[Compass Graphic]
PROFESSIONALLY MANAGED COMBINATION
FIXED/VARIABLE ANNUITIES
FOR PERSONAL INVESTMENTS AND
QUALIFIED RETIREMENT PLANS
ANNUAL REPORT o DECEMBER 31, 1997
Capital Appreciation Variable Account
Government Securities Variable Account
High Yield Variable Account
Managed Sectors Variable Account
Money Market Variable Account
Total Return Variable Account
World Governments Variable Account
---------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE
NO BANK GUARANTEE
---------------------------------------------
Issued by
Sun Life Assurance Company of Canada (U.S.),
A Wholly Owned Subsidiary of
Sun Life Assurance Company of Canada
<PAGE>
MFS Mourns Chairman's Passing
It is with deep regret that we inform you of the death on February 2, 1998, of
A. Keith Brodkin, Chairman and Chief Executive Officer of MFS Investment
ManagementSM. Mr. Brodkin joined MFS in 1970 and made enormous contributions to
the organization, including helping to build the firm's investment staff, which
will continue to manage all of the MFS investment portfolios. His leadership,
friendship, and wise counsel will be sorely missed.
Dear Contract Owners:
Thanks to a sustained period of relative stability and moderate growth, the
U.S. economy has produced thousands of new jobs, inflation has remained under
control, and the investment climate has -- for the most part -- been favorable.
The increased use of technology and other productivity enhancements, as well as
corporate restructuring and global competition, is improving companies' balance
sheets and helping control inflation. The rapid pace of growth seen in the
first quarter slowed to an annual rate of 3.3% in the second quarter and 3.5%
in the third. We believe this economic momentum will carry well into the first
quarter of 1998, as long-term interest rates have declined and the money supply
is increasing at a rapid rate. While economic growth in the United States
continues to be impressive, this is being partially offset by events in the
Pacific Rim. Thus, markets will most likely continue to focus on activity by
the Federal Reserve Board (the Fed) and its response to both U.S. and world
events.
Global Outlook
The second half of 1997 brought turmoil to the world's investment markets as
concerns about Asia mounted and as liquidity, which has been high for the past
few years, began to dry up. While markets in Europe, the United States, and
even Latin America performed reasonably well, the cumulative effect of large
current-account deficits, followed by the collapse of several large financial
institutions and corporations, created a situation in Asia that could remain
unstable for some time. Although the Asian crisis affected other emerging
markets, valuations in several of them have become more attractive, and we
believe the long-term case for emerging markets remains intact. In Europe, the
uncertainty over economic union appears to have diminished somewhat. Growth has
begun accelerating on the continent and may exceed U.S. growth in 1998.
Bond Market
The U.S. government bond market has benefited from the deflationary events in
Asia, while the high-yield and emerging-debt markets have come under pressure.
Inflation remains under control, and the Fed will most likely take a wait-
and-see attitude toward raising interest rates. As a result, our near-term
outlook for high-grade markets is neutral to moderately positive. At the same
time, high-yield markets, having gone through a correction, could offer
reasonable value but require careful selection. Overall, fixed-income markets
appear to be reasonably valued.
Stock Market
The extreme volatility seen in the U.S. equity market this fall was, we
believe, the consequence of overvaluations that had been evident for some
months. As a result, the stock market has been vulnerable to some type of
correction and has been impacted in the near term by chaotic market conditions
in emerging
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markets and the Pacific Rim. In the face of all this, however, the equity
market continues to exhibit surprising strength, much of it the result of
continued gains in corporate earnings, a trend that could be an important
indicator of the market's future direction. Certainly the situation throughout
Asia bears close scrutiny because it appears to be clearly deflationary and
raises the prospect of trade wars developing throughout the area. We are not
convinced that U.S. markets have escaped totally from October's volatility.
Thus, not only is the near-term outlook for profits under question due to the
Asian crisis, we also believe equity valuations have risen to a point where a
cautious investment approach seems warranted, with a need for particular
attention to be paid to the effect of Pacific Rim volatility on the earnings of
U.S. companies.
Specific information on each Account's performance and our current investment
strategy are provided on the following pages. The performance figures provided
in the discussion do not reflect the deduction of separate account charges.
Results would have been lower had these charges been deducted. We appreciate
your support and welcome any questions or comments you may have.
On behalf of the
Board of Managers,
/s/ John D. McNeil
- ------------------
John D. McNeil
Chairman
January 12, 1998
Capital Appreciation Variable Account
For the year ended December 31, 1997, the Account provided a total return of
23.57%, compared to a return of 33.36% for the Standard & Poor's 500 Composite
Index (the S&P 500), a popular, unmanaged index of common stock total return
performance. Although the Account underperformed its benchmark, the S&P 500 was
by far the best-performing index last year. The average growth stock fund (as
measured by Lipper Analytical Services, Inc., an independent firm that reports
mutual fund performance) returned 28.08%. The Account's performance was more
favorable through October, before its technology holdings were impacted by the
Asian economic and currency crisis. The Account's leisure, financial services,
and retailing holdings, however, helped performance.
The objective of the Account is to seek capital appreciation. The account
focuses on companies exhibiting five key characteristics. The first is good
earnings growth. The second is quality management. The third is positive
secular trends, which for the Account means staying with technology. Fourth, we
look for companies that are in good financial shape; that is, that have good
balance sheets and are generating positive cash flows. Fifth, we try to invest
in companies during periods of valuation weakness.
The Account's largest holding is Tyco International, a company that has strong
earnings growth of about 20% per year, quality management, a good balance
sheet, and positive secular trends in its businesses, such as fire safety,
which continues to see strong growth both in installation and service. The
Account's second-largest holding, HFS, has gone through a number of
consolidations and acquisitions. Most recently, it merged with CUC
International, a
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consumer membership club and Internet shopping company, and with this merger it
changed its name to Cendant Corp. We believe the company's earnings growth
should run 25% to 30% per year over the next couple of years, while its
price-to-earnings ratio is in the mid-20s, so we believe that it still has good
growth potential in relation to its value.
Going forward, we anticipate continued economic growth, although it could slow
in the first half of 1998. But that means interest rates should come down,
which should support current price-to-earnings ratios. However, more moderate
growth in the first half could lead to some earnings disappointments. The key
will be to focus on companies that can deliver the earnings.
Government Securities Variable Account
For the year ended December 31, 1997, the Account provided a total return of
8.66%, compared to a return of 9.49% for the Lehman Brothers
Government/Mortgage Index (the Lehman Index), an unmanaged index of U.S.
Treasury, government-agency, and mortgage-backed securities. The portfolio is
currently positioned for stable interest rates over the near term. The Account
has reduced both its positioning for a flatter yield curve and its
overweighting in mortgage-backed securities. Yield curve positioning will
present an excellent opportunity as the market assesses U.S. growth and the
global need for liquidity.
The portfolio duration rate is currently 4.2%, versus a duration rate of 4.3%
for the Lehman Index. Cash positions are usually low and are currently at 5%.
The portfolio is invested 39% in U.S. Treasuries, with a market weighting
across the yield curve. The portfolio also contains a 2.1% agency allocation,
which is mostly invested in intermediate-term agency debentures and Small
Business Association loans.
The greatest change in the portfolio has been the reduction in the holdings of
U.S. agency mortgage-backed pass-through certificates. Last year, mortgages
outperformed duration-equivalent Treasuries by over 1%. This year, as rates
have declined, we anticipate that the possibility of an increase in mortgage
prepayments will limit the return potential of this sector. The Account
currently has a 42% position in mortgage-backed securities, with an emphasis on
lower-coupon issues and issues with shorter, 15-year stated final maturities.
High Yield Variable Account
For the year ended December 31, 1997, the Account provided a total return of
13.78%, compared to a return of 12.76% for the Lehman Brothers High Yield Bond
Index, an unmanaged index of noninvestment-grade corporate debt. The Account's
largest weighting was in the telecommunications industry, which posted the best
returns in the high-yield market. In this industry, we have focused on the
bonds of competitive local exchange carriers (CLECs), which offer an array of
telephone services and compete primarily with the Baby Bells for business
customers. We favored this sector because we believe deregulation provides
CLECs with many growth opportunities. In addition, these companies have
experienced strong customer demand because their new fiber optic networks offer
reliable low-cost service. The Account also benefited from consolidation in the
telecommunications sector because some of its holdings, including Brooks Fiber
and Orion Network Systems, were acquired by investment-grade companies.
Emerging-market corporate and sovereign bond prices have weakened in response
to the Asian currency crisis. The Account benefited from an
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underweighting in this sector. In addition, we have reduced positions in
domestic companies with significant export exposure to Asia. While we will look
for investment opportunities in this area as bond prices decline, we do not
expect this sector to be a significant component of the portfolio.
Given the high-yield market's strength over the past year, the Account's
performance was hindered by its overweighted position in defensive industries
such as consumer products. Going forward, we will continue to favor higher-
quality companies and avoid more speculative situations given our outlook for
slower economic growth resulting from Asia's economic problems.
The past year was a robust one for the high-yield market. High-yield bonds were
once again one of the best-performing fixed-income asset classes, and new
issuance hit a record $119 billion, surpassing the previous record by $47
billion. The domestic economy continues to exhibit sound fundamentals and,
therefore, we expect the high-yield market's healthy performance to carry
through into 1998. At year-end, the yield on the Salomon Brothers High-Yield
Bond Index, an unmanaged index of noninvestment-grade U.S. corporate debt, was
9.20%, compared to 5.73% for U.S. Treasury notes of comparable maturities.
(Principal value and interest on Treasury securities are guaranteed by the U.S.
government if held to maturity.) We believe that this spread of 3.47% more than
compensates investors for the credit risks associated with high-yield bonds. We
are excited about the prospects for the high-yield market in 1998 and, as
always, our investment process will be committed to developing rewarding ideas
through rigorous credit research.
Managed Sectors Variable Account
For the year ended December 31, 1997, the Account provided a total return of
25.77%, compared to a return of 33.36% for the S&P 500. For most of the year,
the Account benefited from the performance of holdings in the technology and
energy sectors, particularly semiconductors in the technology area and oil
services in the energy sector. Some technology holdings were negatively
impacted by events in the Pacific Rim. The Account also benefited when a number
of its holdings, including Smith's Food and Drug, Equitable of Iowa, and ADT
Ltd., were acquired during the year. Finally, Tyco International, one of the
Account's largest holdings, was up over 70% during the past 12 months, and its
prospects for continued strong earnings growth have been bolstered by both
strong internal fundamentals and a number of acquisitions, including that of
ADT, which have added to earnings.
While the Account continues to be invested in the four sectors outlined last
year, as well as in the "other" category (consisting of additional sectors that
we feel have attractive prospects for the future), significant changes within
each sector have occurred. Specifically, the overall weighting in the energy
sector was reduced modestly through the sales of two oil services marine rental
companies, Tidewater and Seacor, at full valuation; a reduction in the
Account's Occidental Petroleum position; and the trimming of other oil services
stocks on the basis of price strength. The technology weighting is about the
same as last year, although there were numerous changes within the sector. The
health care weighting was increased, primarily through additions of both
wholesale and retail drug distribution companies, as we believe the
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prospects for these segments of the industry are quite positive. Finally,
although gaming issues were sold due to weak fundamentals, the leisure category
was increased with the additions of a number of cellular telephone holdings and
full-service hotel stocks. The latter group is expected to continue to prosper
from strong demand and restricted supply for a number of years to come.
Finally, the "other" category was reduced by 5% of total assets, and the number
of holdings within that area was concentrated.
Money Market Variable Account
Interest rates on short-term (30 days and less) debt instruments rose
approximately 40 basis points (0.40%) over the past 12 months. The Fed raised
short-term interest rates on March 25, 1997, by 25 basis points (0.25%), from
5.25% to 5.50%. The federal funds' rate remained at 5.50% for the rest of 1997.
Because of this, we maintained average maturities between 40 and 45 days.
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 an
effort to provide maximum security against credit risk. At the present time,
approximately 63% of the portfolio is invested in U.S. government or
government-guaranteed issues, and the balance is invested in corporate and bank
issues. We expect short-term rates to be stable to slightly lower over the next
several months. The Account is neither insured nor guaranteed by the U.S.
government, and there can be no assurance that it will be able to maintain a
stable net asset value of $1.00 per share.
Total Return Variable Account
For the year ended December 31, 1997, the Account provided a total return of
21.93%, compared to returns of 33.36% for the S&P 500 and 9.76% for the Lehman
Brothers Government/Corporate Bond Index, an unmanaged index of all debt
obligations of the U.S. Treasury and U.S. government agencies (excluding
mortgage-backed securities) and of investment-grade U.S. corporate debt.
Over the period, we maintained an equity weighting between 54% and 59%.
Approximately 3% to 4% of the weighting consisted of preferred stocks,
convertible preferred stocks, and convertible bonds, which we include in our
equity calculations. We consider an equity allocation under 60% to be
conservative for a balanced fund.
Given our view that there are few cheap stocks in the market, we have
concentrated our equity positions in areas where earnings are visible,
valuations are fair, and consolidation is taking place. As a result, we have
been overweighted in financial services, energy, and utility stocks. In
addition, we continue to find value in large, multinational, franchise-type
companies overseas, such as Henkel and SmithKline Beecham.
On the bond side, the Account is more heavily weighted in corporate bonds than
in U.S. Treasuries, with a duration (or measure of interest-rate sensitivity)
that is modestly above that of the Account's benchmark. (Principal value and
interest on Treasury securities are guaranteed by the U.S. government if held
to maturity.) Generally, we have positioned the bond portfolio for a flat to
slightly downward interest-rate environment.
We have positioned the Account in a relatively conservative manner. Should the
equity market produce a significant correction over the next several months, we
will look to shift more of our assets into stocks with better valuations.
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World Governments Variable Account
For the year ended December 31, 1997, the Account provided a total return of
- -0.91%, compared to a return of 0.23% for the Salomon Brothers World Government
Bond Index (the Salomon Index), an unmanaged index consisting of complete
universes of government bonds with remaining maturities of at least five years.
The dominant event for world bond markets in 1997 occurred late in October with
the economic crisis in Southeast Asia. The sudden collapse in places such as
Thailand, South Korea, and Hong Kong resulted in severe devaluations of their
currency, bond, and stock markets. One of the more noticeable global effects
during this period has been stronger bond markets in most developed countries,
especially in the United States, as capital has sought a flight to quality in
both the U.S. currency and bond markets.
By the end of 1997, all bond markets in the Salomon Index had registered
positive returns in local currency terms. The better performers were the United
Kingdom, Italy, Australia, and Ireland, all of which helped the portfolio's
performance. The laggards were primarily the core European countries, such as
Germany, the Netherlands, and France. Looking forward specifically to the
European countries, we see little opportunity for further yield convergence
prior to European monetary union and, therefore, the higher yielders that have
performed so well over the past 18 months should begin to perform more in line
with Germany.
During the year, the portfolio's nominal returns were significantly helped by
the strong bond markets. However, weaker currencies in Europe and Japan,
relative to the U.S. dollar, detracted from these positive returns. Relative to
the Salomon Index, the portfolio benefited by being overweighted in the
better-performing markets such as Italy and Australia.
The Asian crisis has created concern that global growth will slow sharply in
1998 and has reinforced the market's confidence that inflation will remain low,
if not decline. There is little doubt that the recovery process in Asia will be
slow and painful, but the magnitude of its impact on the rest of the world
remains to be seen. We believe slower global growth and lower inflation will
support core markets such as the United States and Germany and provide the
opportunity for further price appreciation if the downturn is more severe than
the market currently believes. Since most developed bond markets have done so
well over the last seven months, further sustainable downward pressure on
interest rates will now have to come through monetary stimulus from either or
all three of the primary central banks (the United States, Germany, and Japan),
which we feel will not occur in the near future.
Regarding the foreign exchange markets, over the long term we remain
constructive on the U.S. dollar versus both the Japanese yen and the German
mark. The U.S. currency should continue to be supported by higher interest
rates and a stronger economy than either Japan's or Germany's. In addition, we
would look for the Australian dollar, and especially the Canadian dollar, to
rebound from their low 1997 levels.
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.
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Government Securities Variable Account (GSVA) seeks current income and
preservation of capital by investing in U.S. government and government-related
securities.
High Yield Variable Account (HYVA) seeks high current income and capital
appreciation by investing primarily in fixed-income securities of U.S. and
foreign issuers which may be in the lower-rated categories or unrated and may
include equity features.
Managed Sectors Variable Account (MSVA) seeks capital appreciation by varying
the weighting of its portfolio of common stocks among certain industry sectors.
Dividend income, if any, is incidental to its objective of capital
appreciation.
Money Market Variable Account (MMVA) seeks maximum current income to the extent
consistent with stability of principal by investing exclusively in money market
instruments maturing in less than 13 months. Investments in the Account are
neither guaranteed nor insured by the U.S. government.
Total Return Variable Account (TRVA) seeks primarily to obtain above-average
income (compared to a portfolio entirely invested in equity securities)
consistent with prudent employment of capital; its secondary objective is to
take advantage of opportunities for growth of capital and income. Assets will
be allocated and reallocated from time to time between money market,
fixed-income, and equity securities. 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.
One-year performance through
December 31, 1997
Compass 2 (U.S.) Compass 3 (U.S.)
Capital Appreciation
Variable Account 21.98% 21.86%
Government Securities
Variable Account 7.26% 7.16%
High Yield Variable Account 12.31% 12.20%
Managed Sectors Variable
Account 24.22% 24.03%
Money Market Variable
Account 3.71% 3.60%
Total Return Variable
Account 20.41% 20.23%
World Governments Variable
Account (2.14)% (2.28)%
These performance results reflect any applicable contract or surrender charges.
Past performance is no guarantee of future results.
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Portfolio of Investments -- December 31, 1997
Capital Appreciation Variable Account
Stocks -- 97.8%
Issuer Shares Value
U.S. Stocks -- 95.9%
Advertising -- 0.3%
Universal Outdoor Holdings, Inc.* ...... 36,400 $ 1,892,800
-----------
Aerospace -- 1.2%
United Technologies Corp. .............. 100,800 $ 7,339,500
-----------
Agricultural Products -- 0.8%
Case Corp. ............................. 87,100 $ 5,264,106
-----------
Banks and Credit Companies -- 1.2%
Bank of New York, Inc. ................. 75,700 $ 4,376,406
BankBoston Corp. ....................... 13,600 1,277,550
Fleet Financial Group, Inc. ............ 23,600 1,768,525
-----------
$ 7,422,481
-----------
Business Machines -- 0.2%
Affiliated Computer Services, Inc., "A"* 54,700 $ 1,439,294
-----------
Business Services -- 10.2%
AccuStaff, Inc.* ....................... 216,900 $ 4,988,700
Cendant Corp.* ......................... 1,062,892 36,536,912
Concord EFS, Inc.* ..................... 22,100 549,738
DST Systems, Inc.* ..................... 106,800 4,559,025
First Data Corp. ....................... 228,900 6,695,325
Galileo International, Inc. ............ 126,700 3,500,088
Global Directmail Corp.* ............... 115,700 2,003,056
Ikon Office Solutions, Inc. ............ 176,700 4,969,687
-----------
$63,802,531
-----------
Chemicals -- 0.6%
Praxair, Inc. .......................... 90,600 $ 4,077,000
-----------
Computer Software --
Personal Computers -- 5.0%
Compaq Computer Corp. .................. 73,450 $ 4,145,334
Microsoft Corp.* ....................... 209,400 27,064,950
-----------
$31,210,284
-----------
Computer Software --
Systems -- 8.9%
BMC Software, Inc.* .................... 118,800 $ 7,796,250
Cadence Design Systems, Inc.* .......... 548,200 13,430,900
Computer Associates International, Inc. 371,350 19,635,131
Oracle Corp.* .......................... 532,275 11,876,386
Synopsys, Inc.* ........................ 94,400 3,374,800
-----------
$56,113,467
-----------
Issuer Shares Value
Consumer Goods and
Services -- 13.5%
Avis Rent A Car, Inc.* ................. 7,800 $ 249,113
Clorox Co. ............................. 43,400 3,431,312
Colgate-Palmolive Co. .................. 106,900 7,857,150
Dollar Thrifty Automotive Group* ....... 36,400 746,200
Gillette Co. ........................... 91,500 9,190,031
Philip Morris Cos., Inc. ............... 348,700 15,800,469
Serivce Corp. International ............ 50,600 1,869,038
Tyco International Ltd. ................ 1,015,700 45,769,981
-----------
$84,913,294
-----------
Containers -- 0.5%
Stone Container Corp. .................. 302,100 $ 3,153,169
-----------
Defense Electronics -- 1.9%
Loral Space & Communications Corp.* .... 555,000 $11,897,812
-----------
Electrical Equipment -- 1.3%
General Electric Co. ................... 108,500 $ 7,961,188
-----------
Electronics -- 6.4%
Altera Corp.* .......................... 134,100 $ 4,442,063
Analog Devices, Inc.* .................. 257,700 7,135,069
Intel Corp. ............................ 255,500 17,948,875
Microchip Technology, Inc.* ............ 126,000 3,780,000
Micron Technology, Inc.* ............... 137,100 3,564,600
Xilinx, Inc.* .......................... 98,500 3,453,656
-----------
$40,324,263
-----------
Entertainment -- 5.5%
CBS Corp.* ............................. 71,000 $ 2,090,063
Clear Channel Communications, Inc.* .... 134,700 10,700,231
Hearst-Argyle Television, Inc.* ........ 32,600 969,850
Jacor Communications, Inc.* ............ 109,200 5,801,250
Mirage Resorts, Inc.* .................. 307,200 6,988,800
Time Warner, Inc. ...................... 41,700 2,585,400
Univision Communications, Inc., "A"* ... 28,000 1,954,750
Viacom, Inc., "B"* ..................... 80,700 3,344,006
-----------
$34,434,350
-----------
8 - CAVA
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Stocks -- continued
Issuer Shares Value
Financial Institutions -- 5.5%
Associates First Capital Corp., "A" 34,500 $ 2,453,813
CIT Group, Inc., "A"* ............. 16,900 545,025
Federal Home Loan Mortgage Corp. .. 235,500 9,876,281
Financial Federal Corp.* .......... 125,050 2,954,306
Finova Group, Inc. ................ 148,400 7,373,625
Franklin Resources, Inc. .......... 79,500 6,911,531
Green Tree Financial Corp. ........ 101,900 2,668,506
Merrill Lynch & Co., Inc. ......... 22,000 1,604,625
-----------
$34,387,712
-----------
Financial Services -- 1.3%
SunAmerica Inc. ................... 110,050 $ 4,704,638
Travelers Group, Inc. ............. 68,350 3,682,356
-----------
$ 8,386,994
-----------
Insurance -- 1.3%
Chubb Corp. ....................... 21,900 $ 1,656,188
Conseco, Inc. ..................... 138,900 6,311,269
-----------
$ 7,967,457
-----------
Machinery -- 0.2%
Lear Corp.* ....................... 26,600 $ 1,263,500
-----------
Medical and Health Products -- 1.8%
Bristol-Myers Squibb Co. .......... 108,600 $10,276,275
Omnicare, Inc. .................... 32,300 1,001,300
-----------
$11,277,575
-----------
Medical and Health Technology and
Services -- 4.5%
Genesis Health Ventures, Inc.* .... 51,100 $ 1,347,763
Health Management Associates, Inc.,
"A"* ............................ 108,100 2,729,525
HEALTHSOUTH Corp.* ................ 229,300 6,363,075
Lincare Holdings, Inc.* ........... 38,500 2,194,500
Medtronic, Inc. ................... 39,200 2,050,650
Oxford Health Plans, Inc.* ........ 107,400 1,671,412
United Healthcare Corp. ........... 236,300 11,741,156
-----------
$28,098,081
-----------
Metals and Minerals -- 0.4%
Minerals Technolgoies, Inc. ....... 60,500 $ 2,748,969
-----------
Oils -- 0.9%
Mobil Corp. ....................... 21,400 $ 1,544,813
USX-Marathon Group ................ 112,300 3,790,125
-----------
$ 5,334,938
-----------
Issuer Shares Value
Railroads -- 2.4%
Burlington Northern Santa Fe
Railway Co. ...................... 66,000 $ 6,133,875
Wisconsin Central Transportation
Corp.* ........................... 373,900 8,739,912
-----------
$14,873,787
-----------
Restaurants and Lodging -- 1.8%
Promus Hotel Corp.* ................ 273,131 $11,471,502
-----------
Stores -- 6.6%
Corporate Express, Inc.* ........... 205,350 $ 2,643,881
CVS Corp. .......................... 228,200 14,619,062
Linens 'N Things, Inc.* ............ 8,300 362,088
Micro Warehouse, Inc.* ............. 156,200 2,177,038
Office Depot, Inc.* ................ 384,000 9,192,000
PETsMART, Inc.* .................... 264,400 1,916,900
Rite Aid Corp. ..................... 163,500 9,595,406
Staples, Inc.* ..................... 30,200 838,050
-----------
$41,344,425
-----------
Supermarkets -- 1.8 %
Meyer (Fred), Inc.* ................ 36,600 $ 1,331,325
Safeway, Inc.* ..................... 159,400 10,082,050
-----------
$11,413,375
-----------
Telecommunications -- 8.3%
AT&T Corp. ......................... 100,200 $ 6,137,250
3Com Corp.* ........................ 101,000 3,528,688
Ascend Communications, Inc.* ....... 64,100 1,570,450
Bay Networks, Inc.* ................ 185,300 4,736,731
Cisco Systems, Inc.* ............... 224,550 12,518,662
Glenayre Technologies, Inc.* ....... 196,600 1,941,425
Intermedia Communications, Inc.* ... 22,400 1,360,800
Metromedia Fiber Network Inc., "A"* 5,000 83,125
Nextlink Communications, Inc., "A"* 3,700 78,856
Qwest Communications International,
Inc.* ............................ 3,600 214,200
Tel-Save Holdings, Inc.* ........... 77,600 1,542,300
Tel-Save Holdings, Inc.*##[dbldag] . 89,500 1,778,813
Teleport Communications Group, Inc.,
"A"* ............................. 102,600 5,630,175
Tellabs, Inc.* ..................... 28,600 1,512,225
WorldCom, Inc.* .................... 303,980 9,195,395
-----------
$51,829,095
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9 - CAVA
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Portfolio of Investments -- continued
Stocks -- continued
Issuer Shares Value
Utilities -- Electric -- 1.6%
AES Corp.* ................................ 126,300 $ 5,888,737
CalEnergy Co., Inc.* ...................... 138,200 3,973,250
------------
$ 9,861,987
------------
Total U.S. Stocks .................................. $601,504,936
============
Foreign Stocks -- 1.9%
Canada -- 0.5%
Canadian National Railway Co.
