 ........................................................... 4,000 3,985,472
National Rural Utilities Cooperative
Finance Corp., due 3/29/99 ............................................ 3,000 2,963,460
UBS Finance Delaware, Inc.,
due 2/23/99 ........................................................... 3,500 3,473,824
------------
Total Commercial Paper, at amortized cost and value ................................. $ 46,675,238
------------
U.S. Government and Agency
Obligations -- 64.9%
Federal Farm Credit Bank,
due 1/20/99 - 6/28/99 ................................................. $10,000 $ 9,869,147
Federal Home Loan Bank, due
1/08/99 - 3/09/99 ..................................................... 25,000 24,859,812
Federal Home Loan Mortgage Corp.,
due 1/04/99 ........................................................... 27,690 27,679,616
Federal National Mortgage Assn.,
due 1/19/99 - 4/01/99 ................................................. 16,000 15,865,402
Student Loan Marketing Assn.,
due 2/16/99 ........................................................... 3,000 2,982,175
Tennessee Valley Authority, due
1/07/99 ............................................................... 5,000 4,995,908
------------
Total U.S. Government and Agency Obligations,
at amortized cost and value ....................................................... $ 86,252,060
------------
Total Investments, at amortized cost and value ...................................... $132,927,298
Other Assets,
Less Liabilities .......................................................................... $ (33,507)
------------
Net Assets - 100.0% ..................................................................... $132,893,791
============
</TABLE>
See portfolio footnotes and notes to financial statements
21 - MMVA
<PAGE>
Portfolio of Investments -- December 31, 1998
Total Return Variable Account
Stocks -- 55.7%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- 48.6%
Aerospace -- 2.4%
Allied Signal, Inc. ...................................................... 92,900 $ 4,116,631
General Dynamics Corp. ................................................... 24,300 1,424,587
Raytheon Co., "A" ........................................................ 21,844 1,129,062
Raytheon Co., "B" ........................................................ 16,100 857,325
United Technologies Corp. ................................................ 2,400 261,000
------------
$ 7,788,605
------------
Automotive -- 0.7%
Ford Motor Co. ........................................................... 5,400 $ 316,913
TRW, Inc. ................................................................ 32,000 1,798,000
------------
$ 2,114,913
------------
Banks and Credit Companies -- 2.6%
Bank of New York, Inc. ................................................... 9,800 $ 394,450
Mellon Bank Corp. ........................................................ 19,800 1,361,250
National City Corp. ...................................................... 38,300 2,776,750
PNC Bank Corp. ........................................................... 10,800 584,550
US Bancorp ............................................................... 19,500 692,250
Washington Mutual, Inc. .................................................. 11,100 423,881
Wells Fargo Co.* ......................................................... 50,500 2,016,844
------------
$ 8,249,975
------------
Business Machines -- 1.5%
International Business Machines Corp. 24,700 $ 4,563,325
Xerox Corp. .............................................................. 2,300 271,400
------------
$ 4,834,725
------------
Cellular Telephones -- 0.2%
Telephone & Data Systems, Inc. ........................................... 16,400 $ 736,975
------------
Chemicals -- 0.2%
Du Pont E.I. de Nemours & Co. ............................................ 14,100 $ 748,181
------------
Conglomerates -- 0.3%
Eastern Enterprises ...................................................... 24,800 $ 1,085,000
------------
Consumer Goods and Services -- 2.4%
Gillette Co. ............................................................. 10,500 $ 507,281
Kimberly-Clark Corp. ..................................................... 44,500 2,425,250
Philip Morris Cos., Inc. ................................................. 63,100 3,375,850
Rubbermaid, Inc. ......................................................... 29,500 927,406
Tyco International Ltd. .................................................. 6,500 490,344
------------
$ 7,726,131
------------
Electrical Equipment -- 0.8%
Emerson Electric Co. ..................................................... 31,900 $ 1,929,950
</TABLE>
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Electrical Equipment -- continued
General Electric Co. ..................................................... 6,300 $ 642,994
------------
$ 2,572,944
------------
Electronics -- 0.4%
AMP, Inc. ................................................................ 17,009 $ 885,531
Analog Devices, Inc.* .................................................... 11,200 351,400
------------
$ 1,236,931
------------
Entertainment -- 1.9%
The Walt Disney Co. ...................................................... 26,300 $ 789,000
Time Warner, Inc. ........................................................ 49,800 3,090,713
Viacom, Inc., "B"* ....................................................... 30,500 2,257,000
------------
$ 6,136,713
------------
Financial Institutions -- 3.1%
American Express Co. ..................................................... 29,200 $ 2,985,700
Associates First Capital Corp., "A" ...................................... 58,740 2,489,108
Edwards (A.G.), Inc. ..................................................... 46,200 1,720,950
Federal Home Loan Mortgage Corp. ......................................... 43,000 2,770,812
------------
$ 9,966,570
------------
Food and Beverage Products -- 2.1%
Archer-Daniels-Midland Co. ............................................... 141,385 $ 2,430,055
General Mills, Inc. ...................................................... 19,700 1,531,675
Hershey Foods Corp. ...................................................... 25,400 1,579,562
Hubbell, Inc. ............................................................ 16,400 623,200
McCormick & Co., Inc. .................................................... 19,400 655,963
------------
$ 6,820,455
------------
Forest and Paper Products -- 1.3%
Bowater, Inc. ............................................................ 18,100 $ 750,019
Champion International Corp. ............................................. 34,100 1,381,050
Weyerhaeuser Co. ......................................................... 42,500 2,159,531
------------
$ 4,290,600
------------
Insurance -- 5.1%
Allstate Corp. ........................................................... 11,000 $ 424,875
Chubb Corp. .............................................................. 40,600 2,633,925
CIGNA Corp. .............................................................. 4,600 355,638
Conseco, Inc. ............................................................ 140 4,279
Equitable Cos., Inc. ..................................................... 71,900 4,161,212
Jefferson Pilot Corp. .................................................... 22,350 1,676,250
Lincoln National Corp. ................................................... 40,600 3,321,587
Torchmark Corp. .......................................................... 27,700 978,156
Transamerica Corp. ....................................................... 24,200 2,795,100
------------
$ 16,351,022
------------
</TABLE>
22 - TRVA
<PAGE>
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Machinery -- 0.1%
Lear Corp.* .............................................................. 7,700 $ 296,450
------------
Manufacturing -- 0.2%
Illinois Tool Works, Inc. ................................................ 13,100 $ 759,800
------------
Medical and Health Products -- 1.7%
American Home Products Corp. ............................................. 39,000 $ 2,196,188
Baxter International, Inc. ............................................... 9,600 617,400
Bristol-Myers Squibb Co. ................................................. 19,400 2,595,962
------------
$ 5,409,550
------------
Medical and Health Technology
and Services -- 1.2%
Columbia/HCA Healthcare Corp. ............................................ 111,900 $ 2,769,525
United Healthcare Corp. .................................................. 22,400 964,600
------------
$ 3,734,125
------------
Metals and Minerals -- 0.5%
Aluminum Co. of America .................................................. 19,500 $ 1,453,969
------------
Oil Services -- 0.4%
Schlumberger Ltd. ........................................................ 24,800 $ 1,143,900
------------
Oils -- 2.3%
Conoco, Inc., "A"* ....................................................... 44,700 $ 933,113
Exxon Corp. .............................................................. 13,800 1,009,125
Mobil Corp. .............................................................. 22,800 1,986,450
Texaco, Inc. ............................................................. 39,500 2,088,562
Unocal Corp. ............................................................. 43,700 1,275,494
------------
$ 7,292,744
------------
Photographic Products -- 0.7%
Eastman Kodak Co. ........................................................ 31,200 $ 2,246,400
------------
Pollution Control -- 0.5%
Browning Ferris Industries, Inc. ......................................... 56,500 $ 1,606,719
------------
Printing and Publishing -- 0.9%
Gannett Co., Inc. ........................................................ 22,300 $ 1,438,350
New York Times Co. ....................................................... 38,800 1,345,875
------------
$ 2,784,225
------------
Railroads -- 0.4%
Norfolk Southern Corp. ................................................... 39,200 $ 1,242,150
------------
Real Estate Investment Trusts -- 0.6%
Arden Realty, Inc. ....................................................... 14,200 $ 329,263
Boston Properties, Inc. .................................................. 10,800 329,400
Hospitality Properties Trust ............................................. 8,400 202,650
</TABLE>
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Real Estate Investment Trusts -- continued
Prime Group Realty Trust ................................................. 15,200 $ 229,900
TriNet Corporate Realty Trust, Inc. ...................................... 33,100 885,425
------------
$ 1,976,638
------------
Restaurants and Lodging -- 0.8%
McDonalds Corp. .......................................................... 33,800 $ 2,589,925
------------
Stores -- 1.7%
American Stores Co. ...................................................... 34,600 $ 1,278,038
Dayton Hudson Corp. ...................................................... 43,900 2,381,575
Rite Aid Corp. ........................................................... 30,200 1,496,787
Sears, Roebuck & Co. ..................................................... 3,500 148,750
------------
$ 5,305,150
------------
Supermarkets -- 1.0%
Albertsons, Inc. ......................................................... 9,900 $ 630,506
Meyer (Fred), Inc.* ...................................................... 36,000 2,169,000
Safeway, Inc.* ........................................................... 6,800 414,375
------------
$ 3,213,881
------------
Telecommunications -- 4.2%
AT&T Corp. ............................................................... 30,900 $ 2,325,225
Bell Atlantic Corp. ...................................................... 18,700 991,100
GTE Corp. ................................................................ 68,400 4,446,000
SBC Communications, Inc. ................................................. 58,744 3,150,147
Sprint Corp. ............................................................. 31,700 2,666,762
------------
$ 13,579,234
------------
Utilities -- Electric -- 4.2%
Carolina Power & Light Co. ............................................... 55,500 $ 2,611,969
CMS Energy Corp. ......................................................... 19,500 944,531
DPL, Inc. ................................................................ 38,000 821,750
GPU, Inc. ................................................................ 36,100 1,595,169
New Century Energies, Inc. ............................................... 9,500 463,125
Pacificorp ............................................................... 42,501 895,177
Pinnacle West Capital Corp. .............................................. 44,700 1,894,162
Sempra Energy ............................................................ 44,100 1,119,038
Sierra Pacific Resources ................................................. 24,900 946,200
Southern Co. ............................................................. 48,000 1,395,000
Texas Utilities Co. ...................................................... 19,500 910,406
------------
$ 13,596,527
------------
Utilities -- Gas -- 2.2%
Coastal Corp. ............................................................ 98,200 $ 3,430,862
Columbia Energy Group .................................................... 36,650 2,116,537
National Fuel Gas Co. .................................................... 9,300 420,244
</TABLE>
23 - TRVA
<PAGE>
Portfolio of Investments -- continued
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Utilities -- Gas -- continued
UGI Corp. ......................................... 27,000 $ 641,250
Washington Gas Light Co. .......................... 5,100 138,338
Williams Cos., Inc. ............................... 8,500 265,094
------------
$ 7,012,325
------------
Total U.S. Stocks ...................................................... $155,903,452
------------
Foreign Stocks -- 7.1%
Canada -- 0.3%
Canadian National Railway Co.
(Railroads) ...................................... 21,700 $ 1,125,687
------------
France -- 0.1%
Alcatel Alsthom Compagnie, ADR
(Telecommunications) ............................. 17,900 $ 437,431
------------
Netherlands -- 1.9%
Akzo Nobel N.V. (Chemicals) ....................... 48,700 $ 2,215,403
ING Groep N.V. (Financial Services)* .............. 55,081 3,355,560
Royal Dutch Petroleum Co., ADR
(Oils) ........................................... 10,800 517,050
------------
$ 6,088,013
------------
Sweden -- 0.6%
Volvo AB, ADR (Automotive) ........................ 83,000 $ 1,934,937
------------
Switzerland -- 1.4%
Amoco Corp. (Oils) ................................ 26,700 $ 1,575,300
Nestle S.A. (Food and Beverage
Products) ........................................ 1,310 2,851,766
------------
$ 4,427,066
------------
United Kingdom -- 2.8%
British Petroleum PLC, ADR (Oils) ................. 36,169 $ 3,436,055
Diageo PLC (Food and Beverage
Products) ........................................ 19,476 215,661
Glaxo Wellcome PLC, ADR (Medical
and Health Products) ............................. 41,200 2,863,400
SmithKline-Beecham PLC, ADR
(Medical and Health Products) .................... 33,800 2,349,100
------------
$ 8,864,216
------------
Total Foreign Stocks ................................................... $ 22,877,350
------------
Total Stocks (Identified Cost, $148,341,164) ........................... $178,780,802
------------
Convertible Preferred Stocks -- 1.6%
Consumer Goods and Services -- 0.3%
Newell Financial Trust I, 5.25%* .................. 20,000 $ 1,055,000
------------
</TABLE>
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Entertainment -- 0.4%
MediaOne Group, Inc., 6.25% ....................... 20,500 $ 1,363,250
------------
Financial Institutions -- 0.2%
Mckesson Financing Trust, 5%* ..................... 7,000 $ 759,500
------------
Insurance -- 0.4%
Lincoln National Corp., 7.75% ..................... 52,900 $ 1,246,456
------------
Utilities -- Electric -- 0.3%
Texas Utilities Co., 9.25% 14,000 $ 789,250
------------
Total Convertible Preferred Stock
(Identified Cost, $5,065,696).......................................... $ 5,213,456
------------
Preferred Stocks -- 0.2%
Banks and Credit Companies -- 0.1%
NB Capital Corp. .................................. 16,000 $ 417,000
------------
Utilities -- Gas -- 0.1%
El Paso Tennessee Pipeline Co., 8.25% 4,000 $ 217,000
------------
Total Preferred Stock (Identified Cost, $600,000) ...................... $ 634,000
------------
</TABLE>
Bonds -- 38.2%
<TABLE>
<CAPTION>
Principal Amount
(000 Omitted)
<S> <C> <C>
U.S. Bonds -- 37.6%
Aerospace -- 0.2%
Northrup Grumman Corp., 9.375s,
2024 ............................................. $ 225 $ 256,851
Raytheon Co., 6.4s, 2018## ........................ 265 263,012
------------
$ 519,863
------------
Airlines -- 1.4%
Continental Airlines, Inc., 9.5s, 2001 ............ $1,025 $ 1,073,687
Jet Equipment Trust, 8.64s, 2012## ................ 231 257,167
Jet Equipment Trust, 9.41s, 2010## ................ 330 398,924
Jet Equipment Trust, 10.69s, 2015## ............... 250 307,500
Jet Equipment Trust, 11.44s, 2014## ............... 300 385,464
Northwest Airlines, Inc., 7.625s, 2005 548 519,482
Northwest Airlines, Inc., 8.7s, 2007 .............. 270 266,085
United Airlines Pass-Through Trust,
7.27s, 2013+ ..................................... 1,163 1,176,722
------------
$ 4,385,031
------------
Apparel and Textiles -- 0.1%
Jones Apparel, 6.25s, 2001## ...................... $ 472 $ 469,725
------------
</TABLE>
24 - TRVA
<PAGE>
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Automotive -- 0.3%
Federal Mogul Corp., 7.5s, 2004 ........................................ $ 410 $ 413,956
Federal Mogul Corp., 7.75s, 2006 ....................................... 140 142,162
Ford Motor Co., 8.9s, 2032 ............................................. 385 513,132
------------
$ 1,069,250
------------
Banks and Credit Companies -- 1.4%
Beaver Valley Funding Corp., 9s, 2017................................... $ 932 $ 1,075,351
Capital One Financial Corp.,
7.25s, 2003 ........................................................... 400 394,276
Colonial Capital II, 8.92s, 2027 ....................................... 235 252,049
First Chicago NBD Institutional Capital,
7.95s, 2026## ......................................................... 250 274,263
MBNA Capital, 8.278s, 2026 ............................................. 1,200 1,231,152
Riggs National Corp., 8.5s, 2006 ....................................... 200 208,168
State Street Bank & Trust I, 7.94s,
2026## ................................................................ 350 392,854
Washington Mutual Capital I,
8.375s, 2027 .......................................................... 540 592,288
------------
$ 4,420,401
------------
Beverages -- 0.3%
Seagram (Joseph E) & Sons, Inc.,
6.4s, 2003 ............................................................ $ 985 $ 980,843
------------
Building -- 0.4%
Mcdermott, Inc., 9.375s, 2002 .......................................... $ 890 $ 926,054
Owens Corning Fiberglass Corp.,
9.9s, 2015## .......................................................... 181 195,162
------------
$ 1,121,216
------------
Business Machines -- 0.1%
Xerox Corp., 0s, 2018## ................................................ $ 750 $ 464,063
------------
Chemicals -- 0.1%
Solutia, Inc., 7.375s, 2027 ............................................ $ 470 $ 460,746
------------
Construction Services -- 0.4%
Georgia Pacific Corp., 9.875s, 2021 .................................... $1,150 $ 1,299,672
------------
Consumer Goods and Services -- 0.4%
Hilfiger (Tommy) USA, Inc., 6.5s, 2003 $ 440 $ 433,651
Hilfiger (Tommy) USA, Inc., 6.85s, 2008 336 323,611
Protection One Alarm Monit Inc.,
7.375s, 2005## ........................................................ 650 653,809
------------
$ 1,411,071
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Corporate Asset Backed -- 5.2%
AT&T Universal Card Master Trust,
5.319s, 2003 .......................................................... $1,000 $ 996,560
AT&T Universal Card Master Trust,
5.492s, 2004 .......................................................... 2,000 1,993,120
Banamex Credit Card Merchant
Voucher, 6.25s, 2003## ................................................ 500 500,469
BCF LLC, 7.75s, 2026## ................................................. 193 171,336
Beneficial Home Equity Loan Trust,
5.168s, 2037 .......................................................... 1,688 1,672,346
Charming Shoppes Master Trust,
7s, 1999 .............................................................. 588 590,017
Contimorgage Home Equity,
6.13s, 2013 ........................................................... 1,000 1,002,180
Continental Airlines Pass-Through
Trust, Inc., 6.41s, 2007 .............................................. 125 122,380
Continental Airlines Pass-Through
Trust, Inc., 6.648s, 2017 ............................................. 420 413,330
Continental Airlines Pass-Through
Trust, Inc., 7.461s, 2015 ............................................. 99 102,350
Continental Airlines, Inc., 9.5s, 2013 ................................. 143 161,470
Continental Airlines, Inc.,
10.22s, 2014 .......................................................... 617 729,634
Criimi Mae Commercial Mortgage
Trust, 7s, 2011 ....................................................... 320 300,350
First Chicago Master Trust,
5.816s, 2003 .......................................................... 849 847,673
Ford Credit Auto Owner Trust,
5.8s, 2000 ............................................................ 727 728,357
MBNA Master Credit Card Trust II,
5.458s, 2005 .......................................................... 600 596,808
Peoples Bank Credit Card Master
Trust, 5.655s, 2004 ................................................... 1,213 1,211,387
Residential Accredit Lns, Inc.,
7s, 2028 .............................................................. 500 507,500
SLM Student Loan Trust,
5.541s, 2007 .......................................................... 1,895 1,865,571
Time Warner Pass-Through Asset
Trust, 6.1s, 2001## ................................................... 1,970 2,001,737
------------
$ 16,514,575
------------
</TABLE>
25 - TRVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Entertainment -- 1.6%
Circus Circus Enterprises, Inc., 7s, 2036 $341 $ 311,507
Disney (Walt) Co., 5.125s, 2003 ........................................ 585 580,022
Hearst Argyle Television, Inc.,
7s, 2018 .............................................................. 200 199,786
Hearst Argyle Television, Inc.,
7.5s, 2027 ............................................................ 477 497,687
News America Holdings, Inc.,
7.75s, 2045 ........................................................... 125 132,375
News America Holdings, Inc.,
8s, 2016 .............................................................. 825 908,746
News America Holdings, Inc.,
8.875s, 2023 .......................................................... 255 309,101
News America Holdings, Inc.,
9.5s, 2024 ............................................................ 305 392,736
Time Warner, Inc., 7.57s, 2024 ......................................... 255 288,622
Viacom, Inc., 6.75s, 2003 .............................................. 1,580 1,625,583
------------
$ 5,246,165
------------
Financial Institutions -- 2.7%
Associates Corp., 5.75s, 2003 .......................................... $ 940 $ 947,755
Capital One Bank, 6.7s, 2008 ........................................... 860 831,637
Contifinancial Corp., 7.5s, 2002 ....................................... 170 122,242
Donaldson Lufkin & Jenrette,
6.5s, 2008 ............................................................ 165 169,661
First Empire Capital Trust I, 8.234s, 2027 845 934,012
First Merchants Acceptance Corp.,
9.5s, 2006** .......................................................... 160 64,000
Goldman Sachs Group LP, 5.9s, 2003 590 596,643
GS Escrow Corp., 6.75s, 2001## ......................................... 1,570 1,533,215
GS Escrow Corp., 7.125s, 2005## ........................................ 1,105 1,088,779
Leucadia Capital Trust, 8.65s, 2027 .................................... 310 332,670
Natexis Ambs Co. LLC, 8.44s, 2049## 285 262,200
Providian National Bank, 6.7s, 2003 .................................... 500 505,685
Riggs Capital II, 8.875s, 2027 ......................................... 210 223,558
Salton Sea Funding Corp.,
7.37s, 2005 ........................................................... 322 334,808
Salton Sea Funding Corp.,
7.84s, 2010 ........................................................... 400 459,796
Salton Sea Funding Corp., 8.3s, 2011 ................................... 200 222,180
United Cos. Financial Corp.,
7.7s, 2004 ............................................................ 200 140,692
------------
$ 8,769,533
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Food Products -- 0.1%
Nabisco, Inc., 6.375s, 2035 ............................................ $ 290 $ 280,772
------------
Forest and Paper Products -- 0.2%
Boise Cascade Co., 7.43s, 2005 ......................................... $ 160 $ 158,072
Georgia Pacific Corp., 7.25s, 2028 ..................................... 585 589,341
------------
$ 747,413
------------
Industrial -- 0.7%
Lowes Cos., Inc., 6.875s, 2028 ......................................... $ 170 $ 178,451
Owens Illinois, Inc., 7.35s, 2008 ...................................... 900 918,180
Owens Illinois, Inc., 7.8s, 2018 ....................................... 1,155 1,152,274
------------
$ 2,248,905
------------
Insurance -- 1.6%
Atlantic Mutual Insurance Co.,
8.15s, 2028## ......................................................... $ 930 $ 935,868
Conseco, Inc., 6.4s, 2001 .............................................. 500 481,690
Fairfax Financial Holdings Ltd.,
7.375s, 2018 .......................................................... 394 381,483
NGC Corp. Capital Trust I,
8.316s, 2027 .......................................................... 250 253,363
Providian Capital I, 9.525s, 2027## .................................... 850 861,007
Safeco Capital Trust I, 8.072s, 2037 ................................... 1,925 2,144,970
------------
$ 5,058,381
------------
Medical and Health Products -- 0.2%
Bausch & Lomb, Inc., 6.5s, 2005 ........................................ $ 270 $ 262,599
Bausch & Lomb, Inc., 7.125s, 2028 ...................................... 270 252,210
Merck & Co., Inc., 5.95s, 2028 ......................................... 190 189,667
------------
$ 704,476
------------
Medical and Health Technology
and Services -- 0.5%
Columbia/HCA Healthcare Corp.,
6.5s, 1999 ............................................................ $ 250 $ 249,715
Columbia/HCA Healthcare Corp.,
6.875s, 2001 .......................................................... 165 163,752
Columbia/HCA Healthcare Corp.,
7.69s, 2025 ........................................................... 517 468,547
Tenet Healthcare Corp.,
7.625s, 2008## ........................................................ 575 583,625
------------
$ 1,465,639
------------
</TABLE>
26 - TRVA
<PAGE>
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Oil Services -- 0.2%
KCS Energy, Inc., 8.875s, 2008 ......................................... $ 165 $ 115,500
Ultramar Diamond Shamrock Corp.,
7.2s, 2017 ............................................................ 395 393,246
------------
$ 508,746
------------
Oils -- 0.7%
Lasmo USA, Inc., 6.75s, 2007 ........................................... $ 450 $ 452,983
Lasmo USA, Inc., 7.125s, 2003 .......................................... 267 268,087
Occidental Petroleum Corp.,
10.125s, 2001 ......................................................... 452 494,199
Petroleum Geo Services, 7.125s, 2028.................................... 685 640,057
Seagull Energy Corp., 7.5s, 2027 ....................................... 382 342,146
------------
$ 2,197,472
------------
Railroads -- 0.1%
Union Pacific Corp., 6.34s, 2003 ....................................... $ 420 $ 422,268
------------
Restaurants and Lodging -- 0.1%
Circus Circus Enterprises, Inc.,
6.7s, 2096 ............................................................ $ 300 $ 281,274
------------
Stores -- 0.4%
Dillards, Inc., 7.13s, 2018 ............................................ $ 270 $ 276,151
Saks, Inc., 8.25s, 2008 ................................................ 1,035 1,103,693
------------
$ 1,379,844
------------
Telecommunications -- 1.0%
Tele-Communications, Inc.,
7.875s, 2013 .......................................................... $ 365 $ 427,623
Continental Cablevision, Inc.,
11s, 2007 ............................................................. 550 590,755
Qwest Communications International,
Inc., 7.5s, 2008## .................................................... 370 384,338
TCI Communications Financing III,
9.65s, 2027 ........................................................... 955 1,179,272
TCI Communications, Inc., 8s, 2005 ..................................... 240 270,189
TCI Communications, Inc.,
7.125s, 2028 .......................................................... 265 288,784
Turner Broadcasting Systems, Inc.,
8.375s, 2013 .......................................................... 175 209,174
------------
$ 3,350,135
------------
Transportation -- 0.1%
Federal Express Corp., 7.65s, 2014 ..................................... $ 246 $ 256,352
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Federal Agencies -- 2.2%
Federal National Mortgage Association -- 2.2%
FNMA, 6s, 2013 - 2013 .................................................. $4,802 $ 4,813,509
FNMA, 6.5s, 2027 - 2028 ................................................ 2,195 2,208,906
------------
$ 7,022,415
------------
Total U.S. Federal Agencies ............................................................. $ 7,022,415
------------
U.S. Government Guaranteed -- 10.2%
U.S. Treasury Obligations -- 5.2%
U.S. Treasury Bonds, 6.125s, 2027 ...................................... $4,111 $ 4,601,730
U.S. Treasury Bonds, 6.375s, 2027 ...................................... 1,260 1,448,206
U.S. Treasury Bonds, 5.25s, 2028 ....................................... 3,465 3,547,294
U.S. Treasury Notes, 6.5s,
2005 - 2006 ........................................................... 3,045 3,372,038
U.S. Treasury Notes, 4.75s, 2008 ....................................... 3,765 3,794,404
------------
$ 16,763,672
------------
Government National Mortgage Association -- 5.0%
GNMA, 6.5s, 2028 ....................................................... $2,424 $ 2,448,240
GNMA, 7s, 2028 ......................................................... 1,771 1,812,306
GNMA, 7.5s, 2023 - 2027 ................................................ 7,706 7,945,640
GNMA, 8s, 2025 - 2026 .................................................. 3,610 3,738,517
------------
$ 15,944,703
------------
Total U.S. Government Guaranteed ........................................................ $ 32,708,375
------------
Utilities -- Electric -- 4.0%
CalEnergy Co., Inc., 7.52s, 2008 ....................................... $ 380 $ 397,776
CalEnergy Co., Inc., 7.63s, 2007 ....................................... 200 214,220
Cleveland Electric Illuminating Co.,
7.88s, 2017 ........................................................... 640 661,453
Cleveland Electric Illuminating Co.,
9s, 2023 .............................................................. 450 495,337
Comed Financing II, 8.5s, 2027 ......................................... 300 343,008
Commonwealth Edison Co.,
7.625s, 2007 .......................................................... 375 414,311
Commonwealth Edison Co.,
6.95s, 2018 ........................................................... 680 704,487
Connecticut Light & Power Co.,
8.59s, 2003 ........................................................... 600 622,500
Connecticut Light & Power Co.,
7.875s, 2024 .......................................................... 500 518,700
Edison Mission Energy, 7.33s, 2008## 100 106,092
El Paso Electric Co., 8.9s, 2006 ....................................... 215 238,383
GGIB Funding Corp., 7.43s, 2011 ........................................ 1,271 1,320,834
</TABLE>
27 - TRVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Utilities -- Electric -- continued
Illinois Power Special Purpose Trust,
5.26s, 2003 ........................................................... $ 237 $ 236,917
Long Island Lighting Co., 8.2s, 2023 ................................... 350 379,705
Midland Cogeneration Venture Corp.,
10.33s, 2002 .......................................................... 330 351,857
Midland Funding Corp. II, "A",
11.75s, 2005 .......................................................... 540 626,346
Niagara Mohawk Power Corp.,
7.75s, 2006 ........................................................... 275 301,947
Niagara Mohawk Power Corp.,
8.77s, 2018 ........................................................... 607 690,420
Niagara Mohawk Power Corp.,
8.75s, 2022 ........................................................... 410 447,105
Niagara Mohawk Power Corp.,
8.5s, 2023 ............................................................ 285 303,648
North Atlantic Energy, 9.05s, 2002 ..................................... 228 236,890
Northeast Utilities, 8.58s, 2006 ....................................... 172 183,930
PP&L, Inc., 6.125s, 2001 ............................................... 500 507,435
Seabrook Station - Unit 1,
7.83s, 2019 ........................................................... 366 415,023
Texas & New Mexico Power Co.,
12.5s, 1999 ........................................................... 278 278,453
Texas Utilities Co., 6.375s, 2008 ...................................... 710 697,703
Toledo Edison Co., 7.875s, 2004 ........................................ 500 521,415
Waterford 3 Funding Energy Corp.,
8.09s, 2017 ........................................................... 390 422,818
------------
$ 12,638,713
------------
Utilities -- Gas -- 0.7%
CalEnergy Co., Inc., 7.23s, 2005 ....................................... $ 255 $ 259,735
Coastal Corp., 6.5s, 2008 .............................................. 240 246,012
Coastal Corp., 7.75s, 2035 ............................................. 65 71,539
Coastal Corp., 7.42s, 2037 ............................................. 105 110,918
Louis Dreyfus Natural Gas Corp.,
6.875s, 2007 .......................................................... 430 380,984
Tennessee Gas Pipeline Co., 7s, 2028.................................... 150 153,050
Tennessee Gas Pipeline Co.,
7.625s, 2037 .......................................................... 400 439,876
Texas Gas Transmission Corp.,
7.25s, 2027 ........................................................... 400 410,160
------------
$ 2,072,274
------------
Total U.S. Bonds ........................................................................... $120,475,608
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds -- 0.6%
Argentina -- 0.1%
Hidroelectrica Alicura, 8.375s, 1999
(Utilities - Electric)## .............................................. $ 500 $ 487,500
------------
Canada -- 0.1%
Gulf Canada Resources Ltd.,
9.25s, 2004 (Oils) .................................................... $ 260 $ 266,417
------------
Chile -- 0.1%
Empresa Nacional de Electric, 7.325s,
2037(Utilities - Electric) ............................................ $ 379 $ 334,085
------------
Colombia -- 0.1%
Republic of Colombia, 8.75s,
1999(Government) ...................................................... $ 250 $ 251,875
------------
Finland -- 0.1%
UPM Kymmene Corp., 7.45s, 2027
(Forest and Paper Products)## ......................................... $ 500 $ 500,410
------------
Thailand -- 0.1%
Jasmine Submarine Telecom Ltd.,
8.483s, 2011(Industrial)## ............................................ $ 235 $ 194,538
------------
Total Foreign Bonds ....................................................................... $ 2,034,825
------------
Total Bonds (Identified Cost, $121,378,712) ............................................... $122,510,433
------------
Convertible Bonds -- 0.6%
Business Machines -- 0.2%
Xerox Corp., 0s, 2018## ................................................ $1,180 $ 730,125
------------
Financial Services -- 0.2%
Bell Atlantic Financial Services, Inc.,
4.25s, 2005## ......................................................... $ 710 $ 727,750
------------
Medical and Health Technology and Services -- 0.2%
HealthSouth Corp., 3.25s, 2003 ......................................... $ 550 $ 466,813
------------
Total Convertible Bonds
(Identified Cost, $1,885,238)............................................................ $ 1,924,688
------------
Municipal Bonds -- 0.1%
Electric and Gas Utility Revenue -- 0.1%
Long Island, NY, 5.125s, 2022
(Identified Cost $393,348)............................................. $ 400 $ 403,092
------------
Rights -- 0.3%
<CAPTION>
Shares
<S> <C> <C>
CVS Corp. (Identified Cost, $836,883)................................... 10,000 $ 1,001,875
------------
</TABLE>
28 - TRVA
<PAGE>
Short-Term Obligations -- 2.4%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Federal National Mortgage Assn., due
1/13/99 ................................ $5,000 $ 4,991,467
Ford Motor Credit Corp., due 1/04/99..... 2,585 2,583,918
------------
Total Short-Term Obligations, at Amortized Cost .......... $ 7,575,385
------------
Total Investments (Identified Cost, $286,076,426)......... $318,043,731
Other Assets, Less Liabilities -- 0.9% .................... 2,760,974
------------
Net Assets - 100.0% ...................................... $320,804,705
============
</TABLE>
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1998
World Governments Variable Account
Bonds -- 95.7%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- 42.4%
U.S. Treasury Obligations -- 36.7%
U.S. Treasury Notes, 5.375s, 2003 ...................................... $ 3,630 $ 3,735,488
U.S. Treasury Notes, 5.625s, 2008 ...................................... 3,560 3,798,627
------------
$ 7,534,115
------------
Federal National Mortgage
Association -- 5.7%
FNMA, 2.125s, 2007 ................................................. JPY 130,000 $ 1,158,217
------------
Total U.S. Bonds ........................................................................ $ 8,692,332
------------
Foreign Bonds -- 53.3%
Canada -- 1.9%
Government of Canada, 5.25s,
2008 .............................................................. CAD 400 $ 401,812
------------
Denmark -- 1.9%
Kingdom of Denmark, 7s, 2007 ....................................... DKK 2,084 $ 393,513
------------
Germany -- 12.5%
Federal Republic of Germany,
6s, 2007 DEM 3,741 $ 2,562,406
------------
Greece -- 2.8%
Repubic of Greece, 7.74s, 2008 ..................................... GRD 40,000 $ 158,487
Hellenic Republic, 8.01s, 2003 ......................................... 110,000 411,886
------------
$ 570,373
------------
Italy -- 7.1%
Republic of Italy, 6.75s, 2007 ..................................... ITL 2,025,000 $ 1,459,829
------------
Japan -- 4.3%
International Bank For Recon &
Development, 2s, 2008 ............................................. JPY 100,000 $ 882,560
------------
New Zealand -- 3.0%
Government of New Zealand, 8s,
2004 .............................................................. NZD 1,030 $ 612,057
------------
Sweden -- 2.5%
Kingdom of Sweden, 6s, 2005 ........................................ SEK 3,700 $ 505,834
------------
United Kingdom -- 17.3%
United Kingdom Treasury, 7.25s,
2007 .............................................................. GBP 1,589 $ 3,190,869
United Kingdom Treasury, 6.5s, 2003 .................................... 202 367,100
------------
$ 3,557,969
------------
Total Foreign Bonds ..................................................................... $ 10,946,353
------------
Total Bonds (Identified Cost, $18,743,372)............................................... $ 19,638,685
------------
</TABLE>
29 - WGVA
<PAGE>
Portfolio of Investments -- continued
Call Options Purchased
<TABLE>
<CAPTION>
Principal Amount
of Contracts
Issuer/Expiration Month/Strike Price (000 Omitted) Value
<S> <C> <C>
Deutsche Marks/British Pounds/
January/2.637 ........................................................... 1,834 $ 22
Swedish Kronor/British Pounds/March/
12.5 .................................................................... 8,510 3,413
Japanese Yen/ Deutsche Marks/
May/85 .................................................................. 275,390 826
------------
Total Call Options Purchased
(Identified Cost, $28,475) ............................................. $ 4,261
------------
Put Options Purchased -- 0.3%
Japanese Yen/February/112 ................................................ $184,936 $ 34,768
Deutsche Marks/November/1.95 ............................................. 135 5,524
Deutsche Marks/British Pounds/
January/2.8065 .......................................................... 1,951 2,291
Japanese Yen/March/125 ................................................... 206,401 10,733
------------
Total Put Options Purchased
(Identified Cost, $68,692) ............................................. $ 53,316
------------
Short-Term Obligations -- 2.6%
Ford Motor Credit Corp., due 1/04/99,
at Amortized Cost ....................................................... $ 525 $ 524,780
------------
Total Investments (Identified Cost, $19,365,319)........................................... $20,221,042
------------
Call Options Written -- (0.2)%
Description/Expiration Month/
Strike Price
Japanese Yen/February/108 JPY 178,331 $ (14,266)
Japanese Yen/Deutche Marks/
May/64.82 ............................................................... 84,004 $ (18,817)
------------
Total Call Options Written
(Premiums Received, $24,256) ........................................... $ (33,083)
------------
Other Assets, Less Liabilities -- 1.6% ..................................................... 332,655
------------
Net Assets - 100.0% ....................................................................... $20,520,614
============
</TABLE>
See portfolio footnotes and notes to financial statements
Portfolio Footnotes:
* Non-income producing security.