(Railroad) ............................... 62,100 $ 2,934,225
Microcell Telecommunications, "B"
(Telecommunications)* .................... 9,100 61,425
------------
$ 2,995,650
------------
Japan -- 0.2%
Canon, Inc. (Office Equipment) ............ 68,000 $ 1,589,420
------------
Singapore -- 0.1%
Mandarin Oriental International Ltd.
(Restaurants and Lodgings)* .............. 799,990 $ 535,994
------------
United Kingdom -- 1.1%
British Petroleum PLC, ADR (Oils) ......... 88,070 $ 7,018,078
------------
Total Foreign Stocks ............................... $ 12,139,142
------------
Total Stocks (Identified Cost, $453,709,443) ....... $613,644,078
------------
Short-Term Obligations -- 1.3%
Principal Amount
(000 Omitted)
Federal Home Loan Mortgage Corp.,
due 1/07/98 ............................ $ 6,000 $ 5,994,270
Ford Motor Credit Corp., due 1/02/98..... 2,400 2,399,550
------------
Total Short-Term Obligations, at Amortized Cost .......... $ 8,393,820
------------
Total Investments (Identified Cost, $462,103,263)......... $622,037,898
------------
Other Assets, Less Liabilities -- 0.9% .................... 5,250,481
------------
Net Assets - 100.0% ...................................... $627,288,379
============
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1997
Government Securities Variable Account
Bonds -- 94.6%
Principal Amount
Issuer (000 Omitted) Value
U.S. Government Guaranteed -- 59.9%
U.S. Treasury Obligations -- 39.1%
U.S. Treasury Notes, 8.875s, 1999 .... $ 2,440 $ 2,524,253
U.S. Treasury Notes, 5.75s, 2000 ..... 14,000 14,017,500
U.S. Treasury Notes, 6.75s, 2000 ..... 2,000 2,045,620
U.S. Treasury Notes, 8s, 2001 ........ 6,400 6,836,992
U.S. Treasury Notes, 5.875s, 2002 .... 2,500 2,513,675
U.S. Treasury Notes, 6.5s,
2002 - 2006 .......................... 23,250 24,096,781
U.S. Treasury Notes, 6.625s, 2002### . 6,480 6,689,563
U.S. Treasury Notes, 6.125s, 2007 .... 7,450 7,656,067
U.S. Treasury Bond, 9.875s, 2015 ..... 4,700 6,689,416
U.S. Treasury Bond, 8s, 2021 ......... 2,208 2,752,757
-----------
$75,822,624
-----------
Government National Mortgage
Association -- 18.7%
GNMA, 7s, 2008 - 2023 ................ $ 5,425 $ 5,493,212
GNMA, 7.5s, 2009 - 2024 .............. 28,427 29,139,373
GNMA, 8s, 2026 ....................... 783 812,075
GNMA, 10s, 2016 ...................... 7 7,657
GNMA, 11s, 2018 ...................... 565 650,244
GNMA, 12.5s, 2015 .................... 66 77,458
GNMA, 13.25s, 2014 ................... 2 2,916
GNMA, 14s, 2014 ...................... 57 69,500
-----------
$36,252,435
-----------
Small Business
Administration -- 2.1%
SBA, 8.2s, 2005 ...................... $ 1,414 $ 1,463,813
SBA, 8.4s, 2007 ...................... 362 382,048
SBA, 8.7s, 2009 ...................... 1,349 1,456,764
SBA, 10.05s, 2009 .................... 727 810,191
-----------
$ 4,112,816
-----------
Total U.S. Government Guaranteed .................... $116,187,875
-----------
U.S. Federal Agencies -- 34.7%
Federal Home Loan Mortgage Corp.,
6.5s, 2027 ........................... $ 3,383 $ 3,095,343
Federal Home Loan Mortgage Corp.,
6.725s, 2027 ......................... 5,607 5,667,841
Federal Home Loan Mortgage Corp.,
7.5s, 2027 ........................... 3,960 4,055,278
Federal Home Loan Mortgage Corp.,
8s, 2005 ............................. 3,239 3,273,488
Federal Housing Authority, 7.43s, 2022 9,125 9,173,659
10 - GSVA
<PAGE>
Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
U.S. Federal Agencies -- continued
Federal National Mortgage Assn.,
6.5s, 2012 .............................. $ 3,145 $ 3,148,942
Federal National Mortgage Assn.,
6.907s, 2020 ............................ 340 343,405
Federal National Mortgage Assn.,
7s, 2027 ................................ 3,859 3,847,950
Federal National Mortgage Assn.,
7.27s, 2005 ............................. 3,915 4,039,720
Federal National Mortgage Assn.,
7.5s, 2000 .............................. 2,717 2,744,240
Federal National Mortgage Assn.,
8s, 2023 ................................ 6,980 1,806,177
Federal National Mortgage Assn.,
8.5s, 2007 .............................. 238 247,828
Federal National Mortgage Assn.,
10s, 2018 ............................... 3,796 4,176,734
Financing Corp., 9.8s, 2018 .............. 5,000 6,999,200
Resolution Funding Corp.,
8.875s, 2020 ............................ 3,700 4,888,625
Tennessee Valley Authority, 0s, 2042 ..... 7,250 3,058,268
U.S. Department of Veterans Affairs,
7.5s, 2009 .............................. 3,400 3,568,937
U.S. Department of Veterans Affairs,
7.75s, 2014 ............................. 3,000 3,076,860
------------
Total U.S. Federal Agencies ............................... $ 67,212,495
------------
Total Bonds (Identified Cost, $175,631,337)................ $183,400,370
------------
Repurchase Agreement -- 4.7%
Investments in repurchase agreements
with Goldman Sachs, in a joint trading
account ($181,587,655), dated
12/03/97, due 1/02/98, total to be
received $183,036,657, collateralized
by a U.S. Treasury Note (with
$172,121,000 par and valued at
$181,587,655), at cost .................. $ 9,088 $ 9,088,000
------------
Total Investments (Identified Cost, $184,719,337).......... $192,488,370
Other Assets,
Less Liabilities -- 0.7% .................................. 1,446,312
------------
Net Assets - 100.0% ...................................... $193,934,682
============
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1997
High Yield Variable Account
Bonds -- 89.3%
Principal Amount
Issuer (000 Omitted) Value
U.S. Bonds -- 82.6%
Aerospace -- 2.6%
Airplane Pass-Through Trust,
10.875s, 2019 ............................ $ 750 $ 843,765
BE Aerospace, Inc., 9.875s, 2006 .......... 900 949,500
K & F Industries, Inc., 9.25s, 2007## ..... 1,400 1,435,000
MOOG, Inc., 10s, 2006 ..................... 1,870 2,057,000
------------
$ 5,285,265
------------
Automotive -- 3.2%
Delco Remy International, Inc.,
8.625s, 2007 ............................. $ 435 $ 439,894
Hayes Wheels International, Inc.,
9.125s, 2007 ............................. 1,900 1,966,500
Lear Corp., 9.5s, 2006 .................... 2,000 2,200,000
Oxford Automotive, Inc.,
10.125s, 2007 ............................ 1,100 1,152,250
Venture Holdings Trust, 9.75s, 2004 750 746,250
------------
$ 6,504,894
------------
Building -- 3.0%
AAF-McQuay, Inc., 8.875s, 2003 ............ $ 1,325 $ 1,313,406
Building Materials Corp., 8s, 2007## 75 73,500
Building Materials Corp.,
8.625s, 2006 ............................. 1,400 1,445,500
Nortek, Inc., 9.25s, 2007 ................. 1,300 1,316,250
UDC Homes, Inc., 0s, 2000 ................. 3 1,465
Williams Scotsman, Inc.,
9.875s, 2007 ............................. 1,850 1,905,500
------------
$ 6,055,621
------------
Business Services -- 1.2%
Iron Mountain, Inc., 10.125s, 2006 ........ $ 1,000 $ 1,100,000
Pierce Leahy Corp., 9.125s, 2007 .......... 1,250 1,300,000
Pierce Leahy Corp., 11.125s, 2006 ......... 43 48,590
------------
$ 2,448,590
------------
11 - HYVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
Chemicals -- 1.3%
Harris Chemical North America, Inc.,
10.25s, 2001 ....................... $ 881 $ 925,050
NL Industries, Inc., 11.75s, 2003 .... 1,400 1,547,000
Sterling Chemicals, Inc.,
11.25s, 2007 ....................... 100 100,000
-----------
$ 2,572,050
-----------
Coal -- 0.8%
AEI Holdings, Inc., 10s, 2007## ...... $ 1,575 $ 1,622,250
-----------
Consumer Goods and
Services -- 2.9%
American Safety Razor Co.,
9.875s, 2005 ....................... $ 1,000 $ 1,073,750
E & S Holdings Corp.,
10.375s, 2006 ...................... 2,000 1,820,000
Kindercare Learning Centers, Inc.,
9.5s, 2009 ......................... 850 845,750
Remington Products Co. LLC,
11s, 2006 .......................... 425 358,062
Westpoint Stevens, Inc.,
9.375s, 2005 ....................... 1,750 1,837,500
-----------
$ 5,935,062
-----------
Containers -- 1.0%
Gaylord Container Corp.,
9.75s, 2007 ........................ $ 2,140 $ 2,065,100
-----------
Corporate Asset Backed -- 0.5%
Merrill Lynch Mortgage Investors,
Inc., 8.1712s, 2023+ ............... $ 1,000 $ 955,156
-----------
Defense Electronics -- 0.8%
L3 Communications Corp.,
10.375s, 2007 ...................... $ 500 $ 540,000
Stellex Inds, Inc., 9.5s, 2007## ..... 475 479,750
United Defense Industries, Inc.,
8.75s, 2007 ## ..................... 655 659,094
-----------
$ 1,678,844
-----------
Electronics -- 0.5%
Clark-Schwebel, Inc., 10.5s, 2006 .... $ 950 $ 1,035,500
-----------
Principal Amount
Issuer (000 Omitted) Value
Entertainment -- 2.3%
Albritton Communications Co.,
9.75s, 2007 ........................ $ 1,400 $ 1,431,500
AMC Entertainment, Inc., 9.5s, 2009 .. 1,500 1,537,500
Cinemark USA, Inc., 9.625s, 2008 ..... 1,250 1,290,625
Hollywood Theaters, Inc.,
10.625s, 2007##[dbldag][dbldag] .... 375 398,437
Marvel Holdings, Inc., 0s, 1998** .... 1,165 46,600
-----------
$ 4,704,662
-----------
Food and Beverage Products -- 3.3%
Delta Beverage Group, Inc.,
9.75s, 2003## ...................... $ 1,000 $ 1,055,000
Friendly Ice Cream Corp.,
10.5s, 2007## ...................... 575 580,750
Keebler Corp., 10.75s, 2006 .......... 1,200 1,353,000
Specialty Foods Corp., 10.25s, 2001 .. 1,950 1,920,750
Texas Bottling Group, Inc., 9s, 2003 . 1,750 1,802,500
-----------
$ 6,712,000
-----------
Forest and Paper Products -- 6.6%
Atlantis Group, Inc., 11s, 2003 ...... $ 1,300 $ 1,319,500
Calmar, Inc., 11.5s, 2005 ............ 1,650 1,749,000
Florida Coast Paper Co. LLC,
12.75s, 2003 ....................... 1,000 1,060,000
Pacific Lumber Co., 10.5s, 2003 ...... 1,750 1,811,250
Silgan Holdings, Inc., 9s, 2009 ...... 1,800 1,840,500
Speciality Paperboard, Inc.,
9.375s, 2006 ....................... 1,400 1,452,500
U.S. Can Corp., 10.125s, 2006 ........ 1,950 2,062,125
U.S. Timberlands, 9.625s, 2007 ....... 1,660 1,726,400
Voto-Votorantim Overseas Trust,
8.5s, 2005 ......................... 450 411,750
-----------
$13,433,025
-----------
Industrial -- 0.9%
AGCO Corp., 8.5s, 2006 ............... $ 725 $ 741,313
Argo Tech Corp., 8.625s, 2007## ...... 1,000 997,500
-----------
$ 1,738,813
-----------
Information, Paging and
Technology -- 0.3%
Anacomp, Inc., 10.875s, 2004 ......... $ 650 $ 666,250
-----------
12 - HYVA
<PAGE>
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Media -- 1.6%
Cablevision Systems Corp.,
9.25s, 2005 ........................................................... $ 400 $ 424,000
Chancellor Media Corp., 8.75s, 2007 1,000 1,017,500
Falcon Holdings Group, Inc.,
11s, 2003 ............................................................. 1,718 1,850,806
------------
$ 3,292,306
------------
Medical and Health
Technology and Services -- 3.3%
Beverly Enterprises, Inc., 9s, 2006 .................................... $ 2,000 $ 2,067,500
Physician Sales & Service, Inc.,
8.5s, 2007## .......................................................... 950 976,125
Quorum Health Group, Inc.,
8.75s, 2005 ........................................................... 900 929,250
Tenet Healthcare Corp., 8.625s, 2007 ................................... 1,700 1,755,250
Vencor, Inc., 8.625s, 2007 ............................................. 1,000 997,500
------------
$ 6,725,625
------------
Metals and Minerals -- 2.3%
Haynes International, Inc.,
11.625s, 2004 ......................................................... $ 1,550 $ 1,767,000
Kaiser Aluminum & Chemical Corp.,
10.875s, 2006 ......................................................... 1,700 1,844,500
Renco Metals, Inc., 11.5s, 2003 ........................................ 780 826,800
Wheeling Pittsburgh Corp., 9.25s,
2007## ................................................................ 250 241,250
------------
$ 4,679,550
------------
Oils -- 2.0%
Clark USA, Inc., 10.875s, 2005 ......................................... $ 1,450 $ 1,578,687
Cross Timbers Oil Co., 8.75s, 2009 ..................................... 1,375 1,402,500
Giant Industries, Inc., 9s, 2007## ..................................... 800 794,000
Giant Industries, Inc., 9.75s, 2003 .................................... 300 306,750
------------
$ 4,081,937
------------
Printing and Publishing -- 1.2%
Big Flower Press Holdings, Inc.,
8.875s, 2007## ........................................................ $ 775 $ 780,813
Day International Group, Inc.,
11.125s, 2005 ......................................................... 750 825,000
Principal Amount
Issuer (000 Omitted) Value
Printing and Publishing -- continued
Golden Books Publishing, Inc.,
7.65s, 2002 ........................................................... $ 750 $ 712,500
------------
$ 2,318,313
------------
Restaurants and Lodging -- 7.6%
Boyd Gaming Corp., 9.5s, 2007[dbldag][dbldag] .......................... $ 2,000 $ 2,095,000
Casino America, Inc., 12.5s, 2003 ...................................... 800 868,000
Coast Hotels & Casinos, Inc.,
13s, 2002 ............................................................. 750 847,500
Eldorado Resorts LLC, 10.5s, 2006 ...................................... 1,800 1,962,000
Grand Casinos, Inc., 9s, 2004## ........................................ 600 603,000
Grand Casinos, Inc., 10.125s, 2003 ..................................... 1,575 1,701,000
Griffin Gaming & Entertainment, Inc.,
0s, 2000 .............................................................. 1,000 1,032,500
Harveys Casinos Resorts,
10.625s, 2006 ......................................................... 750 814,688
Prime Hospitality Corp., 9.75s, 2007 2,200 2,354,000
Red Roof Inns, Inc., 9.625s, 2003 ...................................... 1,950 2,018,250
Sam Houston Race Park Ltd.,
11s, 2001** ........................................................... 343 171,704
Santa Fe Hotel, Inc., 11s, 2000 ........................................ 1,065 945,187
------------
$ 15,412,829
------------
Retail -- 1.9%
Finlay Fine Jewelry Corp.,
10.625s, 2003 ......................................................... $ 650 $ 682,500
J. Crew Operating Corp.,
10.375s, 2007## ....................................................... 425 369,750
Jitney-Jungle Stores of America,
Inc., 12s, 2006 ....................................................... 1,475 1,674,125
Parisian, Inc., 9.875s, 2003 ........................................... 1,050 1,123,500
------------
$ 3,849,875
------------
Special Products and
Services -- 3.5%
IMO Industries, Inc., 11.75s, 2006 ..................................... $ 920 $ 1,016,600
Interlake Corp., 12s, 2001 ............................................. 1,200 1,314,000
Interlake Corp., 12.125s, 2002 ......................................... 250 262,500
International Knife & Saw, Inc.,
11.375s, 2006 ......................................................... 1,000 1,082,500
Polymer Group, Inc., 9s, 2007 .......................................... 1,900 1,895,250
</TABLE>
13 - HYVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
Special Products and Services -- continued
Reeves Industries, Inc., 11s, 2002** ......... $ 500 $ 371,250
Synthetic Industries, Inc.,
9.25s, 2007 ................................. 1,125 1,181,250
------------
$ 7,123,350
------------
Steel -- 3.3%
Alaska Steel Holdings Corp.,
9.125s, 2006 ................................ $ 450 $ 460,125
Armco, Inc., 9s, 2007 ........................ 550 539,000
Commonwealth Aluminum Corp.,
10.75s, 2006 ................................ 2,000 2,160,000
Envirosource, Inc., 9.75s, 2003## ............ 550 557,562
GS Technologies Operating, Inc.,
12.25s, 2005 ................................ 625 700,000
Keystone Consolidated Industries,
Inc., 9.625s, 2007## ........................ 600 612,000
Republic Engineered Steels, Inc.,
9.875s, 2001 ................................ 800 760,000
WCI Steel, Inc., 10s, 2004 ................... 750 766,875
------------
$ 6,555,562
------------
Stores -- 1.3%
Affinity Group Holding, Inc.,
11s, 2007 ................................... $ 500 $ 522,500
Cole National Group, Inc.,
8.625s, 2007## .............................. 1,000 1,000,000
Cole National Group, Inc.,
9.875s, 2006 ................................ 500 532,500
Proffitts, Inc., 8.125s, 2004 ................ 475 490,438
------------
$ 2,545,438
------------
Supermarkets -- 1.0%
Marsh Supermarkets, Inc.,
8.875s, 2007 ................................ $ 925 $ 929,625