** Non-income producing security in default.
# Payment-in-kind security.
## SEC Rule 144A restriction
+ Restricted 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.
AUD = Australian Dollars ITL = Italian Lire
CAD = Canadian Dollars JPY = Japanese Yen
DEM = Deutsche Marks NLG = Netherland Guilders
DKK = Danish Kroner NZD = New Zealand Dollars
GBP = British Pounds SEK = Swedish Kronor
GRD = Greek Drachma
30 - WGVA
<PAGE>
Statements of Assets and Liabilities -- December 31, 1998
(000 Omitted)
<TABLE>
<CAPTION>
Capital Government High
Appreciation Securities Yield
Variable Variable Variable
Account Account Account
Assets: -------------- ------------ ------------
<S> <C> <C> <C>
Investments --
Identified cost .................................... $507,928 $168,537 $155,116
Unrealized appreciation (depreciation) ............. 220,748 8,785 (9,842)
-------- -------- --------
Total investments, at value ....................... $728,676 $177,322 $145,274
Cash ................................................ 50 1 18
Receivable for units sold ........................... 66 79 --
Receivable for investments sold ..................... 18,607 -- --
Premiums receivable on options written .............. -- -- --
Net receivable for forward foreign currency
exchange to purchase ............................... -- -- --
Net receivable for foreign currency exchange
contracts closed or subjected to master netting
agreement .......................................... -- -- --
Interest and dividends receivable ................... 177 1,608 2,809
Receivable from sponsor ............................. -- -- 78
Other assets ........................................ 5 1 1
-------- -------- --------
Total assets ...................................... $747,581 $179,011 $148,180
-------- -------- --------
Liabilities:
Payable for investments purchased ................... $ 2,666 $ -- $ 225
Payable for units surrendered ....................... 279 45 202
Written options outstanding, at value
(premiums received $24) -- -- --
Net payable for forward foreign currency exchange
contracts to sell .................................. -- -- --
Payable to affiliates --
Investment adviser ................................. 14 3 3
Sponsor ............................................ 969 203 --
Accrued expenses and other liabilities .............. 78 47 41
-------- ---------- --------
Total liabilities ................................. $ 4,006 $ 298 $ 471
-------- ---------- --------
Net assets ........................................ $743,575 $178,713 $147,709
======== ========== ========
<CAPTION>
Managed Money Total World
Sectors Market Return Governments
Variable Variable Variable Variable
Account Account Account Account
Assets: ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Investments --
Identified cost .................................... $100,485 $132,927 $286,076 $19,365
Unrealized appreciation (depreciation) ............. 25,290 -- 31,968 856
-------- -------- -------- -------
Total investments, at value ....................... $125,775 $132,927 $318,044 $20,221
Cash ................................................ 7 8 13 6
Receivable for units sold ........................... 41 162 63 --
Receivable for investments sold ..................... 129 -- 4,266 --
Premiums receivable on options written .............. -- -- -- 14
Net receivable for forward foreign currency
exchange to purchase ............................... -- -- -- 7
Net receivable for foreign currency exchange
contracts closed or subjected to master netting
agreement .......................................... -- -- -- 96
Interest and dividends receivable ................... 17 -- 2,016 299
Receivable from sponsor ............................. 9 -- 583 --
Other assets ........................................ 1 13 2 --
-------- -------- -------- -------
Total assets ...................................... $125,979 $133,110 $324,987 $20,643
-------- -------- -------- -------
Liabilities:
Payable for investments purchased ................... $ 583 $ -- $ 3,841 $ 30
Payable for units surrendered ....................... 147 6 289 2
Written options outstanding, at value
(premiums received $24) -- -- -- 33
Net payable for forward foreign currency exchange
contracts to sell .................................. -- -- -- 3
Payable to affiliates --
Investment adviser ................................. 3 2 7 --
Sponsor ............................................ -- 175 -- 26
Accrued expenses and other liabilities .............. 28 33 45 28
-------- --------- -------- -------
Total liabilities ................................. $ 761 $ 216 $ 4,182 $ 122
-------- --------- -------- -------
Net assets ........................................ $125,218 $132,894 $320,805 $20,521
======== ========= ======== =======
</TABLE>
See notes to financial statements
31
<PAGE>
Statements of Assets and Liabilities -- December 31, 1998 -- continued
(000 Omitted except for unit values)
<TABLE>
<CAPTION>
Capital Government
Appreciation Securities
Unit Variable Variable
Units Value Account Account
------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Net assets applicable to contract owners:
Capital Appreciation
Variable Account --
Compass 2 ......................... 7,447 $ 70.4257 $524,478
Compass 3 ......................... 2,452 46.7129 114,532
Compass 3 - Level 2 ............... 5,055 19.2720 97,422
Government Securities
Variable Account --
Compass 2 ......................... 4,751 $ 29.4179 $139,758
Compass 3 ......................... 851 20.6717 17,578
Compass 3 - Level 2 ............... 1,532 11.9984 18,380
High Yield
Variable Account --
Compass 2 ......................... 3,667 $ 31.9732
Compass 3 ......................... 665 23.6325
Compass 3 - Level 2 ............... 971 12.5366
Managed Sectors
Variable Account --
Compass 2 ......................... 681 $ 50.4880
Compass 3 ......................... 988 50.0213
Compass 3 - Level 2 ............... 2,542 16.0677
Money Market
Variable Account --
Compass 2 ......................... 4,123 $ 18.3907
Compass 3 ......................... 1,370 15.1544
Compass 3 - Level 2 ............... 3,141 11.2593
Total Return
Variable Account --
Compass 2 ......................... 3,495 $ 33.2507
Compass 3 ......................... 2,943 32.7131
Compass 3 - Level 2 ............... 6,702 15.6760
World Governments
Variable Account --
Compass 2 ......................... 296 $ 20.8302
Compass 3 ......................... 290 20.4924
Compass 3 - Level 2 ............... 695 11.9139
-------- --------
Net assets applicable to owners of deferred contracts .. 736,432 175,716
Reserve for variable annuities --
Compass 2 Contracts .................................. 6,296 2,824
Compass 3 Contracts .................................. 214 60
Compass 3 - Level 2 Contracts ........................ 633 113
-------- --------
Net assets ......................................... $743,575 $178,713
======== ========
<CAPTION>
High Managed Money Total World
Yield Sectors Market Return Governments
Variable Variable Variable Variable Variable
Account Account Account Account Account
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net assets applicable to contract
owners:
Capital Appreciation
Variable Account --
Compass 2 .........................
Compass 3 .........................
Compass 3 - Level 2 ...............
Government Securities
Variable Account --
Compass 2 .........................
Compass 3 .........................
Compass 3 - Level 2 ...............
High Yield
Variable Account --
Compass 2 ......................... $117,241
Compass 3 ......................... 15,700
Compass 3 - Level 2 ............... 12,176
Managed Sectors
Variable Account --
Compass 2 ......................... $ 34,405
Compass 3 ......................... 49,425
Compass 3 - Level 2 ............... 40,838
Money Market
Variable Account --
Compass 2 ......................... $ 75,783
Compass 3 ......................... 20,739
Compass 3 - Level 2 ............... 35,363
Total Return
Variable Account --
Compass 2 ......................... $116,208
Compass 3 ......................... 96,247
Compass 3 - Level 2 ............... 105,065
World Governments
Variable Account --
Compass 2 ......................... $ 6,167
Compass 3 ......................... 5,948
Compass 3 - Level 2 ............... 8,286
-------- -------- -------- -------- -------
Net assets applicable to owners of 145,117 124,668 131,885 317,520 20,401
deferred contracts
Reserve for variable annuities --
Compass 2 Contracts ............ 2,578 217 1,009 2,768 63
Compass 3 Contracts ............ 14 112 -- 237 --
Compass 3 - Level 2 Contracts .. -- 221 -- 280 57
-------- -------- -------- -------- -------
Net assets ................... $147,709 $125,218 $132,894 $320,805 $20,521
======== ======== ======== ======== =======
</TABLE>
See notes to financial statements
32
<PAGE>
Statements of Operations -- Year Ended December 31, 1998
(000 Omitted)
<TABLE>
<CAPTION>
Capital Government High
Appreciation Securities Yield
Variable Variable Variable
Account Account Account
-------------- ------------ -------------
<S> <C> <C> <C>
Net investment income (loss):
Income --
Interest ............................................................ $ 759 $12,077 $ 17,318
Dividends ........................................................... 2,601 -- 378
Foreign taxes withheld .............................................. (14) -- --
-------- ------- ---------
Total investment income ........................................... $ 3,346 $12,077 $ 17,696
-------- ------- ---------
Expenses --
Mortality and expense risk charges .................................. $ 8,491 $ 2,337 $ 2,275
Management fees ..................................................... 4,766 1,023 1,359
Administrative fees ................................................. 84 23 23
Custodian fees ...................................................... 190 39 50
Distribution expense charges ........................................ 163 29 35
Auditing fees ....................................................... 36 43 47
Legal fees .......................................................... 1 1 1
Boards of Managers fees and expenses ................................ 7 7 7
Printing ............................................................ 44 12 21
Miscellaneous ....................................................... 38 -- 54
-------- ------- ---------
Total expenses .................................................... $ 13,820 $ 3,514 $ 3,872
Fees paid indirectly ................................................ (21) (2) (50)
-------- ------- ---------
Net expenses ...................................................... $ 13,799 $ 3,512 $ 3,822
-------- -------- ---------
Net investment income (loss) .................................... $(10,453) $ 8,565 $ 13,874
-------- -------- ---------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions ............................................. $118,861 $ 2,863 $ 980
Written option transactions ......................................... -- -- --
Futures contracts ................................................... -- (166) --
Foreign currency .................................................... (2) -- 1
----------- -------- ---------
Net realized gain (loss) on investments and
foreign currency transactions .................................... $118,859 $ 2,697 $ 981
---------- -------- ---------
Change in unrealized appreciation (depreciation)
Investments ......................................................... $ 60,814 $ 1,016 $ (13,784)
Written options ..................................................... -- -- --
Futures contracts ................................................... -- 27 --
Translation of assets and liabilities in foreign currencies ......... -- -- --
---------- -------- ---------
Net unrealized gain (loss) on investments and foreign
currency translation .............................................. $ 60,814 $ 1,043 $ (13,784)
---------- -------- ---------
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .................... $179,673 $ 3,740 $ (12,803)
---------- -------- ---------
Increase in net assets from operations ........................... $169,220 $12,305 $ 1,071
========== ======== =========
<CAPTION>
Managed Money Total World
Sectors Market Return Governments
Variable Variable Variable Variable
Account Account Account Account
-------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Net investment income (loss):
Income --
Interest ............................................................ $ 168 $6,505 $ 9,366 $1,176
Dividends ........................................................... 499 -- 4,109 --
Foreign taxes withheld .............................................. -- -- (35) --
------- ------ -------- ------
Total investment income ........................................... $ 667 $6,505 $ 13,440 $1,176
------- ------ -------- ------
Expenses --
Mortality and expense risk charges .................................. $ 1,502 $1,504 $ 3,938 $ 250
Management fees ..................................................... 913 596 2,390 156
Administrative fees ................................................. 15 15 40 3
Custodian fees ...................................................... 36 40 113 15
Distribution expense charges ........................................ 77 30 162 10
Auditing fees ....................................................... 38 30 40 39
Legal fees .......................................................... 1 1 1 1
Boards of Managers fees and expenses ................................ 7 7 7 6
Printing ............................................................ 17 14 22 5
Miscellaneous ....................................................... -- -- 11 --
------- ------ -------- ------
Total expenses .................................................... $ 2,606 $2,237 $ 6,724 $ 485
Fees paid indirectly ................................................ (9) (4) (9) (2)
------- ------ -------- ------
Net expenses ...................................................... $ 2,597 $2,233 $ 6,715 $ 483
------- ------ -------- ------
Net investment income (loss) .................................... $(1,930) $4,272 $ 6,725 $ 693
------- ------ -------- ------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions ............................................. $ 1,637 $ -- $ 47,051 $ 869
Written option transactions ......................................... 264 -- -- 185
Futures contracts ................................................... -- -- -- --
Foreign currency .................................................... -- -- (23) (10)
------- ------ -------- ------
Net realized gain (loss) on investments and
foreign currency transactions .................................... $ 1,901 $ -- $ 47,028 $1,044
------- ------ -------- ------
Change in unrealized appreciation (depreciation)
Investments ......................................................... $11,266 $ -- $(22,773) $ 909
Written options ..................................................... 979 -- -- (32)
Futures contracts ................................................... -- -- -- --
Translation of assets and liabilities in foreign currencies ......... -- -- 1 (5)
------- ------ -------- ------
Net unrealized gain (loss) on investments and foreign
currency translation .............................................. $12,245 $ -- $(22,772) $ 872
------- ------ -------- ------
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .................... $14,146 $ -- $ 24,256 $1,916
------- ------ -------- ------
Increase in net assets from operations ........................... $12,216 $4,272 $ 30,981 $2,609
======= ====== ======== ======
</TABLE>
See notes to financial statements
33
<PAGE>
Statements of Changes in Net Assets
(000 Omitted)
<TABLE>
<CAPTION>
Capital Appreciation Government Securities High Yield
Variable Account Variable Account Variable Account
-------------------------- -------------------------- -------------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31,
1998 1997 1998 1997 1998 1997
------------- ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income (loss) .................. $ (10,453) $ (8,785) $ 8,565 $ 11,258 $ 13,874 $ 14,304
Net realized gain on investments
and foreign currency transactions ............ 118,859 103,141 2,697 2,424 981 7,106
Net unrealized gain (loss) on investments
and foreign currency translation ............. 60,814 23,047 1,043 1,022 (13,784) 1,659
--------- --------- --------- --------- --------- ---------
Increase in net assets from operations ....... $ 169,220 $ 117,403 $ 12,305 $ 14,704 $ 1,071 $ 23,069
--------- --------- --------- --------- --------- ---------
Participant transactions:
Accumulation activity:
Purchase payments received .................... $ 22,857 $ 22,456 $ 4,155 $ 4,669 $ 4,025 $ 4,121
Net transfers between variable and fixed
accumulation accounts ........................ 1,573 (2,471) (4,446) (14,669) (38,434) (2,934)
Withdrawals, surrenders, annuitizations and
contract charges ............................. (76,838) (66,782) (27,280) (38,745) (21,276) (19,891)
--------- --------- --------- --------- --------- ---------
Net accumulation activity .................... $ (52,408) $ (46,797) $ (27,571) $ (48,745) $ (55,685) $ (18,704)
--------- --------- --------- --------- --------- ---------
Annuitization activity:
Annuitizations ................................ $ 712 $ 329 $ 651 $ 165 $ 199 $ 150
Annuity payments and contract charges ......... (943) (855) (493) (503) (398) (472)
Net transfers among accounts for annuity
reserves ..................................... (20) 8 -- -- -- --
Adjustments to annuity reserves ............... (274) (175) (114) 33 (11) 28
--------- --------- --------- --------- --------- ---------
Net annuitization activity ................... $ (525) $ (693) $ 44 $ (305) $ (210) $ (294)
--------- --------- --------- --------- --------- ---------
Decrease in net assets from participant