Pathmark Stores, Inc., 9.625s, 2003 250 230,000
Ralph's Grocery Co., 10.45s, 2004 ............ 450 508,500
Ralph's Grocery Co., 11s, 2005 ............... 100 113,500
Ralph's Grocery Co., 11s, 2005 ............... 250 284,688
------------
$ 2,066,313
------------
Principal Amount
Issuer (000 Omitted) Value
Telecommunications -- 22.1%
Acme Television LLC, 0s to 2000,
10.875s to 2004## ........................... $ 950 $ 695,875
Cablevision Systems Corp.,
8.125s, 2009 ................................ 100 103,000
Charter Communications Southeast
LP, 11.25s, 2006 ............................ 1,200 1,320,000
Crown Castle International Corp., 0s
to 2002, 10.625s to 2007## .................. 800 502,000
Digital Television Services LLC,
12.5s, 2007## ............................... 300 336,000
EchoStar Communications Corp.,
0s to 1999, 12.875s to 2004 ................. 1,100 1,006,500
EchoStar Satellite Broadcasting
Corp., Principal Stripped, 0s to
2000, 13.125s to 2004 ....................... 1,425 1,182,750
Esat Holdings Ltd., 0s to 2002,
12.5s to 2007 ............................... 550 390,500
Esprit Telecom Group PLC,
11.5s, 2007## ............................... 100 103,000
Fox/Liberty Networks LLC, Inc.,
8.875s, 2007## .............................. 1,700 1,695,750
FrontierVision Holding LP, 0s to
2001, 11.87s to 2007 ........................ 1,300 962,000
GCI, Inc., 9.75s, 2007 ....................... 1,550 1,600,375
GlobalStar LP / Capital,
11.375s, 2004## ............................. 1,075 1,083,062
Granite Broadcasting Corp.,
10.375s, 2005 ............................... 2,000 2,095,000
GST USA, Inc., 0s to 2000, 13.875s
to 2005 ..................................... 225 173,250
Hollinger International Publishing,
Inc., 9.25s, 2007 ........................... 1,850 1,942,500
ICG Holdings, Inc., 0s to 2001, 12.5
to 2006 ..................................... 2,650 2,000,750
Intermedia Capital Partners IV, LP,
11.25s, 2006 ................................ 1,000 1,105,000
Intermedia Communications, Inc.,
0s to 2002, 11.125s to 2007 ................. 2,200 1,600,500
14 - HYVA
<PAGE>
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Telecommunications -- continued
Intermedia Communications, Inc.,
8.875s, 2007## ........................................................ $ 100 $ 102,750
ITC Deltacom, Inc., 11s, 2007 .......................................... 875 955,937
Knology Holdings, Inc., 0s to 2002,
11.875s to 2007+ ...................................................... 50 267,500
Lenfest Communications, Inc.,
10.5s, 2006 ........................................................... 575 639,688
McCaw International Ltd., 0s to
2002, 13s to 2007 ..................................................... 700 406,000
Mobile Telecommunication
Technologies Corp., 13.5s, 2002 ....................................... 950 1,102,000
Nextel Communications, Inc., 0s to
1999, 9.75s to 2004 ................................................... 1,450 1,290,500
Nextel Communications, Inc., 0s to
2002, 9.75s to 2007## ................................................. 1,835 1,126,231
Nextlink Communications, Inc.,
9.625s, 2007 .......................................................... 875 903,438
Orion Network Systems, Inc.,
11.25s, 2007 .......................................................... 1,000 1,133,750
Orion Network Systems, Inc., 0s to
2002, 12.5s to 2007 ................................................... 975 702,000
Outdoor Systems, Inc.,
8.875s, 2007 .......................................................... 800 836,000
Qwest Communications International,
Inc., 0s to 2002, 9.47s to 2007## ..................................... 950 648,375
Qwest Communications International,
Inc., 10.875s, 2007 ................................................... 1,190 1,353,625
RCN Corp., 0s to 2002, 11.125s to
2007## ................................................................ 2,100 1,317,750
Rogers Cablesystems, Inc.,
10.125s, 2012 ......................................................... 1,750 1,907,500
Sprint Spectrum LP, 0s to 2001,
12.5s to 2006 ......................................................... 1,750 1,356,250
Sprint Spectrum LP, 11s, 2006 .......................................... 1,100 1,234,750
Star Choice Communications, Inc.,
13s, 2005 ............................................................. 850 875,500
Sygnet Wireless, Inc., 11.5s, 2006 ..................................... 1,125 1,192,500
Principal Amount
Issuer (000 Omitted) Value
Telecommunications -- continued
Teleport Communications Group,
Inc., 0s to 2001, 11.125s to 2007 ..................................... $1,300 $ 1,059,500
Teleport Communications Group,
Inc., 9.875s, 2006 .................................................... 700 790,125
Telesystem International Wireless,
Inc., 0s to 2002, 13.25s to 2007## 1,500 948,750
Telesystem International Wireless,
Inc., 0s to 2002, 10.5s to 2007## ..................................... 810 449,550
Teletrac Holdings, Inc., 0s,* .......................................... 1 38,500
Teletrac Holdings, Inc., 14s, 2007 ..................................... 700 665,000
Western Wireless Corp., 10.5s, 2007 .................................... 1,250 1,350,000
Young Broadcasting, Inc.,
8.75s, 2007 ........................................................... 235 232,650
------------
$ 44,783,931
------------
Transportation -- 0.3%
Moran Transportation Co.,
11.75s, 2004 .......................................................... $ 500 $ 558,750
------------
Total U.S. Bonds ......................................................................... $167,406,861
------------
Foreign Bonds -- 6.7%
Canada -- 2.5%
Acetex, Inc., 9.75s, 2003
(Chemicals) ........................................................... $ 650 $ 672,750
CHC Helicopter Corp., 11.5s, 2002
(Aerospace) ........................................................... 700 743,750
Hurricane Hydrocarbons,
11.75s, 2004 (Oils)## ................................................. 200 190,000
PCI Chemical Canada, Inc.,
9.25s, 2007 (Chemicals)## ............................................. 925 920,375
Repap New Brunswick, Inc.,
10.625s, 2005 (Forest and Paper
Products) ............................................................. 1,240 1,178,000
Metronet Communications Corp., 0s
to 2002, 10.75s to 2007
(Telecommunications)## ................................................ 1,000 610,000
Metronet Communications Corp.,
12s, 2007 (Telecommunications)## 600 690,000
------------
$ 5,004,875
------------
</TABLE>
15 - HYVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
Indonesia -- 0.7%
Indah Kiat Finance Mautitius Ltd.,
10s, 2007 (Forest and Paper
Products)## ........................ $ 1,685 $ 1,432,250
------------
Luxembourg -- 0.4% ..................
Millicom International Cellular
Communications Corp., 0s to
2001, 13.25s to 2006
(Telecommunications) ............... $ 1,100 $ 808,500
------------
Poland -- 0.2%
PTC International Finance BV, 0s to
2002, 10.75s to 2007
(Telecommunications)## ............. $ 500 $ 320,000
------------
United Kingdom -- 2.9%
Diamond Cable Communications Corp.
PLC, 0s to 2002, 10.75s to 2007
(Telecommunications) ............... $ 725 $ 502,063
Diamond Cable Communications Corp.
PLC, 0s to 2000, 11.75s to 2005
(Telecommunications) ............... 250 194,375
Newsquest Capital PLC, 11s, 2006
(Printing and Publishing) .......... 750 841,875
Colt Telecommunications Group PLC,
0s to 2001, 12s to 2006
(Telecommunications) ............... 2,700 2,112,750
Dialog Corp. PLC, 11s, 2007
(Telecommunications)## ............. 525 547,312
Telewest PLC, 9.625s, 2006
(Telecommunications) ............... 1,600 1,688,000
------------
$ 5,886,375
------------
Total Foreign Bonds ................................ $ 13,452,000
------------
Total Bonds (Identified Cost, $175,140,109)......... $180,858,861
------------
Convertible Bond -- 0.3%
Principal Amount
Issuer (000 Omitted) Value
Exide Corp., 2.9s, 2005##
(Identified Cost $605,000) .............. $ 1,000 $ 648,750
------------
Stocks -- 0.2%
Shares
U.S. Stocks -- 0.2%
Apparel and Textiles -- 0.1%
Ithaca Industries, Inc.* .................. 60,000 $ 202,500
------------
Building
Atlantic Gulf Communities Corp.+* ......... 150 $ 675
------------
Consumer Goods and Services
Ranger Industries, Inc.* .................. 123,210 $ 84,768
------------
Pollution Control
Envirosource, Inc.+* ...................... 1,666 $ 4,998
------------
Restaurants and Lodging
SHRP Equity, Inc.** ....................... 82 $ 0
------------
Telecommunications -- 0.1%
Nextel Communications, Inc., 13s* ......... 103 $ 117,420
------------
Total Stocks (Identified Cost, $3,808,470) .......... $ 410,361
------------
Convertible Preferred Stocks -- 0.2%
Shares
Telecommunications -- 0.2%
ICG Funding LLC, 6.75%*##
(Identified Cost, $350,000) .............. 7,000 $ 385,000
------------
Preferred Stock -- 4.6%
Consumer Goods and Services -- 0.2%
Renaissance Cosmetics, Inc., 14s .......... 908 $ 454,000
------------
Entertainment -- 1.3%
Time Warner, Inc., 10.25s ................. 2,259 $ 2,552,670
------------
Oils -- 0.3%
Clark USA, Inc.*## ........................ 500 $ 530,000
------------
Special Products and Services -- 0.8%
Primedia, Inc.* ........................... 14,823 $ 1,582,363
------------
16 - HYVA
<PAGE>
Preferred Stocks -- continued
Issuer Shares Value
Telecommunications -- 2.0%
American Communications
Services##* ............................ 375 $ 377,813
Cablevision Systems Corp., 11.125s* ..... 17,203 1,986,946
Chancellor Media Corp.-Los Angeles* ..... 10,588 1,185,856
Hyperion Telecommunications ............. 500 503,750
Nextel Communications, Inc.* ............ 2,184 56,784
------------
$ 4,111,149
------------
Total Preferred Stock (Identified Cost, $7,751,719).. $ 9,230,182
------------
Warrants -- 0.2%
Atlantic Gulf Communities Corp.* ........ 13 $ 0
Crystal Oil Co., $0.075* ................ 1,920,847 0
Crystal Oil Co., $0.10* ................. 1,683,209 0
Crystal Oil Co., $0.125* ................ 2,000,087 0
Crystal Oil Co., $0.15* ................. 1,963,306 0
Crystal Oil Co., $0.25* ................. 1,963,306 0
Esat Holdings Ltd.* ..................... 550 19,250
GlobalStar Telecommunications* .......... 1,075 109,650
ICO, Inc.* .............................. 375,000 247,500
McCaw International Ltd.* ............... 700 875
Orion Network Systems, Inc.* ............ 1,000 10,000
Orion Network Systems, Inc.* ............ 1,100 22,000
Renaissance Cosmetics, Inc.* ............ 788 8
------------
Total Warrants (Identified Cost, $345,560)........... $ 409,283
------------
Short-Term Obligations -- 3.3%
Principal Amount
(000 Omitted)
Federal Home Loan Bank, due 1/15/98 $ 3,200 $ 3,193,056
Ford Motor Credit Corp., due 1/02/98 ..... 3,500 3,499,344
------------
Total Short-Term Obligations, at Amortized Cost ........... $ 6,692,400
------------
Total Investments (Identified Cost, $194,693,258).......... $198,634,837
------------
Other Assets, Less Liabilities -- 1.9% ..................... 3,897,824
------------
Net Assets - 100.0% ....................................... $202,532,661
============
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1997
Managed Sectors Variable Account
Stocks -- 94.0%
Issuer Shares Value
Energy -- 9.5%
Apache Corp. ......................................... 36,200 $ 1,269,263
BJ Services Co.* ..................................... 20,500 1,474,719
Camco International, Inc. ............................ 22,000 1,401,125
Cooper Cameron Corp.* ................................ 25,500 1,555,500
Noble Drilling Corp.* ................................ 43,500 1,332,187
Occidental Petroleum Corp. ........................... 63,700 1,867,206
Weatherford Enterra, Inc.* ........................... 60,000 2,625,000
------------
$ 11,525,000
------------
Leisure -- 22.4%
Aerial Communications, Inc.* ......................... 72,000 $ 513,000
AirTouch Communications, Inc.* ....................... 38,000 1,579,375
Cendant Corp.* ....................................... 155,430 5,342,906
Harrah's Entertainment, Inc.* ........................ 157,000 2,963,375
Hearst-Argyle Television, Inc.* ...................... 7,300 217,175
Hilton Hotels Corp. .................................. 58,500 1,740,375
Host Marriott Corp.* ................................. 38,500 755,563
MGM Grand, Inc.* ..................................... 24,000 865,500
Mirage Resorts, Inc.* ................................ 69,500 1,581,125
Promus Hotel Corp.* .................................. 46,249 1,942,458
Telephone & Data Systems, Inc. ....................... 210,900 9,820,031
------------
$ 27,320,883
------------
Medical and Health Technology
and Services -- 17.0%
AmeriSource Health Corp., "A"* ....................... 28,800 $ 1,677,600
Bristol-Myers Squibb Co. ............................. 34,000 3,217,250
CVS Corp. ............................................ 21,000 1,345,313
Genesis Health Ventures, Inc.* ....................... 66,500 1,753,937
McKesson Corp. ....................................... 9,500 1,027,781
Medpartners, Inc.* ................................... 63,500 1,420,813
Meyer (Fred), Inc.* .................................. 61,000 2,218,875
Rite Aid Corp. ....................................... 35,000 2,054,062
Safeway, Inc.* ....................................... 27,000 1,707,750
United Healthcare Corp. .............................. 86,800 4,312,875
------------
$ 20,736,256
------------
Technology -- 30.5%
Alcatel Alsthom, ADR (France) ........................ 35,000 $ 885,938
Analog Devices, Inc.* ................................ 77,000 2,131,937
Aspect Telecommunications Corp.* ..................... 61,500 1,283,813
Atmel Corp.* ......................................... 96,500 1,791,281
Cisco Systems, Inc.* ................................. 47,700 2,659,275
Compaq Computer Corp. ................................ 76,950 4,342,866
17 - MSVA
<PAGE>
Portfolio of Investments -- continued
Stocks -- continued
Issuer Shares Value
Technology -- continued
Computer Associates International,
Inc. ............................... 73,500 $ 3,886,312
Danka Business Systems, ADR
(United Kingdom) ................... 65,000 1,035,938
First Data Corp. .................... 39,500 1,155,375
Intel Corp. ......................... 16,700 1,173,175
International Business Machines Corp. 26,300 2,749,994
Loral Space and Communications
Corp.* ............................. 122,500 2,626,094
Micron Technology, Inc.* ............ 50,200 1,305,200
Micropose, Inc.* .................... 141,300 309,094
Microsoft Corp.* .................... 16,000 2,068,000
Oracle Corp.* ....................... 68,000 1,517,250
Sprint Corp. ........................ 24,000 1,407,000
Sun Microsystems, Inc.* ............. 63,700 2,540,037
Teradyne, Inc.* ..................... 69,500 2,224,000
------------
$ 37,092,579
------------
Other -- 14.6%
Green Tree Financial Corp. .......... 47,900 $ 1,254,381
Jefferson Smurfit Corp.* ............ 63,800 901,175
Office Depot, Inc.* ................. 47,900 1,146,606
Stone Container Corp. ............... 112,500 1,174,219
Tyco International Ltd. ............. 265,480 11,963,192
Wisconsin Central Transportation
Corp.* ............................. 58,600 1,369,775
------------
$ 17,809,348
------------
Total Stocks (Identified Cost, $100,440,785)... $114,484,066
------------
Convertible Bond -- 0.1%
Principal Amount
(000 Omitted)
Spectrum Holobyte, Inc. 6.5s, 2002##
(Identified Cost $120,000) ............. $ 120 $ 89,850
------------
Short-Term Obligations -- 3.2%
Associates Corp. of North America,
due 1/02/98, at Amortized Cost ......... $3,900 $ 3,899,274
------------
Put Options Purchased -- 0.3%
Issuer/ Principal Amount
Expiration Month/Strike of Contracts
Price (000 Omitted) Value
S&P 500 Index/December/850
(Premiums Paid, $400,829)........... $ 14 $ 411,125
------------
Total Investments (Identified Cost, $104,860,888).... $118,884,315
------------
Call Options Written -- (1.0)%
AirTouch Communications, Inc.
January/35 ......................... $ (380) $ (237,500)
Fred Meyer January/65 ............... (441) (237,037)
HFS, Inc. January/66 ................ (390) (672,750)
International Business Machines Corp.
January/120 ........................ (120) (1,500)
Loral Space & Communications Corp.