transactions ................................. $ (52,933) $ (47,490) $ (27,527) $ (49,050) $ (55,895) $ (18,998)
--------- --------- --------- --------- --------- ---------
Total increase (decrease) in net assets ...... $ 116,287 $ 69,913 $ (15,222) $ (34,346) $ (54,824) $ 4,071
Net assets:
At beginning of period ......................... 627,288 557,375 193,935 228,281 202,533 198,462
--------- --------- --------- --------- --------- ---------
At end of period ............................... $ 743,575 $ 627,288 $ 178,713 $ 193,935 $ 147,709 $ 202,533
========= ========= ========= ========= ========= =========
</TABLE>
See notes to financial statements
34
<PAGE>
Statements of Changes in Net Assets -- continued
(000 Omitted)
<TABLE>
<CAPTION>
Managed Sectors Money Market
Variable Account Variable Account
------------------------- -------------------------
Year Ended December 31, Year Ended December 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income (loss) ......................................... $ (1,930) $ (1,791) $ 4,272 $ 4,675
Net realized gain on investments and foreign
currency transactions ............................................... 1,901 20,564 -- --
Net unrealized gain on investments and foreign
currency translation ................................................ 12,245 4,407 -- --
--------- --------- --------- ---------
Increase in net assets from operations .............................. $ 12,216 $ 23,180 $ 4,272 $ 4,675
--------- --------- --------- ---------
Participant transactions:
Accumulation activity:
Purchase payments received ........................................... $ 8,772 $ 8,634 $ 3,304 $ 3,864
Net transfers between variable and fixed accumulation accounts ....... (3,980) 6,155 43,396 6,235
Withdrawals, surrenders, annuitizations and contract charges ......... (13,633) (13,689) (30,191) (29,189)
--------- --------- --------- ---------
Net accumulation activity ........................................... $ (8,841) $ 1,100 $ 16,509 $ (19,090)
--------- --------- --------- ---------
Annuitization activity:
Annuitizations ....................................................... $ 119 $ 237 $ 23 $ 70
Annuity payments and contract charges ................................ (85) (54) (231) (284)
Net transfers among accounts for annuity reserves .................... -- 9 (62) --
Adjustments to annuity reserves ...................................... 70 (15) (64) 168
--------- --------- --------- ---------
Net annuitization activity .......................................... $ 104 $ 177 $ (334) $ (46)
--------- --------- --------- ---------
Increase (decrease) in net assets from participant transactions ...... $ (8,737) $ 1,277 $ 16,175 $ (19,136)
--------- --------- --------- ---------
Total increase (decrease) in net assets ............................. $ 3,479 $ 24,457 $ 20,447 $ (14,461)
Net assets:
At beginning of period ................................................ 121,739 97,282 112,447 126,908
--------- --------- --------- ---------
At end of period ...................................................... $ 125,218 $ 121,739 $ 132,894 $ 112,447
========= ========= ========= =========
</TABLE>
See notes to financial statements
35
<PAGE>
Statements of Changes in Net Assets -- continued
(000 Omitted)
<TABLE>
<CAPTION>
Total Return World Governments
Variable Account Variable Account
------------------------- --------------------------
Year Ended December 31, Year Ended December 31,
1998 1997 1998 1997
------------ ------------ -------------- -----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income ................................................ $ 6,725 $ 7,000 $ 693 $ 1,065
Net realized gain (loss) on investments and foreign currency
transactions ........................................................ 47,030 33,815 1,044 (1,721)
Net unrealized gain (loss) on investments and foreign currency
translation ......................................................... (22,774) 14,739 872 (92)
--------- --------- ------- --------
Increase (decrease) in net assets from operations ................... $ 30,981 $ 55,554 $ 2,609 $ (748)
--------- --------- ------- --------
Participant transactions:
Accumulation activity:
Purchase payments received ........................................... $ 15,109 $ 15,730 $ 959 $ 1,455
Net transfers between variable and fixed accumulation accounts ....... 250 4,273 (3,439) (2,759)
Withdrawals, surrenders, annuitizations and contract charges ......... (42,128) (43,721) (3,661) (5,510)
--------- --------- ------- --------
Net accumulation activity ........................................... $ (26,769) $ (23,718) $(6,141) $ (6,814)
--------- --------- ------- --------
Annuitization activity:
Annuitizations ....................................................... $ 102 $ 170 $ 9 $ 6
Annuity payments and contract charges ................................ (589) (492) (48) (58)
Net transfers among accounts for annuity reserves .................... 17 (18) -- 1
Adjustments to annuity reserves ...................................... 157 162 (5) 25
--------- --------- ------- --------
Net annuitization activity .......................................... $ (313) $ (178) $ (44) $ (26)
--------- --------- ------- --------
Decrease in net assets from participant transactions ................. $ (27,082) $ (23,896) $(6,185) $ (6,840)
--------- --------- ------- --------
Total increase (decrease) in net assets ............................. $ 3,899 $ 31,658 $(3,576) $ (7,588)
Net assets:
At beginning of period ................................................ 316,906 285,248 24,097 31,685
--------- --------- ------- --------
At end of period ...................................................... $ 320,805 $ 316,906 $20,521 $ 24,097
========= ========= ======= ========
</TABLE>
See notes to financial statements
36
<PAGE>
Per Unit and Other Data
<TABLE>
<CAPTION>
Capital Appreciation Variable
Account
---------------------------------
Compass 2
---------------------------------
Year Ended December 31,
---------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period ........................ $ 55.3902 $ 45.4107
--------- ---------
Investment income ............................................. $ 0.3113 $ 0.3241
Expenses ...................................................... 1.2754 1.0741
--------- ---------
Net investment loss .......................................... $ (0.9641) $ (0.7500)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions ............................ 15.9996 10.7295
--------- ---------
Net increase (decrease) in unit value ......................... $ 15.0355 $ 9.9795
--------- ---------
Unit value:
Net asset value -- end of period .............................. $ 70.4257 $ 55.3902
========= =========
Ratios (to average net assets):
Expenses+## ................................................... 0.77% 0.77%
Net investment loss ........................................... (1.55)% (1.45)%
Portfolio turnover ............................................. 78% 60%
Number of units outstanding at end of year (000 omitted) ....... 7,447 8,173
<CAPTION>
Capital Appreciation Variable Account
--------------------------------------------------
Compass 2
--------------------------------------------------
Year Ended December 31,
--------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period ........................ $ 37.7151 $ 28.0107 $ 32.9053
--------- --------- ---------
Investment income ............................................. $ 0.2861 $ 0.3624 $ 0.4277
Expenses ...................................................... 0.8695 0.6989 0.6325
--------- --------- ---------
Net investment loss .......................................... $ (0.5834) $ (0.3365) $ (0.2048)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions ............................ 8.2790 10.0409 (4.6898)
--------- --------- ---------
Net increase (decrease) in unit value ......................... $ 7.6956 $ 9.7044 $ (4.8946)
--------- --------- ---------
Unit value:
Net asset value -- end of period .............................. $ 45.4107 $ 37.7151 $ 28.0107
========= ========= =========
Ratios (to average net assets):
Expenses+## ................................................... 0.78% 0.80% 0.79%
Net investment loss ........................................... (1.41)% (1.02)% (0.69)%
Portfolio turnover ............................................. 66% 96% 95%
Number of units outstanding at end of year (000 omitted) ....... 9,004 10,014 11,310
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
37
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Capital Appreciation Variable Account
--------------------------------------------------
Compass 3 - Level 2
--------------------------------------------------
Year Ended December 31,
--------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 15.1500 $ 12.4143 $ 10.3053
--------- --------- ---------
Investment income ............................................... $ 0.0850 $ 0.0914 $ 0.0790
Expenses ........................................................ 0.3421 0.2935 0.2370
--------- --------- ---------
Net investment loss ............................................ $ (0.2571) $ (0.2021) $ (0.1580)
Net realized and unrealized gain on investments and
foreign currency transactions .................................. 4.3791 2.9378 2.2670
--------- --------- ---------
Net increase in unit value ...................................... $ 4.1220 $ 2.7357 $ 2.109
--------- --------- ---------
Unit value:
Net asset value -- end of period ................................ $ 19.2720 $ 15.1500 $ 12.4143
========= ========= =========
Ratios (to average net assets):
Expenses+## ..................................................... 0.77% 0.77% 0.78%
Net investment loss ............................................. (1.55)% (1.45)% (1.41)%
Portfolio turnover ............................................... 78% 60% 66%
Number of units outstanding at end of year (000 omitted) ......... 5,055 3,971 2,494
<CAPTION>
Capital Appreciation
Variable Account
--------------------
Compass 3 - Level 2
--------------------
Period Ended
December 31,
1995#
--------------------
<S> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 10.0000
----------
Investment income ............................................... $ 0.0196
Expenses ........................................................ 0.0517
----------
Net investment loss ............................................ $ (0.0321)
Net realized and unrealized gain on investments and
foreign currency transactions .................................. 0.3374
----------
Net increase in unit value ...................................... $ 0.3053
----------
Unit value:
Net asset value -- end of period ................................ $ 10.3053
==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.80%++
Net investment loss ............................................. (1.02)%++
Portfolio turnover ............................................... 96%
Number of units outstanding at end of year (000 omitted) ......... 955
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. The Account's
expenses are calculated without reduction for this expense offset
arrangement.
See notes to financial statements
38
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Capital Appreciation Variable
Account
---------------------------------
Compass 3
---------------------------------
Year Ended December 31,
---------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 36.7764 $ 30.1803
--------- ---------
Investment income ............................................... $ 0.2031 $ 0.2107
Expenses ........................................................ 0.8753 0.7383
--------- ---------
Net investment loss ............................................ $ (0.6722) $ (0.5276)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. 10.6087 7.1237
--------- ---------
Net increase (decrease) in unit value ........................... $ 9.9365 $ 6.5961
--------- ---------
Unit value:
Net asset value -- end of period ................................ $ 46.7129 $ 36.7764
========= =========
Ratios (to average net assets):
Expenses+## ..................................................... 0.77% 0.77%
Net investment loss ............................................. (1.55)% (1.45)%
Portfolio turnover ............................................... 78% 60%
Number of units outstanding at end of year (000 omitted) ......... 2,452 2,953
<CAPTION>
Capital Appreciation Variable Account
--------------------------------------------------
Compass 3
--------------------------------------------------
Year Ended December 31,
--------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 25.0907 $ 18.6531 $ 21.9341
--------- --------- ---------
Investment income ............................................... $ 0.1893 $ 0.2402 $ 0.2870
Expenses ........................................................ 0.6053 0.4847 0.4421
--------- --------- ---------
Net investment loss ............................................ $ (0.4160) $ (0.2445) $ (0.1551)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. 5.5056 6.6821 (3.1259)
--------- --------- ---------
Net increase (decrease) in unit value ........................... $ 5.0896 $ 6.4376 $ (3.2810)
--------- --------- ---------
Unit value:
Net asset value -- end of period ................................ $ 30.1803 $ 25.0907 $ 18.6531
========= ========= =========
Ratios (to average net assets):
Expenses+## ..................................................... 0.78% 0.80% 0.79%
Net investment loss ............................................. (1.41)% (1.02)% (0.69)%
Portfolio turnover ............................................... 66% 96% 95%
Number of units outstanding at end of year (000 omitted) ......... 3,721 4,272 4,686
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
39
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Government Securities
Variable Account
---------------------------
Compass 2
---------------------------
Year Ended December 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 27.5372 $ 25.6724
---------- ----------
Investment income ............................................... $ 1.8835 $ 1.9396
Expenses ........................................................ 0.5450 0.5159
---------- ----------
Net investment income .......................................... $ 1.3385 $ 1.4237
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. 0.5422 0.4411
---------- ----------
Net increase (decrease) in unit value ........................... $ 1.8807 $ 1.8648
---------- ----------
Unit value:
Net asset value -- end of period ................................ $ 29.4179 $ 27.5372
========== ==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.62% 0.66%
Net investment income ........................................... 4.61% 5.31%
Portfolio turnover ............................................... 137% 168%
Number of units outstanding at end of year (000 omitted) ......... 4,751 5,613
<CAPTION>
Government Securities Variable Account
-----------------------------------------
Compass 2
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 25.5791 $ 22.0031 $ 22.7120
---------- ---------- ---------
Investment income ............................................... $ 1.9022 $ 1.7836 $ 1.5648
Expenses ........................................................ 0.4873 0.4564 0.4229
---------- ---------- ---------
Net investment income .......................................... $ 1.4149 $ 1.3272 $ 1.1419
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. (1.3216) 2.2488 (1.8508)
---------- ---------- ---------
Net increase (decrease) in unit value ........................... $ 0.0933 $ 3.5760 $ (0.7089)
---------- ---------- ---------
Unit value:
Net asset value -- end of period ................................ $ 25.6724 $ 25.5791 $ 22.0031
========== ========== =========
Ratios (to average net assets):
Expenses+## ..................................................... 0.62% 0.63% 0.61%
Net investment income ........................................... 5.53% 5.51% 5.09%
Portfolio turnover ............................................... 39% 80% 41%
Number of units outstanding at end of year (000 omitted) ......... 7,255 8,361 11,308
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
40
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Government Securities Variable Account
------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------
Year Ended December 31,
----------------------------------------- Period Ended
December 31,
1998 1997 1996 1995#
------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 11.2258 $ 10.4604 $ 10.4172 $ 10.0000
--------- --------- --------- ----------
Investment income ............................................... $ 0.7608 $ 0.7931 $ 0.7931 $ 0.1868
Expenses ........................................................ 0.2176 0.2102 0.1966 0.0478
--------- --------- --------- ----------
Net investment income .......................................... $ 0.5432 $ 0.5829 $ 0.5965 $ 0.1390
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. 0.2294 0.1825 (0.5533) 0.2782
--------- --------- --------- ----------
Net increase in unit value ...................................... $ 0.7726 $ 0.7654 $ 0.0432 $ 0.4172
--------- --------- --------- ----------
Unit value:
Net asset value -- end of period ................................ $ 11.9984 $ 11.2258 $ 10.4604 $ 10.4172
========= ========= ========= ==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.62% 0.66% 0.62% 0.63%++
Net investment income ........................................... 4.61% 5.31% 5.53% 5.51%++
Portfolio turnover ............................................... 137% 168% 39% 80%
Number of units outstanding at end of year (000 omitted) ......... 1,532 1,319 1,079 608
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. The Account's
expenses are calculated without reduction
for this expense offset arrangement.