January/20 ......................... (640) (104,000)
------------
Total Call Options Written
(Premiums Received, $273,732)........................ $ (1,252,787)
------------
Other Assets, Less Liabilities -- 3.4% ................ 4,107,007
------------
Net Assets - 100.0% .................................. $121,738,535
============
See portfolio footnotes and notes to financial statements
18 - MSVA
<PAGE>
Portfolio of Investments -- December 31, 1997
Money Market Variable Account
Commercial Paper -- 37.6%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000) Omitted) Value
<S> <C> <C>
Associates Corp. of North America,
due 1/22/98 ................................... $ 3,000 $ 2,990,025
Bank of America, FSB, due 1/20/98 .............. 1,000 996,992
Dow Chemical Co., due 1/09/98 .................. 3,000 2,996,153
du Pont (E.I.) de Nemours & Co.,
due 2/13/98 ................................... 4,000 3,973,961
Duke Power Co., due 1/13/98 .................... 4,900 4,890,543
Gannett, Inc., due 1/16/98 ..................... 1,700 1,695,927
General Electric Capital Corp., due
4/23/98 ....................................... 3,000 2,948,107
Goldman Sachs Group LP, due 2/04/98 2,000 1,989,158
Heinz (H.J.) Co., due 1/06/98 .................. 3,000 2,997,625
Merrill Lynch & Co., Inc., due 2/19/98 ......... 3,900 3,870,273
Motorola, Inc., due 1/06/98 .................... 4,000 3,996,956
Nationsbank Corp., due 2/12/98 ................. 5,000 4,967,333
Southern New England
Telecommunications, due 1/20/98 ............... 4,000 3,987,608
------------
Total Commercial Paper, at Amortized Cost ..................... $ 42,300,661
------------
U.S. Government and Agency
Obligations -- 62.5%
Federal Farm Credit Bank, due
2/20/98 - 5/14/98 ............................. $ 9,000 $ 8,869,085
Federal Home Loan Bank, due
1/07/98 - 3/13/98 ............................. 12,237 12,170,505
Federal Home Loan Mortgage Corp.,
due 1/02/98 - 2/02/98 ......................... 19,530 19,489,736
Federal National Mortgage Assn., due
1/27/98 - 5/05/98 ............................. 24,000 23,747,601
Tennessee Valley Authority, due
1/12/98 - 1/28/98 ............................. 6,000 5,980,019
------------
Total U.S. Government and Agency Obligations,
at Amortized Cost ............................................ $ 70,256,946
------------
Total Investments, at Amortized Cost .......................... $112,557,607
Other Assets, Less Liabilities -- (0.1)% ....................... (110,363)
------------
Net Assets - 100.0% ............................................. $112,447,244
============
</TABLE>
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1997
Total Return Variable Account
Stocks -- 56.7%
Issuer Shares Value
U.S. Stocks -- 50.0%
Aerospace -- 2.8%
Allied Signal, Inc. .................... 74,600 $ 2,904,737
General Dynamics Corp. ................. 24,000 2,074,500
Lockheed Martin Corp. .................. 13,000 1,280,500
Raytheon Co., "A" ...................... 4,244 209,282
Raytheon Co., "B" ...................... 37,600 1,898,800
United Technologies Corp. .............. 8,300 604,344
------------
$ 8,972,163
------------
Automotive -- 1.6%
Ford Motor Co. ......................... 49,900 $ 2,429,506
General Motors Corp. ................... 5,400 327,375
Goodrich (B.F.) Co. .................... 53,300 2,208,619
------------
$ 4,965,500
------------
Banks and Credit Companies -- 6.0%
Bank of New York, Inc. ................. 43,400 $ 2,509,062
BankBoston Corp. ....................... 3,200 300,600
BB&T Corp. ............................. 13,700 877,656
Chase Manhattan Corp. .................. 9,660 1,057,770
Corestates Financial Corp. ............. 15,100 1,208,944
Fleet Financial Group, Inc. ............ 11,700 876,769
National City Corp. .................... 50,800 3,340,100
NationsBank Corp. ...................... 31,200 1,897,350
Northern Trust Corp. ................... 33,200 2,315,700
Norwest Corp. .......................... 50,800 1,962,150
PNC Bank Corp. ......................... 47,600 2,716,175
------------
$ 19,062,276
------------
Building -- 0.1%
Sherwin Williams Co. ................... 11,500 $ 319,125
------------
Business Machines -- 0.9%
International Business Machines Corp. 27,400 $ 2,865,013
------------
Cellular Telephones -- 0.2%
Telephone & Data Systems, Inc. ......... 16,400 $ 763,625
------------
Chemicals -- 0.7%
Air Products & Chemicals, Inc. ......... 20,300 $ 1,669,675
Dow Chemical Co. ....................... 5,200 527,800
------------
$ 2,197,475
------------
Computer Hardware --
Systems -- 0.4%
Digital Equipment Corp.* ............... 33,000 $ 1,221,000
------------
19 - TRVA
<PAGE>
Portfolio of Investments -- continued
Stocks -- continued
Issuer Shares Value
Conglomerates -- 0.1%
Eastern Enterprises ..................... 9,800 $ 441,000
------------
Consumer Goods and Services -- 1.9%
Colgate-Palmolive Co. ................... 5,400 $ 396,900
Philip Morris Cos., Inc. ................ 79,200 3,588,750
Rubbermaid, Inc. ........................ 34,400 860,000
Tyco International Ltd. ................. 24,900 1,122,056
------------
$ 5,967,706
------------
Electrical Equipment -- 1.8%
Cooper Industries, Inc. ................. 37,400 $ 1,832,600
General Electric Co. .................... 43,700 3,206,487
Hubbell, Inc. ........................... 16,000 789,000
------------
$ 5,828,087
------------
Entertainment -- 0.2%
Viacom, Inc., "B"* ...................... 14,400 $ 596,700
------------
Financial Institutions -- 3.3%
American Express Co. .................... 35,900 $ 3,204,075
Beneficial Corp. ........................ 3,500 290,937
CIT Group, Inc. "A"* .................... 5,600 180,600
Edwards (A.G.), Inc. .................... 29,700 1,180,575
Federal Home Loan Mortgage Corp. ........ 24,400 1,023,275
Federal National Mortgage Assn. ......... 44,900 2,562,106
Merrill Lynch & Co., Inc. ............... 8,500 619,969
Morgan Stanley, Dean Witter, Discover
& Co. .................................. 21,800 1,288,925
------------
$ 10,350,462
------------
Food and Beverage Products -- 0.5%
General Mills, Inc. ..................... 8,100 $ 580,163
McCormick & Co., Inc. ................... 14,400 403,200
PepsiCo., Inc. .......................... 20,200 736,037
------------
$ 1,719,400
------------
Forest and Paper Products -- 0.8%
Champion International Corp. ............ 16,400 $ 743,125
Weyerhaeuser Co. ........................ 39,100 1,918,344
------------
$ 2,661,469
------------
Insurance -- 4.5%
Allstate Corp. .......................... 8,200 $ 745,175
Chubb Corp. ............................. 32,000 2,420,000
CIGNA Corp. ............................. 16,600 2,872,837
Conseco, Inc. ........................... 140 6,361
Lincoln National Corp. .................. 28,600 2,234,375
St. Paul Cos., Inc. ..................... 22,300 1,829,994
Issuer Shares Value
Insurance -- continued
Torchmark Corp. ......................... 59,200 $ 2,490,100
Travelers Group, Inc. ................... 31,050 1,672,819
------------
$ 14,271,661
------------
Machinery -- 0.9%
Deere & Co., Inc. ....................... 24,200 $ 1,411,162
Lear Corp.* ............................. 23,900 1,135,250
York International Corp. ................ 11,100 439,144
------------
$ 2,985,556
------------
Medical and Health Products -- 2.4%
American Home Products Corp. ............ 31,800 $ 2,432,700
Baxter International, Inc. .............. 9,600 484,200
Bristol-Myers Squibb Co. ................ 48,200 4,560,925
------------
$ 7,477,825
------------
Medical and Health Technology
and Services -- 0.3%
United Healthcare Corp. ................. 16,400 $ 814,875
------------
Metals and Minerals -- 0.5%
Aluminum Cos. of America ................ 18,700 $ 1,316,013
Phelps Dodge Corp. ...................... 3,700 230,325
------------
$ 1,546,338
------------
Oil Services -- 0.2%
Baker Hughes, Inc. ...................... 17,000 $ 741,625
------------
Oils -- 4.5%
Amoco Corp. ............................. 14,200 $ 1,208,775
Atlantic Richfield Co. .................. 22,800 1,826,850
Chevron Corp. ........................... 10,700 823,900
Exxon Corp. ............................. 33,700 2,062,019
Mobil Corp. ............................. 24,400 1,761,375
Occidental Petroleum Corp. .............. 37,000 1,084,562
Texaco, Inc. ............................ 53,400 2,903,625
Unocal Corp. ............................ 18,700 725,794
USX-Marathon Group ...................... 58,500 1,974,375
------------
$ 14,371,275
------------
Photographic Products -- 0.4%
Eastman Kodak Co. ....................... 22,700 $ 1,380,444
------------
Pollution Control -- 1.2%
Browning Ferris Industries, Inc. ........ 63,700 $ 2,356,900
Waste Management, Inc. .................. 52,200 1,435,500
------------
$ 3,792,400
------------
20 - TRVA
<PAGE>
Stocks -- continued
Issuer Shares Value
Railroads -- 1.1%
Burlington Northern Santa Fe
Railway Co. ................................ 10,800 $ 1,003,725
Illinois Central Corp. ...................... 47,850 1,629,891
Norfolk Southern Corp. ...................... 22,900 705,606
------------
$ 3,339,222
------------
Real Estate -- 0.2%
Meditrust ................................... 17,353 $ 635,554
------------
Real Estate Investment Trusts -- 1.1%
Arden Realty, Inc. .......................... 25,200 $ 774,900
Boston Properties, Inc. ..................... 16,800 555,450
Hospitality Properties Trust ................ 17,000 558,875
National Health Investors, Inc. ............. 5,500 230,313
Prime Group Realty Trust .................... 19,200 388,800
Tower Realty Trust, Inc. .................... 8,600 211,775
TriNet Corporate Realty Trust, Inc. ......... 23,100 893,681
------------
$ 3,613,794
------------
Restaurants and Lodging
Tricon Global Restaurants, Inc.* ............ 3,110 $ 90,384
------------
Special Products and
Services -- 0.1%
Stanley Works ............................... 5,400 $ 254,813
------------
Stores -- 1.8%
CVS Corp. ................................... 4,700 $ 301,094
May Department Stores Co. ................... 7,000 368,812
Penney (J.C.), Inc. ......................... 27,600 1,664,625
Rite Aid Corp. .............................. 47,600 2,793,525
Sears, Roebuck & Co. ........................ 11,200 506,800
------------
$ 5,634,856
------------
Supermarkets -- 0.3%
Meyer (Fred), Inc.* ......................... 5,100 $ 185,513
Safeway, Inc.* .............................. 10,000 632,500
------------
$ 818,013
------------
Telecommunications -- 0.7%
AT&T Corp. .................................. 36,300 $ 2,223,375
------------
Utilities -- Electric -- 4.3%
Carolina Power & Light Co. .................. 28,200 $ 1,196,738
Cinergy Corp. ............................... 20,000 766,250
CMS Energy Corp. ............................ 22,300 982,594
DPL, Inc. ................................... 20,000 575,000
Duke Energy Corp. ........................... 26,680 1,477,405
Issuer Shares Value
Utilities -- Electric -- continued
FPL Group, Inc. ............................. 43,000 $ 2,545,062
GPU, Inc. ................................... 33,400 1,406,975
New Century Energies, Inc. .................. 25,000 1,198,437
Pacificorp .................................. 46,100 1,259,106
Pinnacle West Capital Corp. ................. 39,600 1,678,050
Texas Utilities Co. ......................... 14,000 581,875
------------
$ 13,667,492
------------
Utilities -- Gas -- 1.8%
Coastal Corp. ............................... 39,300 $ 2,434,144
Keyspan Energy Corp. ........................ 16,600 611,087
Pacific Enterprises ......................... 14,000 526,750
UGI Corp. ................................... 20,000 586,250
Williams Cos., Inc. ......................... 51,200 1,452,800
------------
$ 5,611,031
------------
Utilities -- Telephone -- 2.4%
BellSouth Corp. ............................. 27,900 $ 1,571,119
GTE Corp. ................................... 60,000 3,135,000
SBC Communications, Inc. .................... 14,072 1,030,774
Sprint Corp. ................................ 33,900 1,987,387
------------
$ 7,724,280
------------
Total U.S. Stocks .............................................. $158,925,814
------------
Foreign Stocks -- 6.7%
Canada -- 0.4%
Canadian National Railway Co.
(Railroads) ................................ 25,000 $ 1,181,250
------------
France -- 0.3%
Alcatel Alsthom, ADR
(Telecommunications) ....................... 39,300 $ 994,781
------------
Germany -- 1.0%
Hoechst AG (Chemicals) ...................... 19,000 $ 666,110
Henkel Kgaa (Chemicals) ..................... 38,300 2,419,060
------------
$ 3,085,170
------------
Netherlands -- 1.6%
Akzo Nobel N.V. (Chemicals) ................. 15,200 $ 2,623,122
Royal Dutch Petroleum Co., ADR
(Oils) ..................................... 47,900 2,595,581
------------
$ 5,218,703
------------
Spain -- 0.2%
Repsol S.A., ADR (Oil Services) ............. 17,000 $ 723,563
------------
21 - TRVA
<PAGE>
Portfolio of Investments -- continued
Stocks -- continued
Issuer Shares Value
Sweden -- 0.1%
Astra AB, "A", ADR (Medical and
Health Products) ......................... 1 $ 11
Volvo AB, ADR (Automotive) ................ 14,000 378,000
------------
$ 378,011
------------
Switzerland -- 0.6%
Novartis AG (Pharmaceuticals) ............. 1,233 $ 2,004,122
------------
United Kingdom -- 2.5%
British Petroleum PLC, ADR (Oils) ......... 52,556 $ 4,188,056
Diageo PLC (Food and Beverages) ........... 86,200 789,820
SmithKline-Beecham PLC, ADR
(Medical and Health Products) ............ 58,200 2,993,663
------------
$ 7,971,539
------------
Total Foreign Stocks .............................. $ 21,557,139
------------
Total Stocks (Identified Cost, $128,644,415) ...... $180,482,953
------------
Bonds -- 33.2%
Principal Amount
(000 Omitted)
U.S. Bonds -- 22.2%
Aerospace -- 0.1%
Northrup Grumman Corp.,
9.375s, 2024 .............................. $ 225 $ 260,948
------------
Airlines -- 1.2%
Continental Airlines Pass-Through
Trust, Inc., 7.461s, 2015 ................. $ 100 $ 105,847
Continental Airlines, Inc., 9.5s, 2001 ..... 625 656,250
Delta Air Lines, Inc., 8.5s, 2002 .......... 400 426,828
Jet Equipment Trust, 8.64s, 2012## ......... 237 267,410
Jet Equipment Trust, 9.41s, 2010## ......... 330 394,746
Jet Equipment Trust, 10.69s, 2015## ........ 250 328,670
Jet Equipment Trust, 11.44s, 2014## ........ 300 401,154
Northwest Airlines, Inc., 8.7s, 2007 ....... 100 106,188
United Airlines Pass-Through Trust,
7.27s, 2013 ............................... 1,193 1,238,858
------------
$ 3,925,951
------------
Automotive -- 0.1%
Ford Motor Co., 7.7s, 2097 ................. $ 380 $ 417,548
------------
Principal Amount
Issuer (000 Omitted) Value
Banks and Credit Companies -- 1.6%
Beaver Valley Funding Corp., 9s, 2017 $ 350 $ 389,116
BT Institutional Capital Trust,
7.75s, 2026## .................................. 400 409,496
Capital One Financial Corp.,
7.25s, 2003 .................................... 400 403,536
Colonial Capital II, 8.92s, 2027 ................ 235 257,513
First Chicago NBD Institutional Capital,
7.95s, 2026## .................................. 250 261,633
MBNA Capital, 8.278s, 2026 ...................... 1,200 1,255,248
Riggs National Corp., 8.5s, 2006 ................ 200 209,772
Socgen Real Estate Co., 7.64s, 2049## 800 819,856
State Street Bank & Trust I,
7.94s, 2026## .................................. 350 371,721
Washington Mutual Capital I,
8.375s, 2027 ................................... 540 595,285
----------
$4,973,176
----------
Building -- 0.1%
Owens Corning Fiberglass Corp.,
8.875s, 2002 ................................... $ 200 $ 217,626
Owens Corning Fiberglass Corp.,
9.9s, 2015## ................................... 192 215,236
----------
$ 432,862
----------
Cellular Telephones -- 0.1%
U.S. Cellular Corp., 7.25s, 2007 ................ $ 300 $ 306,369
----------
Chemicals -- 0.2%
Solutia Inc., 7.375s, 2027 ...................... $ 470 $ 482,530
----------
Construction Services -- 0.4%
Georgia Pacific Corp., 9.875s, 2021 ............. $1,150 $1,301,627
----------
Consumer Goods and
Services -- 0.3%
Philip Morris Cos. Inc., 7.75s, 2027 ............ $ 450 $ 485,973
Philip Morris Cos., Inc., 7.65s, 2008 ........... 300 318,351
----------
$ 804,324
----------
Corporate Asset Backed -- 3.4%
AT&T Universal Card Master Trust,
6.006s, 2003 ................................... $3,500 $3,497,795
AT&T Universal Card Master Trust,
5.965s, 2004 ................................... 2,000 1,999,360
BCF LLC, 7.75s, 2026## .......................... 196 196,120
22 - TRVA
<PAGE>
Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
Corporate Asset Backed -- continued
Beneficial Home Equity Loan Trust,
5.808s, 2037 ...................................... $ 2,858 $ 2,852,732
Continental Airlines, Inc., 9.5s, 2013 ............. 147 171,044
Continental Airlines, Inc., 10.22s, 2014 632 766,710
Loewen Group, Inc. Pass-Through Ctf.,
6.7s, 1999 ........................................ 638 634,727
MBNA Master Credit Card Trust II,
5.86s, 2005 ....................................... 600 600,000
------------
$ 10,718,488
------------
Entertainment -- 2.1%
Circus Circus Enterprises, Inc.,
6.7s, 2096 ........................................ $ 300 $ 299,661
Circus Circus Enterprises, Inc.,
7s, 2036 .......................................... 700 715,743
Hearst Argyle Television Inc.,
7.5s, 2027 ........................................ 477 491,405
Time Warner Pass-Through Asset
Trust, 6.1s, 2001## ............................... 3,500 3,429,370
Time Warner, Inc., 9.125s, 2013 .................... 785 934,755
Time Warner, Inc., 9.15s, 2023 ..................... 500 616,045
------------
$ 6,486,979
------------
Financial Institutions -- 2.2%
Dynex Capital, Inc., 7.875s, 2002 .................. $ 470 $ 475,823
First Empire Capital Trust I,
8.234s, 2027 ...................................... 845 909,854
First Merchants Acceptance Corp.,
9.5s, 2006 ........................................ 160 64,000
Greenpoint Capital Trust I, 9.1s, 2027 ............. 200 220,316
Lehman Brothers, Inc., 7.125s, 2003 ................ 400 408,980
Lehman Brothers, Inc., 7.375s, 2004 ................ 100 103,523
Lehman Brothers, Inc., 7.5s, 2026 .................. 1,150 1,217,114
Leucadia Capital Trust, 8.65s, 2027 ................ 310 331,632
MBNA Corp., 6.963s, 2002## ......................... 900 914,670
Nationwide Mutual Life Insurance Co.,
7.5s, 2024## ...................................... 750 756,262
Salomon, Inc., 7.2s, 2004 .......................... 180 186,759
Salton Sea Funding Corp., 7.37s, 2005 400 407,708
Salton Sea Funding Corp., 7.84s, 2010 400 426,016
Salton Sea Funding Corp., 8.3s, 2011 ............... 200 217,006
United Cos. Financial Corp., 7.7s, 2004 200 201,316
------------
$ 6,840,979
------------
Principal Amount
Issuer (000 Omitted) Value
Financial Services -- 0.2%
Bear Stearns, Inc., 6.75s, 2007 .................... $ 500 $ 503,930
Contifinancial Corp., 7.5s, 2002 ................... 170 166,387
------------
$ 670,317
------------
Forest and Paper Products -- 0.4%
Boise Cascade Co., 7.43s, 2005 ..................... $ 250 $ 261,915
Boise Cascade Co., 9.85s, 2002 ..................... 600 677,358
Waterford 3 Funding Corp.,
8.09s, 2017 ....................................... 300 313,602
------------
$ 1,252,875
------------
Insurance -- 1.6%
Conseco Finance Trust III,
8.796s, 2027 ...................................... $ 250 $ 282,390
Equitable Life Assurance Society,
7.7s, 2015## ...................................... 833 885,212
Providian Capital I, 9.525s, 2027## ................ 850 928,455
Safeco Capital Trust I, 8.072s, 2037 ............... 1,925 2,010,817
Travelers Capital III, 7.75s, 2036 ................. 790 819,254
------------
$ 4,926,128
------------
Medical and Health Technology
and Services -- 0.2%
Tenet Healthcare Corp., 8s, 2005 ................... $ 575 $ 585,063
------------
Oil Services -- 0.3%
Seacorp Smit, Inc., 7.2s, 2009 ..................... $ 675 $ 688,500
Ultramar Diamond Shamrock Corp.,
7.2s, 2017 ........................................ 395 405,637
------------
$ 1,094,137
------------
Oils -- 0.8%
Chesapeake Energy Corp.,
7.875s, 2004 ...................................... $ 270 $ 265,275
Enserch Exploration, Inc.,
7.54s, 2009## ..................................... 350 351,015
Gulf Canada, 9.25s, 2004 ........................... 260 274,201
Lasmo Usa, Inc., 7.3s, 2027 ........................ 382 390,118
Louisiana Land & Exploration Co.,
7.65s, 2023 ....................................... 500 543,250
Oryx Energy Co., 10s, 2001 ......................... 290 318,585
Transocean Offshore, Inc., 8s, 2027 ................ 305 344,955
------------
$ 2,487,399
------------
23 - TRVA
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
Precious Metals and Minerals
Freeport McMoRan Copper Gold, Inc.,
7.5s, 2006 ..................................... $ 139 $ 118,186
------------
Restaurants and Lodging -- 0.4%
Hilton Hotels Corp., 7.95s, 2007 ................ $ 940 $ 997,152
Mirage Resorts, Inc., 6.75s, 2007 ............... 180 179,444
------------
$ 1,176,596
------------
Telecommunications -- 1.3%
Continental Cablevision, Inc.,
8.3s, 2006 ..................................... $ 200 $ 218,282
Fox/Liberty Networks LLC, Inc.,
8.875s, 2007## ................................. 170 169,575
TCI Communications Financing III,
9.65s, 2027 .................................... 700 819,434
Tele-Communications, Inc., 8.25s, 2003 260 277,651
Tele-Communications, Inc., 7.38s, 2001 250 255,908
Tele-Communications, Inc., 7.49s, 2003 800 824,464
WorldCom, Inc., 7.75s, 2007 ..................... 580 622,856
WorldCom, Inc., 7.75s, 2027 ..................... 393 432,555
WorldCom, Inc., 8.875s, 2006 .................... 320 344,294
------------
$ 3,965,019
------------
Transportation -- 0.1%
Federal Express Corp., 7.65s, 2014 .............. $ 250 $ 267,143
------------
Utilities -- Electric -- 4.0%
CalEnergy Co., Inc., 7.63s, 2007 ................ $ 200 $ 201,844
Cleveland Electric Illuminating Co.,
7.88s, 2017## .................................. 575 607,027
Cleveland Electric Illuminating Co.,
9s, 2023 ....................................... 450 489,708
Comed Financing II, 8.5s, 2027 .................. 300 321,228
Commonwealth Edison Co., 6.4s, 2005 300 293,802
Commonwealth Edison Co.,
7.625s, 2007 ................................... 830 875,965
Edison Mission Energy, 7.33s, 2008 .............. 100 104,438
El Paso Electric Co., 8.9s, 2006 ................ 125 136,676
First PV Funding Corp., 10.15s, 2016 ............ 348 376,700
First PV Funding Corp., 10.3s, 2014 ............. 251 271,389
Long Island Lighting Co., 7.5s, 2007 ............ 275 284,856
Long Island Lighting Co., 8.9s, 2019 ............ 820 872,554
Long Island Lighting Co., 9s, 2022 .............. 1,825 2,037,740
Long Island Lighting Co., 9.625s,
2024 ........................................... 250 253,583
Principal Amount
Issuer (000 Omitted) Value
Utilities -- Electric -- continued
Midland Cogeneration Venture Corp.,
10.33s, 2002 ................................... $ 408 $ 438,738
Midland Funding Corp. II, "A",
11.75s, 2005 ................................... 540 648,729
Montana Power Co., 7.875s, 2026 ................. 750 839,513
Niagara Mohawk Power Corp.,
6.875s, 2001 ................................... 500 503,350
Niagara Mohawk Power Corp.,
7.875s, 2023 ................................... 300 299,153
Niagara Mohawk Power Corp.,
7.875s, 2024 ................................... 250 252,705
Niagara Mohawk Power Corp.,
8.5s, 2023 ..................................... 285 304,862
Niagara Mohawk Power Corp.,
8.77s, 2018 .................................... 932 1,003,242
North Atlantic Energy, 9.05s, 2002 .............. 100 102,764
Southern Co. Capital Trust,
8.19s, 2037 .................................... 251 265,342
Texas & New Mexico Power Co.,
12.5s, 1999 .................................... 278 293,618
Texas Utilities Electric Co., 7.17s, 2007 470 488,979
Toledo Edison Co., 7.875s, 2004 ................. 250 261,168
------------
$ 12,829,673
------------
Utilities -- Gas -- 0.6%
California Energy, Inc., 10.25s, 2004 ........... $ 600 $ 654,240
Louis Dreyfus Natural Gas Corp.,
6.875s, 2007## ................................. 430 430,000
Tennessee Gas Pipeline Co.,
7.625s, 2037 ................................... 400 431,760
Texas Gas Transmission Corp.,
7.25s, 2027 .................................... 400 416,188
------------
$ 1,932,188
------------
Other -- 0.5%
Burlington Industries, Inc., New,
7.25s, 2027 .................................... $ 240 $ 252,286
News America Holdings, Inc.,
7.75s, 2045 .................................... 870 900,833
News America Holdings, Inc., 8s, 2016 540 579,593
------------
$ 1,732,712
------------
Total U.S. Bonds .......................................... $ 69,989,217
------------
24 - TRVA
<PAGE>
Bonds -- continued
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Foreign Bonds -- 1.1%
Argentina -- 0.2%
Hidroelectrica Alicura, 8.375s, 1999##.................................. $ 500 $ 495,000
------------
Chile -- 0.2%
Empresa Nacional De Electric, 7.325s,
2037................................................................... $ 379 $ 382,729
Empresa Electrica Del Norts, 7.75s, 2006##.............................. 190 184,458
------------
$ 567,187
------------
Colombia -- 0.1%
Republic of Colombia, 8.75s, 1999 ...................................... $ 250 $ 257,455
------------
Finland -- 0.2%
Upm Kymmene Corp., 7.45s, 2027## ....................................... $ 500 $ 504,062
------------
Indonesia -- 0.1%
PT Polysindo Eka Perkasa, 13s, 2001..................................... $ 444 $ 404,040
------------
Mexico -- 0.1%
Banco Commercial S.A., 8.25s, 2007## . $ 280 $ 271,236
------------
Panama -- 0.1%
Republic of Panama, 7.85s, 2002## ...................................... $ 195 $ 188,906
------------
Thailand -- 0.1%
Jasmine Submarine Telecom Ltd.,
8.483s, 2011## ........................................................ $ 490 $ 415,104
------------
Total Foreign Bonds ..................................................................... $ 3,102,990
------------
U.S. Government Guaranteed -- 6.8%
Government National Mortgage
Association -- 1.5%
GNMA, 7.5s, 2026-2027 .................................................. $ 3,123 $ 3,199,306
GNMA, 8s, 2025 ......................................................... 1,400 1,461,250
------------
$ 4,660,556
------------
U.S. Treasury Obligations -- 5.3%
U.S. Treasury Notes, 9.25s, 1998 ....................................... $ 950 $ 970,634
U.S. Treasury Notes, 5.875s, 1999 ...................................... 1,985 1,991,193
U.S. Treasury Notes, 6.25s, 2002 ....................................... 2,015 2,056,247
U.S. Treasury Notes, 7.25s, 2004 ....................................... 1,313 1,417,016
U.S. Treasury Notes, 6.5s, 2006 ........................................ 2,295 2,402,934
U.S. Treasury Notes, 6.125s, 2007 ...................................... 2,083 2,140,616
U.S. Treasury Bonds, 6.125s, 2027 ...................................... 990 1,017,383
U.S. Treasury Bonds, 6.375s, 2027 ...................................... 3,730 3,933,994
U.S. Treasury Bonds, 6.625s, 2027 ...................................... 721 782,732
------------
$ 16,712,749
------------
Total U.S. Government Guaranteed ......................................................... $ 21,373,305
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Federal Agencies -- 3.1%
Federal National Mortgage
Association -- 3.1%
FNMA, 7s, 2012-2012 .................................................... $ 3,842 $ 3,898,560
FNMA, 7.5s, 2011 ....................................................... 5,758 5,907,659
------------
Total U.S. Federal Agencies ............................................................ $ 9,806,219
------------
Total Bonds (Identified Cost, $101,503,965) ............................................ $104,271,911
------------
Convertible Bond -- 0.3%
Newell Financial Trust Co.*, 5.25s
(Industrial)## (Identified Cost
$1,020,525) ........................................................... $ 20 $ 1,063,350
------------
</TABLE>
Preferred Stock -- 0.4%
<TABLE>
<CAPTION>
Shares
<S> <C> <C>
Printing and Publishing -- 0.1%
NB Capital Corp., 8.35%*## ................ 400 $ 436,400
------------
Utilities -- Electric -- 0.2%
Long Island Lighting Co. .................. 20,000 $ 522,500
------------
Utilities -- Gas -- 0.1%
El Paso Tennessee Pipeline Co., 8.25% ..... 4,000 $ 223,000
------------
Total Preferred Stock (Identified Cost, $1,088,900) $ 1,181,900
------------
</TABLE>
Short-Term Obligations -- 9.1%
<TABLE>
<CAPTION>
Principal Amount
(000 Omitted)
<S> <C> <C>
Federal Home Loan Bank, due 1/02/98..... $ 860 $ 859,887
Federal Home Loan Bank, due 1/21/98..... 8,153 8,128,088
Federal Home Loan Mortgage Corp.,
due 1/02/98-1/09/98 ................... 19,880 19,862,708
------------
Total Short-Term Obligations, at Amortized Cost ....... $ 28,850,683
------------
Total Investments (Identified Cost, $261,108,488) ..... $315,850,797
Other Assets, Less Liabilities -- 0.3% ................... 1,054,742
------------
Net Assets -- 100% ................................... $316,905,539
============
</TABLE>
See portfolio footnotes and notes to financial statements
25 - TRVA
<PAGE>
Portfolio of Investments -- December 31, 1997
World Government Variable Account
Bonds -- 93.4%
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
U.S. Bonds -- 50.1%
Federal National Mortgage
Association -- 7.5%
Federal National Mortgage Assn.,
2.125s, 2007 ............................. $ 230,000 $ 1,800,423
------------
U.S. Treasury Obligations -- 42.6%
U.S. Treasury Notes, 6.625s, 2002 ......... $ 1,530 $ 1,580,199
U.S. Treasury Notes, 5.75s, 2003 .......... 3,100 3,101,922
U.S. Treasury Notes, 5.875s, 2004 ......... 1,200 1,210,500
U.S. Treasury Notes, 6.5s, 2005 ........... 4,200 4,378,500
------------
$ 10,271,121
------------
Total U.S. Bonds ......................................... $ 12,071,544
------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Foreign Bonds -- 43.3%
Germany -- 13.4%
Federal Republic of Germany,
6.25s, 2006 .................................. DEM 3,521 $ 2,078,899
Treuhandanstalt, 6s, 2003 ..................... 1,989 1,159,973
------------
$ 3,238,872
------------
Italy -- 5.5%
Republic of Italy, 9.5s, 1999 ................. ITL 895,000 $ 528,645
Republic of Italy, 8.5s, 2004 ................. 1,220,000 797,504
------------
$ 1,326,149
------------
Japan -- 11.4%
International Bank of Reconstruction
and Development, 4.5s, 2003 .................. JPY 207,000 $ 1,844,633
Japan Development Bank, 2.875s,
2006 ......................................... 110,000 912,579
------------
$ 2,757,212
------------
Spain -- 3.1%
Government of Spain, 7.35s, 2007 .............. ESP 99,750 $ 736,484
------------
Sweden -- 2.0%
Kingdom of Sweden, 6s, 2005 ................... SEK 3,700 $ 469,849
------------
United Kingdom -- 7.9%
U.K. Treasury, 10s, 2003 ...................... GBP 550 $ 1,052,337
U.K. Treasury, 7.75s, 2006 .................... 480 860,170
------------
$ 1,912,507
------------
Total Foreign Bonds ............................................. $ 10,441,073
------------
</TABLE>
Short-Term Obligations -- 4.1%
<TABLE>
<S> <C>
Foreign Bonds -- 43.3%
Total Bonds (Identified Cost, $22,579,231)......................... $ 22,512,617
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
Issuer (000 Omitted) Value
<S> <C> <C>
Associates Corp. of North America,
due 1/02/98, at Amortized Cost and
Value ............................... $ 1,000 $ 999,814
------------
Put Options Purchased -- 0.5%
Principal Amount
of Contracts
Issuer/Expiration Month/Strike Price (000 Omitted)
Australian Dollars/
December/0.71 ....................... $ 1,431 $ 4,374
Japanese Yen/
April/130 ........................... 598,845 105,396
------------
Total Put Options Purchased
(Identified Cost, $96,172)............................ $ 109,770
------------
Total Investments (Identified Cost, $23,675,217)....... $23,622,201
------------
Call Options Written -- (0.1)%
Japanese Yen/
May/119
(Premiums Received, $46,762)......... (296,310) $ (24,001)
Other Assets, Less Liabilities -- 2.1% ................... 498,410
------------
Net Assets - 100.0% ................................... $24,096,610
============
</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.
### Security segregated as collateral for an open futures contract.
+ Restricted security.
[dbldag] Security valued by or at the direction of the Trustees.
[dbldag][dbldag] Inverse floating rate security.
[sec][sec] When issued security. At December 31, 1997, the account had
sufficient cash and/or securities at least equal to the value of the
when-issued security.
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. dollar. A list of abbreviations is shown
below.
CAD = Canadian Dollars ITL = Italian Lire
CHF = Swiss Francs JPY = Japanese Yen
DEM = Deutsche Marks NLG = Dutch Guilders
ESP = Spanish Pesetas SEK = Swedish Kronor
GBP = British Pounds
26 - WGVA
<PAGE>
Statements of Assets and Liabilities -- December 31, 1997
(000 Omitted)
<TABLE>
<CAPTION>
Capital Government High
Appreciation Securities Yield
Variable Variable Variable
Account Account Account
Assets: -------------- ------------ ----------
<S> <C> <C> <C>
Investments --
Identified cost .................................... $462,103 $184,719 $194,693
Unrealized appreciation (depreciation) ............. 159,935 7,769 3,942
-------- -------- --------
Total value ....................................... $622,038 $192,488 $198,635
Cash ................................................ 550 85 92
Net receivable for forward foreign currency
exchange contracts to purchase ..................... -- -- --
Net receivable for foreign currency exchange
contracts closed or subjected to master
netting agreement .................................. -- -- --
Receivable for investments sold ..................... 7,832 -- --
Receivable for units sold ........................... 40 5 2
Interest and dividends receivable ................... 469 1,813 3,838
Receivable from sponsor ............................. -- -- 89
Other assets ........................................ 5 2 2
-------- -------- --------
Total assets ...................................... $630,934 $194,393 $202,658
-------- -------- --------
Liabilities:
Payable for investments purchased ................... $ 2,432 $ 241 $ --
Payable for units surrendered ....................... 419 -- 62
Written options outstanding, at value
(premiums received, $274 and $46, respectively) -- -- --
Payable for forward foreign currency exchange
contracts to sell .................................. -- -- --
Payable to affiliates --
Investment adviser ................................. 12 3 4
Administrative fee ................................. -- -- --
Sponsor ............................................ 697 90 --
Payable for daily variation margin on open
futures contracts .................................. -- 36 --
Accrued expenses and other liabilities .............. 86 88 59
-------- -------- ---------
Total liabilities ................................. $ 3,646 $ 458 $ 125
-------- -------- ---------
Net assets ........................................ $627,288 $193,935 $202,533
======== ======== =========
<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 .................................... $104,861 $112,558 $261,108 $23,675
Unrealized appreciation (depreciation) ............. 14,023 -- 54,743 (53)
-------- -------- -------- -------
Total value ....................................... $118,884 $112,558 $315,851 $23,622
Cash ................................................ 29 5 200 15
Net receivable for forward foreign currency
exchange contracts to purchase ..................... -- -- -- 105
Net receivable for foreign currency exchange
contracts closed or subjected to master
netting agreement .................................. -- -- -- 555
Receivable for investments sold ..................... 4,145 -- 205 1,184
Receivable for units sold ........................... 165 31 35 --
Interest and dividends receivable ................... 69 -- 2,196 427
Receivable from sponsor ............................. -- -- 426 --
Other assets ........................................ 2 14 3 --
-------- -------- -------- -------
Total assets ...................................... $123,294 $112,608 $318,916 $25,908
-------- -------- -------- -------
Liabilities:
Payable for investments purchased ................... $ 55 $ -- $ 1,706 $ 1,184
Payable for units surrendered ....................... 150 9 247 11
Written options outstanding, at value
(premiums received, $274 and $46, respectively) 1,253 -- -- 24
Payable for forward foreign currency exchange
contracts to sell .................................. -- -- -- 541
Payable to affiliates --
Investment adviser ................................. 2 2 6 --
Administrative fee ................................. -- 1 1 --
Sponsor ............................................ 61 109 -- 21
Payable for daily variation margin on open
futures contracts .................................. -- -- -- --
Accrued expenses and other liabilities .............. 34 40 50 30
-------- --------- -------- -------
Total liabilities ................................. $ 1,555 $ 161 $ 2,010 $ 1,811
-------- --------- -------- -------
Net assets ........................................ $121,739 $112,447 $316,906 $24,097
======== ========= ======== =======
</TABLE>
See notes to financial statements
27
<PAGE>
Statements of Assets and Liabilities -- December 31, 1997 -- 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 ................................................ 8,173 $ 55.3902 $452,665
Compass 3 ................................................ 2,953 36.7764 108,603
Compass 3 - Level 2 ...................................... 3,971 15.1500 60,166
Government Securities
Variable Account --
Compass 2 ................................................ 5,613 $ 27.5372 $154,562
Compass 3 ................................................ 1,129 19.3693 21,859
Compass 3 - Level 2 ...................................... 1,319 11.2258 14,812
High Yield
Variable Account --
Compass 2 ................................................ 4,424 $ 32.6450
Compass 3 ................................................ 1,209 24.1529
Compass 3 - Level 2 ...................................... 2,042 12.7936
Managed Sectors
Variable Account --
Compass 2 ................................................ 736 $ 45.4522
Compass 3 ................................................ 1,258 45.0995
Compass 3 - Level 2 ...................................... 2,156 14.4652
Money Market
Variable Account --
Compass 2 ................................................ 4,639 $ 17.7451
Compass 3 ................................................ 1,160 14.6369
Compass 3 - Level 2 ...................................... 1,104 10.8587
Total Return
Variable Account --
Compass 2 ................................................ 3,956 $ 30.1563
Compass 3 ................................................ 4,024 29.7131
Compass 3 - Level 2 ...................................... 5,260 14.2173
World Governments
Variable Account --
Compass 2 ................................................ 435 $ 18.2798
Compass 3 ................................................ 500 18.0103
Compass 3 - Level 2 ...................................... 670 10.4553
-------- --------
Net assets applicable to owners of deferred contracts ..... 621,434 191,233
Reserve for variable annuities --
Compass 2 Contracts ......................................................... 5,347 2,497
Compass 3 Contracts ......................................................... 144 74
Compass 3 - Level 2 Contracts ............................................... 363 131
-------- --------
Net assets ................................................................ $627,288 $193,935
======== ========
<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 ................................................ $144,409
Compass 3 ................................................ 29,184
Compass 3 - Level 2 ...................................... 26,127
Managed Sectors
Variable Account --
Compass 2 ................................................ $ 33,400
Compass 3 ................................................ 56,753
Compass 3 - Level 2 ...................................... 31,191
Money Market
Variable Account --
Compass 2 ................................................ $ 82,283
Compass 3 ................................................ 16,967
Compass 3 - Level 2 ...................................... 11,991
Total Return
Variable Account --
Compass 2 ................................................ $119,276
Compass 3 ................................................ 119,548
Compass 3 - Level 2 ...................................... 74,789
World Governments
Variable Account --
Compass 2 ................................................ $ 7,942
Compass 3 ................................................ 9,006
Compass 3 - Level 2 ...................................... 7,005
-------- -------- -------- -------- -------
Net assets applicable to owners of deferred contracts ..... 199,720 121,344 111,241 313,613 23,953
Reserve for variable annuities --
Compass 2 Contracts ................................... 2,799 210 1,203 2,870 62
Compass 3 Contracts ................................... 14 136 1 186 1
Compass 3 - Level 2 Contracts ......................... -- 49 2 237 81
-------- -------- -------- -------- -------
Net assets .......................................... $202,533 $121,739 $112,447 $316,906 $24,097
======== ======== ======== ======== =======
</TABLE>
See notes to financial statements
28
<PAGE>
Statements of Operations -- Year Ended December 31, 1997
(000 Omitted)
<TABLE>
<CAPTION>
Capital Government High
Appreciation Securities Yield
Variable Variable Variable
Account Account Account
-------------- ------------ ----------
<S> <C> <C> <C>
Net investment income (expense):
Income --
Interest .......................................................... $ 455 $15,366 $18,110
Dividends ......................................................... 3,299 -- 248
Foreign taxes withheld ............................................ -- -- --
-------- -------- -------
Total investment income ......................................... $ 3,754 $15,366 $18,358
-------- -------- -------
Expenses --
Mortality and expense risk charges ................................ $ 7,684 $ 2,681 $ 2,412
Management fees ................................................... 4,299 1,160 1,429
Administrative fees ............................................... 72 24 22
Custodian fees .................................................... 219 89 79
Distribution expense charges ...................................... 166 37 40
Auditing fees ..................................................... 34 42 47
Legal fees ........................................................ 2 2 2
Boards of Managers fees and expenses .............................. 6 6 6
Printing .......................................................... 45 41 35
Miscellaneous ..................................................... 18 30 --
-------- -------- -------
Total expenses .................................................. $ 12,545 $ 4,112 $ 4,072
Fees paid indirectly .............................................. (6) (4) (18)
---------- --------- -------
Net expenses .................................................... $ 12,539 $ 4,108 $ 4,054
--------- -------- -------
Net investment income (expense) ............................... $ (8,785) $11,258 $14,304
========= ======== =======
Realized and unrealized gains (losses) on investments:
Realized gains (losses)(identified cost basis) --
Investment transactions .......................................... $103,156 $ 2,714 $ 7,104
Written option transactions ...................................... -- -- --
Futures contracts ................................................ -- (290) --
Foreign currency transactions .................................... (15) -- 2
--------- -------- -------
Net realized gains (losses) on investments and foreign
currency transactions .......................................... $103,141 $ 2,424 $ 7,106
--------- -------- -------
Change in unrealized appreciation (depreciation) --
Investments ....................................................... $ 23,047 $ 1,049 $ 1,659
Written options ................................................... -- -- --
Futures contracts ................................................. -- (27) --
Translation of assets and liabilities in foreign currencies ....... -- -- --
--------- -------- -------
Net unrealized gains (losses) on investments and foreign
currency translation ............................................ $ 23,047 $ 1,022 $ 1,659
--------- -------- -------
Net realized and unrealized gains (losses) on
investments and foreign currency ............................... $126,188 $ 3,446 $ 8,765
--------- -------- -------
Increase (decrease) in net assets from operations .............. $117,403 $14,704 $23,069
========= ======== =======
<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 (expense):
Income --
Interest .......................................................... $ 206 $7,090 $ 9,075 $ 1,697
Dividends ......................................................... 433 -- 4,323 --
Foreign taxes withheld ............................................ (2) -- (36) --
---------- ------ -------- -------
Total investment income ......................................... $ 637 $7,090 $13,362 $ 1,697
--------- ------ -------- -------
Expenses --
Mortality and expense risk charges ................................ $ 1,390 $1,629 $ 3,710 $ 331
Management fees ................................................... 836 639 2,247 201
Administrative fees ............................................... 13 15 35 3
Custodian fees .................................................... 49 55 123 26
Distribution expense charges ...................................... 84 37 182 16
Auditing fees ..................................................... 33 29 36 34
Legal fees ........................................................ 2 1 2 2
Boards of Managers fees and expenses .............................. 6 -- 6 8
Printing .......................................................... 12 17 24 10
Miscellaneous ..................................................... 4 -- 5 2
--------- ------ -------- -------
Total expenses .................................................. $ 2,429 $2,422 $ 6,370 $ 633
Fees paid indirectly .............................................. (1) (7) (8) (1)
---------- -------- --------- --------
Net expenses .................................................... $ 2,428 $2,415 $ 6,362 $ 632
--------- ------- -------- --------
Net investment income (expense) ............................... $(1,791) $4,675 $ 7,000 $ 1,065
========= ======= ======== ========
Realized and unrealized gains (losses) on investments:
Realized gains (losses)(identified cost basis) --
Investment transactions .......................................... $19,853 $ -- $33,820 $(1,267)
Written option transactions ...................................... 714 -- -- (194)
Futures contracts ................................................ -- -- -- --
Foreign currency transactions .................................... (3) -- (5) (260)
---------- ------- --------- ---------
Net realized gains (losses) on investments and foreign
currency transactions .......................................... $20,564 $ -- $33,815 $(1,721)
--------- ------- -------- ---------
Change in unrealized appreciation (depreciation) --
Investments ....................................................... $ 5,386 $ -- $14,739 $ (767)
Written options ................................................... (979) -- -- 309
Futures contracts ................................................. -- -- -- --
Translation of assets and liabilities in foreign currencies ....... -- -- -- 366
--------- ------- -------- ---------
Net unrealized gains (losses) on investments and foreign
currency translation ............................................ $ 4,407 $ -- $14,739 $ (92)
--------- ------- -------- ---------
Net realized and unrealized gains (losses) on
investments and foreign currency ............................... $24,971 $ -- $48,554 $(1,813)
--------- -------- -------- ---------
Increase (decrease) in net assets from operations .............. $23,180 $4,675 $55,554 $ (748)
========= ======== ======== =========
</TABLE>
See notes to financial statements
29
<PAGE>
Statements of Changes in Net Assets
(000 Omitted)
<TABLE>
<CAPTION>
Capital Appreciation
Variable Account
-----------------------------
Year Ended Year Ended
December 31, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income (expense) .................. $ (8,785) $ (7,493)
Net realized gains (losses) on investments and
foreign currency transactions ................... 103,141 73,931
Net unrealized gains (losses) on investments
and foreign currency translation ................ 23,047 32,377
--------- ---------
Increase in net assets from operations .......... $117,403 $ 98,815
--------- ---------
Participant transactions:
Accumulation activity:
Purchase payments received ....................... $ 22,456 $ 21,404
Net transfers between variable and fixed
accumulation accounts ........................... (2,471) 554
Withdrawals, surrenders, annuitizations and
contract charges ................................ (66,782) (62,268)
--------- ---------
Net accumulation activity ....................... $(46,797) $(40,310)
--------- ---------
Annuitization activity:
Annuitizations ................................... $ 329 $ 585
Annuity payments and contract charges ............ (855) (811)
Net transfers among accounts for annuity
reserves ........................................ 8 18
Adjustments to annuity reserves .................. (175) (135)
--------- ---------
Net annuitization activity ...................... $ (693) $ (343)
--------- ---------
Decrease in net assets from participant
transactions .................................... $(47,490) $(40,653)
--------- ---------
Total increase (decrease) in net assets ......... $ 69,913 $ 58,162
Net assets:
At beginning of year .............................. 557,375 499,213
--------- ---------
At end of year .................................... $627,288 $557,375
========= =========
<CAPTION>
Government Securities High Yield
Variable Account Variable Account
----------------------------- ----------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income (expense) .................. $ 11,258 $ 13,687 $ 14,304 $ 14,327
Net realized gains (losses) on investments and
foreign currency transactions ................... 2,424 (151) 7,106 2,950
Net unrealized gains (losses) on investments
and foreign currency translation ................ 1,022 (12,741) 1,659 3,209
--------- --------- --------- ---------
Increase in net assets from operations .......... $ 14,704 $ 795 $ 23,069 $ 20,486
--------- --------- --------- ---------
Participant transactions:
Accumulation activity:
Purchase payments received ....................... $ 4,669 $ 6,200 $ 4,121 $ 4,765
Net transfers between variable and fixed
accumulation accounts ........................... (14,669) 3,800 (2,934) (2,435)
Withdrawals, surrenders, annuitizations and
contract charges ................................ (38,745) (39,464) (19,891) (25,541)
--------- --------- --------- ---------
Net accumulation activity ....................... $(48,745) $(29,464) $(18,704) $(23,211)
--------- --------- --------- ---------
Annuitization activity:
Annuitizations ................................... $ 165 $ 317 $ 150 $ 118
Annuity payments and contract charges ............ (503) (480) (472) (475)
Net transfers among accounts for annuity
reserves ........................................ -- (51) -- 13
Adjustments to annuity reserves .................. 33 (69) 28 6
--------- --------- --------- ---------
Net annuitization activity ...................... $ (305) $ (283) $ (294) $ (338)
--------- --------- --------- ---------
Decrease in net assets from participant
transactions .................................... $(49,050) $(29,747) $(18,998) $(23,549)
--------- --------- --------- ---------
Total increase (decrease) in net assets ....... $(34,346) $(28,952) $ 4,071 $ (3,063)
Net assets:
At beginning of year .............................. 228,281 257,233 198,462 201,525
--------- --------- --------- ---------
At end of year .................................... $193,935 $228,281 $202,533 $198,462
========= ========= ========= =========
</TABLE>
See notes to financial statements
30
<PAGE>
Statements of Changes in Net Assets -- continued
(000 Omitted)
<TABLE>
<CAPTION>
Managed Sectors
Variable Account
-----------------------------
Year Ended Year Ended
December 31, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income (expense) ...................................... $ (1,791) $ (1,218)
Net realized gains on investments and foreign currency
transactions ........................................................ 20,564 13,675
Net unrealized gains on investments and foreign currency
translation ......................................................... 4,407 1,100
--------- ---------
Increase in net assets from operations .............................. $ 23,180 $ 13,557
--------- ---------
Participant transactions:
Accumulation activity:
Purchase payments received ........................................... $ 8,634 $ 8,975
Net transfers between variable and fixed accumulation accounts ....... 6,155 3,625
Withdrawals, surrenders, annuitizations and contract charges ......... (13,689) (11,912)
--------- ---------
Net accumulation activity ........................................... $ 1,100 $ 688
--------- ---------
Annuitization activity:
Annuitizations ....................................................... $ 237 $ 72
Annuity payments and contract charges ................................ (54) (27)
Net transfers among accounts for annuity reserves .................... 9 65
Adjustments to annuity reserves ...................................... (15) (19)
--------- ---------
Net annuitization activity .......................................... $ 177 $ 91
--------- ---------
Increase (decrease) in net assets from participant transactions ...... $ 1,277 $ 779
--------- ---------
Total increase (decrease) in net assets ............................. $ 24,457 $ 14,336
Net assets:
At beginning of year .................................................. 97,282 82,946
--------- ---------
At end of year ........................................................ $121,739 $ 97,282
========= =========
<CAPTION>
Money Market
Variable Account
----------------------------
Year Ended Year Ended
December 31, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income (expense) ...................................... $ 4,675 $ 5,126
Net realized gains on investments and foreign currency
transactions ........................................................ -- --
Net unrealized gains on investments and foreign currency
translation ......................................................... -- --
--------- ---------