See notes to financial statements
41
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Government Securities
Variable Account
---------------------------
Compass 3
---------------------------
Year Ended December 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 19.3693 $ 18.0755
---------- ----------
Investment income ............................................... $ 1.3267 $ 1.3696
Expenses ........................................................ 0.4061 0.3848
---------- ----------
Net investment income .......................................... $ 0.9206 $ 0.9848
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. 0.3818 0.3090
---------- ----------
Net increase (decrease) in unit value ........................... $ 1.3024 $ 1.2938
---------- ----------
Unit value:
Net asset value -- end of period ................................ $ 20.6717 $ 19.3693
========== ==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.62% 0.66%
Net investment income ........................................... 4.61% 5.31%
Portfolio turnover ............................................... 137% 169%
Number of units outstanding at end of year (000 omitted) ......... 851 1,129
<CAPTION>
Government Securities Variable Account
-----------------------------------------
Compass 3
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 18.0278 $ 15.5227 $ 16.0387
---------- ---------- ---------
Investment income ............................................... $ 1.3222 $ 1.2529 $ 1.1028
Expenses ........................................................ 0.3586 0.3385 0.3146
---------- ---------- ---------
Net investment income .......................................... $ 0.9636 $ 0.9144 $ 0.7882
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. (0.9159) 1.5907 (1.3042)
---------- ---------- ---------
Net increase (decrease) in unit value ........................... $ 0.0477 $ 2.5051 $ (0.5160)
---------- ---------- ---------
Unit value:
Net asset value -- end of period ................................ $ 18.0755 $ 18.0278 $ 15.5227
========== ========== =========
Ratios (to average net assets):
Expenses+## ..................................................... 0.62% 0.63% 0.61%
Net investment income ........................................... 5.53% 5.51% 5.09%
Portfolio turnover ............................................... 39% 80% 41%
Number of units outstanding at end of year (000 omitted) ......... 1,549 1,888 2,922
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
42
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
High Yield Variable Account
---------------------------
Compass 2
---------------------------
Year Ended December 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 32.6450 $ 29.0656
--------- ----------
Investment income ............................................... $ 3.3038 $ 3.0237
Expenses ........................................................ 0.7062 0.6627
--------- ----------
Net investment income .......................................... $ 2.5976 $ 2.3610
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. (3.2694) 1.2184
--------- ----------
Net increase (decrease) in unit value ........................... $ (0.6718) $ 3.5794
--------- ----------
Unit value:
Net asset value -- end of period ................................ $ 31.9732 $ 32.6450
========= ==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.86% 0.86%
Net investment income ........................................... 7.66% 7.47%
Portfolio turnover ............................................... 174% 164%
Number of units outstanding at end of year (000 omitted) ......... 3,667 4,424
<CAPTION>
High Yield Variable Account
-----------------------------------------
Compass 2
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 26.1493 $ 22.6776 $ 23.3591
---------- ---------- ---------
Investment income ............................................... $ 2.7199 $ 2.5137 $ 2.2324
Expenses ........................................................ 0.6035 0.5356 0.5062
---------- ---------- ---------
Net investment income .......................................... $ 2.1164 $ 1.9781 $ 1.7262
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. 0.7999 1.4936 (2.4077)
---------- ---------- ---------
Net increase (decrease) in unit value ........................... $ 2.9163 $ 3.4717 $ (0.6815)
---------- ---------- ---------
Unit value:
Net asset value -- end of period ................................ $ 29.0656 $ 26.1493 $ 22.6776
========== ========== =========
Ratios (to average net assets):
Expenses+## ..................................................... 0.88% 0.88% 0.91%
Net investment income ........................................... 7.59% 7.91% 7.41%
Portfolio turnover ............................................... 108% 88% 77%
Number of units outstanding at end of year (000 omitted) ......... 4,956 5,649 6,433
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
43
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
High Yield Variable Account
------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------
Year Ended December 31,
----------------------------------------- Period Ended
December 31,
1998 1997 1996 1995#
------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 12.7936 $ 11.3852 $ 10.2377 $ 10.0000
--------- --------- --------- ----------
Investment income ............................................... $ 1.1776 $ 1.1903 $ 0.9246 $ 0.3803
Expenses ........................................................ 0.2556 0.2584 0.2033 0.0765
--------- --------- --------- ----------
Net investment income .......................................... $ 0.9220 $ 0.9319 $ 0.7213 $ 0.3038
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. (1.1790) 0.4765 0.4262 (0.0661)
--------- --------- --------- ----------
Net increase (decrease) in unit value ........................... $ (0.2570) $ 1.4084 $ 1.1475 $ 0.2377
--------- --------- --------- ----------
Unit value:
Net asset value -- end of period ................................ $ 12.5366 $ 12.7936 $ 11.3852 $ 10.2377
========= ========= ========= ==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.86% 0.86% 0.88% 0.88%++
Net investment income ........................................... 7.66% 7.47% 7.59% 7.91%++
Portfolio turnover ............................................... 174% 164% 108% 88%
Number of units outstanding at end of year (000 omitted) ......... 971 2,042 1,819 1,368
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. The Account's
expenses are calculated without reduction for this expense offset
arrangement.
See notes to financial statements
44
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
High Yield Variable Account
---------------------------
Compass 3
---------------------------
Year Ended December 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 24.1529 $ 21.5259
--------- ----------
Investment income ............................................... $ 2.3041 $ 2.2363
Expenses ........................................................ 0.5257 0.5196
--------- ----------
Net investment income .......................................... $ 1.7784 $ 1.7167
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. (2.2988) 0.9103
--------- ----------
Net increase (decrease) in unit value ........................... $ (0.5204) $ 2.6270
--------- ----------
Unit value:
Net asset value -- end of period ................................ $ 23.6325 $ 24.1529
========= ==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.86% 0.86%
Net investment income ........................................... 7.66% 7.47%
Portfolio turnover ............................................... 174% 164%
Number of units outstanding at end of year (000 omitted) ......... 665 1,209
<CAPTION>
High Yield Variable Account
-----------------------------------------
Compass 3
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 19.3854 $ 16.8283 $ 17.3543
---------- ---------- ---------
Investment income ............................................... $ 1.9450 $ 1.8912 $ 1.5336
Expenses ........................................................ 0.4432 0.4253 0.3711
---------- ---------- ---------
Net investment income .......................................... $ 1.5018 $ 1.4659 $ 1.1625
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. 0.6387 1.0912 (1.6885)
---------- ---------- ---------
Net increase (decrease) in unit value ........................... $ 2.1405 $ 2.5571 $ (0.5260)
---------- ---------- ---------
Unit value:
Net asset value -- end of period ................................ $ 21.5259 $ 19.3854 $ 16.8283
========== ========== =========
Ratios (to average net assets):
Expenses+## ..................................................... 0.88% 0.88% 0.91%
Net investment income ........................................... 7.59% 7.91% 7.41%
Portfolio turnover ............................................... 108% 88% 77%
Number of units outstanding at end of year (000 omitted) ......... 1,438 1,913 2,506
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
45
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Managed Sectors Variable Account
---------------------------------
Compass 2
---------------------------------
Year Ended December 31,
---------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 45.4522 $ 36.5900
--------- ---------
Investment income ............................................... $ 0.2611 $ 0.2406
Expenses ........................................................ 0.9850 0.8842
--------- ---------
Net investment loss ............................................ $ (0.7239) $ (0.6436)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. 5.7597 9.5058
--------- ---------
Net increase (decrease) in unit value ........................... $ 5.0358 $ 8.8622
--------- ---------
Unit value:
Net asset value -- end of period ................................ $ 50.4880 $ 45.4522
========= =========
Ratios (to average net assets):
Expenses+## ..................................................... 0.84% 0.85%
Net investment loss ............................................. (1.59)% (1.60)%
Portfolio turnover ............................................... 159% 103%
Number of units outstanding at end of year (000 omitted) ......... 681 736
<CAPTION>
Managed Sectors Variable Account
--------------------------------------------------
Compass 2
--------------------------------------------------
Year Ended December 31,
--------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 31.3870 $ 23.9044 $ 24.7295
--------- --------- ---------
Investment income ............................................... $ 0.2838 $ 0.3277 $ 0.3066
Expenses ........................................................ 0.7089 0.6066 0.5155
--------- --------- ---------
Net investment loss ............................................ $ (0.4251) $ (0.2789) $ (0.2089)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. 5.6281 7.7615 ( 0.6162)
--------- --------- ---------
Net increase (decrease) in unit value ........................... $ 5.2030 $ 7.4826 $ (0.8251)
--------- --------- ---------
Unit value:
Net asset value -- end of period ................................ $ 36.5900 $ 31.3870 $ 23.9044
========= ========= =========
Ratios (to average net assets):
Expenses+## ..................................................... 0.85% 0.87% 0.90%
Net investment loss ............................................. (1.36)% (1.07)% (0.97)%
Portfolio turnover ............................................... 64% 115% 111%
Number of units outstanding at end of year (000 omitted) ......... 729 788 800
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
46
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Managed Sectors Variable Account
--------------------------------------------------
Compass 3 - Level 2
--------------------------------------------------
Year Ended December 31,
--------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 14.4652 $ 11.6449 $ 9.9892
--------- --------- ---------
Investment income ............................................... $ 0.0880 $ 0.0831 $ 0.0873
Expenses ........................................................ 0.3308 0.3015 0.2287
--------- --------- ---------
Net investment loss ............................................ $ (0.2428) $ (0.2184) $ (0.1414)
Net realized and unrealized gain on investments and foreign
currency transactions .......................................... 1.8453 3.0387 1.7971
--------- --------- ---------
Net increase (decrease) in unit value ........................... $ 1.6025 $ 2.8203 $ 1.6557
--------- --------- ---------
Unit value:
Net asset value -- end of period ................................ $ 16.0677 $ 14.4652 $ 11.6449
========= ========= =========
Ratios (to average net assets):
Expenses+## ..................................................... 0.84% 0.85% 0.85%
Net investment loss ............................................. (1.59)% (1.60)% (1.36)%
Portfolio turnover ............................................... 159% 103% 64%
Number of units outstanding at end of year (000 omitted) ......... 2,542 2,156 1,204
<CAPTION>
Managed Sectors
Variable Account
--------------------
Compass 3 - Level 2
--------------------
Period Ended
December 31,
1995#
--------------------
<S> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 10.0000
----------
Investment income ............................................... $ 0.0231
Expenses ........................................................ 0.0539
----------
Net investment loss ............................................ $ (0.0308)
Net realized and unrealized gain on investments and foreign
currency transactions .......................................... 0.0200
----------
Net increase (decrease) in unit value ........................... $ (0.0108)
----------
Unit value:
Net asset value -- end of period ................................ $ 9.9892
==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.87%++
Net investment loss ............................................. (1.07)%++
Portfolio turnover ............................................... 115%
Number of units outstanding at end of year (000 omitted) ......... 418
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. The Account's
expenses are calculated without reduction for this expense offset
arrangement.
See notes to financial statements
47
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Managed Sectors Variable Account
---------------------------------
Compass 3
---------------------------------
Year Ended December 31,
---------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period ............................. $ 45.0995 $ 36.3604
--------- ---------
Investment income .................................................. $ 0.2543 $ 0.2328
Expenses ........................................................... 1.0369 0.9264
--------- ---------
Net investment loss ............................................... $ (0.7826) $ (0.6936)
Net realized and unrealized gain (loss) on investments and foreign
currency transactions ............................................. 5.7044 9.4327
--------- ---------
Net increase (decrease) in unit value .............................. $ 4.9218 $ 8.7391
--------- ---------
Unit value:
Net asset value -- end of period ................................... $ 50.0213 $ 45.0995
========= =========
Ratios (to average net assets):
Expenses+## ........................................................ 0.84% 0.85%
Net investment loss ................................................ (1.59)% (1.60)%
Portfolio turnover .................................................. 159% 103%
Number of units outstanding at end of year (000 omitted) ............ 988 1,258
<CAPTION>
Managed Sectors Variable Account
--------------------------------------------------
Compass 3
--------------------------------------------------
Year Ended December 31,
--------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period ............................. $ 31.2371 $ 23.8258 $ 24.6849
--------- --------- ---------
Investment income .................................................. $ 0.2830 $ 0.3259 $ 0.3031
Expenses ........................................................... 0.7511 0.6452 0.5452
--------- --------- ---------
Net investment loss ............................................... $ (0.4681) $ (0.3193) $ (0.2421)
Net realized and unrealized gain (loss) on investments and foreign
currency transactions ............................................. 5.5914 7.7306 ( 0.6170)
--------- --------- ---------
Net increase (decrease) in unit value .............................. $ 5.1233 $ 7.4113 $ (0.8591)
--------- --------- ---------
Unit value:
Net asset value -- end of period ................................... $ 36.3604 $ 31.2371 $ 23.8258
========= ========= =========
Ratios (to average net assets):
Expenses+## ........................................................ 0.85% 0.87% 0.90%
Net investment loss ................................................ (1.36)% (1.07)% (0.97)%
Portfolio turnover .................................................. 64% 115% 111%
Number of units outstanding at end of year (000 omitted) ............ 1,552 1,729 1,810
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
48
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Money Market Variable
Account
---------------------------
Compass 2
---------------------------
Year Ended December 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 17.7451 $ 17.1109
---------- ----------
Investment income ............................................... $ 0.9924 $ 0.9600
Expenses ........................................................ 0.3468 0.3258
---------- ----------
Net investment income .......................................... $ 0.6456 $ 0.6342
---------- ----------
Net increase in unit value ...................................... $ 0.6456 $ 0.6342
---------- ----------
Unit value:
Net asset value -- end of period ................................ $ 18.3907 $ 17.7451
========== ==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.59% 0.59%
Net investment income ........................................... 3.58% 3.56%
Number of units outstanding at end of year (000 omitted) ......... 4,123 4,639
<CAPTION>
Money Market Variable Account
-----------------------------------------
Compass 2
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 16.5213 $ 15.8699 $ 15.5003
---------- ---------- ----------
Investment income ............................................... $ 0.9058 $ 0.9560 $ 0.6615
Expenses ........................................................ 0.3162 0.3046 0.2919
---------- ---------- ----------
Net investment income .......................................... $ 0.5896 $ 0.6514 $ 0.3696
---------- ---------- ----------
Net increase in unit value ...................................... $ 0.5896 $ 0.6514 $ 0.3696
---------- ---------- ----------
Unit value:
Net asset value -- end of period ................................ $ 17.1109 $ 16.5213 $ 15.8699
========== ========== ==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.58% 0.58% 0.58%
Net investment income ........................................... 3.49% 4.00% 2.37%
Number of units outstanding at end of year (000 omitted) ......... 5,208 6,501 6,851
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
49
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Money Market Variable Account
------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------
Year Ended December 31, Period Ended
----------------------------------------- December 31,
1998 1997 1996 1995#
------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 10.8587 $ 10.4654 $ 10.0997 $ 10.0000
--------- --------- --------- ----------
Investment income ............................................... $ 0.6068 $ 0.5838 $ 0.5993 $ 0.1358
Expenses ........................................................ 0.2062 0.1905 0.2336 0.0361
--------- --------- --------- ----------
Net investment income .......................................... $ 0.4006 $ 0.3933 $ 0.3657 $ 0.0997
--------- --------- --------- ----------
Net increase in unit value ...................................... $ 0.4006 $ 0.3933 $ 0.3657 $ 0.0997
--------- --------- --------- ----------
Unit value:
Net asset value -- end of period ................................ $ 11.2593 $ 10.8587 $ 10.4654 $ 10.0997
========= ========= ========= ==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.59% 0.59% 0.58% 0.58%++
Net investment income ........................................... 3.58% 3.56% 3.49% 4.00%++
Number of units outstanding at end of year (000 omitted) ......... 3,141 1,104 897 561
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. The Account's
expenses are calculated without reduction for this expense offset
arrangement.