Increase in net assets from operations .............................. $ 4,675 $ 5,126
--------- ---------
Participant transactions:
Accumulation activity:
Purchase payments received ........................................... $ 3,864 $ 5,979
Net transfers between variable and fixed accumulation accounts ....... 6,235 (14,269)
Withdrawals, surrenders, annuitizations and contract charges ......... (29,189) (37,717)
--------- ---------
Net accumulation activity ........................................... $(19,090) $(46,007)
--------- ---------
Annuitization activity:
Annuitizations ....................................................... $ 70 $ 300
Annuity payments and contract charges ................................ (284) (279)
Net transfers among accounts for annuity reserves .................... -- --
Adjustments to annuity reserves ...................................... 168 (208)
--------- ---------
Net annuitization activity .......................................... $ (46) $ (187)
--------- ---------
Increase (decrease) in net assets from participant transactions ...... $(19,136) $(46,194)
--------- ---------
Total increase (decrease) in net assets ............................. $(14,461) $(41,068)
Net assets:
At beginning of year .................................................. 126,908 167,976
--------- ---------
At end of year ........................................................ $112,447 $126,908
========= =========
</TABLE>
See notes to financial statements
31
<PAGE>
Statements of Changes in Net Assets -- continued
(000 Omitted)
<TABLE>
<CAPTION>
Total Return
Variable Account
-----------------------------
Year Ended Year Ended
December 31, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income ................................................ $ 7,000 $ 7,110
Net realized gains (losses) on investments and foreign currency
transactions ........................................................ 33,815 27,960
Net unrealized gains (losses) on investments and foreign currency
translation ......................................................... 14,739 (2,944)
--------- ---------
Increase (decrease) in net assets from operations ................... $ 55,554 $ 32,126
--------- ---------
Participant transactions:
Accumulation activity:
Purchase payments received ........................................... $ 15,730 $ 16,989
Net transfers between variable and fixed accumulation accounts ....... 4,273 7,233
Withdrawals, surrenders, annuitizations and contract charges ......... (43,721) (36,762)
--------- ---------
Net accumulation activity ........................................... $(23,718) $(12,540)
--------- ---------
Annuitization activity:
Annuitizations ....................................................... $ 170 $ 250
Annuity payments and contract charges ................................ (492) (436)
Net transfers among accounts for annuity reserves .................... (18) (4)
Adjustments to annuity reserves ...................................... 162 12
--------- ---------
Net annuitization activity .......................................... $ (178) $ (178)
--------- ---------
Decrease in net assets from participant transactions ................. $(23,896) $(12,718)
--------- ---------
Total increase (decrease) in net assets ............................. $ 31,658 $ 19,408
Net assets:
At beginning of year .................................................. 285,248 265,840
--------- ---------
At end of year ........................................................ $316,906 $285,248
========= =========
<CAPTION>
World Governments
Variable Account
----------------------------
Year Ended Year Ended
December 31, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations:
Net investment income ................................................ $ 1,065 $ 1,527
Net realized gains (losses) on investments and foreign currency
transactions ........................................................ (1,721) (265)
Net unrealized gains (losses) on investments and foreign currency
translation ......................................................... (92) (339)
-------- --------
Increase (decrease) in net assets from operations ................... $ (748) $ 923
-------- --------
Participant transactions:
Accumulation activity:
Purchase payments received ........................................... $ 1,455 $ 1,917
Net transfers between variable and fixed accumulation accounts ....... (2,759) (3,193)
Withdrawals, surrenders, annuitizations and contract charges ......... (5,510) (4,588)
-------- --------
Net accumulation activity ........................................... $(6,814) $(5,864)
-------- --------
Annuitization activity:
Annuitizations ....................................................... $ 6 $ --
Annuity payments and contract charges ................................ (58) (52)
Net transfers among accounts for annuity reserves .................... 1 (3)
Adjustments to annuity reserves ...................................... 25 (35)
-------- -----------
Net annuitization activity .......................................... $ (26) $ (90)
-------- -----------
Decrease in net assets from participant transactions ................. $(6,840) $(5,954)
-------- -----------
Total increase (decrease) in net assets ............................. $(7,588) $(5,031)
Net assets:
At beginning of year .................................................. 31,685 36,716
-------- -----------
At end of year ........................................................ $24,097 $31,685
======== ===========
</TABLE>
See notes to financial statements
32
<PAGE>
Per Unit and Other Data
<TABLE>
<CAPTION>
Capital Appreciation Variable
Account
---------------------------------
Compass 2
---------------------------------
Year Ended December 31,
---------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of year ............................ $45.4107 $37.7151
--------- ---------
Investment income ............................................... $ 0.3241 $ 0.2861
Expenses ........................................................ 1.0741 0.8695
--------- ---------
Net investment loss ............................................ $(0.7500) $(0.5834)
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 10.7295 8.2790
--------- ---------
Net increase (decrease) in unit value ........................... $ 9.9795 $ 7.6956
--------- ---------
Unit value:
Net asset value -- end of year .................................. $55.3902 $45.4107
========= =========
Ratios (to average net assets):
Expenses+## ..................................................... 0.77% 0.78%
Net investment loss ............................................. (1.45)% (1.41)%
Portfolio turnover ............................................... 60% 66%
Average commission rate### ....................................... $ 0.0448 $ 0.0371
Number of units outstanding at end of year (000 omitted) ......... 8,173 9,004
<CAPTION>
Capital Appreciation Variable Account
--------------------------------------------------
Compass 2
--------------------------------------------------
Year Ended December 31,
--------------------------------------------------
1995 1994 1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ............................ $28.0107 $32.9053 $29.2712
--------- --------- ---------
Investment income ............................................... $ 0.3624 $ 0.4277 $ 0.3914
Expenses ........................................................ 0.6989 0.6325 0.6436
--------- --------- ---------
Net investment loss ............................................ $(0.3365) $(0.2048) $(0.2522)
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 10.0409 (4.6898) 3.8863
--------- --------- ---------
Net increase (decrease) in unit value ........................... $ 9.7044 $(4.8946) $ 3.6341
--------- --------- ---------
Unit value:
Net asset value -- end of year .................................. $37.7151 $28.0107 $32.9053
========= ========= =========
Ratios (to average net assets):
Expenses+## ..................................................... 0.80% 0.79% 0.78%
Net investment loss ............................................. (1.02)% (0.69)% (0.83)%
Portfolio turnover ............................................... 96% 95% 56%
Average commission rate### ....................................... $ -- $ -- $ --
Number of units outstanding at end of year (000 omitted) ......... 10,014 11,310 13,833
</TABLE>
<TABLE>
<CAPTION>
Capital Appreciation Variable Account
--------------------------------------------------
Compass 3 - Level 2
--------------------------------------------------
Year Ended December 31,
--------------------------------- Period Ended
December 31,
1997 1996 1995#
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ...... $12.4143 $10.3053 $10.0000
-------- -------- --------
Investment income ......................... $ 0.0914 $ 0.0790 $ 0.0196
Expenses .................................. 0.2935 0.2370 0.0517
-------- -------- --------
Net investment loss ...................... $(0.2021) $(0.1580) $(0.0321)
Net realized and unrealized gains
(losses) on investments and
foreign currency transactions ............ 2.9378 2.2670 0.3374
-------- -------- --------
Net increase (decrease) in unit value ..... $ 2.7357 $ 2.109 $ 0.3053
-------- -------- --------
Unit value:
Net asset value -- end of year ............ $15.1500 $12.4143 $10.3053
======== ======== ========
Ratios (to average net assets):
Expenses+## ............................... 0.77% 0.78% 0.80%
Net investment loss ....................... (1.45)% (1.41)% (1.02)%
Portfolio turnover ......................... 60% 66% 96%
Average commission rate### ................. $ 0.0448 $ 0.0371 $ --
Number of units outstanding at end
of year (000 omitted) ..................... 3,971 2,494 955
<CAPTION>
Capital Appreciation Variable Account
------------------------------------------------------------------------------------
Compass 3
------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ...... $30.1803 $25.0907 $18.6531 $21.9341 $19.5311
-------- -------- -------- -------- --------
Investment income ......................... $ 0.2107 $ 0.1893 $ 0.2402 $ 0.2870 $ 0.2617
Expenses .................................. 0.7383 0.6053 0.4847 0.4421 0.4498
-------- -------- -------- -------- --------
Net investment loss ...................... $(0.5276) $(0.4160) $(0.2445) $(0.1551) $(0.1881)
Net realized and unrealized gains
(losses) on investments and
foreign currency transactions ............ 7.1237 5.5056 6.6821 (3.1259) 2.5911
-------- -------- -------- -------- --------
Net increase (decrease) in unit value ..... $ 6.5961 $ 5.0896 $ 6.4376 $(3.2810) $ 2.4030
-------- -------- -------- -------- --------
Unit value:
Net asset value -- end of year ............ $36.7764 $30.1803 $25.0907 $18.6531 $21.9341
======== ======== ======== ======== ========
Ratios (to average net assets):
Expenses+## ............................... 0.77% 0.78% 0.80% 0.79% 0.78%
Net investment loss ....................... (1.45)% (1.41)% (1.02)% (0.69)% (0.83)%
Portfolio turnover ......................... 60% 66% 96% 95% 56%
Average commission rate### ................. $ 0.0448 $ 0.0371 $ -- $ -- $ --
Number of units outstanding at end
of year (000 omitted) ..................... 2,953 3,721 4,272 4,686 4,899
</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.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
### Average commission rate is calculated for fiscal years beginning on or
after September 1, 1995.
See notes to financial statements
33
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Government Securities
Variable Account
---------------------------
Compass 2
---------------------------
Year Ended December 31,
---------------------------
1997 1996
------------- -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of year ............................ $25.6724 $25.5791
-------- --------
Investment income ............................................... $ 1.9396 $ 1.9022
Expenses ........................................................ 0.5159 0.4873
-------- --------
Net investment income .......................................... $ 1.4237 $ 1.4149
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 0.4411 (1.3216)
-------- --------
Net increase (decrease) in unit value ........................... $ 1.8648 $ 0.0933
-------- --------
Unit value:
Net asset value -- end of year .................................. $27.5372 $25.6724
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.66% 0.62%
Net investment income ........................................... 5.31% 5.53%
Portfolio turnover ............................................... 168% 39%
Number of units outstanding at end of year (000 omitted) ......... 5,613 7,255
<CAPTION>
Government Securities Variable Account
-----------------------------------------
Compass 2
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ............................ $22.0031 $22.7120 $21.1172
-------- -------- --------
Investment income ............................................... $ 1.7836 $ 1.5648 $ 1.5732
Expenses ........................................................ 0.4564 0.4229 0.4238
-------- -------- --------
Net investment income .......................................... $ 1.3272 $ 1.1419 $ 1.1494
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 2.2488 (1.8508) 0.4454
-------- -------- --------
Net increase (decrease) in unit value ........................... $ 3.5760 $(0.7089) $ 1.5948
-------- -------- --------
Unit value:
Net asset value -- end of year .................................. $25.5791 $22.0031 $22.7120
======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.63% 0.61% 0.61%
Net investment income ........................................... 5.51% 5.09% 5.11%
Portfolio turnover ............................................... 80% 41% 81%
Number of units outstanding at end of year (000 omitted) ......... 8,361 11,308 12,679
</TABLE>
<TABLE>
<CAPTION>
Government Securities Variable Account
-----------------------------------------
Compass 3 - Level 2
-----------------------------------------
Year Ended December 31,
--------------------------- Period Ended
December 31,
1997 1996 1995#
---------- --------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ..... $10.4604 $10.4172 $10.0000
-------- -------- --------
Investment income ........................ $ 0.7931 $ 0.7931 $ 0.1868
Expenses ................................. 0.2102 0.1966 0.0478
-------- -------- --------
Net investment income ................... $ 0.5829 $ 0.5965 $ 0.1390
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions ................... 0.1825 0.5533) 0.2782
-------- -------- --------
Net increase (decrease) in unit value .... $ 0.7654 $ 0.0432 $ 0.4172
-------- -------- --------
Unit value:
Net asset value -- end of year ........... $11.2258 $10.4604 $10.4172
======== ======== ========
Ratios (to average net assets):
Expenses+## .............................. 0.66% 0.62% 0.63%
Net investment income .................... 5.31% 5.53% 5.51%
Portfolio turnover ........................ 168% 39% 80%
Number of units outstanding at end
of year (000 omitted) .................... 1,319 1,079 608
<CAPTION>
Government Securities Variable Account
-------------------------------------------------------------
Compass 3
-------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ---------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ..... $18.0755 $18.0278 $15.5227 $16.0387 $14.9267
-------- -------- -------- -------- --------
Investment income ........................ $ 1.3696 $ 1.3222 $ 1.2529 $ 1.1028 $ 1.1064
Expenses ................................. 0.3848 0.3586 0.3385 0.3146 0.3154
-------- -------- -------- -------- --------
Net investment income ................... $ 0.9848 $ 0.9636 $ 0.9144 $ 0.7882 $ 0.7910
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions ................... 0.3090 (0.9159) 1.5907 (1.3042) 0.3210
-------- -------- -------- -------- --------
Net increase (decrease) in unit value .... $ 1.2938 $ 0.0477 $ 2.5051 $(0.5160) $ 1.1120
-------- -------- -------- -------- --------
Unit value:
Net asset value -- end of year ........... $19.3693 $18.0755 $18.0278 $15.5227 $16.0387
======== ======== ======== ======== ========
Ratios (to average net assets):
Expenses+## .............................. 0.66% 0.62% 0.63% 0.61% 0.61%
Net investment income .................... 5.31% 5.53% 5.51% 5.09% 5.11%
Portfolio turnover ........................ 169% 39% 80% 41% 81%
Number of units outstanding at end
of year (000 omitted) .................... 1,129 1,549 1,888 2,922 2,697
</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.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
See notes to financial statements
34
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
High Yield Variable Account
---------------------------
Compass 2
---------------------------
Year Ended December 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of year ............................ $29.0656 $26.1493
-------- --------
Investment income ............................................... $ 3.0237 $ 2.7199
Expenses ........................................................ 0.6627 0.6035
-------- --------
Net investment income .......................................... $ 2.3610 $ 2.1164
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 1.2184 0.7999
-------- --------
Net increase (decrease) in unit value ........................... $ 3.5794 $ 2.9163
-------- --------
Unit value:
Net asset value -- end of year .................................. $32.6450 $29.0656
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.86% 0.88%
Net investment income ........................................... 7.47% 7.59%
Portfolio turnover ............................................... 164% 108%
Number of units outstanding at end of year (000 omitted) ......... 4.424 4,956
<CAPTION>
High Yield Variable Account
-----------------------------------------
Compass 2
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1995 1994 1993
----------- -------- -------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ............................ $22.6776 $23.3591 $19.7156
-------- -------- --------
Investment income ............................................... $ 2.5137 $ 2.2324 $ 2.0867
Expenses ........................................................ 0.5356 0.5062 0.4797
-------- -------- --------
Net investment income .......................................... $ 1.9781 $ 1.7262 $ 1.6070
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 1.4936 (2.4077) 2.0365
-------- -------- --------
Net increase (decrease) in unit value ........................... $ 3.4717 $(0.6815) $ 3.6435
-------- -------- --------
Unit value:
Net asset value -- end of year .................................. $26.1493 $22.6776 $23.3591
======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.88% 0.91% 0.86%
Net investment income ........................................... 7.91% 7.41% 6.97%
Portfolio turnover ............................................... 88% 77% 67%
Number of units outstanding at end of year (000 omitted) ......... 5,649 6,433 7,564
</TABLE>
<TABLE>
<CAPTION>
High Yield Variable Account
-----------------------------------------
Compass 3 - Level 2
-----------------------------------------
Year Ended December 31, Period Ended
----------------------- December 31,
1997 1996 1995#
-------- ---------- ------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ..... $11.3852 $ 10.2377 $10.0000
-------- ---------- --------
Investment income ........................ $ 1.1903 $ 0.9246 $ 0.3803
Expenses ................................. 0.2584 0.2033 0.0765
-------- ---------- --------
Net investment income ................... $ 0.9319 $ 0.7213 $ 0.3038
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions ................... 0.4765 0.4262 (0.0661)
-------- ---------- --------
Net increase (decrease) in unit value $ 1.4084 $ 1.1475 $ 0.2377
-------- ---------- --------
Unit value:
Net asset value -- end of year ........... $12.7936 $ 11.3852 $10.2377
======== ========== ========
Ratios (to average net assets):
Expenses+## .............................. 0.86% 0.88% 0.88%
Net investment income .................... 7.47% 7.59% 7.91%
Portfolio turnover ........................ 164% 108% 88%
Number of units outstanding at end
of year (000 omitted) .................... 2,042 1,819 1,368
<CAPTION>
High Yield Variable Account
---------------------------------------------------------------------
Compass 3
---------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- --------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ..... $21.5259 $19.3854 $16.8283 $17.3543 $14.6589
-------- -------- -------- -------- --------
Investment income ........................ $ 2.2363 $ 1.9450 $ 1.8912 $ 1.5336 $ 1.5179
Expenses ................................. 0.5196 0.4432 0.4253 0.3711 0.3671
-------- -------- -------- -------- --------
Net investment income ................... $ 1.7167 $ 1.5018 $ 1.4659 $ 1.1625 $ 1.1508
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions ................... 0.9103 0.6387 1.0912 (1.6885) 1.5446
-------- -------- -------- -------- --------
Net increase (decrease) in unit value $ 2.6270 $ 2.1405 $ 2.5571 $(0.5260) $ 2.6954
-------- -------- -------- -------- --------
Unit value:
Net asset value -- end of year ........... $24.1529 $21.5259 $19.3854 $16.8283 $17.3543
======== ======== ======== ======== ========
Ratios (to average net assets):
Expenses+## .............................. 0.86% 0.88% 0.88% 0.91% 0.86%
Net investment income .................... 7.47% 7.59% 7.91% 7.41% 6.97%
Portfolio turnover ........................ 164% 108% 88% 77% 67%
Number of units outstanding at end
of year (000 omitted) .................... 1,209 1,438 1,913 2,506 2,577
</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.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
See notes to financial statements
35
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Managed Sectors Variable Account
---------------------------------
Compass 2
---------------------------------
Year Ended December 31,
---------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of year ............................ $36.5900 $31.3870
-------- --------
Investment income ............................................... $ 0.2406 $ 0.2838
Expenses ........................................................ 0.8842 0.7089
-------- --------
Net investment loss ............................................ $(0.6436) $(0.4251)
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 9.5058 5.6281
-------- --------
Net increase (decrease) in unit value ........................... $ 8.8622 $ 5.2030
-------- --------
Unit value:
Net asset value -- end of year .................................. $45.4522 $36.5900
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.85% 0.85%
Net investment loss ............................................. (1.60)% (1.36)%
Portfolio turnover ............................................... 103% 64%
Average commission rate### ....................................... $ 0.0560 $ 0.0459
Number of units outstanding at end of year (000 omitted) ......... 736 729
<CAPTION>
Managed Sectors Variable Account
--------------------------------------------------
Compass 2
--------------------------------------------------
Year Ended December 31,
--------------------------------------------------
1995 1994 1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ............................ $23.9044 $24.7295 $23.8070
-------- -------- --------
Investment income ............................................... $ 0.3277 $ 0.3066 $ 0.1822
Expenses ........................................................ 0.6066 0.5155 0.4994
-------- -------- --------
Net investment loss ............................................ $(0.2789) $(0.2089) $(0.3172)
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 7.7615 (0.6162) 1.2397
-------- -------- --------
Net increase (decrease) in unit value ........................... $ 7.4826 $(0.8251) $ 0.9225
-------- -------- --------
Unit value:
Net asset value -- end of year .................................. $31.3870 $23.9044 $24.7295
======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.87% 0.90% 0.91%
Net investment loss ............................................. (1.07)% (0.97)% (1.49)%
Portfolio turnover ............................................... 115% 111% 122%
Average commission rate### ....................................... $ -- $ -- $ --
Number of units outstanding at end of year (000 omitted) ......... 788 800 878
</TABLE>
<TABLE>
<CAPTION>
Managed Sectors Variable Account
--------------------------------------------------
Compass 3 - Level 2
--------------------------------------------------
Year Ended December 31, Period Ended
--------------------------------- December 31,
1997 1996 1995#
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ...... $11.6449 $ 9.9892 $10.0000
-------- -------- --------
Investment income ......................... $ 0.0831 $ 0.0873 $ 0.0231
Expenses .................................. 0.3015 0.2287 0.0539
-------- -------- --------
Net investment loss ...................... $(0.2184) $(0.1414) $(0.0308)
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions .................... 3.0387 1.7971 0.0200
-------- -------- --------
Net increase (decrease) in unit value ..... $ 2.8203 $ 1.6557 $(0.0108)
-------- -------- --------
Unit value:
Net asset value -- end of year ............ $14.4652 $11.6449 $ 9.9892
======== ======== ========
Ratios (to average net assets):
Expenses+## ............................... 0.85% 0.85% 0.87%
Net investment loss ....................... (1.60)% (1.36)% (1.07)%
Portfolio turnover ......................... 103% 64% 115%
Average commission rate### ................. $ 0.0560 $ 0.0459 $ --
Number of units outstanding at end
of year (000 omitted) ..................... 2,156 1,204 418
<CAPTION>
Managed Sectors Variable Account
------------------------------------------------------------------------------------
Compass 3
------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ...... $36.3604 $31.2371 $23.8258 $24.6849 $23.8007
-------- -------- -------- -------- --------
Investment income ......................... $ 0.2328 $ 0.2830 $ 0.3259 $ 0.3031 $ 0.1817
Expenses .................................. 0.9264 0.7511 0.6452 0.5452 0.5313
-------- -------- -------- -------- --------
Net investment loss ...................... $(0.6936) $(0.4681) $(0.3193) $(0.2421) $(0.3496)
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions .................... 9.4327 5.5914 7.7306 (0.6170) 1.2338
-------- -------- -------- -------- --------
Net increase (decrease) in unit value ..... $ 8.7391 $ 5.1233 $ 7.4113 $(0.8591) $ 0.8842
-------- -------- -------- -------- --------
Unit value:
Net asset value -- end of year ............ $45.0995 $36.3604 $31.2371 $23.8258 $24.6849
======== ======== ======== ======== ========
Ratios (to average net assets):
Expenses+## ............................... 0.85% 0.85% 0.87% 0.90% 0.91%
Net investment loss ....................... (1.60)% (1.36)% (1.07)% (0.97)% (1.49)%
Portfolio turnover ......................... 103% 64% 115% 111% 122%
Average commission rate### ................. $ 0.0560 $ 0.0459 $ -- $ -- $ --
Number of units outstanding at end
of year (000 omitted) ..................... 1,258 1,552 1,729 1,810 1,819
</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.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
### Average commission rate is calculated for fiscal years beginning on or after
September 1, 1995.