See notes to financial statements
50
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Money Market Variable
Account
---------------------------
Compass 3
---------------------------
Year Ended December 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 14.6369 $ 14.1277
---------- ----------
Investment income ............................................... $ 0.8199 $ 0.7782
Expenses ........................................................ 0.3024 0.2690
---------- ----------
Net investment income .......................................... $ 0.5175 $ 0.5092
---------- ----------
Net increase in unit value ...................................... $ 0.5175 $ 0.5092
---------- ----------
Unit value:
Net asset value -- end of period ................................ $ 15.1544 $ 14.6369
========== ==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.59% 0.59%
Net investment income ........................................... 3.58% 3.56%
Number of units outstanding at end of year (000 omitted) ......... 1,370 1,160
<CAPTION>
Money Market Variable Account
-----------------------------------------
Compass 3
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 13.6545 $ 13.1291 $ 12.8359
---------- ---------- ----------
Investment income ............................................... $ 0.7437 $ 0.7885 $ 0.5688
Expenses ........................................................ 0.2705 0.2631 0.2756
---------- ---------- ----------
Net investment income .......................................... $ 0.4732 $ 0.5254 $ 0.2932
---------- ---------- ----------
Net increase in unit value ...................................... $ 0.4732 $ 0.5254 $ 0.2932
---------- ---------- ----------
Unit value:
Net asset value -- end of period ................................ $ 14.1277 $ 13.6545 $ 13.1291
========== ========== ==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.58% 0.58% 0.58%
Net investment income ........................................... 3.49% 4.00% 2.37%
Number of units outstanding at end of year (000 omitted) ......... 1,930 3,929 4,599
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
51
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Total Return Variable
Account
---------------------------
Compass 2
---------------------------
Year Ended December 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 30.1563 $ 25.0444
---------- ----------
Investment income ............................................... $ 1.3940 $ 1.3666
Expenses ........................................................ 0.6750 0.6070
---------- ----------
Net investment income .......................................... $ 0.7190 $ 0.7596
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. 2.3754 4.3523
---------- ----------
Net increase (decrease) in unit value ........................... $ 3.0944 $ 5.1119
---------- ----------
Unit value:
Net asset value -- end of period ................................ $ 33.2507 $ 30.1563
========== ==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.82% 0.83%
Net investment income ........................................... 2.10% 2.32%
Portfolio turnover ............................................... 125% 111%
Number of units outstanding at end of year (000 omitted) ......... 3,495 3,956
<CAPTION>
Total Return Variable Account
-----------------------------------------
Compass 2
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 22.2577 $ 17.4729 $ 18.0043
---------- ---------- ---------
Investment income ............................................... $ 1.1203 $ 1.0394 $ 0.8583
Expenses ........................................................ 0.4844 0.4118 0.3704
---------- ---------- ---------
Net investment income .......................................... $ 0.6359 $ 0.6276 $ 0.4879
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. 2.1508 4.1572 (1.0193)
---------- ---------- ---------
Net increase (decrease) in unit value ........................... $ 2.7867 $ 4.7848 $ (0.5314)
---------- ---------- ---------
Unit value:
Net asset value -- end of period ................................ $ 25.0444 $ 22.2577 $ 17.4729
========== ========== =========
Ratios (to average net assets):
Expenses+## ..................................................... 0.82% 0.83% 0.82%
Net investment income ........................................... 2.59% 2.99% 2.60%
Portfolio turnover ............................................... 140% 105% 63%
Number of units outstanding at end of year (000 omitted) ......... 4,414 4,801 5,410
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
52
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Total Return Variable Account
------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------
Year Ended December 31,
----------------------------------------- Period Ended
December 31,
1998 1997 1996 1995#
------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 14.2173 $ 11.8074 $ 10.4938 $ 10.0000
--------- --------- --------- ----------
Investment income ............................................... $ 0.6344 $ 0.5718 $ 0.5280 $ 0.1247
Expenses ........................................................ 0.3107 0.2715 0.2317 0.0525
--------- --------- --------- ----------
Net investment income .......................................... $ 0.3237 $ 0.3003 $ 0.2963 $ 0.0722
Net realized and unrealized gain on investments and foreign
currency transactions .......................................... 1.1350 2.1096 1.0173 0.4216
--------- --------- --------- ----------
Net increase in unit value ...................................... $ 1.4587 $ 2.4099 $ 1.3136 $ 0.4938
--------- --------- --------- ----------
Unit value:
Net asset value -- end of period ................................ $ 15.6760 $ 14.2173 $ 11.8074 $ 10.4938
========= ========= ========= ==========
Ratios (to average net assets):
Expenses+## ..................................................... 0.82% 0.83% 0.82% 0.83%++
Net investment income ........................................... 2.10% 2.32% 2.59% 2.99%++
Portfolio turnover ............................................... 125% 111% 140% 105%
Number of units outstanding at end of year (000 omitted) ......... 6,702 5,260 3,717 1,637
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. The Account's
expenses are calculated without reduction for this expense offset
arrangement.
See notes to financial statements
53
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Total Return Variable
Account
---------------------------
Compass 3
---------------------------
Year Ended December 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period ............................. $ 29.7131 $ 24.7133
---------- ----------
Investment income .................................................. $ 1.3028 $ 1.1487
Expenses ........................................................... 0.6835 0.5870
---------- ----------
Net investment income ............................................. $ 0.6193 $ 0.5617
Net realized and unrealized gain (loss) on investments and foreign
currency transactions ............................................. 2.3807 4.4381
---------- ----------
Net increase (decrease) in unit value .............................. $ 3.0000 $ 4.9998
---------- ----------
Unit value:
Net asset value -- end of period ................................... $ 32.7131 $ 29.7131
========== ==========
Ratios (to average net assets):
Expenses+## ........................................................ 0.82% 0.83%
Net investment income .............................................. 2.10% 2.32%
Portfolio turnover .................................................. 125% 111%
Number of units outstanding at end of year (000 omitted) ............ 2,943 4,024
<CAPTION>
Total Return Variable Account
-----------------------------------------
Compass 3
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period ............................. $ 21.9966 $ 17.2937 $ 17.8462
---------- ---------- ---------
Investment income .................................................. $ 1.0817 $ 1.0122 $ 0.8371
Expenses ........................................................... 0.5068 0.4358 0.3904
---------- ---------- ---------
Net investment income ............................................. $ 0.5749 $ 0.5764 $ 0.4467
Net realized and unrealized gain (loss) on investments and foreign
currency transactions ............................................. 2.1418 4.1265 (0.9992)
---------- ---------- ---------
Net increase (decrease) in unit value .............................. $ 2.7167 $ 4.7029 $ (0.5525)
---------- ---------- ---------
Unit value:
Net asset value -- end of period ................................... $ 24.7133 $ 21.9966 $ 17.2937
========== ========== =========
Ratios (to average net assets):
Expenses+## ........................................................ 0.82% 0.83% 0.82%
Net investment income .............................................. 2.59% 2.99% 2.60%
Portfolio turnover .................................................. 140% 105% 63%
Number of units outstanding at end of year (000 omitted) ............ 5,177 6,322 7,349
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
54
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
World Governments Variable
Account
---------------------------
Compass 2
---------------------------
Year Ended December 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 18.2798 $ 18.6786
---------- ---------
Investment income ............................................... $ 1.0806 $ 1.1566
Expenses ........................................................ 0.4506 0.4192
---------- ---------
Net investment income .......................................... $ 0.6300 $ 0.7374
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. 1.9204 (1.1362)
---------- ---------
Net increase (decrease) in unit value ........................... $ 2.5504 $ (0.3988)
---------- ---------
Unit value:
Net asset value -- end of period ................................ $ 20.8302 $ 18.2798
========== =========
Ratios (to average net assets):
Expenses+## ..................................................... 1.08% 1.05%
Net investment income ........................................... 3.33% 3.95%
Portfolio turnover ............................................... 306% 338%
Number of units outstanding at end of year (000 omitted) ......... 296 435
<CAPTION>
World Governments Variable Account
-----------------------------------------
Compass 2
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period .......................... $ 18.1095 $ 15.8337 $ 16.9056
---------- ---------- ---------
Investment income ............................................... $ 1.2469 $ 1.3112 $ 1.0805
Expenses ........................................................ 0.4084 0.3863 0.3565
---------- ---------- ---------
Net investment income .......................................... $ 0.8385 $ 0.9249 $ 0.7240
Net realized and unrealized gain (loss) on investments and
foreign currency transactions .................................. (0.2694) 1.3509 (1.7959)
---------- ---------- ---------
Net increase (decrease) in unit value ........................... $ 0.5691 $ 2.2758 $ (1.0719)
---------- ---------- ---------
Unit value:
Net asset value -- end of period ................................ $ 18.6786 $ 18.1095 $ 15.8337
========== ========== =========
Ratios (to average net assets):
Expenses+## ..................................................... 1.00% 1.00% 1.00%
Net investment income ........................................... 4.54% 5.25% 4.45%
Portfolio turnover ............................................... 397% 330% 256%
Number of units outstanding at end of year (000 omitted) ......... 588 824 983
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
55
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
World Governments Variable Account
------------------------------------------------------------
Compass 3 - Level 2
------------------------------------------------------------
Year Ended December 31,
----------------------------------------- Period Ended
December 31,
1998 1997 1996 1995#
------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period ............................ $ 10.4553 $ 10.6836 $ 10.3582 $ 10.0000
--------- --------- --------- ----------
Investment income ................................................. $ 0.6269 $ 0.6710 $ 0.7308 $ 0.1819
Expenses .......................................................... 0.2531 0.2440 0.2391 0.0554
--------- --------- --------- ----------
Net investment income ............................................ $ 0.3738 $ 0.4270 $ 0.4917 $ 0.1265
Net realized and unrealized gain (loss) on investments and foreign
currency transactions ............................................ 1.0848 (0.6553) (0.1663) 0.2317
--------- --------- --------- ----------
Net increase (decrease) in unit value ............................. $ 1.4586 $ (0.2283) $ 0.3254 $ 0.3582
--------- --------- --------- ----------
Unit value:
Net asset value -- end of period .................................. $ 11.9139 $ 10.4553 $ 10.6836 $ 10.3582
========= ========= ========= ==========
Ratios (to average net assets):
Expenses+## ....................................................... 1.08% 1.05% 1.00% 1.00%++
Net investment income ............................................. 3.33% 3.95% 4.54% 5.25%++
Portfolio turnover ................................................. 306% 338% 397% 330%
Number of units outstanding at end of year (000 omitted) ........... 695 670 563 316
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
56
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
World Governments Variable
Account
---------------------------
Compass 3
---------------------------
Year Ended December 31,
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of period ............................. $ 18.0103 $ 18.4308
---------- ---------
Investment income .................................................. $ 1.0464 $ 1.1298
Expenses ........................................................... 0.4279 0.4390
---------- ---------
Net investment income ............................................. $ 0.6185 $ 0.6908
Net realized and unrealized gain (loss) on investments and foreign
currency transactions ............................................. 1.8636 (1.1113)
---------- ---------
Net increase (decrease) in unit value .............................. $ 2.4821 $ (0.4205)
---------- ---------
Unit value:
Net asset value -- end of period ................................... $ 20.4924 $ 18.0103
========== =========
Ratios (to average net assets):
Expenses+## ........................................................ 1.08% 1.05%
Net investment income .............................................. 3.33% 3.95%
Portfolio turnover .................................................. 306% 338%
Number of units outstanding at end of year (000 omitted) ............ 290 500
<CAPTION>
World Governments Variable Account
-----------------------------------------
Compass 3
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of period ............................. $ 17.8962 $ 15.6705 $ 16.7563
---------- ---------- ---------
Investment income .................................................. $ 1.2367 $ 1.3045 $ 1.0666
Expenses ........................................................... 0.4322 0.4086 0.3760
---------- ---------- ---------
Net investment income ............................................. $ 0.8045 $ 0.8959 $ 0.6906
Net realized and unrealized gain (loss) on investments and foreign
currency transactions ............................................. (0.2699) 1.3298 (1.7764)
---------- ---------- ---------
Net increase (decrease) in unit value .............................. $ 0.5346 $ 2.2257 $ (1.0858)
---------- ---------- ---------
Unit value:
Net asset value -- end of period ................................... $ 18.4308 $ 17.8962 $ 15.6705
========== ========== =========
Ratios (to average net assets):
Expenses+## ........................................................ 1.00% 1.00% 1.00%
Net investment income .............................................. 4.54% 5.25% 4.45%
Portfolio turnover .................................................. 397% 330% 256%
Number of units outstanding at end of year (000 omitted) ............ 789 1,021 1,321
</TABLE>
* 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.
## The Variable Account has an expense offset arrangement which reduces the
Account's custodian fee based upon the amount of cash maintained by the
Account with its custodian and dividend disbursing agent. For years ending
on or after December 31, 1995, the Account's expenses are calculated
without reduction for this expense offset arrangement.
See notes to financial statements
57
<PAGE>
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 (the Variable Account(s)) 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. Money market instruments are valued at amortized cost,
which the Trustees have determined in good faith approximates market value. The
Account's use of amortized cost is subject to the Account's compliance with
certain conditions as specified under Rule 2a-7 of the Investment Company Act
of 1940. 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 reported at market value using 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
58
<PAGE>
short-term repurchase rates. Securities for which there are no such quotations
or valuations are valued at fair value as determined in good faith by or at the
direction of the Boards of Managers.
Futures Contracts
The Variable Accounts may enter into futures contracts for the delayed delivery
of securities or contracts based on financial indices at a fixed price on a
future date. In entering such contracts, the Variable Accounts are required to
deposit with the broker 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 Accounts each day, depending on the daily fluctuations
in the value of the contract, and are recorded for financial statement purposes
as unrealized gains or losses by the Accounts. The Variable Accounts'
investment in futures contracts is designed to hedge against anticipated future
changes in interest rates or securities prices. Should interest rates or
securities prices move unexpectedly, the Variable Accounts may not achieve the
anticipated benefits of the futures contracts and may realize a loss.
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 collateral 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
collateral to ensure that its value, including accrued interest, is greater
than the amount owed to the Variable Account under each such repurchase
agreement. The 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.
59
<PAGE>
Notes to Financial Statements -- continued
Written Options
Certain Variable Accounts may 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
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 Variable 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. The Accounts may 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. The Accounts 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 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.
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.
Foreign taxes have been provided for on interest and dividend income earned on
foreign investments in accordance with the applicable country's tax rates and
to the extent unrecoverable are recorded as a reduction of investment income.
60
<PAGE>
Investment Transactions and Income
Investment transactions are recorded on the trade date. Interest income is
recorded on the accrual basis. All premium and discount is amortized or
accreted for financial statement purposes. 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 the month
end net assets. The fee is reduced according to an arrangement that 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 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 the Sponsor to
cover administrative expenses relating to the contract. After the
61
<PAGE>
Notes to Financial Statements -- continued
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, an indirect
majority 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>
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.
Administrator
The Accounts have an administrative services agreement with MFS to provide the
Accounts with certain financial, legal, shareholder servicing, compliance, and
other administrative services. As a partial reim-
62
<PAGE>
bursement for the cost of providing these services, the Accounts pay MFS an
administrative fee at the following annual percentages of the Accounts' average
daily net assets:
<TABLE>
<S> <C>
First $1 billion .................. 0.0150%
Next $1 billion ................... 0.0125%
Next $1 billion ................... 0.0100%
In excess of $3 billion ........... 0.0000%
</TABLE>
(6) Portfolio Securities
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 .......... $511,950,567 $595,716,956
High Yield Variable Account .................... 302,289,177 340,556,823
Managed Sectors Variable Account ............... 187,603,045 194,097,418
Money Market Variable Account* ................. 975,933,151 970,822,993
Total Return Variable Account .................. 224,308,897 214,152,015
World Governments Variable Account ............. 25,782,020 27,148,412
</TABLE>
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 .......... $ 245,310,100 $ 256,200,404
Managed Sectors Variable Account ................ 762,420 --
Money Market Variable Account* .................. 5,470,941,563 5,562,188,028
Total Return Variable Account ................... 167,473,251 174,139,811
World Governments Variable Account .............. 35,623,829 38,739,180
</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, forward foreign
currency exchange contracts, and futures 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.
63
<PAGE>
Notes to Financial Statements -- continued
Written Option Transactions
<TABLE>
<CAPTION>
Managed Sectors Variable Account
1998 Calls
-------------
Contracts Premiums
----------- -------------
<S> <C> <C>
Outstanding, beginning of period .................... 1,971 $ 273,732
Options written .................................... -- --
Options terminated in closing transactions ......... (390) (9,974)
Options expired .................................... (1,581) (263,758)
------ ----------
Outstanding, end of period .......................... -- $ --
------ -----------
</TABLE>
<TABLE>
<CAPTION>
World Governments Variable Account
1998 Calls 1998 Puts
---------------------------------- --------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
------------------- ------------ ------------------ -----------
<S> <C> <C> <C> <C>
Outstanding, beginning of period --
Japanese Yen .................................. 296,310 $ 46,762 -- $ --
Options written --
Australian Dollar ............................. 1,147 20,022 765 9,466
British Pounds ................................ 590 4,533 -- --
Canadian Dollar ............................... 3,649 18,833 1,514 5,664
Deutsche Marks/British Pounds ................. 1,840 8,833 1,962 10,283
Japanese Government Bond ...................... 285,300 4,383 571,300 16,151
Japanese Yen .................................. 1,236,845 96,724 179,150 9,464
Japanese Yen/Deutsche Marks ................... 359,945 74,228 -- --
Options terminated in closing transactions --
Australian Dollar ............................. (876) (16,479) (765) (9,466)
British Pounds ................................ (590) (4,533) -- --
Canadian Dollar ............................... (963) (7,502) (1,514) (5,664)
Deutsche Marks/British Pounds ................. (1,840) (8,833) (4) (1,450)
Japanese Government Bond ...................... (285,300) (4,383) (571,300) (16,151)
Japanese Yen .................................. (244,866) (24,016) -- --
Options exercised --
Australian Dollar ............................. (271) (3,543) -- --
Japanese Yen .................................. (813,648) (58,508) (179,150) (9,464)
Options expired --
Canadian Dollar ............................... (2,686) (11,331) -- --
Deutsche Marks/British Pounds ................. -- -- (1,958) (8,833)
Japanese Yen .................................. (296,310) (46,762) -- --
Japanese Yen/Deutsche Marks ................... (275,941) (64,172) -- --
--------- ----------
Outstanding, end of period ..................... $ 24,256 $ 0
========= ==========
Options outstanding at end of period consist of:
Japanese Yen .................................. 178,331 14,200
Japanese Yen/Deutsche Marks ................... 84,004 10,056
---------
Outstanding, end of period ..................... $ 24,256 $ 0
========= ==========
</TABLE>
At December 31, 1998, the World Governments Variable Account had sufficient
cash and/or securities at least equal to the value of the written options.
64
<PAGE>
Forward Foreign Currency Exchange Contracts
World Governments Variable Account
<TABLE>
<CAPTION>
Net Unrealized
Contracts to Contracts at In Exchange Appreciation
Account Transaction Settlement Date Deliver/Receive Value For (Depreciation)
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------ ------------- --------------- ----------------- -------------- ------------- ---------------
World Governments Variable Account Sales 3-15-99 AUD 292,033 $ 178,563 $ 182,886 $ 4,323
3-15-99 DKK 2,558,828 403,000 404,647 1,647
3-15-99 NZD 1,221,315 642,494 633,183 (9,311)
---------- ---------- -------
$1,224,057 $1,220,716 $(3,341)
========== ========== =======
Purchases
3-15-99 AUD 806,363 $ 493,049 $ 497,526 $(4,477)
3-15-99 JPY 40,674,285 362,016 350,444 11,572
3-15-99 NLG 2,811 1,501 1,504 (3)
---------- ---------- -------
$ 856,566 $ 849,474 $ 7,092
========== ========== =======
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
for the World Governments Variable Account excluded above amounted to a net
receivable of $4,856 with Deutsche Bank, $78,068 with Merrill Lynch, and
$13,265 with First Boston.
At December 31, 1998, 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.
Total Return Variable Account
Forward foreign currency purchases and sales under master netting agreements
for the Total Return Variable Account excluded above amounted to a net payable
of $199 with Merrill Lynch.
At December 31, 1998, the Total Return Variable Account had sufficient cash
and/or securities to cover any commitments under these contracts.
65
<PAGE>
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 December 31, 1998, High Yield
Variable Account and Total Return Variable Account owned the following
restricted securities (consisting of 1.18% and 0.36% of the Account's net
assets, respectively) which may not be publicly sold without registration under
the Securities Act of 1933. The Variable Account does not have the right to
demand that such securities be registered. The value of these securities is
determined by valuations furnished by dealers or by a pricing service or if not
available, are valued at fair value as determined in good faith by or at the
direction of the Boards of Managers.
<TABLE>
<CAPTION>
Date of Share/Par
Account Description Acquisition Amount Cost Value
<S> <C> <C> <C> <C> <C>
- ------------------------------- ------------------------------------ ------------- ------------ ------------- -------------
Airplane Pass Through Trust,
High Yield Variable Account 10.875s, 2019 3/13/96 $ 750,000 $ 750,000 $ 797,580
Atlantic Gulf Communities Corp. 9/25/95 150 -- 112
Merrill Lynch Mortgage Investors,
Inc., 8.333s, 2022 6/22/94 1,000,000 693,125 945,469
---------- ----------
$1,443,125 $1,743,161
========== ==========
Total Return Variable Account United Airlines Pass Through Trust,
7.27s, 2013 1/30/96 $ 1,163 $1,156,243 $1,176,722
========== ==========
</TABLE>
66
<PAGE>
(9) Participant Transactions
The changes in net assets from changes in numbers of outstanding units were as
follows:
<TABLE>
<CAPTION>
Period ended December 31, 1998 (000 Omitted)
--------------------------------------------------------------------
Transfers Between Withdrawals,
Variable Accounts Surrenders,
Purchase and Fixed Annuitizations,
Payments Accumulation and Contract
Received Account Charges
----------------- ------------------------ -------------------------
Units Dollars Units Dollars Units Dollars
------- --------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Capital Appreciation Variable Account
Compass 2 Contracts ................... 102 $ 6,364 60 $ (6) (887) $ (55,152)
Compass 3 Contracts ................... 354 14,559 (616) (26,093) (239) (9,890)
Compass 3 Level 2 Contracts ........... 115 1,934 1,662 27,672 (693) (11,796)
------- --------- ---------
$22,857 $ 1,573 $ (76,838)
======= ========= =========
Government Securities Variable Account
Compass 2 Contracts ................... 62 $ 1,766 (156) $ (4,444) (768) $ (21,806)
Compass 3 Contracts ................... 99 1,989 (255) (5,114) (123) (2,437)
Compass 3 Level 2 Contracts ........... 34 400 440 5,112 (260) (3,037)
------- --------- ---------
$ 4,155 $ (4,446) $ (27,280)
======= ========= =========
High Yield Variable Account
Compass 2 Contracts ................... 48 $ 1,587 (277) $ (9,607) (528) $ (17,504)
Compass 3 Contracts ................... 89 2,170 (549) (14,601) (84) (2,063)
Compass 3 Level 2 Contracts ........... 21 268 (959) (14,226) (132) (1,709)
------- --------- ---------
$ 4,025 $ (38,434) $ (21,276)
======= ========= =========
Managed Sectors Variable Account
Compass 2 Contracts ................... 17 $ 802 10 $ 614 (82) $ (3,946)
Compass 3 Contracts ................... 149 6,996 (324) (14,730) (95) (4,526)
Compass 3 Level 2 Contracts ........... 64 974 662 10,136 (341) (5,161)
------- --------- ---------
$ 8,772 $ (3,980) $ (13,633)
======= ========= =========
Money Market Variable Account
Compass 2 Contracts ................... 53 $ 949 555 $ 10,086 (1,122) $ (20,256)
Compass 3 Contracts ................... 137 2,092 392 5,800 (319) (4,734)
Compass 3 Level 2 Contracts ........... 24 263 2,482 27,510 (469) (5,201)
------- --------- ---------
$ 3,304 $ 43,396 $ (30,191)
======= ========= =========
Total Return Variable Account
Compass 2 Contracts ................... 52 $ 1,638 43 $ 1,444 (555) $ (17,577)
Compass 3 Contracts ................... 365 11,428 (1,041) (32,472) (406) (12,759)
Compass 3 Level 2 Contracts ........... 136 2,043 2,092 31,278 (786) (11,792)
------- --------- ---------
$15,109 $ 250 $ (42,128)
======= ========= =========
World Governments Variable Account
Compass 2 Contracts ................... 6 $ 109 (68) $ (1,243) (76) $ (1,436)
Compass 3 Contracts ................... 37 680 (197) (3,626) (50) (930)
Compass 3 Level 2 Contracts ........... 15 170 129 1,430 (119) (1,295)
------- --------- ---------
$ 959 $ (3,439) $ (3,661)
======= ========= =========
<CAPTION>
Period ended December 31, 1998 (000 Omitted)
-------------------------------------------------------
Net Net Net
Accumulation Annuitization Increase
Activity Activity (Decrease)
------------------------- --------------- -------------
Units Dollars Dollars Dollars
----------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Capital Appreciation Variable Account
Compass 2 Contracts ................... (725) $ (48,794) $(727) $ (49,521)
Compass 3 Contracts ................... (501) (21,424) 17 (21,407)
Compass 3 Level 2 Contracts ........... 1,084 17,810 185 17,995
--------- ----- ---------
$ (52,408) $(525) $ (52,933)
========= ===== =========
Government Securities Variable Account
Compass 2 Contracts ................... (862) $ (24,484) $ 102 $ (24,382)
Compass 3 Contracts ................... (279) (5,562) (30) (5,592)
Compass 3 Level 2 Contracts ........... 214 2,475 (28) 2,447
--------- ----- ---------
$ (27,571) $ 44 $ (27,527)
========= ===== =========
High Yield Variable Account
Compass 2 Contracts ................... (757) $ (25,524) $(211) $ (25,735)
Compass 3 Contracts ................... (544) (14,494) 1 (14,493)
Compass 3 Level 2 Contracts ........... (1,070) (15,667) 0 (15,667)
--------- ----- ---------
$ (55,685) $(210) $ (55,895)
========= ===== =========
Managed Sectors Variable Account
Compass 2 Contracts ................... (55) $ (2,530) $ (28) $ (2,558)
Compass 3 Contracts ................... (270) (12,260) (29) (12,289)
Compass 3 Level 2 Contracts ........... 385 5,949 161 6,110
--------- ----- ---------
$ (8,841) $ 104 $ (8,737)
========= ===== =========
Money Market Variable Account
Compass 2 Contracts ................... (514) $ (9,221) $(253) $ (9,474)
Compass 3 Contracts ................... 210 3,158 (80) 3,078
Compass 3 Level 2 Contracts ........... 2,037 22,572 (1) 22,571
--------- ------ ---------
$ 16,509 $(334) $ 16,175
========= ====== =========
Total Return Variable Account
Compass 2 Contracts ................... (460) $ (14,495) $(359) $ (14,854)
Compass 3 Contracts ................... (1,082) (33,803) 24 (33,779)
Compass 3 Level 2 Contracts ........... 1,442 21,529 22 21,551
--------- ----- ---------
$ (26,769) $(313) $ (27,082)
========= ===== =========
World Governments Variable Account
Compass 2 Contracts ................... (138) $ (2,570) $ (9) $ (2,579)
Compass 3 Contracts ................... (210) (3,876) (6) (3,882)
Compass 3 Level 2 Contracts ........... 25 305 (29) 276
--------- ----- ---------
$ (6,141) $ (44) $ (6,185)
========= ===== =========
</TABLE>
67
<PAGE>
Notes to Financial Statements -- continued
The changes in net assets from changes in numbers of outstanding units were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 (000 Omitted)
--------------------------------------------------------------------
Transfers Between Withdrawals,
Variable Accounts Surrenders,
Purchase and Fixed Annuitizations,
Payments Accumulation and Contract
Received Account Charges
----------------- ------------------------ -------------------------
Units Dollars Units Dollars Units Dollars
------- --------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Capital Appreciation Variable Account
Compass 2 Contracts ..................... 128 $ 6,572 (40) $ (623) (919) $ (47,471)
Compass 3 Contracts ..................... 432 14,656 (888) (29,853) (312) (10,658)
Compass 3 Level 2 Contracts ............. 87 1,228 2,003 28,005 (612) (8,653)
------- --------- ---------
$22,456 $ (2,471) $ (66,782)
======= ========= =========
Government Securities Variable Account
Compass 2 Contracts ..................... 80 $ 2,089 (495) $ (13,383) (1,226) $ (32,195)
Compass 3 Contracts ..................... 124 2,290 (340) (6,302) (204) (3,785)
Compass 3 Level 2 Contracts ............. 27 290 474 5,016 (260) (2,765)
------- --------- ---------
$ 4,669 $ (14,669) $ (38,745)
======= ========= =========
High Yield Variable Account
Compass 2 Contracts ..................... 59 $ 1,814 (91) $ (2,578) (500) $ (15,376)
Compass 3 Contracts ..................... 90 2,051 (233) (5,243) (86) (1,947)
Compass 3 Level 2 Contracts ............. 21 256 415 4,887 (213) (2,568)
------- --------- ---------
$ 4,121 $ (2,934) $ (19,891)
======= ========= =========
Managed Sectors Variable Account
Compass 2 Contracts ..................... 20 $ 854 74 $ 3,128 (86) $ (3,586)
Compass 3 Contracts ..................... 172 7,114 (325) (12,759) (140) (5,834)
Compass 3 Level 2 Contracts ............. 50 666 1,223 15,786 (320) (4,269)
------- --------- ---------
$ 8,634 $ 6,155 $ (13,689)
======= ========= =========
Money Market Variable Account
Compass 2 Contracts ..................... 64 $ 1,121 353 $ 6,088 (986) $ (17,174)
Compass 3 Contracts ..................... 180 2,583 (528) (7,682) (422) (6,047)
Compass 3 Level 2 Contracts ............. 15 160 753 7,829 (561) (5,968)
------- --------- ---------
$ 3,864 $ 6,235 $ (29,189)
======= ========= =========
Total Return Variable Account
Compass 2 Contracts ..................... 67 $ 1,867 182 $ 5,026 (707) $ (19,474)
Compass 3 Contracts ..................... 456 12,335 (1,178) (31,595) (431) (11,669)
Compass 3 Level 2 Contracts ............. 118 1,528 2,405 30,842 (980) (12,578)
------- --------- ---------
$15,730 $ 4,273 $ (43,721)
======= ========= =========
World Governments Variable Account
Compass 2 Contracts ..................... 10 $ 173 (55) $ (1,004) (106) $ (1,932)
Compass 3 Contracts ..................... 64 1,155 (278) (4,982) (75) (1,344)
Compass 3 Level 2 Contracts ............. 12 127 311 3,227 (216) (2,234)
------- --------- ---------
$ 1,455 $ (2,759) $ (5,510)
======= ========= =========
<CAPTION>
Year Ended December 31, 1997 (000 Omitted)
-------------------------------------------------------
Net Net Net
Accumulation Annuitization Increase
Activity Activity (Decrease)
------------------------- --------------- -------------
Units Dollars Dollars Dollars
----------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Capital Appreciation Variable Account
Compass 2 Contracts ..................... (831) $ (41,522) $(619) $ (42,141)
Compass 3 Contracts ..................... (768) (25,855) (255) (26,110)
Compass 3 Level 2 Contracts ............. 1,478 20,580 181 20,761
--------- ----- ---------
$ (46,797) $(693) $ (47,490)
========= ===== =========
Government Securities Variable Account
Compass 2 Contracts ..................... (1,641) $ (43,489) $(265) $ (43,754)
Compass 3 Contracts ..................... (420) (7,797) (16) (7,813)
Compass 3 Level 2 Contracts ............. 241 2,541 (24) 2,517
--------- ----- ---------
$ (48,745) $(305) $ (49,050)
========= ===== =========
High Yield Variable Account
Compass 2 Contracts ..................... (532) $ (16,140) $(291) $ (16,431)
Compass 3 Contracts ..................... (229) (5,139) (3) (5,142)
Compass 3 Level 2 Contracts ............. 223 2,575 0 2,575
--------- ------- ---------
$ (18,704) $(294) $ (18,998)
========= ======= =========
Managed Sectors Variable Account
Compass 2 Contracts ..................... 8 $ 396 $ 45 $ 441
Compass 3 Contracts ..................... (293) (11,479) 82 (11,397)
Compass 3 Level 2 Contracts ............. 953 12,183 50 12,233
--------- ------- ---------
$ 1,100 $ 177 $ 1,277
========= ======= =========
Money Market Variable Account
Compass 2 Contracts ..................... (569) $ (9,965) $ (40) $ (10,005)
Compass 3 Contracts ..................... (770) (11,146) (4) (11,150)
Compass 3 Level 2 Contracts ............. 207 2,021 (2) 2,019
--------- -------- ---------
$ (19,090) $ (46) $ (19,136)
========= ======= =========
Total Return Variable Account
Compass 2 Contracts ..................... (458) $ (12,581) $(127) $ (12,708)
Compass 3 Contracts ..................... (1,153) (30,929) (185) (31,114)
Compass 3 Level 2 Contracts ............. 1,543 19,792 134 19,926
--------- ------- ---------
$ (23,718) $(178) $ (23,896)
========= ======= =========
World Governments Variable Account
Compass 2 Contracts ..................... (151) $ (2,763) $ (9) $ (2,772)
Compass 3 Contracts ..................... (289) (5,171) (12) (5,183)
Compass 3 Level 2 Contracts ............. 107 1,120 (5) 1,115
--------- -------- ---------
$ (6,814) $ (26) $ (6,840)
========= ======= =========
</TABLE>
68
<PAGE>
(10) Detailed Statements of Operations -- Year Ended December 31, 1998 (000
Omitted)
<TABLE>
<CAPTION>
Capital Appreciation Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Investment income:
Interest ............................... $ 543 $ 7 $ 124 $ --
Dividends .............................. 1,845 25 423 1
-------- ------ -------- ----
Total investment income ............... $ 2,388 $ 32 $ 547 $ 1
Expenses ................................ 9,865 49 2,362 2
-------- ------ -------- ----
Net investment loss .................... $ (7,477) $ (17) $ (1,815) $ (1)
-------- ------ -------- ----
Realized and unrealized gain
on investments:
Net realized gain ...................... $ 84,870 $1,136 $ 19,402 $ 48
Net unrealized gain .................... 43,213 558 9,766 4