See notes to financial statements
36
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Money Market Variable
Account
---------------------------
Compass 2
---------------------------
Year Ended December 31,
---------------------------
1997 1996
---------- --------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of year ............................ $17.1109 $16.5213
-------- --------
Investment income ............................................... $ 0.9600 $ 0.9058
Expenses ........................................................ 0.3258 0.3162
-------- --------
Net investment income .......................................... $ 0.6342 $ 0.5896
-------- --------
Net increase in unit value ...................................... $ 0.6342 $ 0.5896
-------- --------
Unit value:
Net asset value -- end of year .................................. $17.7451 $17.1109
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.59% 0.58%
Net investment income ........................................... 3.56% 3.49%
Number of units outstanding at end of year (000 omitted) ......... 4,639 5,208
<CAPTION>
Money Market Variable Account
-----------------------------------------
Compass 2
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ............................ $15.8699 $15.5003 $15.2976
-------- -------- --------
Investment income ............................................... $ 0.9560 $ 0.6615 $ 0.4864
Expenses ........................................................ 0.3046 0.2919 0.2837
-------- -------- --------
Net investment income .......................................... $ 0.6514 $ 0.3696 $ 0.2027
-------- -------- --------
Net increase in unit value ...................................... $ 0.6514 $ 0.3696 $ 0.2027
-------- -------- --------
Unit value:
Net asset value -- end of year .................................. $16.5213 $15.8699 $15.5003
======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.58% 0.58% 0.36%
Net investment income ........................................... 4.00% 2.37% 1.30%
Number of units outstanding at end of year (000 omitted) ......... 6,501 6,851 6,418
</TABLE>
<TABLE>
<CAPTION>
Money Market Variable Account
-----------------------------------------
Compass 3 - Level 2
-----------------------------------------
Year Ended December 31, Period Ended
----------------------- December 31,
1997 1996 1995#
--------- -------- ------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ..... $10.4654 $10.0997 $10.0000
-------- -------- --------
Investment income ........................ $ 0.5838 $ 0.5993 $ 0.1358
Expenses ................................. 0.1905 0.2336 0.0361
-------- -------- --------
Net investment income ................... $ 0.3933 $ 0.3657 $ 0.0997
-------- -------- --------
Net increase in unit value ............... $ 0.3933 $ 0.3657 $ 0.0997
-------- -------- --------
Unit value:
Net asset value -- end of year ........... $10.8587 $10.4654 $10.0997
======== ======== ========
Ratios (to average net assets):
Expenses+## .............................. 0.59% 0.58% 0.58%
Net investment income .................... 3.56% 3.49% 4.00%
Number of units outstanding at end
of year (000 omitted) .................... 1,104 897 561
<CAPTION>
Money Market Variable Account
---------------------------------------------------------------------
Compass 3
---------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ..... $14.1277 $13.6545 $13.1291 $12.8359 $12.6806
-------- -------- -------- -------- --------
Investment income ........................ $ 0.7782 $ 0.7437 $ 0.7885 $ 0.5688 $ 0.4065
Expenses ................................. 0.2690 0.2705 0.2631 0.2756 0.2512
-------- -------- -------- -------- --------
Net investment income ................... $ 0.5092 $ 0.4732 $ 0.5254 $ 0.2932 $ 0.1553
-------- -------- -------- -------- --------
Net increase in unit value ............... $ 0.5092 $ 0.4732 $ 0.5254 $ 0.2932 $ 0.1553
-------- -------- -------- -------- --------
Unit value:
Net asset value -- end of year ........... $14.6369 $14.1277 $13.6545 $13.1291 $12.8359
======== ======== ======== ======== ========
Ratios (to average net assets):
Expenses+## .............................. 0.59% 0.58% 0.58% 0.58% 0.36%
Net investment income .................... 3.56% 3.49% 4.00% 2.37% 1.30%
Number of units outstanding at end
of year (000 omitted) .................... 1,160 1,930 3,929 4,599 3,823
</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.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
See notes to financial statements
37
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
Total Return Variable
Account
---------------------------
Compass 2
---------------------------
Year Ended December 31,
---------------------------
1997 1996
------------- -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of year ............................ $25.0444 $22.2577
-------- --------
Investment income ............................................... $ 1.3666 $ 1.1203
Expenses ........................................................ 0.6070 0.4844
-------- --------
Net investment income .......................................... $ 0.7596 $ 0.6359
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 4.3523 2.1508
-------- --------
Net increase (decrease) in unit value ........................... $ 5.1119 $ 2.7867
-------- --------
Unit value:
Net asset value -- end of year .................................. $30.1563 $25.0444
======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.83% 0.82%
Net investment income ........................................... 2.32% 2.59%
Portfolio turnover ............................................... 111% 140%
Average commission rate### ....................................... $ 0.0590 $ 0.0538
Number of units outstanding at end of year (000 omitted) ......... 3,956 4,414
<CAPTION>
Total Return Variable Account
-------------------------------------------
Compass 2
-------------------------------------------
Year Ended December 31,
-------------------------------------------
1995 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ............................ $17.4729 $18.0043 $15.9891
-------- --------- --------
Investment income ............................................... $ 1.0394 $ 0.8583 $ 0.8513
Expenses ........................................................ 0.4118 0.3704 0.3616
-------- --------- --------
Net investment income .......................................... $ 0.6276 $ 0.4879 $ 0.4897
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 4.1572 (1.0193) 1.5255
-------- --------- --------
Net increase (decrease) in unit value ........................... $ 4.7848 $(0.5314) $ 2.0152
-------- --------- --------
Unit value:
Net asset value -- end of year .................................. $22.2577 $17.4729 $18.0043
======== ========= ========
Ratios (to average net assets):
Expenses+## ..................................................... 0.83% 0.82% 0.76%
Net investment income ........................................... 2.99% 2.60% 2.43%
Portfolio turnover ............................................... 105% 63% 89%
Average commission rate### ....................................... $ -- $ -- $ --
Number of units outstanding at end of year (000 omitted) ......... 4,801 5,410 5,889
</TABLE>
<TABLE>
<CAPTION>
Total Return Variable Account
-----------------------------------------
Compass 3 - Level 2
-----------------------------------------
Year Ended December 31,
--------------------------- Period Ended
December 31,
1997 1996 1995#
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ...... $11.8074 $10.4938 $10.0000
-------- -------- --------
Investment income ......................... $ 0.5718 $ 0.5280 $ 0.1247
Expenses .................................. 0.2715 0.2317 0.0525
-------- -------- --------
Net investment income .................... $ 0.3003 $ 0.2963 $ 0.0722
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions .................... 2.1096 1.0173 0.4216
-------- -------- --------
Net increase (decrease) in unit value ..... $ 2.4099 $ 1.3136 $ 0.4938
-------- -------- --------
Unit value:
Net asset value -- end of year ............ $14.2173 $11.8074 $10.4938
======== ======== ========
Ratios (to average net assets):
Expenses+## ............................... 0.83% 0.82% 0.83%
Net investment income ..................... 2.32% 2.59% 2.99%
Portfolio turnover ......................... 111% 140% 105%
Average commission rate### ................. $ 0.0590 $ 0.0538 $ --
Number of units outstanding at end
of year (000 omitted) ..................... 5,260 3,717 1,637
<CAPTION>
Total Return Variable Account
---------------------------------------------------------------------
Compass 3
---------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ...... $24.7133 $21.9966 $17.2937 $17.8462 $15.8723
-------- -------- -------- -------- --------
Investment income ......................... $ 1.1487 $ 1.0817 $ 1.0122 $ 0.8371 $ 0.8304
Expenses .................................. 0.5870 0.5068 0.4358 0.3904 0.3829
-------- -------- -------- -------- --------
Net investment income .................... $ 0.5617 $ 0.5749 $ 0.5764 $ 0.4467 $ 0.4475
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions .................... 4.4381 2.1418 4.1265 (0.9992) 1.5264
-------- -------- -------- -------- --------
Net increase (decrease) in unit value ..... $ 4.9998 $ 2.7167 $ 4.7029 $(0.5525) $ 1.9739
-------- -------- -------- -------- --------
Unit value:
Net asset value -- end of year ............ $29.7131 $24.7133 $21.9966 $17.2937 $17.8462
======== ======== ======== ======== ========
Ratios (to average net assets):
Expenses+## ............................... 0.83% 0.82% 0.83% 0.82% 0.76%
Net investment income ..................... 2.32% 2.59% 2.99% 2.60% 2.43%
Portfolio turnover ......................... 111% 140% 105% 63% 89%
Average commission rate### ................. $ 0.0590 $ 0.0538 $ -- $ -- $ --
Number of units outstanding at end
of year (000 omitted) ..................... 4,024 5,177 6,322 7,349 7,013
</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.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
### Average commission rate is calculated for fiscal years beginning on or after
September 1, 1995.
See notes to financial statements
38
<PAGE>
Per Unit and Other Data -- continued
<TABLE>
<CAPTION>
World Governments Variable
Account
---------------------------
Compass 2
---------------------------
Year Ended December 31,
---------------------------
1997 1996
------------- -------------
<S> <C> <C>
Per unit data:*
Net asset value -- beginning of year ............................ $18.6786 $ 18.1095
-------- ---------
Investment income ............................................... $ 1.1566 $ 1.2469
Expenses ........................................................ 0.4192 0.4084
-------- ---------
Net investment income .......................................... $ 0.7374 $ 0.8385
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. (1.1362) (0.2694)
-------- ---------
Net increase (decrease) in unit value ........................... $(0.3988) $ 0.5691
-------- ---------
Unit value:
Net asset value -- end of year .................................. $18.2798 $ 18.6786
======== =========
Ratios (to average net assets):
Expenses+## ..................................................... 1.05% 1.00%
Net investment income ........................................... 3.95% 4.54%
Portfolio turnover ............................................... 338% 397%
Number of units outstanding at end of year (000 omitted) ......... 435 588
<CAPTION>
World Governments Variable Account
-----------------------------------------
Compass 2
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning of year ............................ $15.8337 $16.9056 $14.4420
-------- -------- --------
Investment income ............................................... $ 1.3112 $ 1.0805 $ 1.1460
Expenses ........................................................ 0.3863 0.3565 0.3704
-------- -------- --------
Net investment income .......................................... $ 0.9249 $ 0.7240 $ 0.7756
Net realized and unrealized gains (losses) on investments and
foreign currency transactions .................................. 1.3509 (1.7959) 1.6880
-------- -------- --------
Net increase (decrease) in unit value ........................... $ 2.2758 $(1.0719) $ 2.4636
-------- -------- --------
Unit value:
Net asset value -- end of year .................................. $18.1095 $15.8337 $16.9056
======== ======== ========
Ratios (to average net assets):
Expenses+## ..................................................... 1.00% 1.00% 0.94%
Net investment income ........................................... 5.25% 4.45% 4.12%
Portfolio turnover ............................................... 330% 256% 202%
Number of units outstanding at end of year (000 omitted) ......... 824 983 1,092
</TABLE>
<TABLE>
<CAPTION>
World Governments Variable Account
-----------------------------------------
Compass 3 - Level 2
-----------------------------------------
Year Ended December 31, Period Ended
--------------------------- December 31,
1997 1996 1995#
------------- ------------- -------------
<S> <C> <C> <C>
Per unit data:*
Net asset value -- beginning
of year ................................. $10.6836 $10.3582 $10.0000
-------- -------- --------
Investment income ........................ $ 0.6710 $ 0.7308 $ 0.1819
Expenses ................................. 0.2440 0.2391 0.0554
-------- -------- --------
Net investment income ................... $ 0.4270 $ 0.4917 $ 0.1265
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions ................... (0.6553) (0.1663) 0.2317
-------- -------- --------
Net increase (decrease) in unit value .... $(0.2283) $ 0.3254 $ 0.3582
-------- -------- --------
Unit value:
Net asset value -- end of year ........... $10.4553 $10.6836 $10.3582
======== ======== ========
Ratios (to average net assets):
Expenses+## .............................. 1.05% 1.00% 1.00%
Net investment income .................... 3.95% 4.54% 5.25%
Portfolio turnover ........................ 338% 397% 330%
Number of units outstanding at end
of year (000 omitted) .................... 670 563 316
<CAPTION>
World Governments Variable Account
---------------------------------------------------------------------
Compass 3
---------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Per unit data:*
Net asset value -- beginning
of year ................................. $18.4308 $17.8962 $15.6705 $16.7563 $14.3365
-------- -------- -------- -------- --------
Investment income ........................ $ 1.1298 $ 1.2367 $ 1.3045 $ 1.0666 $ 1.1293
Expenses ................................. 0.4390 0.4322 0.4086 0.3760 0.3890
-------- -------- -------- -------- --------
Net investment income ................... $ 0.6908 $ 0.8045 $ 0.8959 $ 0.6906 $ 0.7403
Net realized and unrealized gains
(losses) on investments and foreign
currency transactions ................... (1.1113) (0.2699) 1.3298 (1.7764) 1.6795
-------- -------- -------- -------- --------
Net increase (decrease) in unit value .... $(0.4205) $ 0.5346 $ 2.2257 $(1.0858) $ 2.4198
-------- -------- -------- -------- --------
Unit value:
Net asset value -- end of year ........... $18.0103 $18.4308 $17.8962 $15.6705 $16.7563
======== ======== ======== ======== ========
Ratios (to average net assets):
Expenses+## .............................. 1.05% 1.00% 1.00% 1.00% 0.94%
Net investment income .................... 3.95% 4.54% 5.25% 4.45% 4.12%
Portfolio turnover ........................ 338% 397% 330% 256% 202%
Number of units outstanding at end
of year (000 omitted) .................... 500 789 1,021 1,321 1,363
</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.
# For the period from May 1, 1995, (commencement of Level 2 Units) through
December 31, 1995.
## For years ending on or after December 31, 1995, expenses are calculated
without reduction for fees paid indirectly.
See notes to financial statements
39
<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 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 valued at market value using last sale prices. Unlisted equity
securities or listed equity securities for which last sale prices are not
available are valued at market value using last quoted bid prices. Debt
securities (other than short-term obligations which mature in 60 days or less),
including listed issues and forward contracts, are valued on the basis of
valuations furnished by dealers or by a pricing service with consideration to
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics,
and other market data, without exclusive reliance upon exchange or
over-the-counter prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value. Non-U.S.
dollar denominated short-term obligations are valued at amortized cost as
calculated in the foreign currency and translated into U.S. dollars at the
closing daily exchange rate. Money market instruments are valued at amortized
cost, which the Trustees have determined in good faith constitutes fair 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. Futures contracts, options, and options on futures contracts listed on
commodities exchanges are valued 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 short-term
40
<PAGE>
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.
Repurchase Agreements
Certain Variable Accounts may enter into repurchase agreements with
institutions that the Variable Account's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. Such Variable
Accounts require that the securities purchased in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the Account to
obtain those securities in the event of a default under the repurchase
agreement. The investment adviser monitors, on a daily basis, the value of the
securities transferred to ensure that the value, including accrued interest, of
the securities under each repurchase agreement is greater than the amount owed
to the Variable Account under each such repurchase agreement.
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.
Written Options
Certain Variable Accounts may write call or put options in exchange for
premiums. The premiums are initially recorded as liabilities which are
subsequently adjusted to the current value of the option contract. When a
written option expires, the Account realizes a gain equal to 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 the 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 of 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.
41
<PAGE>
Notes to Financial Statements -- continued
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 will enter into forward contracts for hedging
purposes as well as for non-hedging purposes. For hedging purposes, certain
Variable Accounts may enter into contracts to deliver or receive foreign
currency they will receive from or require for their normal investment
activities. 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 the 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.
Investment Transactions and Income
Investment transactions are recorded on the trade date. Interest income is
recorded on the accrual basis. All discounts are accreted for financial
statement and tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on the ex-dividend date.
Dividend and interest payments received in additional securities are recorded
on the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
Certain of the Variable Accounts use the effective interest method for
reporting interest income on payment-in-kind (PIK) bonds. Legal fees and other
related expenses incurred to preserve and protect the value of a security owned
are added to the cost of the security; other legal fees are expensed. Capital
infusions, which are generally non-recurring, incurred to protect or enhance
the value of high-yield debt securities, are reported as an addition 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.
42
<PAGE>
Fees Paid Indirectly
The Variable Accounts' custody fees are calculated as a percentage of the
average daily 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 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.
43
<PAGE>
Notes to Financial Statements -- continued
(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
Effective March 1, 1997, 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
reimbursement 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, provided that the administrative fee is not assessed on
Account assets that exceed $3 billion:
<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
For the year ended December 31, 1997, purchases and sales of investments, other
than U.S. government securities, purchased option transactions, and short-term
obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------------- ---------------
<S> <C> <C>
Capital Appreciation Variable Account .......... $356,580,922 $420,606,479
High Yield Variable Account .................... 298,689,835 306,008,791
Managed Sectors Variable Account ............... 109,392,306 118,029,737
Money Market Variable Account* ................. 404,178,329 410,711,686
Total Return Variable Account .................. 182,799,888 209,781,928
World Governments Variable Account ............. 54,451,219 64,083,544
</TABLE>
44
<PAGE>
For the year ended December 31, 1997, purchases and sales of U.S. government
securities, other than purchased option transactions and short-term
obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
---------------- ----------------
<S> <C> <C>
Government Securities Variable Account .......... $ 337,102,130 $ 359,979,613
Money Market Variable Account* .................. 2,179,374,378 2,198,927,564
Total Return Variable Account ................... 118,280,439 121,901,340
World Governments Variable Account .............. 31,868,154 28,332,952
</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. A summary of obligations under these
financial instruments at December 31, 1997, is as follows:
Written Option Transactions
Managed Sectors Variable Account
<TABLE>
<CAPTION>
1997 Calls
-------------
Contracts Premiums
----------- -------------
<S> <C> <C>
Outstanding, beginning of period .................... -- --
Options written .................................... 8,679 $1,269,426
Options terminated in closing transactions ......... 3,183 485,189
Options expired .................................... 3,525 510,505
----- ----------
Outstanding, end of period .......................... 1,971 $ 273,732
----- ----------
</TABLE>
At December 31, 1997, the Managed Sectors Variable Account had sufficient cash
and/or securities at least equal to the value of the written options.
45
<PAGE>
Notes to Financial Statements -- continued
World Governments Variable Account
<TABLE>
<CAPTION>
1997 Calls 1997 Puts
---------------------------------- ----------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
------------------- ------------ ------------------ -------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year --
Deutsche Marks/British Pounds ................. 4,165 $ 15,959 8,724 $135,374
Swiss Francs/Deutsche Marks ................... 2,933 8,902 6,412 79,193
Options written --
Australian Dollars ............................ 735 4,963 -- --
Deutsche Marks ................................ -- -- 5,142 8,620
Italian Lire .................................. 2,502,023 10,226 2,655,805 10,457
Japanese Yen .................................. 1,519,366 196,482 -- --
Options terminated in closing transactions--
Australian Dollars ............................ (735) (4,963) -- --
Deutsche Marks ................................ -- -- (5,142) (8,620)
Deutsche Marks/British Pounds ................. -- -- (8,724) (135,374)
Italian Lire .................................. (2,502,023) (10,226) (2,655,805) (10,457)
Japanese Yen .................................. (1,223,056) (149,720) -- --
Swiss Francs/Deutsche Marks ................... -- -- (6,412) (79,193)
Options expired--
Deutsche Marks/British Pounds ................. (4,165) (15,959) -- --
Swiss Francs/Deutsche Marks ................... (2,933) (8,902) -- --
---------- ---------- ---------- --------
Outstanding, end of period ..................... 296,310 $ 46,762 -- $ --
========== ========== ========== ========
Options outstanding at end of period consist of:
Japanese Yen .................................. 296,310 $ 46,762 -- $ --
========== ========== ========== ========
</TABLE>
At December 31, 1997, the World Governments Variable Account had sufficient
cash and/or securities at least equal to the value of the written options.