-------- ------ -------- ----
Net realized and unrealized gain
on investments ......................... $128,083 $1,694 $ 29,168 $ 52
-------- ------ -------- ----
Increase in net assets from operations .. $120,606 $1,677 $ 27,353 $ 51
======== ====== ======== ====
<CAPTION>
Capital Appreciation Variable Account
---------------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
-------------- --------------- -------------
<S> <C> <C> <C>
Investment income:
Interest ............................... $ 85 $ -- $ 759
Dividends .............................. 291 2 2,587
-------- ---- ---------
Total investment income ............... $ 376 $ 2 $ 3,346
Expenses ................................ 1,518 3 13,799
-------- ---- ---------
Net investment loss .................... $ (1,142) $ (1) $ (10,453)
-------- ---- ---------
Realized and unrealized gain
on investments:
Net realized gain ...................... $ 13,335 $ 68 $ 118,859
Net unrealized gain .................... 7,256 17 60,814
-------- ---- ---------
Net realized and unrealized gain
on investments ......................... $ 20,591 $ 85 $ 179,673
-------- ---- ---------
Increase in net assets from operations .. $ 19,449 $ 84 $ 169,220
======== ==== =========
</TABLE>
<TABLE>
<CAPTION>
Government Securities Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Investment income:
Interest .................................. $9,530 $183 $1,276 $12
------ ---- ------ ---
Total investment income .................. $9,530 $183 $1,276 $12
Expenses ................................... 2,793 17 393 1
------ ---- ------ ---
Net investment income ..................... $6,737 $166 $ 883 $11
------ ---- ------ ---
Realized and unrealized gain
on investments:
Net realized gain ......................... $2,132 $ 39 $ 296 $ 2
Net unrealized gain ....................... 811 19 102 2
------ ---- ------ ---
Net realized and unrealized gain
on investments ...................... ..... $2,943 $ 58 $ 398 $ 4
------ ---- ------ ---
Increase in net assets from operations ..... $9,680 $224 $1,281 $15
====== ==== ====== ===
<CAPTION>
Government Securities Variable Account
------------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
-------------- --------------- ----------
<S> <C> <C> <C>
Investment income:
Interest .................................. $1,069 $ 7 $12,077
------ --- -------
Total investment income .................. $1,069 $ 7 $12,077
Expenses ................................... 307 1 3,512
------ --- -------
Net investment income ..................... $ 762 $ 6 $ 8,565
------ --- -------
Realized and unrealized gain
on investments:
Net realized gain ......................... $ 226 $ 2 $ 2,697
Net unrealized gain ....................... 109 -- 1,043
------ --- -------
Net realized and unrealized gain
on investments ...................... ..... $ 335 $ 2 $ 3,740
------ --- -------
Increase in net assets from operations ..... $1,097 $ 8 $12,305
====== === =======
</TABLE>
69
<PAGE>
Notes to Financial Statements -- continued
Detailed Statements of Operations -- continued
<TABLE>
<CAPTION>
High Yield Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
<S> <C> <C> <C> <C>
Investment income:
Interest ................................ $ 12,879 $ 252 $ 2,212 $ 2
Dividends ............................... 282 5 49 --
--------- ------ --------- ---
Total investment income ................ $ 13,161 $ 257 $ 2,261 $ 2
Expenses ................................. 2,847 22 516 --
--------- ------ --------- ---
Net investment income ................... $ 10,314 $ 235 $ 1,745 $ 2
--------- ------ --------- ---
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) ................ $ 418 $ (1) $ 344 $--
Net unrealized loss ..................... (12,377) (245) (1,078) (2)
--------- ------ --------- ---
Net realized and unrealized gain
(loss) on investments ................... $ (11,959) $ (246) $ (734) $(2)
--------- ------ --------- ---
Increase (decrease) in net assets from
operations .............................. $ (1,645) $ (11) $ 1,011 $--
========= ====== ========= ===
<CAPTION>
High Yield Variable Account
--------------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
<S> <C> <C> <C>
Investment income:
Interest ................................ $1,973 $-- $ 17,318
Dividends ............................... 42 -- 378
------ --- ---------
Total investment income ................ $2,015 $-- $ 17,696
Expenses ................................. 437 -- 3,822
------ --- ---------
Net investment income ................... $1,578 $-- $ 13,874
------ --- ---------
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) ................ $ 220 $-- $ 981
Net unrealized loss ..................... (82) -- (13,784)
------ --- ---------
Net realized and unrealized gain
(loss) on investments ................... $ 138 $-- $ (12,803)
------ --- ---------
Increase (decrease) in net assets from
operations .............................. $1,716 $-- $ 1,071
====== === =========
</TABLE>
<TABLE>
<CAPTION>
Managed Sectors Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
<S> <C> <C> <C> <C>
Investment income:
Interest .................................. $ 46 $ 1 $ 71 $--
Dividends ................................. 137 2 213 --
------ --- ------ ---
Total investment income .................. $ 183 $ 3 $ 284 $--
Expenses ................................... 700 3 1,154 1
------ --- ------ ---
Net investment loss ....................... $ (517) $-- $ (870) $(1)
------ --- ------ ---
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) .................. $ 544 $ 8 $1,336 $13
Net unrealized gain (loss) ................ 3,505 26 4,467 (8)
------ --- ------ ---
Net realized and unrealized gain
on investments ............................ $4,049 $34 $5,803 $ 5
------ --- ------ ---
Increase in net assets from operations ..... $3,532 $34 $4,933 $ 4
====== === ====== ===
<CAPTION>
Managed Sectors Variable Account
--------------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
<S> <C> <C> <C>
Investment income:
Interest .................................. $ 50 $ -- $ 168
Dividends ................................. 147 -- 499
------ ---- --------
Total investment income .................. $ 197 $ -- $ 667
Expenses ................................... 738 1 2,597
------ ---- --------
Net investment loss ....................... $ (541) $ (1) $ (1,930)
------ ---- --------
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) .................. $ 9 $ (9) $ 1,901
Net unrealized gain (loss) ................ 4,233 22 12,245
------ ---- --------
Net realized and unrealized gain
on investments ............................ $4,242 $ 13 $ 14,146
------ ---- --------
Increase in net assets from operations ..... $3,701 $ 12 $ 12,216
====== ==== ========
</TABLE>
70
<PAGE>
Detailed Statements of Operations -- continued
<TABLE>
<CAPTION>
Money Market Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
<S> <C> <C> <C> <C>
Investment income:
Interest .................................. $4,150 $ 66 $1,083 $ 1
------ ----- ------ ----
Total investment income .................. $4,150 $ 66 $1,083 $ 1
Expenses ................................... 1,454 7 383 --
------ ----- ------ ----
Net investment income ..................... $2,696 $ 59 $ 700 $ 1
------ ----- ------ ----
Realized and unrealized gain (loss)
on investments ............................ $ -- $ -- $ (78) $ 78
------ ----- ------ ----
Increase in net assets from operations ..... $2,696 $ 59 $ 622 $ 79
====== ===== ====== ====
<CAPTION>
Money Market Variable Account
-----------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
<S> <C> <C> <C>
Investment income:
Interest .................................. $1,205 $-- $6,505
------ --- ------
Total investment income .................. $1,205 $-- $6,505
Expenses ................................... 389 -- 2,233
------ --- ------
Net investment income ..................... $ 816 $-- $4,272
------ --- ------
Realized and unrealized gain (loss)
on investments ............................ $ -- $-- $ --
------ --- ------
Increase in net assets from operations ..... $ 816 $-- $4,272
====== === ======
</TABLE>
<TABLE>
<CAPTION>
Total Return Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
<S> <C> <C> <C> <C>
Investment income:
Interest .................................. $ 3,463 $ 67 $ 3,185 $ 8
Dividends ................................. 1,506 29 1,392 3
-------- ------ -------- -----
Total investment income .................. $ 4,969 $ 96 $ 4,577 $ 11
Expenses ................................... 2,434 19 2,405 2
-------- ------ -------- -----
Net investment income ..................... $ 2,535 $ 77 $ 2,172 $ 9
-------- ------ -------- -----
Realized and unrealized gain (loss)
on investments:
Net realized gain ......................... $ 17,425 $ 338 $ 16,255 $ 38
Net unrealized gain (loss) ................ (8,534) (159) (7,925) (20)
-------- ------ -------- -----
Net realized and unrealized gain
on investments ............................ $ 8,891 $ 179 $ 8,330 $ 18
-------- ------ -------- -----
Increase in net assets from operations ..... $ 11,426 $ 256 $ 10,502 $ 27
======== ====== ======== =====
<CAPTION>
Total Return Variable Account
--------------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
<S> <C> <C> <C>
Investment income:
Interest .................................. $ 2,637 $ 6 $ 9,366
Dividends ................................. 1,142 2 4,074
-------- ------ ----------
Total investment income .................. $ 3,779 $ 8 $ 13,440
Expenses ................................... 1,853 2 6,715
-------- ------ ----------
Net investment income ..................... $ 1,926 $ 6 $ 6,725
-------- ------ ----------
Realized and unrealized gain (loss)
on investments:
Net realized gain ......................... $ 12,944 $ 28 $ 47,028
Net unrealized gain (loss) ................ (6,121) (13) (22,772)
-------- ------ ----------
Net realized and unrealized gain
on investments ............................ $ 6,823 $ 15 $ 24,256
-------- ------ ----------
Increase in net assets from operations ..... $ 8,749 $ 21 $ 30,981
======== ====== ==========
</TABLE>
71
<PAGE>
Notes to Financial Statements -- continued
Detailed Statements of Operations -- continued
<TABLE>
<CAPTION>
World Governments Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
<S> <C> <C> <C> <C>
Investment income:
Interest .................................. $364 $ 4 $391 $ 2
---- --- ---- ---
Total investment income .................. $364 $ 4 $391 $ 2
Expenses ................................... 153 1 161 --
---- --- ---- ---
Net investment income ..................... $211 $ 3 $230 $ 2
---- --- ---- ---
Realized and unrealized gain
on investments:
Net realized gain ......................... $322 $ 4 $330 $ 2
Net unrealized gain ....................... 261 3 258 2
---- --- ---- ---
Net realized and unrealized gain
on investments ............................ $583 $ 7 $588 $ 4
---- --- ---- ---
Increase in net assets from operations ..... $794 $10 $818 $ 6
==== === ==== ===
<CAPTION>
World Governments Variable Account
-----------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
<S> <C> <C> <C>
Investment income:
Interest .................................. $412 $ 3 $1,176
---- --- ------
Total investment income .................. $412 $ 3 $1,176
Expenses ................................... 168 -- 483
---- --- ------
Net investment income ..................... $244 $ 3 $ 693
---- --- ------
Realized and unrealized gain
on investments:
Net realized gain ......................... $384 $ 2 $1,044
Net unrealized gain ....................... 347 1 872
---- --- ------
Net realized and unrealized gain
on investments ............................ $731 $ 3 $1,916
---- --- ------
Increase in net assets from operations ..... $975 $ 6 $2,609
==== === ======
</TABLE>
(11) Line of Credit
The Accounts and other affiliated funds participate in an $805 million
unsecured line of credit provided by a syndication of banks under a line of
credit agreement. Borrowings may be made to temporarily finance the repurchase
of Account shares. Interest is charged to each Account, based on its
borrowings, at a rate equal to the bank's base rate. In addition, a commitment
fee based on the average daily unused portion of the line of credit, is
allocated among the participating funds at the end of each quarter. The
commitment fee allocated to each of the Accounts for the year ended December
31, 1998, ranged from $83 to $1,258.
72
<PAGE>
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 December 31, 1998, the related statements of operations for
the year then ended, the statements of changes in net assets for the years
ended December 31, 1998 and 1997, and the per unit and other data for each of
the years in the five-year period ended December 31, 1998. 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 December 31, 1998 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 December 31, 1998, 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
February 4, 1999
--------------------------------
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.
73
<PAGE>
MFS Prepares for the Year 2000
[Y2K YEAR 2000 LOGO]
MFS Investment Management(R) is committed to the effective use of technology in
managing investments, delivering high-quality service to our fund shareholders,
and supporting the financial advisers who sell our products. With that in mind,
we created a separately funded Year 2000 Program Management Office in 1996
composed of a specialized staff reporting directly to MFS senior management.
The Year 2000 (Y2K) problem arose because date fields in computers and software
applications have traditionally used two-digit codes. Since the dawn of the
computer age, the implied first two digits have been "1" and "9." In the year
2000, that can no longer be the case because computer applications may assume
"00" refers to 1900. Our team of dedicated business and technology managers,
working with outside experts, is taking reasonable steps to ascertain the Y2K
compliance of MFS' internal systems. We are also working with our vendors to
seek reasonable assurances that their systems are or will be compliant.
MFS realizes that investors are also concerned about whether the companies in
the Funds' portfolios are addressing their internal Y2K issues. As MFS'
portfolio managers and research analysts meet with the managements of portfolio
companies as part of the MFS(R) Original Research(SM) process, one of the many
factors they may consider is a company's Y2K preparedness.
Year 2000 compliance is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K phenomenon.
While MFS is making an effort to ensure the integrity of its internal systems,
there are significant systems interdependencies in the domestic and foreign
securities markets, external vendor systems, and the internal business
environments of its portfolio companies. There can be no assurance that the
steps MFS has taken will be sufficient to avoid any adverse impact on the Funds.
However, MFS will continue to review and test its internal systems.
<PAGE>
Year 2000 and Beyond
[SUN LIFE LOGO] Sun Life
Assurance Company
of Canada (U.S.)
The potentional hazard of computers having difficulty dealing with the year 2000
has been widely reported in the media. Essentially, the "Y2K" problem stems from
some computer software being written in a way that will handle only two digits
of a year rather than the full four digits. This becomes a problem when 2000 is
perceived as simply "00", with the result that the computer software interprets
the date as 1900 rather than 2000.
Sun Life began working on this problem in 1995 when a Company strategy for
dealing with the issue was approved by our systems management. It was apparent
that effective support from senior management was a key component to
successfully correcting Sun Life's systems. For this reason, in early 1996 Sun
Life's chairman and CEO delivered a clear mandate to make Y2K a top priority.
Since that time we have inventoried and assessed nearly 2000 systems around the
Company.
The vast majority of Sun Life's systems have already been tested, and, based on
these tests, have been certified as compliant. The current target date for
completion of Sun Life's certification program is the end of the first quarter
of 1999. Even though relatively few Y2K bugs were actually found during
analysis, it has been Sun Life's policy to test every system before it can be
certified as compliant. The price tag for this massive project has been steep --
over $100 million (Cdn). However, we consider the money well spent when it means
that Sun Life can move into the year 2000 and beyond confident that our systems
will support Sun Life's position as a leader in the financial services industry.
The preceding is a Year 2000 Readiness Disclosure pursuant to the Year 2000
Readiness Disclosure Act enacted by the United States Congress on October 19,
1998.
<PAGE>
[BACK COVER]
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
Consultant, Display Technology, Inc. (manufacturer of liquid-crystal
display technology), Gloucester, Massachusetts
JAMES R. BORDEWICK Jr.*, Assistant Secretary
STEPHEN E. CAVAN*, Secretary
WILLIAM R. GUTOW, Member
Vice Chairman, Capitol Entertainment Management Company
(Blockbuster Video franchise), Dallas, Texas
DAVID D. HORN*, Member
Former 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,
Marblehead, Massachusetts
Sun Life Assurance Company
of Canada (U.S.)
Annuity Service Mailing Address
c/o Sun Life Retirement Products and Services
P.O. Box 1024, Boston, MA 02103-9986
Investment Adviser
Massachusetts Financial Services Company
One Sun Life Executive Park, Wellesley Hills, MA 02481
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
Independent Auditors
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110-1617
*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.
COUS-2 2/99 66M