46
<PAGE>
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Account Transaction Settlement Date
- ------------------------------------ ------------- ---------------------------
<S> <C> <C> <C>
World Governments Variable Account Sales 01/07/98 CAD
01/07/98 - 05/15/98 CHF
01/07/98 DEM
01/07/98 ESP
01/07/98 GBP
01/07/98 JPY
01/07/98 NLG
Purchases
01/07/98 - 05/15/98 CAD
01/07/98 - 05/15/98 CHF
01/07/98 - 05/15/98 DEM
01/07/98 - 05/18/98 ESP
01/07/98 - 05/15/98 GBP
01/07/98 JPY
05/15/98 NLG
<CAPTION>
Net Unrealized
Contracts to Contracts at In Exchange Appreciation
Account Deliver/Receive Value For (Depreciation)
- ------------------------------------ ----------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
World Governments Variable Account 3,238,963 $ 2,263,268 $ 2,252,064 $ (11,204)
4,089,366 2,826,973 2,856,642 29,669
5,719,591 3,183,799 3,193,875 10,076
99,830,458 656,385 665,755 9,370
818,020 1,345,313 1,352,632 7,319
237,585,190 1,827,980 1,888,182 60,202
2,811 1,388 1,392 4
--------- --------- ------
$12,105,106 $12,210,542 $ 105,436
=========== =========== ==========
6,477,927 $ 4,534,280 $ 4,626,463 (92,183)
4,089,366 2,826,973 2,893,120 (66,147)
11,439,181 6,390,887 6,585,442 (194,555)
186,562,275 1,228,989 1,244,697 (15,708)
1,636,040 2,682,274 2,707,112 (24,838)
214,354,077 1,649,240 1,796,991 (147,751)
2,811 1,399 1,403 (4)
----------- ----------- -------------
$19,314,042 $19,855,228 (541,186)
=========== =========== ============
</TABLE>
Forward foreign currency purchases and sales under master netting arrangements
for the World Governments Variable Account excluded above amounted to a net
receivable of $152,881 with Swiss bank, $279,575 with Bankers Trust, $32,530
with Deutsche Bank, $224,221 with First Boston, and $127,124 with Merrill
Lynch. Closed forward foreign currency exchange contracts for the World
Governments Variable Account, excluded above, amounted to a net receivable of
$44,512 with Goldman Sachs.
At December 31, 1997, the World Governments Variable Account had sufficient
cash and/or securities to cover any commitments under these contracts.
See page 26 for an explanation of abbreviations used to indicate amounts shown
in currencies other than the U.S. dollar.
47
<PAGE>
Notes to Financial Statements -- continued
Futures Contracts
Government Securities Variable Account
<TABLE>
<CAPTION>
Unrealized
Description Expiration Contracts Position Depreciation
- --------------------- ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
$(27)
U.S. Treasury Bonds March, 1998 60 Short -------------
</TABLE>
At December 31, 1997, the Fund had sufficient cash and/or securities to cover
margin requirements to an open futures contracts.
(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, 1997, High Yield
Variable Account owned the following restricted securities (consisting of 0.6%
of the Account's net assets) 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 supplied by a pricing service or brokers
or, if not available, in good faith by or at the direction of the Boards of
Managers.
<TABLE>
<CAPTION>
Date of Share/Par
Account Description Acquisition Amount Cost Value
- ----------------------------- --------------------------------- ------------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
High Yield Variable Account Atlantic Gulf Communities Corp. 9/25/95 150 $ -- $ 675
Envirosource, Inc. 5/15/94 1,666 7,288 4,998
Knology Holdings, Inc. 10/16/97 50,000 281,480 267,500
Merrill Lynch Mortgage
Investors, Inc., 8.1712s, 2023 6/22/94 1,000,000 693,125 955,156
----------
$1,228,329
==========
</TABLE>
48
<PAGE>
(9) Participant Transactions
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>
49
<PAGE>
Notes to Financial Statements -- continued
Participant Transactions -- continued
<TABLE>
<CAPTION>
Year Ended December 31, 1996 (000 Omitted)
---------------------------------------------------------------------
Transfers Between Withdrawals,
Variable Accounts Surrenders,
Purchase and Fixed Annuitizations,
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 ..................... 180 $ 7,455 (91) $ (4,061) (1,099) $ (45,738)
Compass 3 Contracts ..................... 481 13,270 (614) (17,433) (417) (11,545)
Compass 3 Level 2 Contracts ............. 57 679 1,914 22,048 (434) (4,985)
------- --------- ---------
$21,404 $ 554 $ (62,268)
======= ========= =========
Government Securities Variable Account
Compass 2 Contracts ..................... 111 $ 2,777 88 $ 1,771 (1,305) $ (32,747)
Compass 3 Contracts ..................... 180 3,175 (275) (4,893) (243) (4,305)
Compass 3 Level 2 Contracts ............. 24 248 682 6,922 (235) (2,412)
------- --------- ---------
$ 6,200 $ 3,800 $ (39,464)
======= ========= =========
High Yield Variable Account
Compass 2 Contracts ..................... 84 $ 2,279 (68) $ (1,706) (709) $ (19,329)
Compass 3 Contracts ..................... 109 2,297 (387) (7,810) (197) (3,971)
Compass 3 Level 2 Contracts ............. 17 189 640 7,081 206 (2,241)
------- --------- ---------
$ 4,765 $ (2,435) $ (25,541)
======= ========= =========
Managed Sectors Variable Account
Compass 2 Contracts ..................... 27 $ 890 11 $ 569 (95) $ (3,210)
Compass 3 Contracts ..................... 232 7,729 (209) (7,143) (200) (6,697)
Compass 3 Level 2 Contracts ............. 33 356 940 10,199 (188) (2,005)
------- --------- ---------
$ 8,975 $ 3,625 $ (11,912)
======= ========= =========
Money Market Variable Account
Compass 2 Contracts ..................... 89 $ 1,495 (31) $ (491) (1,350) $ (22,684)
Compass 3 Contracts ..................... 318 4,398 (1,688) (23,340) (629) (8,732)
Compass 3 Level 2 Contracts ............. 8 86 940 9,562 (611) (6,301)
------- --------- ---------
$ 5,979 $ (14,269) $ (37,717)
======= ========= =========
Total Return Variable Account
Compass 2 Contracts ..................... 96 $ 2,226 145 $ 3,421 (628) $ (14,638)
Compass 3 Contracts ..................... 598 13,715 (1,048) (24,348) (695) (15,953)
Compass 3 Level 2 Contracts ............. 93 1,048 2,544 28,160 (557) (6,171)
------- --------- ---------
$16,989 $ 7,233 $ (36,762)
======= ========= =========
World Governments Variable Account
Compass 2 Contracts ..................... 14 $ 246 (144) $ (2,559) (107) $ (1,946)
Compass 3 Contracts ..................... 87 1,556 (220) (3,961) (96) (1,762)
Compass 3 Level 2 Contracts ............. 11 115 319 3,327 (86) (880)
------- --------- ---------
$ 1,917 $ (3,193) $ (4,588)
======= ========= =========
<CAPTION>
Year Ended December 31, 1996 (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 ..................... (1,010) $ (42,344) $(349) $ (42,693)
Compass 3 Contracts ..................... (550) (15,708) (130) (15,838)
Compass 3 Level 2 Contracts ............. 1,537 17,742 136 17,878
--------- ----- ---------
$ (40,310) $(343) $ (40,653)
========= ===== =========
Government Securities Variable Account
Compass 2 Contracts ..................... (1,106) $ (28,199) $(190) $ (28,389)
Compass 3 Contracts ..................... (338) (6,023) (233) (6,256)
Compass 3 Level 2 Contracts ............. 471 4,758 140 4,898
--------- ----- ---------
$ (29,464) $(283) $ (29,747)
========= ===== =========
High Yield Variable Account
Compass 2 Contracts ..................... (693) $ (18,756) $(335) $ (19,091)
Compass 3 Contracts ..................... (475) (9,484) (3) (9,486)
Compass 3 Level 2 Contracts ............. 451 5,029 -- 5,028
--------- ------- ---------
$ (23,211) $(338) $ (23,549)
========= ======= =========
Managed Sectors Variable Account
Compass 2 Contracts ..................... (57) $ (1,751) $ 51 $ (1,700)
Compass 3 Contracts ..................... (177) (6,111) 40 (6,071)
Compass 3 Level 2 Contracts ............. 785 8,550 -- 8,550
--------- ------- ---------
$ 688 $ 91 $ 779
========= ======= =========
Money Market Variable Account
Compass 2 Contracts ..................... (1,292) $ (21,680) $(175) $ (21,855)
Compass 3 Contracts ..................... (1,999) (27,674) (14) (27,688)
Compass 3 Level 2 Contracts ............. 337 3,347 2 3,349
--------- ------- ---------
$ (46,007) $(187) $ (46,194)
========= ======= =========
Total Return Variable Account
Compass 2 Contracts ..................... (387) $ (8,991) $(241) $ (9,232)
Compass 3 Contracts ..................... (1,145) (26,586) (2) (26,588)
Compass 3 Level 2 Contracts ............. 2,080 23,037 65 23,102
--------- ------- ---------
$ (12,540) $(178) $ (12,718)
========= ======= =========
World Governments Variable Account
Compass 2 Contracts ..................... (237) $ (4,259) $ (9) $ (4,268)
Compass 3 Contracts ..................... (229) {4,167) (161) (4,328)
Compass 3 Level 2 Contracts ............. 244 2,562 80 2,642
--------- ------- ---------
$ (5,864) $ (90) $ (5,954)
========= ======= =========
</TABLE>
50
<PAGE>
(10) Detailed Statements of Operations -- Year Ended December 31, 1997
(000 Omitted)
<TABLE>
<CAPTION>
Capital Appreciation Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Investment income:
Interest .................................. $ 329 $ 4 $ 83 $--
Dividends ................................. 2,395 31 604 2
------- ------ ------- ----
Total investment income .................. $ 2,724 $ 35 $ 687 $ 2
Expenses ................................... 9,100 44 2,414 3
------- ------ ------- ----
Net investment loss ....................... $(6,376) $ (9) $(1,727) $ (1)
------- ------ ------- ----
Realized and unrealized gains (losses)
on investments:
Net realized gains ....................... $74,920 $ 973 $19,037 $ 56
Net unrealized gains ..................... 16,784 223 4,821 18
------- ------ ------- ----
Net realized and unrealized gains on
investments ............................... $91,704 $1,196 $23,858 $ 74
------- ------ ------- ----
Increase in net assets from operations ..... $85,328 $1,187 $22,131 $ 73
======= ====== ======= ====
<CAPTION>
Capital Appreciation Variable Account
-------------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
-------------- --------------- ------------
<S> <C> <C> <C>
Investment income:
Interest .................................. $ 39 $-- $ 455
Dividends ................................. 266 1 3,299
------ ---- --------
Total investment income .................. $ 305 $ 1 $ 3,754
Expenses ................................... 976 2 12,539
------ ---- --------
Net investment loss ....................... $ (671) $ (1) $ (8,785)
------ ---- --------
Realized and unrealized gains (losses)
on investments:
Net realized gains ....................... $8,116 $ 39 $103,141
Net unrealized gains ..................... 1,195 6 23,047
------ ---- --------
Net realized and unrealized gains on
investments ............................... $9,311 $ 45 $126,188
------ ---- --------
Increase in net assets from operations ..... $8,640 $ 44 $117,403
====== ==== ========
</TABLE>
<TABLE>
<CAPTION>
Government Securities Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Investment income:
Interest .................................. $12,392 $184 $1,801 $ 8
------- ---- ------ ---
Total investment income .................. $12,392 $184 $1,801 $ 8
Expenses ................................... 3,328 17 508 1
------- ---- ------ ---
Net investment income ..................... $ 9,064 $167 $1,293 $ 7
------- ---- ------ ---
Realized and unrealized gains on
investments:
Net realized gains ....................... $ 1,937 $ 32 $ 276 $ 1
Net unrealized gains ..................... 820 13 93 --
------- ---- ------ ---
Net realized and unrealized gains on
investments ............................... $ 2,757 $ 45 $ 369 $ 1
------- ---- ------ ---
Increase in net assets from operations ..... $11,821 $212 $1,662 $ 8
======= ==== ====== ===
<CAPTION>
Government Securities Variable Account
-----------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
-------------- --------------- ----------
<S> <C> <C> <C>
Investment income:
Interest .................................. $972 $ 9 $15,366
---- --- -------
Total investment income .................. $972 $ 9 $15,366
Expenses ................................... 253 1 4,108
---- --- -------
Net investment income ..................... $719 $ 8 $11,258
---- --- -------
Realized and unrealized gains on
investments:
Net realized gains ....................... $177 $ 1 $ 2,424
Net unrealized gains ..................... 96 -- 1,022
---- --- -------
Net realized and unrealized gains on
investments ............................... $273 $ 1 $ 3,446
---- --- -------
Increase in net assets from operations ..... $992 $ 9 $14,704
==== === =======
</TABLE>
51
<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 .................................. $13,456 $252 $2,518 $ 2
Dividends ................................. 192 4 31 --
------- ---- ------ -----
Total investment income .................. $13,648 $256 $2,549 $ 2
Expenses ................................... 3,025 22 593 --
------- ---- ------ -----
Net investment income ..................... $10,623 $234 $1,956 $ 2
------- ---- ------ -----
Realized and unrealized gains on
investments:
Net realized gains ....................... $ 5,459 $102 $ 953 $ 1
Net unrealized gains ..................... 420 9 473 --
------- ---- ------ -----
Net realized and unrealized gains on
investments ............................... $ 5,879 $111 $1,426 $ 1
------- ---- ------ -----
Increase in net assets from operations ..... $16,502 $345 $3,382 $ 3
======= ==== ====== =====
<CAPTION>
High Yield Variable Account
-----------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
-------------- --------------- ----------
<S> <C> <C> <C>
Investment income:
Interest .................................. $1,882 $ -- $18,110
Dividends ................................. 21 -- 248
------ ---- -------
Total investment income .................. $1,903 $ -- $18,358
Expenses ................................... 414 -- 4,054
------ ---- -------
Net investment income ..................... $1,489 $ -- $14,304
------ ---- -------
Realized and unrealized gains on
investments:
Net realized gains ....................... $ 591 $ -- $ 7,106
Net unrealized gains ..................... 757 -- 1,659
------ ---- -------
Net realized and unrealized gains on
investments ............................... $1,348 $ -- $ 8,765
------ ---- -------
Increase in net assets from operations ..... $2,837 $ -- $23,069
====== ==== =======
</TABLE>
<TABLE>
<CAPTION>
Managed Sectors Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Investment income:
Interest .................................... $ 57 $ -- $ 102 $ --
Dividends ................................... 119 1 216 --
------ ---- ------- ----
Total investment income .................... $ 176 $ 1 $ 318 $ --
Expenses ..................................... 646 2 1,258 --
------ ---- ------- ----
Net investment loss ......................... $ (470) $ (1) $ (940) $ --
------ ---- ------- ----
Realized and unrealized gains (losses) on
investments:
Net realized gains ......................... $5,653 $ 39 $10,156 $ 5
Net unrealized gains (losses) .............. 1,147 3 2,598 7
------ ---- ------- ----
Net realized and unrealized gains (losses)
on investments .............................. $6,800 $ 42 $12,754 $ 12
------ ---- ------- ----
Increase (decrease) in net assets from
operations .................................. $6,330 $ 41 $11,814 $ 12
====== ==== ======= ====
<CAPTION>
Managed Sectors Variable Account
-------------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
-------------- --------------- ------------
<S> <C> <C> <C>
Investment income:
Interest .................................... $ 47 $-- $ 206
Dividends ................................... 95 -- 431
------ --- -------
Total investment income .................... $ 142 $-- $ 637
Expenses ..................................... 522 -- 2,428
------ --- -------
Net investment loss ......................... $ (380) $-- $(1,791)
------ --- -------
Realized and unrealized gains (losses) on
investments:
Net realized gains ......................... $4,708 $ 3 $20,564
Net unrealized gains (losses) .............. 658 (6) 4,407
------ ------ -------
Net realized and unrealized gains (losses)
on investments .............................. $5,366 $(3) $24,971
------ ----- -------
Increase (decrease) in net assets from
operations .................................. $4,986 $(3) $23,180
====== ===== =======
</TABLE>
52
<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 ................................... $4,795 $76 $1,348 $ 1
------ --- ------ ---
Total investment income ................... $4,795 $76 $1,348 $ 1
Expenses .................................... 1,633 8 485 --
------ --- ------ ---
Net investment income ...................... $3,162 $68 $ 863 $ 1
------ --- ------ ---
Realized and unrealized gains (losses) on
investments ................................ $ 75 $18 $ (108) $ 2
------ --- ------ ---
Increase in net assets from operations ...... $3,237 $86 $ 755 $ 3
====== === ====== ===
<CAPTION>
Money Market Variable Account
----------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
-------------- --------------- ---------
<S> <C> <C> <C>
Investment income:
Interest ................................... $870 $ -- $7,090
---- ------
Total investment income ................... $870 $ -- $7,090
Expenses .................................... 289 -- 2,415
---- ---- ------
Net investment income ...................... $581 $ -- $4,675
---- ---- ------
Realized and unrealized gains (losses) on
investments ................................ $ 13 $ -- $ --
---- ---- ------
Increase in net assets from operations ...... $594 $ -- $4,675
==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
Total Return Variable Account
-------------------------------------------------------------
Compass 2 Compass 3
------------------------------ ------------------------------
Accumulation Annuitization Accumulation Annuitization
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Investment income:
Interest .................................. $ 3,710 $ 72 $ 3,510 $ 7
Dividends ................................. 1,725 34 1,682 4
------- ---- ------- ---
Total investment income .................. $ 5,435 $106 $ 5,192 $11
Expenses ................................... 2,439 20 2,657 2
------- ---- ------- ---
Net investment income ..................... $ 2,996 $ 86 $ 2,535 $ 9
------- ---- ------- ---
Realized and unrealized gains on
investments:
Net realized gains ........................ $14,027 $270 $12,998 $28
Net unrealized gains ...................... 4,304 98 7,048 19
------- ---- ------- ---
Net realized and unrealized gains on
investments ............................... $18,331 $368 $20,046 $47
------- ---- ------- ---
Increase in net assets from operations ..... $21,327 $454 $22,581 $56
======= ==== ======= ===
<CAPTION>
Total Return Variable Account
----------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
-------------- --------------- ---------
<S> <C> <C> <C>
Investment income:
Interest .................................. $ 1,771 $ 5 $ 9,075
Dividends ................................. 840 2 4,287
------- --- -------
Total investment income .................. $ 2,611 $ 7 $13,362
Expenses ................................... 1,243 1 6,362
------- --- -------
Net investment income ..................... $ 1,368 $ 6 $ 7,000
------- --- -------
Realized and unrealized gains on
investments:
Net realized gains ........................ $ 6,475 $17 $33,815
Net unrealized gains ...................... 3,261 9 14,739
------- --- -------
Net realized and unrealized gains on
investments ............................... $ 9,736 $26 $48,554
------- --- -------
Increase in net assets from operations ..... $11,104 $32 $55,554
======= === =======
</TABLE>
53
<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 .................................... $ 563 $ 5 $ 698 $ 3
----- --- ----- ---
Total investment income .................... $ 563 $ 5 $ 698 $ 3
Expenses ..................................... 205 1 270 --
----- --- ----- ---
Net investment income ....................... $ 358 $ 4 $ 428 $ 3
----- --- ----- ---
Realized and unrealized gains (losses) on
investments:
Net realized losses ......................... $(570) $(5) $(711) $(3)
Net unrealized gains (losses) ............... (40) -- (75) --
----- --- ----- ---
Net realized and unrealized gains (losses)
on investments .............................. $(610) $(5) $(786) $(3)
----- --- ----- ---
(Decrease) in net assets from operations ..... $(252) $(1) $(358) $--
===== === ===== ===
<CAPTION>
World Governments Variable Account
-------------------------------------------
Compass 3 - Level 2
------------------------------
Accumulation Annuitization Total
-------------- --------------- ------------
<S> <C> <C> <C>
Investment income:
Interest .................................... $ 423 $ 5 $ 1,697
----- --- -------
Total investment income .................... $ 423 $ 5 $ 1,697
Expenses ..................................... 155 1 632
----- --- -------
Net investment income ....................... $ 268 $ 4 $ 1,065
----- --- -------
Realized and unrealized gains (losses) on
investments:
Net realized losses ......................... $(427) $(5) $(1,721)
Net unrealized gains (losses) ............... 23 -- (92)
----- --- -------
Net realized and unrealized gains (losses)
on investments .............................. $(404) $(5) $(1,813)
----- --- -------
(Decrease) in net assets from operations ..... $(136) $(1) $ (748)
===== === =======
</TABLE>
54
<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, 1997, the related statements of operations for
the year then ended, the statements of changes in net assets for the years
ended December 31, 1997 and 1996, and the per unit and other data for each of
the years in the five-year period ended December 31, 1997. 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, 1997, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and per unit and other data present
fairly, in all material respects, the financial position of the Variable
Accounts at December 31, 1997, the results of their operations, the changes in
their net assets, and their per unit and other data for each of the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 6, 1998
--------------------------------
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.
55
<PAGE>
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 Annuity Service Center
P.O. Box 1024, Boston, MA 02103-9986
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116-3741
Distributor
Clarendon Insurance Agency, Inc.
500 Boylston Street, Boston, MA 02116-3741
Custodian
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110-2875
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 2/98 60M
